Loan Delivery

  • What happens to a parent PLUS loan if the student dies during or after disbursement?
    In common policy “disbursement” typically means the single transaction in which a Federal Family Education Loan Program lender sends loan funds to a school or borrower. “Delivery” refers to the school’s moving loan money from the school’s account to the borrower’s, or — in the case of an individual disbursement check — the school’s delivering the disbursement check to the borrower.

    If a dependent student dies prior to the first disbursement of a parent PLUS loan, the school must return the loan funds to the lender without delivering them. The lender then must cancel the loan.

    If the student dies between the date of delivery of the first disbursement and the date of the second disbursement, the school should notify the lender of the student’s death and advise the lender to cancel the second disbursement. The school must perform a return-of-Title-IV-funds calculation and, based on that calculation, return to the lender any necessary funds from the first disbursement. The PLUS-loan borrower is eligible for a loan discharge of the remaining amount of the first disbursement, based on the death of the dependent student.

    If the student dies after the lender’s disbursement of loan funds but before the school delivers those loan funds, the school must return the loan funds to the lender. The school may not deliver loan funds to the account of a deceased student.

    If, prior to the date of the student’s death, the lender makes both PLUS-loan disbursements, and the school delivers them, under return-of-Title-IV-funds rules — and perhaps by the school’s own refund policies — the school must return certain funds to the lender. The PLUS borrower is eligible for loan discharge on any balance that remains after the school’s refund and the return of applicable loan funds.

    The Common Manual, subsection 8.9.D, provides extensive detail regarding the treatment of FFELP-loan funds with respect to the death of a borrower or student during the loan disbursement-and-delivery process.

  • A student was enrolled last semester as a second-year student and received the first disbursement of a subsidized Stafford loan ($1,750) and an unsubsidized disbursement of $1,800. This semester the student has advanced to a third-year level and needs more money than the financial-aid administrator originally certified. What are the maximum amounts that the student is eligible to receive for the upcoming semester?
    Because the upcoming semester is a part of the same academic year, the amounts already received during that academic year must be deducted from the annual loan limits based on the student's new grade level. At the third-year academic level, the student is eligible for a subsidized Stafford loan of $5,500 and an unsubsidized Stafford loan of $5,000, for a total of $10,500. If the student's Cost of Attendance justifies the full annual amount for both subsidized and unsubsidized Stafford loans, the borrower is eligible to receive the additional $3,750 in subsidized Stafford and $3,200 in unsubsidized Stafford funding ($5,500 less $1,750 is $3,750; $5,000 less $1,800 is $3,200).

    If the student's COA does not justify the full annual loan limit for a third-year student, but the student is eligible for additional funds, the school should determine the total amount eligible for both subsidized and unsubsidized Stafford loans and subtract the amounts already disbursed.

  • A student has a loan period of August 2004 through May 2005. We received the second disbursement Feb. 24, 2005. The student is enrolled at our school in a half-time status with six credit hours. One of the classes is a one-credit late-start class that begins March 12. The student withdrew from the class and received a full refund on March 19. The instructor indicated that student never attended the class.

    Is the school at fault for disbursing money before the class began?
    The student was enrolled half time and was eligible for the funds at the time of delivery. Therefore, the change in the student’s enrollment status after the delivery of loan funds does not create a liability for the school.

  • Does the requirement to hold a loan disbursement for 30 days after the start of the semester pertain specifically to "freshmen" students or to any "first-time undergraduate" borrower?
    Regulations require that the school delay delivery of the first disbursement of a Stafford loan to "students enrolled in the first year of an undergraduate program of study" [34 CFR 682.604(c)(5)]. If the student is a second-year undergraduate student, delayed delivery is not required. See Common Manual subsection 8.7.A.