Trends and Issues

Sticky situations: Late delivery of loan funds

With this article, Shoptalk Online brings back the popular "Sticky Situations" series for an encore presentation (for previous Sticky Situations articles, see Shoptalk Online editions 384, 390, 394, 402, 409, 418, 424, 428, and 453). Today's article provides tips for handling the late delivery of Stafford or PLUS loan funds to students and parents, a common concern as the end of a term approaches. In keeping with the series' theme of translating complicated regulatory issues into everyday language, the article is presented in an easy-to-read question and answer format.

Q.: What about late disbursement? Isn't that the same thing as late delivery?

A.: No. When we are discussing FFELP funds, disbursement refers to the transfer of funds from the lender to the school, and delivery is the transfer of funds from the school to the borrower. In the course of reviewing official guidance on this topic, however, you may note that ED sometimes uses the term "disbursement" to describe both of these processes (see the margin note on page 4-23 of the 2008-09 Federal Student Aid Handbook [FSA Handbook]).

Q.: When is the last day that a school may certify a loan?

A.: The school must certify the loan either before the end of the loan period or the date on which the student ceased to be enrolled at least half time, whichever is earlier.

Q.: Must the borrower sign the Master Promissory Note (MPN) by the end of the loan period?

A.: No. The borrower is not required to sign the MPN by the end of the loan period. The borrower must sign the MPN before the lender can make the late disbursement. Note that in the case of a withdrawal, a student must also sign the MPN before the loan funds can be included in the R2T4 calculation as aid that could have been disbursed, thereby making those loan funds potentially eligible for a late delivery (see Dear Colleague Letter GEN-05-16).

Q.: Must a school offer a late delivery? When is it optional?

A.: It depends. A school must offer a late delivery of Stafford or PLUS loan funds that the borrower was eligible to receive while the student was still enrolled during a payment period or period of enrollment that the student successfully completed. If a student ceases to be enrolled at least half time but does not withdraw, a school may offer a late delivery of Stafford or PLUS loan funds to the student or parent borrower to pay for educational costs the student incurred for the period in which the student was eligible.

Q.: As noted above, what constitutes "successful completion" of a loan period or period of enrollment?

A.: Successful completion is defined in the 2008-09 FSA Handbook as follows: "Successful completion — "a student 'successfully completes' credit or clock-hours if your school considers the student to have passed the coursework associated with those hours" (page 3-7).

Q.: What is the deadline for making a late delivery of loan funds to students?

A.: The loan funds must be delivered no later than 180 days after the school determines the student withdrew. If the student did not withdraw, funds must be delivered no later than 180 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.

Q.: Can a school provide a late delivery of a second or subsequent loan disbursement?

A.: In the case of a second or subsequent disbursement, the student must have graduated or successfully completed the period of enrollment for which the loan was intended. Refer to the previous question to determine what constitutes successful completion.

For more information
Additional information about the topic of late delivery can be found in Section 8.7E of the Common Manual. The FSA Handbook provides general information about late delivery (referred to as late disbursements) in Volume 5, Chapter 2 of the 2008-09 version. To download the Integrated Common Manual or FSA Handbook, visit TG Online at http://www.tgslc.org/policy/index.cfm.

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Give yourself an entrance/exit counseling checkup

With summer drawing to a close and the beginning of the traditional fall semester just a couple of weeks away, schools will be making sure that their borrowers complete entrance and exit counseling as required by the Higher Education Act. Now is the time to double-check that the entrance and exit counseling you are providing to your students has all of the requisite components.

Entrance counseling
Entrance counseling is required for all first-time Stafford and Grad PLUS loan borrowers. Schools must provide entrance counseling either at, or prior to, the delivery of the student's first disbursement of the loan. This information must be in simple, understandable language and address the terms and conditions of the loan, and borrower responsibilities associated with the loan. Counseling can be conducted in person or through the use of written or online tools, and interactive counseling with tests or quizzes is encouraged. Regardless of the medium the school chooses for its counseling sessions, an individual with Title IV expertise must be available shortly after the counseling to answer questions.

The student must acknowledge receipt of written or online counseling. If the school uses a written counseling form, the student must sign and return the form to the school. If the school uses online counseling tools, those tools must include a method for the student to provide acknowledgement. In all cases, the school must maintain documentation that the student completed entrance counseling.

According to federal regulations, entrance counseling must explain to the borrower:

• Use of the Master Promissory Note (MPN);
• Effect of accepting the loan on eligibility for other aid;
• Seriousness and importance of the repayment obligation;
• For Grad PLUS borrowers, if the school determines the student has not met his or her maximum eligibility for Stafford loans, the school must notify the student of the amount he or she is eligible to receive, a comparison of the maximum interest rates for Stafford and PLUS loans, a comparison of periods when interest accrues on Stafford and PLUS loans, and a comparison of when Stafford and PLUS loans enter repayment (if the financial aid award letter includes the required information and is provided to the student prior to loan certification, it would meet this requirement);
• How interest accrues and is capitalized when not paid by the student or the Department;
• The option to pay interest on unsubsidized Stafford and Grad PLUS loans while in school;
• Definition of half-time enrollment for all terms, including summer, and the consequences of not maintaining half-time enrollment;
• The importance of contacting the appropriate office at the school if the student plans to withdraw before completing the program, so that the school can provide exit counseling;
• The obligation to repay the loan even if the student does not complete the program or does not complete the program within the regular time for program completion, is unable to obtain employment, is dissatisfied with the school, or does not receive the services purchased from the school;
• Consequences of default, including adverse credit reports, federal offset, other federal delinquent debt collection procedures, and litigation;
• Sample monthly repayment amounts which must be based on either:
  • A range of levels of indebtedness of borrowers of subsidized or unsubsidized Stafford loans, and, as appropriate, graduate borrowers of unsubsidized Stafford loans or Grad PLUS loans; or
  • The average cumulative indebtedness of other borrowers in the same program as the borrower, at the same school
• Information concerning the National Student Loan Data System (NSLDS) and how the student can access his or her records on NSLDS; and
• The name and contact information the student may use if he or she has questions about rights and responsibilities or loan terms and conditions.

Exit counseling
Exit counseling is required for all Stafford, Grad PLUS, and Perkins loan borrowers. Schools must provide exit counseling shortly before a student ceases at least half-time enrollment. This information must be in simple, understandable language and address the terms and conditions of the loan, and the borrower responsibilities associated with the loan.

Counseling can be conducted in person or online, and interactive counseling with tests or quizzes is encouraged. If a borrower drops out without notifying the school, the school must confirm that the borrower has completed online counseling, or mail exit counseling material to the borrower at his or her last known address within 30 days of learning that the borrower has withdrawn or failed to participate in an exit counseling session. The school must maintain documentation that the student completed exit counseling.

Exit counseling must include information about:

• Repayment plans available and a comparative analysis of the features of each of those plans, including average projected monthly payments under each plan and the difference in interest and total payments the student can expect to pay under each plan;
• Terms and conditions to obtain deferment and forbearance, full or partial loan forgiveness, or discharge;
• A copy of a Department of Education publication that describes assistance programs (note that this publication has not yet been developed);
• Explanation that the student can prepay the loan(s), request a shorter repayment schedule, and change repayment plans;
• Debt management strategies to assist the student in repaying the loan(s);
• Information about the average anticipated monthly repayment amount based on the student borrower's indebtedness or on the average indebtedness of student borrowers in attendance at the same school and for the same program of study who have obtained the same types of loans as the student borrower;
• A review from entrance counseling on the use of the Master Promissory Note, the importance of repaying, and the obligation to repay even if the student did not complete the program or did not complete the program within the regular completion time for that program, is unable to obtain employment, or is dissatisfied with the education received;
• Consequences of default, including adverse credit reports, federal offset, other federal delinquent debt collection procedures, and litigation;
• Effects of loan consolidation, including:
  • Effect on total interest and fees to be paid and length of repayment term;
  • Effect on borrower benefits on underlying loans, such as grace periods, deferment, and loan forgiveness and discharge;
  • The option to prepay or change repayment plans; and
  • How borrower benefits may differ between lenders.
• Tax benefits available to the student, such as those described in the IRS Publication 970, "Tax Benefits for Education";
• Information concerning NSLDS and how the student can use the system to access his or her records on NSLDS; and
• Information on the availability of the Student Loan Ombudsman's Office.

Schools must collect the following information as part of exit counseling and provide it to the guarantor(s) within 60 days of receipt:

• Name
• Address
• SSN
• References
• Driver's license number and state
• Expected permanent address
• Name and address of next-of-kin
• Name and address of employer or expected employer

To learn more
Whatever your school's method of offering entrance and exit counseling, make sure that it meets standards set by the Department of Education. For more information, the Common Manual discusses these topics in various sections, including 4.4.C and 4.4.D, which are titled "Entrance Counseling" and "Exit Counseling." You can download the most current version of the Common Manual from TG Online at www.tgslc.org/policy/index.cfm.

For questions about entrance and exit counseling, contact TG's customer assistance team at (800) 845-6267, or send an message to cust.assist@tgslc.org.

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Policy potpourri

Q.: I understand that the Income-Based Repayment (IBR) plan became effective on July 1, 2009, and a borrower must be re-evaluated for eligibility for partial financial hardship (PFH) every 12 months. Does this mean that if a borrower qualifies for IBR in October 2009, his or her PFH will have to be evaluated again on July 1, 2010?

A.: No, the 12 month re-evaluation of eligibility is based on a 12 month period beginning on the date the borrower entered an IBR repayment plan rather than the date the repayment plan became available for borrowers.

Do you have a question?
Feel free to Ask TG™. Ask TG, TG's online query tool for borrowers, schools, and lenders, offers a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question, visit tgslc.custhelp.com.

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