Common Manual Updates 116/140, 178, 179, 180, 181

To assure that your Common Manual remains current, please record this document on your LPM/LPB Index, and retain it in Appendix E of your manual.

Adjusting the Loan Amount and Reallocating Loan Funds

The policies of Common Manual guarantors vary regarding the increase or decrease of a loan amount or the reallocation of subsidized and unsubsidized loan funds, creating confusion among schools and students. A single, common policy has been developed to ease the administration of these important functions.

After the loan is guaranteed, the school may identify a need to change (increase or decrease) a borrower’s loan amount or to revise the allocation of the student’s loans between subsidized Stafford funds and unsubsidized Stafford funds. For instance, a school may determine that the borrower is eligible for additional loan funds, or it may determine that a student is eligible for additional subsidized Stafford funding rather than for the full amount of unsubsidized funds previously certified.

Changes in the loan amount may be made without obtaining a new application and promissory note, provided any increased loan amount will not exceed the amount requested by the borrower on the application and promissory note. Reallocations of subsidized and unsubsidized funds may be made without a new application and promissory note, provided the student requested both subsidized and unsubsidized loan funds. Such loan adjustments or reallocations may occur before any disbursement is made on the loan, after the first disbursement is made, or even after the final scheduled disbursement is made.

The borrower must request additional loan funds by submitting a new or revised loan application and promissory note, and/or other written request acceptable to the guarantor (as an addendum to the note) in either of the following cases:

• If he or she is eligible for additional loan funds and did not request sufficient loan funding on the original application.
• If the reallocation of loan funds between subsidized and unsubsidized Stafford loans is necessary and he or she did not request both loan types.

Schools and lenders must ensure that disbursements made in conjunction with loan increases or the reallocation of loan funds are disbursed and delivered according to requirements specified in sections 6.2 and 6.3 of the Common Manual. However, in some instances a loan adjustment made after the first or subsequent disbursements have been made may result in a single disbursement that exceeds half of the total loan amount. When that excess is clearly documented as a loan increase or reallocation of funds, it is permissible.

A request to increase or decrease loan funds or to reallocate funds may be submitted to the guarantor by either the lender or school, depending on the application process established by the guarantor. 

The guarantor will make the necessary adjustments to the guarantee records. When the lender is advised of loan amount or allocation changes, the lender must make appropriate adjustments to its ED Form 799 and the borrower’s account to ensure that the correct amount of fees, interest benefits, and special allowance are billed or repaid. The lender must notify the borrower of the adjusted loan amounts.

Lenders and schools may contact individual guarantors for more information on procedures related to adjusting loan amounts after guarantee.

This policy is effective for adjustment requests received by the guarantor on or after January 1, 1998, unless the guarantor implements this policy earlier. This revision will be made to subsection 6.1.H. of the Common Manual.

Lender Recordkeeping Requirements Revised

Lenders are permitted to retain FFELP documents in media formats. Because courts of law in some states require either an original document or a certified true copy of the original document, the lender recordkeeping requirements of Common Manual policy will be revised to require that the media format must record and maintain the original document so that it can be certified as a true copy of the original in order to be admissible in a court of law, if such becomes necessary. The revised recordkeeping requirement is as follows:

All records must be retrievable in a coherent hard copy format or in other media formats such as microform, computer file, optical disk, or CD-ROM. Any imaged media format used must be capable of reproducing an accurate, legible, and complete copy in approximately the same size as the original document, and which does not permit additions, deletions or changes without leaving a record of such additions, deletions or changes. The media format must record and maintain the original document so that it can be certified as a true copy of the original in order to be admissible in a court of law, if such becomes necessary. If a document contains a signature, seal, certification, or any other validating mark, it must be maintained in original hard copy or in another media format that can produce a copy of the document (e.g., microform, optical disk, CD-ROM).

Subsection 3.4.A. of the Common Manual will be revised to incorporate this change, which is effective for records recorded by the lender on or after January 1, 1998. Lenders are encouraged to implement this policy earlier.

Documentation of Deferment for Self-Employed Borrowers Clarified

Current Common Manual policy does not address documentation which may be accepted for an economic hardship deferment for a borrower who is newly self-employed and who may not be able to provide traditional documentation of income. To allow lenders to accommodate deferments for these borrowers, the Common Manual will be revised as follows:

A borrower who is newly self employed may not be able to provide traditional documentation of income. In order for a newly self-employed borrower to qualify for an economic hardship deferment, the borrower must provide the lender with a self-certifying statement of projected monthly income from all sources. In addition, the borrower must provide documentation of the newly formed business and documentation of the borrower’s involvement in that business. Documentation that may be used for newly self-employed borrowers includes, but is not limited to:

• A statement from the borrower's accountant.
• A copy of the Articles of Incorporation for the business venture.
• A copy of the Business Charter showing the borrower’s involvement.
• An application for a tax identification number.

This change is effective for deferment requests received by the lender on or after January 1, 1998. Lenders are permitted to implement this policy earlier. Subsection 7.10.P. of the Common Manual will be revised to incorporate this change.

Department of Education Provides Clarification of School Cash Management Requirements

The Department of Education (the Department) issued a Policy Bulletin dated June 2, 1997, to provide clarification of the cash management regulations that became effective July 1, 1997. Although this guidance from the Department does not change Common Manual policy, it clarifies some of the regulatory requirements for delivering and returning Federal Family Education Loan Program (FFELP) loan proceeds.

The Department has clarified that there are three distinct periods for delivering and returning loan proceeds--the initial period, conditional period, and return period--and articulated that schools may not delay initiating and completing the process of returning loan proceeds to the lender. In addition, the Department has clarified the time frames for returning loan proceeds when financial aid information has not been received or verification has not been completed.

Section 5.6 and subsections 6.3.E., and 6.3.G. of the Common Manual will be revised to incorporate the following language to ensure that the Common Manual policy is consistent with the Department’s clarification. In addition, the "Delivery or Return of Loan Proceeds" and the "Examples of Time Frames for Returning Loan Proceeds" charts in section 6.3. of the Common Manual will be revised and are included here to provide schools with a quick reference of the clarified requirements. Like the regulatory changes previously made to the Common Manual, this clarification of cash management requirements is effective for loan proceeds received by a school on or after July 1, 1997.

Delivery of Loan Proceeds

The time frame within which schools must deliver or return loan proceeds covers three separate periods:

• Initial Period--A period of time a school has to deliver loan proceeds directly to the student or parent borrower, or to credit the student’s account at the school, The length of this period of time is determined by whether the proceeds were received by the school by EFT, master check, or individual check.
• Conditional Period--A 10-business-day delivery period after the last day of the initial period. A school may only disburse funds during this period if the school expects the student to complete the required number of clock or credit hours in a preceding payment period, or the school expects the student to meet all FFELP eligibility requirements within the conditional period.
• Return Period--A 10-business-day period following the initial or conditional period, as applicable, during which the school must return undelivered proceeds to the lender. If, during the return period, the school determines that the student has become eligible to receive the loan proceeds, the school may deliver the proceeds rather than return them to the lender, provided the delivery is made on or before the last day of the return period.

For Stafford loan proceeds disbursed by an individual check that requires the endorsement of the borrower only, the school must deliver the check to the borrower within the initial period of 30 days after the school’s receipt of the check.

For Stafford or PLUS loan proceeds disbursed by an individual check that requires the endorsement of both the borrower and the school, the school must do one of the following within the initial period of 30 days after the school’s receipt of the check:

• In the case of the initial disbursement, endorse the check on its own behalf and, after the student has registered, deliver it to the student or parent borrower, as applicable.
• Obtain the borrower’s endorsement on the check, endorse the check on its own behalf, and, after the student has registered, credit the student’s account.

For Stafford or PLUS loan proceeds disbursed by EFT or master check, the school must do one of the following:

• Deliver the proceeds directly to the student or parent borrower within the initial period of 10 business days after the school’s receipt of the proceeds.
• Credit the student’s account within the initial period of 10 business days after the school’s receipt of the proceeds and deliver to the student or parent borrower the remaining loan proceeds in accordance with the time frames specified in subsection 6.3.F.

Loan proceeds disbursed by EFT or master check that are received by the school on or after July 1, 1999, must be delivered within the initial period of 3 business days after receipt.

The school is expected to deliver the loan proceeds within the preceding time frames. The school may delay delivery of loan proceeds for a conditional period of 10 business days after the last day of the initial period if, within this conditional period, the school expects the student to complete the required number of clock or credit hours in a preceding payment period or the school expects the student to meet all FFELP eligibility requirements. The school is encouraged to document the reason for holding loan proceeds for delivery within this conditional period. This provision does not apply to students for whom verification has not been completed or financial aid information (i.e., financial aid transcript or equivalent NSLDS information) is missing.

If the Department has placed the school on the reimbursement payment method, the school may delay the delivery of proceeds disbursed by EFT or master check for an additional 30 days after the initial 10-business-day delivery period (or the initial 3-business-day delivery period for proceeds received by the school on or after July 1, 1999). This extra time will allow the school to complete any additional administrative requirements that the Department has prescribed as part of the reimbursement payment method.

Returning Loan Proceeds

If the school does not deliver loan proceeds within the initial or conditional period, the school must return the proceeds to the lender promptly, but no later than 10 business days after the last day of the initial or conditional period. If, during the return period, the school determines that the student has become eligible to receive the loan proceeds, the school may deliver the proceeds rather than return them to the lender, provided the delivery is made on or before the last day of the return period.

If a student does not register for the payment period for which a loan is made, or a registered student withdraws, is expelled prior to the first day of classes, or fails to maintain at least half-time enrollment, the school must return the undelivered loan proceeds to the lender promptly, but no later than:

• 20 business days (10-business-day initial period, plus 10-business-day return period) after the school’s receipt of proceeds disbursed by EFT or master check (13 business days after the school’s receipt of proceeds on or after July 1, 1999).
• 30 days (initial period) plus 10 business days (return period) after the school’s receipt of proceeds disbursed by individual check.

For purposes of returning undelivered proceeds to the lender, the term "promptly" means that a school may not delay initiating and completing its normal return process. "Returning the proceeds promptly, but no later than 10 business days" means that the school must either mail a check or initiate an electronic funds transfer to the lender by the close of business of the last day of the return period.

 DELIVERY OR RETURN OF LOAN PROCEEDS (please see following page for footnotes)

4 For purposes of returning undelivered proceeds to the lender, the term "promptly" means that a school may not delay initiating and completing its normal return process. "Returning the proceeds promptly, but no later than 10 business days" means that the school must either mail a check or initiate an electronic funds transfer to the lender by the close of business of the last day of the return period.

If the school does not receive the required financial aid information (i.e., financial aid transcript or equivalent NSLDS information), or the student does not complete the verification process within 45 days from the date the school receives the loan proceeds, the school must return the proceeds to the lender promptly, but no later than 10 business days after the last day of the 45-day period. If, during the 10-business-day return period, all financial aid information is received or the verification process is completed, the school may deliver the proceeds rather than return them to the lender, provided the delivery is made on or before the last day of the return period.