| AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: 8 SectionTitle: Payment to Student PageNumbers: 93-100 The lender disburses loan proceeds to the school for delivery to the student. Loan proceeds may be credited to the student's account, paid directly to the student, or a combination of both. The steps required before payment is made to the student's account (or to the student directly) are outlined below. It is the lender's responsibility to provide the borrower a copy of the completed promissory note and repayment information with the first disbursement of loan proceeds. The lender must return the original promissory note to the borrower when the loan is repaid in full. Please note that in order to separate the functions of authorizing payment and delivering loan proceeds, no single office at the school can have the responsibility for both functions. REQUIREMENTS FOR DISBURSEMENT [[Financial aid transcript required from school(s) previously attended]] If a student has received student financial aid while attending another school, you must request a financial aid transcript from any eligible school previously attended before you release Federal Stafford Loan proceeds to the student. As explained in "The School's Portion" in Section Seven, you may certify a borrower's loan application (except for Federal PLUS) prior to receipt of a financial aid transcript. Procedures for obtaining financial aid transcripts are described in Chapter Three of the HANDBOOK. A school may NOT release funds to the student if information provided by any school he or she previously attended indicates that the student is in default on a subsidized or unsubsidized Stafford Loan, PLUS, SLS, Consolidation Loan, NDSL, or Perkins Loan, or that the student owes a repayment on a Pell, SEOG, or SSIG grant. See Chapter Two for more information on grant overpayments. [[Reaffirmation of loan eligibility]] The school must determine that the student has maintained eligibility for the Stafford Loan before each disbursement of loan proceeds. Reaffirmation of loan eligibility includes an indication of Pell Grant eligibility (if applicable), establishing that the student has maintained satisfactory academic progress, and verifying enrollment status. Generally, if the student drops below half-time status after receiving the first disbursement of a loan, the student is no longer eligible, and cannot receive the second disbursement of the loan. The money borrowed by the student under the Stafford Loan Program must be sent by the lender to the school in the form of a check or through electronic funds transfer (EFT) requiring endorsement or other written certification by the student. The check must be made payable to the student or, if required by the guaranty agency, co-payable to the student and the school. A student's loan proceeds may be disbursed via a master check; the borrower's written authorization for the release of the funds is still required. [[PLUS disbursements now made through school]] The Higher Education Amendments of 1992 require PLUS loans first disbursed on or after October 1, 1992 to be disbursed either to the school through electronic funds transfer (EFT) or by master check, or by check made copayable to the school and the parent borrower. The lender must provide the school with the name and Social Security Number of the student for whom the parent is borrowing. While copayable PLUS checks must be disbursed to the school, the school is not required to endorse the check before sending it to the parent borrower. However, the school must verify the student's eligibility. The school has 45 days to verify student eligibility and forward the check to the parent borrower. If the parent is required to endorse the check and return it to the school, the U.S. Department of Education recognizes that the school has no control over how prompt the parent borrower is in resubmitting the endorsed check. If PLUS loan proceeds are disbursed through EFT, the school must obtain the parent borrower's authorization before delivering the loan proceeds to the student. The parent's authorization must be kept in the student's file. [[Restrictions on loan delivery]] The school may provide Stafford Loan proceeds to a registered student, either by paying the student directly or by crediting his or her account, no earlier than 10 days before the first day of a payment period or period of enrollment. An exception to these general guidelines is the delayed disbursement restriction for first-year, first- time undergraduate Stafford borrowers. For these borrowers, the school may not release funds until 30 days after the first day of the student's classes. [[Disbursement by EFT or by master check]] For a FFEL loan disbursed by EFT or by master check, a school may not request the disbursement of the borrower's loan proceeds until the 13th day before the first day of the student's period of enrollment. For first-year, first-time borrowers, disbursement may not be requested until the 24th day of the student's period of enrollment. For both categories of borrowers, written authorization for release of disbursement must be obtained not more than 30 days prior to the first day of classes of the enrollment period. Written authorization is not required for disbursement if authorization was provided in the loan application. The student or parent are not required to provide authorization, and this authorization may be rescinded at any time by the student or parent. The authorization is valid for that award year. For second and subsequent disbursements, a school may pay directly, or credit the account of, an enrolled student no earlier than ten days before the first day of the enrollment period (semester, term, or other period of enrollment for which the disbursement is to be made). In the case of excess loan proceeds during the 1995-96 academic year, a school must pay the balance directly to the student within 21 days of the date of the balance incurred or the first day of classes of a payment period (whichever is later). In the case of a PLUS loan, the balance must be paid no later than 45 days after the school's receipt of the funds. These new disbursement and overaward time frames are described in the December 1 General Provisions and FFELP Final Rule. This regulation was developed to ensure comparability in cash management procedures among all Title IV programs. Sections 668.165 and 682.603 of this regulation explain the disbursement methods to be used in the FFEL Program. A school may not hold Stafford or PLUS loan proceeds before delivery to the student or parent, or to the student's account, for more than 45 days after receiving them. If all required financial aid transcripts have not been received by then, the school must immediately return the loan proceeds to the lender. If for any reason the loan check is returned uncashed to the lender, the portion of the origination fee deducted from that disbursement should be returned by the lender to the borrower. The lender must credit any refund of tuition or other school charges to the borrower's loan principal. Schools still affected by the California earthquake will be allowed to deliver loan proceeds to the borrower up to 120 days from the school's receipt of the check. See Dear Colleague letter GEN-94-3 (January 1994) for more information about assistance to students and schools in the earthquake disaster area. [[Delay of disbursement to 1st year, 1st-time undergraduate Stafford borrowers]] As mentioned in the previous section "Restrictions on loan delivery", a school may not deliver the first installment of Stafford Loan proceeds to a first-year undergraduate student borrower who has not previously received a Stafford Loan until 30 days after the first day of the student's program of study (loan period). If the loan was disbursed by EFT or by master check to the school, disbursement to the student must not be requested by the school until the 24th day of the student's period of enrollment. If the school discovers that a student did not register for the period of enrollment covered by the loan, or did not begin attendance on a delayed basis within the first 30 days of enrollment, the school must return the loan proceeds to the lender within 30 days of this determination. If a student registers but never attends classes for the period of enrollment covered by the loan, the student has failed to qualify for the loan, and the lender must immediately demand full repayment of the loan. [[Multiple disbursement required for all Stafford and PLUS loans]] Multiple disbursement is now required for most Stafford and PLUS loan proceeds, REGARDLESS OF THE AMOUNT OF THE LOAN OR THE LENGTH OF THE LOAN PERIOD. No installment amount may exceed more than one half of the loan proceeds. A second or subsequent disbursement must be made no earlier than ten days before the first day of the enrollment period (semester, term, or other period of enrollment for which the disbursement can be made). Only if the first disbursement would take place on or after the time scheduled for the second disbursement can the proceeds be delivered by the lender in a single disbursement. [[Stafford and PLUS disbursement schedule now required]] Schools are required to provide the lender with a schedule for disbursement of loan proceeds for each student that meets Stafford and PLUS loan disbursement requirements. The disbursement schedule must comply with the multiple disbursement requirements just described, and with the restrictions on delivery to first-year, first- time undergraduate Stafford Loan borrowers. Schools with standard academic terms must develop disbursement schedules based on their academic calendars, unless charges are assessed at established points in the program or academic year. Schools WITHOUT standard academic terms must base their disbursement schedules on the requirements for multiple disbursement described in this section. The disbursement schedule item on the school's portion of the Stafford or PLUS loan application may be used to fulfill the requirement for a disbursement schedule. Or, the school may provide disbursement schedules directly to the lender (or to the guaranty agency, if the agency is serving as an agent for its lenders for this purpose). The Higher Education Amendments of 1992 provide that with the permission of the borrower, loan proceeds may be disbursed on a weekly or monthly basis, as long as the payments are substantially equal over the period of enrollment. NOTE: Any additional loan proceeds in excess of those necessary to cover allowable school charges owed by the student may be held by the school (for use during the remainder of the academic year) ONLY with the written authorization of the student. The excess proceeds must be deposited in a separate trust account; the school may not mix them with other funds or use them for any other purpose. If the student, at a later date, requests the excess loan proceeds, you must release them. [[School administration of excess loan proceeds]] The institution has certain responsibilities concerning its administration of such accounts. For one, it must maintain cash in its bank account for an amount equal to the amount of the funds the school holds for the student. Also, the school must provide an annual notice to each student for which it holds funds in subsidiary ledger accounts. The notice must include an explanation of any interest that the institution earns on the student's funds, and whether the institution will provide that interest to the student. The school may retain any interest earned on the student's funds while the school is holding those funds. Lenders may not disburse loan proceeds without first receiving a disbursement schedule from the school. The student is not required to sign the disbursement schedule. Remember, these are disbursement dates, not anticipated delivery dates; you should allow time for mail delivery when establishing disbursement schedules for lenders. [[Developing a disbursement schedule]] In developing a disbursement schedule, you must consider both the mandatory 30-day delayed delivery requirement and the 45-day limit on holding loan proceeds, and construct a schedule that will meet both of those requirements. Before delivering subsequent installments of loan proceeds, you must determine that the borrower continues to be enrolled and is maintaining satisfactory progress. The Higher Education Amendments of 1992 prohibit a lender from selling or transferring a promissory note for any FFEL Program loan until the final disbursement of the loan has been made. However, if the first disbursement of the loan has been made, and the sale or transfer will not result in a change in the name and address of the party to whom payments will be made, the sale or transfer may be made. [[Provision for payment to students outside U.S.]] The multiple disbursement requirements discussed on the preceding pages do not apply to students attending an eligible school outside the United States. However, students enrolled in a study abroad program through a home institution are still subject to the multiple disbursement requirement. If a student is attending an eligible school located outside the United States, or is enrolled in a study abroad program, the check may be sent directly to the student, or to the home school if the student provides a power-of-attorney to endorse the check or to complete an electronic funds transfer authorization. MULTIPLE DISBURSEMENT REQUIREMENTS DO NOT APPLY TO THE CONSOLIDATION LOAN PROGRAM. As mentioned earlier, in circumstances where the school receives Stafford Loan proceeds from a lender and then receives verification information (or any other information) indicating that the student has been awarded aid in excess of need, you must ensure that the student receives only the funds to which he or she is entitled. If a student completes the academic program and has Stafford Loan funds remaining in his or her account, the school should either promptly send the excess money to the student, or return the remaining funds to the lender and notify the student that the funds have been returned. Any credit balance remaining in a student's account after the student has dropped below half-time status, withdrawn, or left school before completing the academic program must be returned to the lender. LATE DISBURSEMENT If the lender disburses the loan proceeds after the end of the period of enrollment for which the loan was made, the proceeds must be returned to the lender within 30 days, unless the proceeds are the first disbursement of the loan, and come with a notice from the lender stating that the late first disbursement has been approved by the guaranty agency. Similarly, if the lender disburses the loan proceeds before the end of the enrollment period, but after the student has left school or dropped below half-time status, the school must return the loan proceeds to the lender within 30 days. Under the new FFEL Program regulations, unless the guaranty agency prohibits it, however, a lender may disburse loan proceeds after the student is no longer enrolled on at least a half-time basis under the following limited circumstances: - the loan proceeds will be used for costs of attendance incurred while the student was enrolled at least half time; - in the case of a first disbursement made to a first-year undergraduate Stafford borrower, the student completed the first 30 days of the loan period for which the loan was made; - in the case of a second or subsequent disbursement, the student successfully completed the period of enrollment for which the loan was made; - the disbursement is received by the school within the earlier of 60 days after the date the student drops below half-time status, or 60 days after the period of enrollment for which the loan was made. A loan may be disbursed within 90 days after the student ceases to be enrolled on at least a half-time basis or after the expiration date of the period of enrollment for which the loan was made (whichever is earlier). A borrower must document his or her exceptional circumstances, and the guaranty agency must approve the disbursement before it is made. When returning a late disbursement to the lender, the school must include with it a note explaining the circumstances of its return and, if applicable, information concerning the student's enrollment status or withdrawal. The note should also include the cost of attendance for the period in which the student was enrolled. The student should be informed that the lender, if allowed by the guaranty agency, may again disburse funds to cover costs incurred while the student was eligible. As explained above, if the borrower has left school after successfully completing the program, or after completing the period of enrollment for which the loan was intended, a late disbursement of loan proceeds can be made. Otherwise, a second or subsequent late disbursement of a Stafford Loan to a borrower who has withdrawn from school is also prohibited. Instead, the disbursement must be used to reduce the student's outstanding loan balance. The lender must return to the student's account the insurance premium and origination fee attributable to the withheld disbursement. This prohibition applies to all second or subsequent disbursements made for periods of enrollment beginning on or after January 1, 1990. |