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Common Manual Updates
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LOUISIANA STUDENT FINANCIAL ASSISTANCE COMMISSION
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| LPM NO.: | L97-5 | Effective Date: | As Indicated |
| Pub. Date: | May 6, 1997 | Distribution: | Lenders and Schools |
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.
On November 29, 1996 the U.S. Department of Education (the Department) published final regulations (34 CFR 668, subpart K) that affect cash management requirements for schools. The revisions impact how schools schedule disbursements, maintain, deliver and return loan proceeds, and handle credit balances. The following describes how each of these new federal requirements will be implemented when these new regulations are effective July 1, 1997. The Common Manual will be updated to reflect these changes. While the Common Manual is being revised to explain key provisions of these important regulations, schools are encouraged to review the federal regulations to identify and conform to other new or revised federal requirements of the Department.
Schools Required to Modify Disbursement Date Schedules
Schools are now required to establish a disbursement schedule for FFELP loans that provides for disbursements to be made on a payment-period basis, rather than on the basis of enrollment period. These new requirements are effective for loan periods beginning on or after July 1, 1997. Subsections 5.8.D. and 6.2.A. of the Common Manual will be revised to reflect these changes. The new requirements for scheduling disbursement dates are as follows:
Scheduling the First Disbursement Date For a Stafford loan disbursed by EFT or master check, the earliest date for which a first disbursement may be scheduled is:
For a Stafford loan disbursed by individual check, the earliest date for which a first disbursement may be scheduled is:
For a PLUS loan, the earliest date for which a first disbursement may be scheduled is:
The following table reflects the new requirements for scheduling the first disbursement date.
Earliest First Disbursement Date
| Disbursement Method | Stafford or PLUS Loan | Stafford Loan Subject to Delayed Disbursement |
|---|---|---|
| EFT or Master Check | 13 days before first day of first payment period | 28th day of first payment period. |
| Individual Check | 30 days before first day of first payment period | 1st day of first payment period. |
Scheduling the Second Disbursement Date If the loan period for a Stafford or PLUS loan consists of one payment period, the school must schedule the second or subsequent disbursement so that the disbursement is delivered no earlier than the calendar midpoint between the first and last scheduled days of class of the loan period.
If the loan period for a Stafford or PLUS loan consists of more than one payment period, the earliest date for which a second or subsequent disbursement may be scheduled is:
As a reminder, if the first disbursement would occur on or after the date on which the second or subsequent disbursement could be made, the first and second disbursements, or the first and subsequent disbursements, may be combined.
When establishing a disbursement schedule, schools are reminded they must allow for necessary mail and processing time, and provide dates on which they would expect the lender to issue the check or master check or generate the EFT transaction--not the date on which the school anticipates receiving the funds. In addition, the school must schedule disbursement dates that comply with applicable delivery requirements.
The school may still delegate responsibility for assigning disbursement dates to a guarantor with whom it participates, and guarantors that assign disbursement dates on behalf of schools must do so in accordance with regulatory guidelines and instructions provided by the school. Although schools are responsible for establishing a disbursement schedule that provides for disbursements to be made on a payment-period basis, lenders should be aware that federal regulations prohibit making a disbursement earlier than the dates specified above.
Borrower Notices and Authorizations Revised
There are new requirements for schools to provide notices to students and borrowers about the delivery of loan proceeds. In addition, there are revised requirements for authorizations a student or parent borrower must provide to the school to allow the school to perform certain activities. The revised requirements for the notices and authorizations are effective for loan periods beginning on or after July 1, 1997. The notice to borrowers of the right to cancel is effective for student accounts credited on or after July 1, 1997. Subsection 6.3.C. of the Common Manual will be revised to incorporate these revised requirements. The new requirements are:
Notices Prior to delivering any Title IV funds to the student or parent borrower, the school is required to send a notice to the student providing information about the amount of funds that the student or his or her parent can expect to receive under each FFEL program. Regulations require this notice (e.g., award letter) to be sent only to the student. The notice must include:
The school must notify the student or parent borrower if the school credits a student’s school account with Stafford or PLUS loan proceeds. This notice must be issued no earlier than 30 days before and no later than 30 days after the school credits the student’s account. The notice must include:
The notice from the school may be written or electronically transmitted. However, if sent electronically, the school must require the student or parent borrower to confirm receipt of the notice and must maintain a copy of the notice confirmation.
A student or parent borrower must inform the school if he or she wishes to cancel all or a portion of a loan or loan disbursement. The school must return the loan proceeds, cancel all or a portion of the loan or loan disbursement as applicable, or do both if the school receives a cancellation request in either of the following timeframes:
If a student or parent borrower requests cancellation of the loan after the 14-day period or the first day of the payment period as applicable, the school may, but is not required to, return the loan proceeds, cancel all or a portion of the loan or loan disbursement, or do both.
If, prior to the receipt of the borrower’s cancellation request, the school delivered all or a portion of the loan proceeds directly to the borrower or the student, the school is responsible only for canceling and returning that portion of the loan proceeds which the school credited to the student’s school account to pay authorized charges. The borrower is responsible for returning to the lender any additional amount.
A school is required to inform a student or parent borrower, either in writing or through electronic transmission, of the outcome of any cancellation request.
Authorizations. A school must obtain from a student or parent borrower, as applicable, written authorization to allow the school to perform the following activities:
When obtaining an authorization for any of these activities, a school may not require or coerce the student or parent borrower to provide the authorization. In addition, the school must allow the student or parent borrower to cancel or modify the authorization at any time. The school also must clearly explain to the borrower how the school will carry out the activity.
The authorization is valid for the entire period during which the student is enrolled at the school, unless the authorization is canceled or modified by the student or parent borrower.
Authorization Modifications and Cancellations. If the student or parent borrower requests that an authorization be modified, the modification becomes effective on the date the school receives the request.
If the student or parent borrower requests cancellation of his or her authorization to use loan proceeds to pay authorized charges, the school may use those proceeds to pay only those charges incurred by the student prior to the date the school received the cancellation.
If a student or parent borrower cancels the authorization for the school to hold a credit balance, the school must pay those proceeds directly to the student or parent borrower as soon as possible, but no later than 14 days after the date the school receives the cancellation.
For more information on when a borrower must provide written authorization to the school, see the table which follows.
FFELP WRITTEN NOTIFICATION/AUTHORIZATION REQUIREMENTS
Before a school delivers any Stafford or PLUS loan proceeds, the school must notify the student of the amount of proceeds that the student or his or her parent can expect to receive, when and by what method the proceeds will be delivered and which proceeds are from subsidized Stafford, unsubsidized Stafford, or PLUS loans.
| Activity | ||
Additional Notification Required |
Authorization Required |
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| Deliver loan proceeds received by EFT or master check [§682.604(c)(3)] | No |
Yes 1 |
| Credit loan proceeds to student’s account for tuition, fees, and room and board [§668.165(a)(1) and (2)] | Yes 3 |
No |
| Credit student’s account for other educationally related costs (current year only) [§668.164(d)(2)] | Yes 2, 3 |
Yes 2 |
| Deliver loan proceeds to borrower’s personal bank account [(§668.165(b)(1)] | No |
Yes 2 |
| Hold credit balance on behalf of the student or parent borrower for budgetary purposes [§668.165(b)(1)] | No |
Yes 2 |
| Pay minor prior-year charges [§668.164(d)(2)] | No |
Yes |
If the borrower fails to authorize the release of proceeds received by EFT or master check, and the proceeds are deposited in the school’s account, the school may issue an individual check to the borrower. The school must obtain the borrower’s endorsement on the check, apply the proceeds to cover the student’s tuition, fees and room and/or board, and release any credit balance to the borrower in accordance with the specified time frames.
School Requirements for Delivery of Loan Proceeds Modified
The requirements for the delivery of loan proceeds by schools have changed. Schools should note that the use of the term "disburse" under 34 CFR 668, subpart K means the same as "deliver loan proceeds" under the FFELP. The Common Manual will continue to use the term "disbursement" for lender activities and the term "delivery" for school activities. Changes to delivery requirements are effective for loan periods beginning on or after July 1, 1997. Section 6.3 and subsection 6.3.E. of the Common Manual will be revised to reflect the following modified delivery requirements:
Before a school delivers FFELP proceeds, it must notify the student of the amount of proceeds the student or parent borrower can expect to receive, and how and when those proceeds will be delivered. This notice must indicate which proceeds are from subsidized loans and which are from unsubsidized loans.
The school must hold Stafford and PLUS loan proceeds until the student is enrolled in classes for that payment period. The school must deliver loan proceeds on a payment period basis in substantially equal installments, with no installment exceeding one-half of the loan amount. For a loan period that consists of more than one payment period, the school must deliver loan proceeds at least once in each payment period. If a loan period consists of only one payment period, the school must deliver loan proceeds at least twice during that payment 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 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 30 days after the school’s receipt of the check:
For Stafford or PLUS loan proceeds disbursed by EFT or master check, the school must do one of the following:
Loan proceeds disbursed by EFT or master check that are received by the school on or after July 1, 1999, must be delivered within 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 an additional 10 business days if, within this additional 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 should document its reason for delaying delivery for this additional period of 10 business days.
If the school does not deliver loan proceeds within the required time frames, the school must return the proceeds to the lender no later than 10 business days after the last day on which the school may deliver the proceeds. If, prior to returning proceeds to the lender, the school determines that the borrower is eligible to receive the loan proceeds, the school may deliver the proceeds rather than return them to the lender.
The table below provides some examples of time frames for returning loan proceeds to the lender.
Examples of Time Frames for Returning Loan Proceeds |
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| Example 1 | Example 2 | Example 3 | |
| Receipt of proceeds | School receives proceeds by individual check on July 8. | School receives proceeds by EFT on July 8. | School receives proceeds by individual check on July 8. |
| Latest initial delivery date | Latest initial delivery date in this case is August 7 (30 days after receipt). | Latest initial delivery date in this case is July 22 (10 business days after receipt). | Latest initial delivery date in this case is August 7 (30 days after receipt).
Student does not meet eligibility requirements. School delays delivery of loan proceeds for additional 10 business days because the school expects student to meet the eligibility requirements during the additional 10-day period. The last day of this additional period of 10 business days is August 21. |
| Reason for returning proceeds | Student advises school he or she does not want proceeds. | Student advises school he or she does not want proceeds. | Student fails to meet eligibility requirements in additional 10-business-day |
| Deadline for returning proceeds | School must return proceeds no later than August 21 (10 business days after latest initial delivery date). | School must return proceeds no later than August 5 (10 business days after latest initial delivery date). | School must return proceeds no later than September 5 (10 business days after
last day of additional period, excluding the Labor Day holiday).
Note: If, prior to returning loan proceeds to the lender, the school had determined the borrower eligible to receive proceeds, the school could have delivered proceeds rather than return them to the lender. |
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 10-business-day delivery period (or the 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.
If the loan period consists of only one payment period, the school may not deliver a second or subsequent disbursement earlier than the calendar midpoint between the first and last scheduled days of class for the loan period.
The school may not deliver a second or subsequent disbursement earlier than 10 days before the first day of any payment period for an eligible program that measures academic progress in credit hours and that uses semesters, trimesters, or quarters.
The school may not deliver a second or subsequent disbursement for an eligible program that measures academic progress in credit hours and that does not use semesters, trimesters, or quarters, until the later of:
The school may not deliver a second or subsequent disbursement for an eligible program that measures academic progress in clock hours, until the later of:
In determining whether the student has completed clock hours in a payment period, a school may include clock hours for which the student has an excused absence if the school has a written policy that permits excused absences and the number of excused absences does not exceed the lesser of:
If the student fails to register, enroll, maintain at least half-time enrollment, or maintain satisfactory academic progress, or if the student is on an unapproved leave of absence or fails to return from an approved leave of absence, the school must meet the deadlines required for returning the loan proceeds to the lender.
Delivery Methods. A school may deliver loan proceeds using any of the following methods:
To help prevent fraud, the school is encouraged to verify the student's identity by requiring at least one form of identification with a photograph before delivering the loan proceeds directly to the borrower.
Crediting Student Accounts. A school may credit a student’s account with FFELP loan proceeds to satisfy the following current-year charges without obtaining the student or parent borrower's authorization:
After obtaining the student’s
authorization, or the parent’s authorization in the case of a PLUS loan, a school
may credit a student’s account with FFELP loan proceeds to pay the following
charges:
Additional current-year charges incurred for educationally-related activities.
Minor prior-year charges of less than $100.
Prior-year charges of $100 or more provided the school has determined that the payment of the prior-year charges does not, or will not, prevent the student from paying his or her current-year education costs.
Early Delivery. The school may deliver a registered student’s loan proceeds before the first day of classes (unless the student is subject to delayed delivery) after verifying that the student is registered at least half time and, for a continuing student, is maintaining satisfactory academic progress.
If the student is enrolled in a credit-hour program that is offered in semester, trimester, or quarter academic terms the earliest a school may directly pay or credit the account of a registered student not subject to delayed delivery, or pay the parent borrower in the case of a PLUS loan is 10 days before the first day of the payment period.
If the student is enrolled in a clock-hour program or a credit-hour program that is not offered in semester, trimester or quarter academic terms the earliest a school may directly pay or credit the account of a registered student who is not subject to delayed delivery, or pay the parent borrower in the case of a PLUS loan is the later of:
When the school is applying school funds in advance of the receipt of FFELP proceeds, and the school credits a student’s account with an estimated amount earlier than 10 days before the first day of the payment period, and before receiving loan proceeds from the lender, the Department will consider the loan proceeds to have been delivered on the 10th day before the first day of the payment period. If the school does not record the advance funds as an estimated amount, the Department considers the disbursement to have occurred on the date the school recorded the credit to the student’s account at the school.
Delayed Delivery Requirement. The school must not deliver the first disbursement of a Stafford loan to a first-year undergraduate student who is a first-time borrower (that is, a student who has not successfully completed the first year of the program of study in which he or she is currently enrolled and who has not previously received a Stafford or SLS loan) until the 31st day of the student’s first payment period. Delivery includes crediting proceeds to the student’s account as well as delivering proceeds directly to the student. Before the delivery of proceeds, the school must confirm the student’s eligibility.
When the school is applying school funds in advance of the receipt of FFELP proceeds, and the school credits a student’s account with an estimated amount earlier than the 31st day of the first payment period, and before receiving loan proceeds from the lender, the Department will consider the loan proceeds to have been delivered on the 31st day. If the school does not record the advance funds as an estimated amount, the Department considers the disbursement to have occurred on the date the school recorded the credit to the student’s account at the school.
Delivery of Late Disbursement. For loan proceeds issued as late disbursements, the school is required to deliver the proceeds to the borrower no later than 90 days after the earlier of the end of the loan period or the date on which the student ceased to be enrolled at least half time.
Delivery Restriction. A school may deliver loan proceeds only if the school determines the student has maintained continuous eligibility for the loan from the beginning of the loan period certified on the application and promissory note.
A school may neither credit a student’s account nor deliver loan proceeds to the student or parent borrower while the student is on an approved leave of absence. If the student returns from an approved leave of absence on at least a half-time basis within 10 business days of the school's receipt of loan proceeds by EFT or master check, or within 30 days of the school's receipt of loan proceeds by individual check, the school may credit a student's account or deliver loan proceeds to the borrower. If the school returns loan proceeds received while the student is on an approved leave of absence, the school may request that the lender reissue those loan proceeds to coincide with the student's scheduled return from the approved leave of absence.
The following tables reflect the new school requirements for disbursement and delivery of loan proceeds.
| Not Subject to Delayed Delivery1 | Subject to Delayed Delivery 2 | |||
| Disbursement Method | Earliest Disbursement Date | Earliest Delivery Date | Earliest Disbursement Date | Earliest Delivery Date |
| Individual Check | 30 days before first day of payment period | 10 days before first day of payment period | 1st day of first payment period | 31st day of first payment period |
| EFT or Master Check | 13 days before first day of payment period | 10 days before first day of payment period | 28th day of first payment period | 31st day of first payment period |
| §682.207(b)(1)(iii) §668.167(a) §682.603(h) |
§668.164(a)
& (f) |
§668.167(a) §682.603(h) |
§668.164(a)
& (f) §682.604(c)(5) |
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1 Applies to disbursement and delivery of all loan proceeds at credit-hour schools with programs offered in semester, trimester, or quarter academic terms. Clock- or credit-hour schools with programs not offered in semester, trimester, or quarter academic terms should see subsection 6.3.E. for applicable disbursement and delivery requirements.
2
Applies to the first disbursement of a Stafford loan made to a student who is enrolled in the first year of an undergraduate study program and who has not previously received a Stafford or SLS loan.
| Requirements | Comments |
| Confirm student is enrolled at least half time. | A
temporary cessation of half-time enrollment is permitted if the school performs the
following activities:
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| Confirm student has returned from an approved leave of absence. | See section 4.5 for more information on leave of absence. |
| Confirm student is maintaining satisfactory academic progress. | Assessment of satisfactory academic progress is not required at the time the loan is received or delivered, unless required by the school’s policy. |
| Verify student data, if required. | See section 5.6 for more information on verification. |
| Obtain all required financial aid information. | See subsection 5.2.D. for more information on FATs. |
| Perform entrance counseling, if required. | Entrance
counseling is required only for first-time student borrowers.
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| Confirm that no overaward exists. | The
sum of an installment and the student’s other resources may not exceed the
student’s need.
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| Adhere to delayed delivery requirement, if applicable. | The
delayed delivery requirement applies only to the first disbursement of a Stafford loan
made to a first-time borrower in the first year of an undergraduate program.
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Late Disbursement and Delivery Requirements Revised
Late disbursement requirements for lenders and late delivery requirements for schools have been revised. These changes are effective for late disbursements identified by the school on or after July 1, 1997. Subsection 6.2.H., section 6.3 and appendix G of the Common Manual will be revised to reflect these new requirements. The new late disbursement and delivery requirements are as follows:
Late Disbursement by a Lender. A lender may disburse Stafford or PLUS loan proceeds after the end of the loan period or the date on which the student ceased to be enrolled at least half time only if:
When a lender knowingly makes a late disbursement, the lender must include with the loan proceeds a notice to the school indicating that the loan proceeds should be delivered as a late disbursement.
Late Delivery by a School. A school may deliver Stafford or PLUS loan proceeds to a student or parent borrower after the end of the loan period or the date on which the student ceased to be enrolled at least half time, provided that:
If the total amount of the late disbursement and all prior disbursements exceeds the student’s educational costs for the period in which the student was enrolled and eligible, the school must return the balance of the borrower’s loan proceeds to the lender with a notice certifying the following:
Definition of Late Disbursement. The definition of late disbursement in appendix G has also been revised to reflect the new late disbursement requirements, as follows:
Late Disbursement or Delivery: A disbursement made by a lender or delivered by a school after the end of the loan period or the date on which the student ceased to be enrolled on at least a half-time basis.
Requirements for Return or Refund of Loan Proceeds Revised
The requirements for the return or refund of loan proceeds have been revised. These new requirements are effective for loan periods beginning on or after July 1,1997. Subsection 6.3.G. of the Common Manual will be revised to reflect these changes.
Schools are currently required to return loan proceeds within 30 days of determining that the student failed to register, dropped below half-time status, registered but then withdrew, was expelled before the first day of classes, or took an approved leave of absence for the period of enrollment for which a loan is intended. The new policy for the return or refund of loan proceeds is as follows:
Return or Refund of Loan Proceeds. Loan proceeds must be returned to the lender if the school is unable to deliver them or if the school is unable to document that the student attended classes during the payment period for which the loan is intended. If the school delivers the loan proceeds on behalf of a student who fails to complete the period of enrollment for which the loan is intended, the school must determine if a refund of loan proceeds is due the lender.
Return of Proceeds. If the school is unable to deliver loan proceeds to the borrower within specified time frames, the school must return the loan proceeds to the lender no later than 10 business days after the last day on which the school may deliver proceeds. 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 no later than:
If, for any other reason, the school is unable to document that the student attended classes during the payment period for which the loan is intended, the school must notify the lender of the student's withdrawal. Within 30 days of making this determination the school must return any loan proceeds credited directly to the student's account and any proceeds delivered to the student or borrower and subsequently paid to the school.
Refund of Proceeds. If the student registers but officially withdraws or is expelled, the school must pay that portion of a refund allocable to a FFELP loan to the lender within 60 days of the student's withdrawal date. If the student unofficially withdraws, drops to less than half-time status, or takes an unapproved leave of absence, the school must pay that portion of a refund allocable to a FFELP loan to the lender within 60 days of the date the school determines that the student has unofficially withdrawn, dropped to less than half-time status, or taken an unapproved leave of absence.
If the student does not return at the end of an approved leave of absence, the school must pay that portion of a refund allocable to a FFELP loan to the lender within 30 days of the date the leave of absence ended or within 30 days of the date the student notified the school that he or she would not be returning, whichever is earlier.
The following table reflects the new requirements for delivery or return of loan proceeds.
| Situation | Condition Under Which Proceeds May Be Delivered to Student | Latest Delivery Date1 |
Time Frame for Returning Undelivered Proceeds to Lender 2 |
| Enrolled student fails to respond to request for endorsement of loan check or fails to authorize EFT or Master Check | After endorsement or authorization, subject to FFELP loan delivery requirements | Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds3 | No later than 10 business days after the latest delivery date. |
| Student is on an approved leave of absence | Student returns from the leave of absence | Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds 3 | No later than 10 business days after the latest delivery date. |
| Student fails to undergo initial loan counseling | After counseling, subject to FFELP loan delivery requirements | Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds3 | No later than 10 business days after the latest delivery date. |
| Student selected for verification | When verification is completed, subject to FFELP loan delivery requirements. | Within 45 days of receipt of proceeds | Within 45 days of receipt of proceeds if verification is not completed. |
| Missing financial aid information for student (see subsection 5.2.D.) | When all required financial aid information is received, subject to FFELP loan delivery requirements. | Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds3 | No later than 10 business days after the latest delivery date if all required financial aid information is not received. |
| Student fails to register | N/A | Only
to determine time frame for returning proceeds. Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds 3 |
No later than 10 business days after the latest delivery date |
| Registered student withdraws or is expelled before first day of classes or fails to attend |
N/A | Only
to determine time frame for returning proceeds. Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds3 |
No later than 10 business days after the latest delivery date. |
| Student fails to maintain at least half-time enrollment or loses loan eligibility | N/A | Only
to determine time frame for returning proceeds. Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of proceeds3 |
No later than 10 business days after the latest delivery date. |
| Student is overawarded | Student is eligible for portion of proceeds | Check: Within 30 days after receipt of proceeds EFT/Master Check: Within 10 business days after receipt of procee | No later than 10 business days after the latest delivery date if entire loan disbursement. Within 60 days of determining an overaward exists, if portion of proceeds. |
| [§668.22(j); §668.60(b)(3); §668.167(b); §682.604(c)(2); and §682.607(c)] | |||
1 Schools may delay delivery of loan proceeds for an additional 10 business days if, within this additional 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 should document the reason for holding loan proceeds for delivery within this additional 10-business-day period. This provision does not apply to students selected for verification.
2
Schools must indicate in writing the reason for returning loan proceeds and provide the student's withdrawal date, if applicable. A school may deliver loan proceeds if, within this 10-business-day period, the student completes the required number of clock or credit hours in a preceding payment period or the student meets all FFELP eligibility requirements. This provision does not apply to students selected for verification.3
EFT and master check loan proceeds received by the school on or after July 1, 1999, must be delivered within 3 business days.
Delivering and Holding of Credit Balances Revised
School requirements for delivering and holding of credit balances have been revised and are effective for loan periods beginning on or after July 1, 1997. Subsection 6.3.F. of the Common Manual will be revised to reflect the following new requirements:
Delivering Credit Balances. Any time the school delivers Stafford or PLUS loan proceeds by crediting a student’s school account, and the total amount of funds credited exceeds the amount of the student’s tuition and fees, room and/or board, and other authorized charges, the school must pay the final credit balance directly to the student or parent borrower as soon as possible, but no later than 14 days after one of the following:
Holding Credit Balances. Unless prohibited by the Department under reimbursement payment method provisions, a school may hold a borrower’s Stafford or PLUS loan proceeds as a fiduciary for the benefit of a student, if those funds represent a credit balance that would otherwise be paid directly to the student or parent borrower. The student or parent borrower must authorize the school to retain the credit balance to assist the student in managing the funds. If the school received written authorization to hold a credit balance for the student, the school must perform the following activities:
The school is still permitted to retain any interest earned on the student’s funds. The following table reflects the new requirements for delivery of credit balances.
| Disbursement Method | Latest Delivery Date |
| Individual Check, EFT, or Master Check | No
later than 14 days after:
|
Requirements for Receipt and Maintenance of Loan Proceeds Revised
The requirements for a school’s receipt and maintenance of Stafford or PLUS loan proceeds have been revised. These changes are effective for loan periods beginning on or after July 1, 1997, unless the guarantor implemented this policy earlier. Subsection 6.3.D. of the Common Manual will be revised to reflect these new requirements and to remove the requirement that the school must maintain a separate restricted account for Stafford or PLUS loan proceeds received by EFT or master check. The new requirements are as follows:
Stafford or PLUS loan proceeds received by a school are held in trust for students, lenders, guarantors, and the Department. The school must exercise the care and diligence required of a fiduciary in maintaining these funds.
Generally, a school is not required to maintain a separate restricted account for Stafford or PLUS loan proceeds and may commingle Stafford or PLUS loan proceeds with other Title IV proceeds as well as with non–Title IV proceeds. In maintaining Title IV proceeds, the school must do one of the following:
In addition, the school must:
If the school fails to comply with any of these requirements or the Department places the school on the reimbursement payment method, the school may be required to maintain Stafford or PLUS loan proceeds in a separate account.
Handling Loan Proceeds for Students on Leave of Absence Revised
The Common Manual will be revised to correct conflicting guidance regarding the handling of loan proceeds received while a student is on an approved leave of absence. Section 4.5 currently requires a school to return loan proceeds to the lender and request that the lender cancel any remaining disbursements. Subsection 6.3.H., however, currently requires a school to return loan proceeds within 30 days of determining the student is on an approved leave of absence and permits the school to request that the proceeds be reissued when the student returns from the leave.
In order to make the handling of loan proceeds for students on an approved leave of absence consistent, section 4.5 of the Common Manual will be revised as follows:
A school may not credit a student’s account or otherwise deliver loan proceeds to a borrower while the student is on an approved leave of absence. The school may credit a student's account or deliver loan proceeds to the borrower if the student has returned from an approved leave of absence on at least a half-time basis within the applicable delivery time frames described in subsection 6.3.E. If the student does not return from an approved leave of absence on at least a half-time basis or the school is otherwise unable to credit the student’s account or deliver loan proceeds to the borrower, the school must return the loan proceeds to the lender within the applicable return time frames described in subsection 6.3.G. If the school returns loan proceeds received while the student is on an approved leave of absence, the school may request that the lender reissue those loan proceeds to coincide with the student's scheduled return from an approved leave of absence.
The new leave-of-absence policy has also been expanded to confirm that a student on an approved leave of absence is considered to be enrolled at the school and is eligible for an in-school deferment if he or she satisfies other deferment eligibility requirements. A student who fails to return to school at the end of an approved leave of absence or whose leave has not been approved must be considered to have withdrawn for purposes of determining the student's last date of attendance and for calculating any refund that is due. In addition, a student who is considered by the school to have withdrawn is not eligible for an in-school deferment.
This change is effective for loan periods beginning on or after July 1, 1997. Section 4.5 and subsection 6.3.H. of the Common Manual will be revised to reflect this new policy.
Requirements for Reissuing a Loan Disbursement Expanded
Currently, the Common Manual contains limited guidance to schools and lenders on reissuing loan disbursements. The manual will be expanded as follows:
A school may request that a lender reissue loan proceeds for a variety of reasons, which may include, but are not limited to:
When a school determines that a loan disbursement needs to be reissued, the school must submit the request to the lender so the lender may reissue the disbursement within 90 days from the earlier of the last day of the enrollment period for which the loan is intended, or the student’s last date of at least half-time enrollment. The lender may reissue a disbursement only upon the request of the school, if the school’s request is honored. The lender may reissue a loan disbursement more than 90 days after the last date of the student’s eligible enrollment in exceptional cases, so that the student will not be harmed by circumstances beyond his or her control. The request for reissue under this exception should come from both the borrower and the school. The lender should document the exceptional circumstances.
For proceeds originally disbursed as a late disbursement, the lender must reissue the disbursement within 90 days after the date on which the original late disbursement was made. Lenders should see subsection 6.2.H. for more information about late disbursement.
If the reissued disbursement is for the first or subsequent disbursement of a subsidized Stafford loan, the reissue date will be used to determine the interest accrual start date for subsidized interest for that disbursement. If the reissued disbursement is for the first or subsequent disbursement of an unsubsidized Stafford or PLUS loan, the reissue date will be used to determine the interest accrual start date for the borrower’s interest for that disbursement. Lenders are responsible for making the appropriate adjustments to ED Form 799. See appendix A for more information on ED Form 799 reporting.
Lenders must maintain documentation of the reason for a reissued disbursement. Such documentation must include both the original disbursement date and the reissue date. The 120-day monitoring requirement outlined in subsection 6.2.F. begins on the date the disbursement is reissued.
This change is effective for disbursements reissued by the lender on or after July 1, 1997, unless implemented earlier by the guarantor. Subsection 6.2.G. of the Common Manual will be revised to reflect this change.
Definition of Consolidation Loan Disbursement Date Added
The disbursement date is a key element that often determines the borrower’s interest rate, loan terms, or eligibility for certain entitlements like deferment. The term "disbursement date" is not currently defined in the Common Manual for Federal Consolidation loans. The following description of when a Consolidation loan is considered to be disbursed will be added to the Common Manual:
A Federal Consolidation loan is considered to be disbursed on the date of the first individual or master check, payment advice, or noncash transfer that transfers funds from the consolidating lender to the holder of the loans to be consolidated. For funds disbursed by EFT, the Consolidation loan is considered disbursed on the first date that funds are transferred. If the loan funds for multiple underlying loans are disbursed on multiple days, including funds issued through the end of the 180-day add-on period, those disbursements are considered "subsequent disbursements." The loan’s first disbursement date is used to determine its terms and conditions.
This definition of disbursement date will be added to section 9.5 of the Common Manual and will be effective for Consolidation loans with first disbursements on or after July 1, 1997, unless implemented earlier by the guarantor.