USA Funds Outlines New Disbursement Procedure for Students Studying Outside the United States

New requirements mandate that guarantors and lenders implement new disbursement-approval procedures for students in study-abroad programs or attending foreign schools. The Higher Education Reconciliation Act of 2005 established the new requirements, which are effective for loans first disbursed on or after July 1, 2006. The requirements pertain only to borrowers who request that their Stafford-loan funds be sent directly to them, rather than to the school.

Students in study-abroad programs
Following the publication of interim final regulations from the U.S. Department of Education that include these new requirements, USA Funds^® will require lenders to verify a student’s study-abroad enrollment with the home institution effective for loan disbursements made directly to a borrower on or after Sept. 8, 2006. 

The lender may verify the enrollment by contacting the student’s school and documenting the following information in the borrower’s loan-servicing history:

• Name of and contact information for the school official contacted.
• Date of the contact.
• Enrollment period confirmed by the school.
• Enrollment status.
• Other pertinent information provided by the school official.

Or, the lender may request that USA Funds perform the necessary verification on the lender’s behalf. To request that USA Funds verify the student’s enrollment, lenders should send an e-mail to studyabroad@usafunds.org, providing the following information:

• Student’s name.
• Last four digits of the student’s Social Security number. 
• Name of the home institution. 
• Home institution’s eight-digit school code.

Lenders and disbursing agents that use the studyabroad@usafunds.org resource must have USA Funds’ approval by e-mail before each disbursement of the funds.

Lenders who make loans under a blanket-guarantee agreement may not issue loan funds directly to study-abroad students under that process unless prior special arrangements have been made with USA Funds. Lenders generally must process direct-to-student disbursements through the traditional guarantee process.

Students attending foreign schools
The HERA also modified the process for requesting direct-to-borrower disbursements for students attending foreign institutions. Effective July 1, the foreign institution, not the student, must make the request for disbursement to the student. Additionally, in compliance with the requirements outlined in Dear Colleague Letter G-03-348, when a school requests that Stafford-loan funds be disbursed directly to the borrower, lenders must continue the practice of contacting USA Funds by sending loan information to foreignschools@usafunds.org. USA Funds then will contact the foreign school to verify and document the student’s enrollment status.

USA Funds reminds lenders that, for loan funds disbursed directly to the student, lenders should notify the school at the time of disbursement to provide the following information:

• Student’s name.
• SSN.
• Type of loan disbursed.
• Amount of the disbursement, including the amount of any fees assessed the student.
• Disbursement date.
• Name, address, telephone number, fax number or e-mail address of the lender, servicer or guarantor to which any inquiries should be addressed.

If the lender does not have on file the school’s request for funds to be disbursed directly to the student, the lender and disbursing agent must issue loan proceeds directly to the school.

Additionally, USA Funds reminds lenders that, unless prior arrangements have been made with USA Funds, lenders also cannot use USA Funds’ blanket-guarantee process for students who are attending foreign schools and request direct disbursement.

If you have questions about the new requirements, please contact USA Funds’ policy advisers.