Change for Delivery of EFT and Master Check Loan Proceeds

Final regulations for the implementation of Cash Management requirements in 34 CFR 668.167(b) include a change only to the initial period that schools have to deliver loan proceeds delivered by electronic funds transfer (EFT) or master check. A school must return Federal Family Education Loan Program (FFELP) funds to a lender if the school does not deliver those funds to a student or parent for a payment period within three business days following the date the school receives the funds via EFT or master check on or after July 1, 1999. Previously, a school had 10 business days to deliver the funds during the initial period.

Texas Guaranteed Student Loan Corporation (TG) has received calls from customers requesting clarification of regulations regarding delivery and return of FFELP loan proceeds.

Clarification of Delivery and Return Requirements
The Department of Education (ED) regulations describe three distinct periods for delivering and returning FFELP funds: the initial period, the conditional period, and the return period. Descriptions of these three periods are provided below.

• Initial Period: For FFELP funds that a school received from a lender via EFT or master check, a school must deliver those funds to eligible borrowers no later than three business days after the school receives the funds. (For FFELP funds that a school receives by check requiring the endorsement of the borrower, the funds must be delivered to eligible borrowers no later than 30 calendar days after the funds are received.)
• Conditional Period: An additional 10 business days after the last day of the initial period is permitted to disburse FFELP funds only if, (1) the student did not satisfy a programmatic requirement necessary to receive the funds during the initial period, and (2) it is expected that the student will satisfy that requirement during the conditional period. These exceptions should be documented in the borrower's file. A school does not automatically receive the full 10 days to deliver loan proceeds to the borrower. For example, if a school expects the student to meet the programmatic requirement four days into the conditional period, then the school must deliver the funds within those four days. However, if the school determines that the student did not meet the requirement within the four-day period, then the return period begins immediately.
• Return Period: If the school is unable to disburse FFELP funds by the end of the initial or conditional period, as applicable, the funds must be returned to the lender promptly but no later than 10 business days from the last day of the initial or conditional period. If a student becomes eligible to receive FFELP funds during that return period, the funds may be delivered by the school, providing that the delivery is made on or before the last day of the return period.

ED stated that the term "promptly" means a school may not delay initiating and completing its normal process for returning FFELP funds to lenders. The phrase "return funds no later than 10 business days" means a school must mail a check or initiate an electronic funds transfer of FFELP funds to the lender by close of business on the last day of the return period.

Hold/Release
In keeping with TG's commitment to excellent customer service, a solution was developed to aid school compliance with the three­day release regulation. This new solution, Hold/Release, is being implemented to coincide with the July 1, 1999, effective date of the regulation.

Hold/Release allows schools to control the timing of individual disbursements. It is similar to the current lender approval process. For schools, Hold/Release will have one of the following approval values assigned:

• "H" — Hold EFT until disbursement is released, or
• "R" — Release disbursement.

EFT disbursements will not occur unless both lender approval and school approval have been received at TG for each disbursement. Schools will determine their default preference as a "hold" or "release" school. This preference will be maintained on TG's mainframe. In addition, schools can override their default preference by designating a loan as hold or release at guarantee time. The schools can also designate a disbursement hold or release with a special change transaction in AdvanTG™ or by changing a disbursement to hold or release through OnLine Access. AdvanTG 2.2, which will accommodate Hold/Release, will be ready for TG customers in mid­July.

Please note that Hold/Release cannot be used to fulfill the requirement that a school must not deliver the first disbursement of a Stafford loan to a first­year undergraduate student who is a first­time borrower until the 31st day of the student's first payment period.

More details about Hold/Release are being discussed in detail during TG's Customer Services Regional Training sessions scheduled throughout the month of June.

Questions
If you have questions about the new three­day delivery requirement or TG's Hold/Release tool, contact your TG Customer Services Regional Consultant or TG Customer Support, at (800) 252-9743, ext. 4444.