| AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: 11 SectionTitle: Additional Requirements and Responsibilities of Schools PageNumbers: 129-138 This section covers additional requirements and responsibilities schools must meet which have not been covered in previous sections. The requirements for an equitable refund policy, for sending information to lenders, for meeting record keeping and audit requirements, and for verification of loan applications are covered below. A statement of the prohibition of the use of commissioned salespersons is also provided here. The school's requirements for providing consumer information to students and prospective students are provided in Section Nine of this chapter. REFUND POLICY [[Requirements for refund standards]] Each school must establish a fair and equitable refund policy for making a refund of unused tuition, fees, and room and board charges to a student who receives a loan and does not enroll for the academic period for which the loan was intended, or who does not complete the academic period for which a loan was made. (The policy, of course, extends to a parent Federal PLUS borrower for such a student.) The Higher Education Amendments of 1992 define a "fair and equitable refund policy" as one that provides for a refund of at least the largest amount provided under -- - the requirements of applicable state law; - the specific refund requirements established by the school's nationally recognized accrediting agency and approved by the U.S. Department of Education; or - the PRO RATA refund calculations as defined in the Higher Education Amendments of 1992 and in the FFEL Program regulations, Section 682.606(c). PRO RATA refund requirements now apply to all schools, regardless of a school's default rate. PRO RATA a refunds must be given to all first-time students whose withdrawal date is on or before the 60 percent point in time during the student's period of enrollment. [[Refund policy must be in writing]] The school must state its refund policy clearly (in writing) and clearly state the procedure a student must follow to obtain a refund. The school must provide (in writing) a statement containing its refund policy to a prospective student prior to the student's acceptance for enrollment. The school must also make its refund policy known to currently enrolled students. If its refund policy changes, the school must inform all students of the change. Refunds of the proceeds of a Federal Stafford or PLUS loan must be made to the lender within 30 days of the school's determination that a student has failed to enroll. If the student has withdrawn from school, the refund must be made within 60 days of the school's determination of withdrawal. [[Refund policy timeframes]] Therefore, in reference to the refund policy for withdrawn students (in which the school makes a refund to the student via the lender), a refund must be made within 60 days after the student's official withdrawal date. If a student drops out, the school must pay the refund within 60 days of the earliest of -- - the date the student dropped out according to the school; - the expiration of the academic term in which the student withdrew; or - the expiration of the period of enrollment for which the student has been charged. Concerning the refund policy for a student who has taken a leave of absence and has not returned to an institution, refunds due must be paid to a student within 60 days of whichever of the following dates is earlier: a) the expiration of the leave of absence; or b) the date of notification by the student that he or she will not be returning to the institution after the expiration of the leave of absence. If the student was on an unapproved leave of absence, the refund must be made within 60 days of the student's last recorded date of class attendance. ALL REFUNDS MUST BE SENT DIRECTLY TO THE LENDER - THEY MUST NOT BE GIVEN TO THE STUDENT OR THE PARENT. If a refund is due a student, the refund shall first be credited to any outstanding balance on an FFEL, before crediting funds to other SFA programs. When the school makes a refund to the lender, it must notify the student in writing and, if the borrower is the student's parent, it must also notify the parent. For more information about refunds, and for refund calculation procedures, see Chapter Three of the Handbook. NOTE: an amendment to the FFEL regulations deletes the school closure plan requirement from the regulations. Schools previously affected by the plan are not required to submit or implement a closed school plan. STATE POSTSECONDARY REVIEW ENTITIES The Higher Education Amendments of 1992 set new oversight responsibilities for determining the quality of education provided by postsecondary schools. These oversight responsibilities are shared by the states, accrediting agencies, and the U. S. Department of Education. Under the Amendments, accrediting agencies are to focus on the quality of education provided by the schools they accredit; states will review schools that meet certain statutory review criteria; and the Department will continue to evaluate the administrative and financial capability of schools with regard to participation in SFA programs. A regulation was published on April 29, 1994 to set forth the procedures and criteria for recognizing accrediting agencies. EXCHANGE OF INFORMATION REQUIREMENTS Schools are required to inform the lender or the guaranty agency within 30 days of discovery of any change in a Stafford borrower's permanent address. Schools also must provide to a lender or guaranty agency, on request, a borrower's name, address, and if possible, employer and employer address. Within 60 days after the exit interview, schools must provide to the guaranty agency listed in the borrower's student aid records updated information about the borrower's future permanent address, Social Security Number, identity and address of expected employer, address of next of kin, and borrower's driver's license number. To promote loan repayment, schools now may make an agreement to provide the holders of delinquent loans made to current or former students with information about the delinquent borrower's location or employment, and may try to contact the borrower and counsel him or her to avoid default. Lenders now must provide schools with the name and Social Security Number of the student for whom a parent is borrowing a PLUS loan. If a lender has requested preclaims assistance from a guaranty agency, the guaranty agency (rather than the lender) must provide the school at which the borrower obtained a loan with the borrower's name, address, and Social Security Number, and may charge the school a reasonable fee for the service. The school may only use the information to remind the borrower to repay his or her loan(s). At the request of a school, a guaranty agency must provide, without charge, information about students enrolled at the school who are in default on a loan under the FFEL programs. The guaranty agency must also provide the school, on request, notice of sale, transfer, or assignment of the loan to another holder, including the address and telephone number of the new holder of the loan. This requirement must be met prior to the beginning of the loan repayment period, but only applies if a borrower is in the grace period or is in repayment. RECORDKEEPING, AUDITS, AND REPORTS A school must maintain the following student loan records: - the name of the borrower and a copy of the loan application; - if the PLUS borrower is a parent, the name of the student on whose behalf the loan was made; - the name and address of the lender; - the amount of the loan and the period for which the loan was intended; - financial assistance available to the student used in determining estimated financial assistance for the loan period; - the data used to construct an individual student's budget or the school's itemized standard budget used in calculating the student's estimated cost of attendance; - the amount of the student's tuition and fees for that period, the date the student paid the tuition and fees, and the date the loan check was received and delivered to the student; - the amount and basis for calculation of any refund paid to or on behalf of the student; and - for subsidized Stafford Loans, the data used to determine the student's EFC. [[Additional records requirements for Stafford Loans]] For Stafford Loans, loan records must also contain the following information: - the date the school received each loan disbursement and the amount of the disbursement; - the date the loan check was endorsed by the school; - the date(s) of transmittal of loan proceeds to the student; - a record of the student's job placement, if known; and - documentation of Federal Pell Grant eligibility or ineligibility for Stafford Loan borrowers. Each school must establish a fiscal and administrative recordkeeping system, which may be maintained in computer or microfilm form. If a school is a lender and the holder of a promissory note, it must also retain the original note, to be returned to the borrower upon completion of repayment. A school must have an audit by an independent certified public accountant performed at least once every two years, covering the period of time since the previous audit. A school must agree to allow the U.S. Department of Education or a guaranty agency to audit school records periodically to determine compliance with SFA regulations. The Department has published regulations requiring an annual audit of a school's entire financial condition and of its compliance with SFA program requirements. If an institution meets certain performance standards, it can submit these compliance audits on a "reviewed or compiled basis" rather than having to submit a full compliance audit. This exception is explained in the Student Financial Assistance Programs Audit Guide, as referenced in the Student Assistance General Provisions and FFELP Interim Final Rule published April 29, 1994. In the corresponding Final Rule published November 29, 1994, general provisions regarding the submission of annual compliance audits are given. [[SSCR requirements]] Student Status Confirmation Reports (SSCRs) are a reflection of a school's FFEL borrower data. If these reports are not reconciled and reflect inaccurate data, the school's cohort default rate will probably contain inaccuracies. The school is responsible for completing an SSCR received from the Department or from a guaranty agency and returning it to the originating agency within 30 days. The FFEL Program regulations, Section 682.401(b)(18), and Section 682.610 provide more detail on the SSCR; Appendix B of the FFEL Program regulations provides a model SSCR for guaranty agencies to use. [[Loan records must be kept for five years]] For Stafford and PLUS loans, you must keep all required records of each student who graduates, withdraws, or fails to enroll at least half time for five years following the last date of the period for which the loan was intended. You also must keep copies of reports and other forms related to Stafford and PLUS loans for five years after their completion. If the records are involved in a federal audit procedure, they must be retained until the audit is completed. In the event of the closure, termination, suspension, or change of ownership of a participating school, that school or its successor must not only make provision for the retention of these records but must allow for access to the records by designated federal officials for purposes of audit and examination. Schools with default rates above 20 percent are required to undergo a biennial on-site guaranty agency review of their FFEL programs unless the administration of the school is operating under an approved default management plan, or the school's default rate is based on loans entering repayment totaling less than $100,000 in a given year. [[Audit guide updated]] The Stafford Loan and PLUS Programs are included in a combined Audit Guide: Audits of Student Financial Assistance Programs. The audit guide has been reissued to reflect changes made by the Higher Education Amendments of 1992. The annual compliance audits described above are to be conducted by an independent auditor in accordance with the U.S. General Accounting Office's (GAO's) Government Accounting Standards. This publication sets forth general accounting standards and the standards specifically for compliance audits. [[Requirements subject to audit - see Audit Guide]] These are some of the requirements subject to audit: - The institution must determine student eligibility. If the PLUS borrower is a parent, you must also determine whether the parent is eligible to borrow on behalf of an eligible dependent student. Determination of Pell eligibility for undergraduate Stafford borrowers is also required. - The institution is responsible for completing portions of the loan application regarding student eligibility, the student's estimated cost of attendance, the student's estimated financial assistance, and, if applicable, the expected family contribution. - The institution must follow prescribed procedures in the FFEL Program regulations, Sections 682.604 and 682.606, for handling loan proceeds-which vary depending on whether the student does or does not enroll, and whether the proceeds are payable to the student only, or jointly to the student and the institution. - When an institution becomes aware that: (1) a student with a deferment no longer meets the conditions for an in-school deferment, (2) a student who received a loan or for whom a PLUS loan was received failed to enroll at least half time for the period for which the loan was intended or was otherwise ineligible for the loan, or (3) a student's permanent address has changed, the information must immediately be reported to the lender or the guaranty agency. - The institution must submit Student Status Confirmation Reports to the appropriate guaranty agency periodically. - The institution must report a change in a student's enrollment status directly to the lender or guaranty agency if a student has graduated, withdrawn, or ceased to be enrolled at least half time and (1) the change is one which would normally be reported on a Student Confirmation Report and (2) the school does not expect to submit its next Student Status Confirmation Report to the Secretary (or guaranty agency) within the next 60 days. - The institution must establish adequate entrance and exit counseling procedures. - The institution's refund policy must conform to applicable standards. - If applicable, the institution must establish procedures to identify students eligible for a PRO RATA refund, and provide the refunds as required. [[New Program Participation Agreement requirements]] The Higher Education Amendments of 1992 added a number of requirements to the Program Participation Agreement. Two of those requirements apply specifically to the FFEL Program. One is a requirement that a school beginning participation in the FFEL Program after a change of ownership or a change in the school's status must develop a Default Management Plan for approval by the Department, and maintain the plan for two years after certification. The other requirement provides that if a student is unable to pay costs of attendance owed a school because of a delay in delivery of FFEL loan proceeds, and the delay is the fault of the school or is due to SFA program requirements, the school may not penalize the student. Other FFEL-related provisions of the Program Participation Agreement require a school to -- - provide students with recent data on employment and graduation statistics when advertising job placement rates to recruit students; - inform enrolled eligible borrowers of the availability of state grant assistance from the state in which the school is located, and a source of information for programs in the home state of the eligible borrower; and - certify the availability of a drug abuse prevention program for officers, employees, and students of the school. The Agreement also prohibits schools from charging students fees for processing applications or data required to determine eligibility for SFA programs, or for processing FFEL Program deferment forms, and prohibits the certification of loans in excess of the student's eligibility. Your school should have received a copy of Dear Colleague letter GEN-87-2 (January 1987), which provides information about the Program Participation Agreement and instructions for its execution. VERIFICATION REQUIREMENTS Of the FFEL programs, only subsidized Stafford Loans are covered by the verification requirements of the General Provisions regulations. PLUS loans, unsubsidized Stafford Loans, and Stafford Loans made for study at foreign schools are not covered by verification requirements. For detailed information about verification of applications for federal student aid, see The Verification Guide, 1994-1995. The items to be verified on a student's financial aid application used in computing the EFC for subsidized Stafford Loans are: - adjusted gross income (or income earned from work) for the base year; - U.S. income tax paid for the base year; - number of family members in the household; - number of family members attending postsecondary educational institutions as at least half-time students; and - The following untaxed income and benefits for the base year (if applicable): * Social Security benefits; * child support; * untaxed payments to IRA and/or Keogh plans; * foreign income exclusion; * earned income credit; * interest on tax-free bonds; and * other untaxed income included on the U.S. income tax return (excluding schedules). PROHIBITED ACTIVITY BY SCHOOLS AND LENDERS An eligible school may not employ or use commissioned salespersons to promote the availability of loans. A "commissioned salesperson" is any person who receives compensation that is related to, or calculated on the basis of, student applications, enrollments, or acceptances. "Promote the availability" means providing prospective or enrolled students with applications, names of lenders, or other information designed to encourage students to apply for a Stafford or PLUS loan. This term does not prohibit a commissioned salesperson from providing general financial aid information to prospective or enrolled students. However, the Higher Education Amendments of 1992 prohibit any commission, bonus, or other incentive payments based on an employee's success in securing enrollment, admissions, or awarding student aid. (This prohibition does not apply to the recruitment of foreign students who are not eligible for SFA assistance.) Similarly, guaranty agencies and lenders are prohibited by law from offering inducements (such as points, premiums, or payments) to schools or individuals as a means to market loans. Lenders are also forbidden to mail unsolicited loan application forms to students, unless the student has previously obtained a student loan from that lender. Dear Colleague letter 89-S-55 (February 1989) provides specific examples of activity prohibited by law, and also provides examples of permissible activities. A school may not make payments to induce lenders to make loans to students (or to the parents of students) at that school. Examples of prohibited inducements are provided in Section 682.212(b) of the FFEL Program regulations, and in Section 682.401(e)(2)(i) under "Basic Program Agreement" in the FFELP Final Rule published June 28, 1994. |