School-Administrative Issues

  • My school is having difficulty maintaining the required minimum of three lenders on our preferred lender list. How can we continue to meet the “preferred lender list” requirements?
    Dear Colleague Letter GEN-08-06 provides additional guidance to schools on the use of preferred lender lists. If the school is unable to secure the minimum three unaffiliated lenders for its preferred lender list, the school may provide the names of lenders that have indicated they will make loans to their students. The letter imposes no minimum number of lenders for that list. The school may not provide information about the lender, and must make it clear that it is not endorsing any lender and that the applicant has the right to choose his or her lender.

    USA Funds® Education Access Report previously carried an article about this Dear Colleague Letter.

    You will need Adobe Reader to access the letter from the USA Funds Web site.

  • In a Return-of-Title-IV-funds calculation for a student who withdrew prior to July 1, 2007, should a school include the first disbursement of a loan using the increased Stafford-loan limit as “aid that could have been disbursed”? Or, should the disbursement be excluded from the R2T4 calculation, because the increased annual loan amount is effective July 1, 2007?

    Schools can include the increased amount in the R2T4 calculation as “aid that could have been disbursed,” because the payment period or period of enrollment extends beyond the July 1 date.

  • Do any pending or adopted regulations or legislation require a postsecondary institution to use more than one student-loan guarantor?
    Update: Final regulations issued by the U.S. Department of Education on Nov. 1, 2007, are consistent with the guidance in the following article. 

    Although pending federal regulations and legislation would require postsecondary institutions to include at least three unaffiliated lenders on a preferred lender list, there currently are no new requirements regarding the minimum number of guarantors with which a school must work.

    Proposed regulations regarding preferred-lender lists, published by the U.S. Department of Education on June 12, would permit schools to continue to “make available a list of recommended or suggested lenders, in print or any other medium or form, for use by the school’s students or their parents, provided such list … Does not contain fewer than three lenders that are not affiliated with each other and that will make loans to borrowers or students attending the school.” There is no requirement in the proposed regulations regarding the minimum number of student-loan guarantors with which a school must work.

    The Student Loan Sunshine Act, passed by the U.S. House of Representatives, and the Higher Education Amendments of 2007, reported out of the U.S. Senate Committee on Health, Education, Labor and Pensions, contain identical language that requires postsecondary institutions that maintain preferred-lenders lists to disclose that “there are not less than 3 lenders named on the each preferred lending list offered by the institution that are not affiliates of each other.” But neither piece of legislation includes any requirements that a postsecondary institution work with more than one guarantor.
    New York State’s SLATE (Student Loan Accountability, Transparency and Enforcement) Act does not specify a minimum number of lending institutions that may be on a school’s preferred list.

    Although permissible for a postsecondary institution to work with only a single guarantor, it is important to note that student- and parent-borrowers ultimately retain the right to select the lenders and guarantors of their choice.

  • In the case of a student who defaults after leaving our school, but the defaulted loan was taken for attendance at a different school, which school’s cohort-default rate is affected? Does that loan impact the cohort-default rate of the school for which the loan was taken, or the school that the student last attended?
    The U.S. Department of Education calculates the cohort-default rate by considering loans obtained by students attending the school at which the funds were delivered. The school at which the student was last enrolled should not include loans obtained for attendance at a previous school in either the numerator or denominator part of the cohort calculation.

    For example, a student attends School A and obtains a Stafford loan. The student transfers to School B, but does not obtain a Stafford loan while in attendance. When the student enters repayment, the student is counted in the cohort rate for School A. If the student obtains two separate loans for attendance at both School A and School B and enters repayment on both loans in the same year, then the student would be in the cohort calculations for both schools.

  • Is the school responsible for ensuring that students who obtained Federal PLUS loans for their graduate or professional studies receive entrance and exit education-loan counseling?
    Federal regulations require that schools conduct both entrance and exit counseling for Stafford-loan borrowers. Effective July 1, 2008, schools must conduct entrance counseling for graduate and professional students, and for Stafford borrowers who also have Graduate PLUS loans, the school must provide information regarding the differences in the two programs.

    Specifically, schools must emphasize the following ways that PLUS loans differ from Stafford loans:

    • Grad PLUS loans do not have a grace period. Grad PLUS-loan borrowers enter repayment immediately following the end of their in-school deferment.
    • PLUS loans accrue interest at a different, higher interest rate than that of Stafford loans.
    • Interest on PLUS loans is not subsidized, so the student is responsible for interest that accrues, even during periods of deferment.

    For Stafford-loan borrowers who also have Grad PLUS loans, the school must provide, as part of Stafford exit counseling, average monthly payment amount information, based on the average indebtedness of borrowers with Stafford and Grad PLUS loans at that school.

    The goal of education-loan counseling is to ensure that student-borrowers are educated regarding their loan obligations as they move into repayment. Providing appropriate counseling helps all student-borrowers make smarter decisions regarding their financial obligations and helps prevent defaults.

  • Are schools required to perform exit counseling during the summer session? Does the length of the school term determine whether the school must perform counseling?
    For any Stafford-loan borrower who does not intend to enroll for the next academic term, financial-aid staff are required to conduct exit counseling prior to the borrower’s ceasing enrollment on at least a half-time basis. (See the Electronic Common Manual, subsection 4.4.C.). If the student’s last date of attendance occurs during the summer session, the financial-aid administrator must conduct exit counseling during that session. If the student plans to enroll in the fall term, then the school is not required to perform exit counseling.

  • Is there any policy guidance regarding how a school tracks its exiting students? 
    Schools must track the enrollment status of Stafford-loan borrowers to accurately report the status to the National Student Loan Data System. Schools also must report to the appropriate lender and guarantor the date on which a student drops to less than half-time attendance or withdraws from school. Common Manual section 9.4 provides information about withdrawal dates. Section 9.2 provides additional details about required enrollment-status reporting.

    If a student's "less-than-half-time" attendance is the result of the Stafford-loan borrower's withdrawal from school, the school also is required to use that date as part of its return-of-Title IV-funds calculations. The Common Manual subsection 9.5 offers more information regarding this circumstance.

  • May a school make payments on students' loans? 
    Schools are not specifically prohibited from making payments on the loan accounts of current or former students. Federal regulations, however, define any loan on which a school has made payments to prevent students' default as being in default for purposes of calculating the school's cohort default rate. Federal regulation 34 CFR 668.183(c)(1)(iv) states, in part, " ... for purposes of this subpart a borrower is considered to be in default if (iv) Before the end of the following fiscal year, you [the school] or your owner, agent, contractor, employee, or any other affiliated entity or individual make a payment to prevent a borrower's default on a loan that is used to include the borrower in that cohort." The Common Manual, section 16.2 contains similar policy text.

    In addition to specific federal rules, schools should consider the implications to borrowers and to the federal fiscal interest when they decide whether to make payments on students' loans. If students are in default and the school's payments result in students regaining access to federal funding, then students can increase their debt burden without honoring obligations to repay existing loans. Increasing the debt burden for students already clearly experiencing repayment problems increasesthe risk of default on an even larger loan amount. In the long run, a school's benevolence may be a disservice to both students and federal taxpayers who subsidize the financial-aid sources from which borrowers draw funding.
  • After completion of the exit-interview process, in what format must the school retain documentation of that interview? 
    Federal regulation 34 CFR 682.604(g)(4) requires the school to maintain documentation substantiating the school's compliance with exit-interview requirements for each student. Similar language is found in 4.4.C. of the Common Manual, where the requirement is to "maintain a record to substantiate the school's compliance." Neither of these provisions requires that records be in any specific format. USA Funds believes that maintaining this information electronically would be sufficient as long as the system in which it is kept allows the school to access the specific information on a borrower-by-borrower basis, including the completion date of the exit counseling. The system the school chooses to use should ensure that records are retained for the requisite record-retention period (see Common Manual section 4.5).
  • If student who has a Stafford loan dies while enrolled is the school required to perform the return of Title IV funds calculation and return any unearned funds to the lender?
    Yes. The school must return unearned Title IV funds, including FFELP-loan funds, to the appropriate party. In the case of FFELP funds, the return should be made to the lender of record. While the loan will subsequently be discharged due to the borrower's death, only the amount that the borrower would otherwise have owed is eligible for discharge. </ul </ul