common manual - july 2005 · the guarantor. information restricting an mpn signed under power of...

COMMON MANUALUnified Student Loan Policy

July 2005

©2005 Common Manual Guarantors

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July 2005

Dear FFELP Partner:

The nation’s Federal Family Education Loan Program (FFELP) guarantors are proud to present you with the 2005 Common Manual: Unified Student Loan Policy. We appreciate your continued participation in the FFELP and look forward to continuing to serve your needs and the needs of our ultimate customers—higher education students, their families, and the Department of Education.

This year’s manual has been updated to reflect federal guidance and guarantor policies in effect as of July 1, 2005, and has been enhanced to provide additional resources and information you will find helpful in your administration of the FFELP. The Common Manual Policy Committee has taken extra care to thoroughly review the manual in anticipation of impending reauthorization changes, and, based on your feedback, has enhanced the electronic version of the manual.

Expanded hyperlinksThe 2004 version of the manual introduced enhanced hyperlinks in the Electronic Common Manual (ECM) on the e-Collection CD that allowed the user to link directly with the regulatory and statutory citations, Dear Colleague Letters (DCLs), Federal Student Aid Handbook, and other references associated with Common Manual policy language. In response to enthusiastic comments from Common Manual users, this year’s manual reflects the efforts of “Project Cite Sweep.” Under Project Cite Sweep, the 2005 manual was reviewed section by section and even more citations and links have been added, as appropriate, to further enhance the manual a reference tool.

Policy changesText changes made to the 2005 manual were developed in many separate policy proposals written in response to the following: regulatory technical corrections published in the Federal Register on March 16, 2004; DCLs and other federal announcements concerning the return of Title IV funds, disaster guidance, exceptional performers, and foreign school loan disbursement procedures; and FFELP industry initiatives such as the realignment resulting from the restructuring of key chapters in 2003 and 2004. Technical edits were made to maintain consistency throughout the manual and to keep terms, citation references, and form names current.

Common Manual versionsThe Common Manual guarantors provide the manual in three media—on paper, on CD-ROM, and online—at many guarantor websites and at www.nchelp.org in the e-Library. Many FFELP participants now utilize the Common Manual in one of the electronic formats. Particularly with the numerous hyperlink enhancements now programmed into the electronic versions, the CD-ROM and online versions provide significant benefits over the more expensive and cumbersome paper version. Please contact your primary guarantor to request a copy of the Electronic Common Manual on CD-ROM and to learn more about using either of the electronic versions.

We hope you find that the Common Manual continues to provide concise, easy-to-use guidance in your administration of the FFELP. Please feel free to contact your primary guarantor with any questions you may have regarding the Common Manual or its use.

Sincerely,

Betsy MayotteChair, Common Manual Governing Board

Summary of Changes Approved August 2004 through April 2005

This summary lists changes made since the July 2004 edition of the Common Manual was printed. Changes made before the July 2004 edition was printed are shown in appendix H of the manual.

Common Manual Section Description of Change Effective Date/Triggering Event #

Chapter 1: Overview

1.5 FFELP Guarantors and Contact Information

Adds federally-assigned guarantor code number for each Common Manual guarantor.

None. —

Chapter 3: Lender Participation

3.5.H Reporting Loans Paid in Full States that a lender must report paid-in-full status changes in a prompt manner. Revised policy adds that a lender may use an electronic exchange to report these changes. Removes the requirement that the lender’s notification to the borrower be in a format acceptable under state law and adds information that a lender must report a loan’s paid-in-full status to at least one credit bureau as noted in subsection 3.5.C.

Loans paid in full by the borrower or another source on or after January 1, 2005.

811/118

Chapter 5: Borrower Eligibility

5.2.E Prior Default Adds language stating that a borrower with one or more defaulted Title IV loans, or defaulted Title IV loans for which a judgment has been obtained, who wants his or her Title IV eligibility reinstated must request reinstatement from the holder of each defaulted loan or from the holder of each defaulted loan for which a judgment has been obtained.

Retroactive to the implementation of the Common Manual.

804/116

5.10 Student Enrollment Requirements

Clarifies that a student who is taking a combination of courses necessary for the student to obtain a teacher certification or recertification, but who is not enrolled in an official teacher certification program at his or her school, is eligible for FFELP loans. Also clarifies that a student enrolled in a program to obtain certification or recertification as a non-teaching professional is not eligible for FFELP loans under the teacher certification exception.


822/120

5.14 Multiple School Enrollment

5.15 Ineligible Borrowers

5.15.A Ineligibility Based on Borrower Error

5.15.B Ineligibility Based on School Error

5.15.C Ineligibility Based on Lender Error

Adds guidance regarding a student’s eligibility for FFELP loans when enrolled simultaneously on at least a half-time basis in multiple schools. This new guidance is added in section 5.14. The current section 5.14 is redesignated as section 5.15.

Loans certified by the school on or after July 1, 2003.

819/119

Chapter 6: School Certification

6.11.C Increased Unsubsidized Stafford Loan Limits for Health Profession Students

Adds language clarifying that foreign schools may not certify increased unsubsidized Stafford loan amounts for students enrolled in health profession programs.

Loan periods beginning on or after May 1, 1999.

821/120

Summary of Changes Approved August 2004 through April 2005 i

6.16 Applying for Federal Stafford and PLUS Loans

Adds language indicating that a borrower may grant a power of attorney to a third party to sign a Master Promissory Note (MPN) if the borrower provides the school with a separate written authorization to credit the funds to the student’s school account. If a power of attorney is used to sign the MPN, the MPN is only valid for one loan.

Information permitting the use of power of attorney is effective July 1, 2002, unless implemented earlier by the guarantor. Information restricting an MPN signed under power of attorney to a single loan is effective October 1, 2004, unless implemented earlier by the guarantor.

812/118

Chapter 7: Loan Origination

7.6 Borrower Disclosures

7.6.C Guarantee Disclosure

Clarifies lender and guarantor disclosure responsibilities.


798/115

7.7 Disbursing the Loan

7.7.C Disbursement by Individual Check

7.7.D Disbursement by Electronic Funds Transfer (EFT) or Master Check

Adds language prohibiting lenders and schools from obtaining a borrower’s power of attorney or other authorization to endorse or approve the cashing of a loan check or the delivery of funds by EFT. Revised policy also prohibits the borrower from providing this power of attorney or authorization to anyone else.

Powers of attorney received by the school or lender and used to negotiate loan documents on or after January 30, 2004, unless implemented earlier by the guarantor.

813/118

7.7.E Disbursement for Students in Study-Abroad Programs or Foreign Schools

Community comments received on proposal 789 of Batch 114 indicate this change is necessary to coordinate language regarding students enrolled in study-abroad programs with language regarding students enrolled in foreign schools.


799/115

Chapter 8: Loan Delivery

Figure 8-1 FFELP Written Notification/Authorization Requirements

Adds language indicating that a borrower may grant a power of attorney to a third party to sign a Master Promissory Note (MPN) if the borrower provides the school with a separate written authorization to credit the funds to the student’s school account. If a power of attorney is used to sign the MPN, the MPN is only valid for one loan.

Information permitting the use of power of attorney is effective July 1, 2002, unless implemented earlier by the guarantor. Information restricting an MPN signed under power of attorney to a single loan is effective October 1, 2004, unless implemented earlier by the guarantor.

812/118

Chapter 9: School Reporting Responsibilities and the Return of Title IV Funds

9.2 Student Enrollment Status Reporting

Adds that enrollment information must be reported whenever the enrollment status for an individual student changes. Also clarifies that enrollment status changes that must be reported include any change that the school is required to report through enrollment reporting, previously called the Student Status Confirmation Report (SSCR).

Enrollment reporting by schools beginning in September 1996.

803/116


Reorganizes information in this section of the manual and adds guidance regarding student enrollment status reporting requirements for foreign schools.


818/119


9.2.B Reporting Student Enrollment Status Changes to the Lender or Guarantor

9.2.C National Student Clearinghouse

Deletes specific references to the National Student Clearinghouse. Currently, there are numerous entities that provide student enrollment status change reporting services for schools.

Enrollment reporting by schools beginning February 1997.

807/117


ii Summary of Changes Approved August 2004 through April 2005

9.4 Withdrawal Dates States that for a school that is required to record attendance, the date of determination that the student withdrew must be no later than 14 days after the student's last date of academic attendance as determined from the school's attendance records.

Withdrawal determinations made by the school on or after November 17, 2004.

816/119

9.5.A Return Amounts for Title IV Grant and Loan Programs

Adds information about inadvertent overpayments and requires schools to include inadvertent overpayments as “aid that could have been disbursed” in return of Title IV funds calculations.

Any student who withdraws on or after February 13, 2004.

817/119

Chapter 10: Loan Servicing

10.1 Verifying Enrollment Deletes specific references to the National Student Clearinghouse. Currently, there are numerous entities that provide student enrollment status change reporting services for schools.


807/117

10.8.B Graduated Repayment Schedule

10.8.C Income-Sensitive Repayment Schedule

Adds language to these subsections to specifically state that a lender must ensure that under a borrower’s graduated or income-sensitive repayment schedule, no single installment is more than three times greater than any other installment.


814/118

10.11.E Applying Funds Returned by the School

Ensures that manual text is consistent with the Common Manual glossary definition of the term “discharge” (i.e., the release of a borrower or any comaker from all or a portion of his or her loan obligation, as applicable, due to bankruptcy, school closure, death, total and permanent disability, an unpaid refund by the school, or the school's false certification of a FFELP loan).


802/115

Chapter 11: Deferment and Forbearance

11.1.B Documentation Required for Authorized Deferment

Deletes specific references to the National Student Clearinghouse. Currently, there are numerous entities that provide student enrollment status change reporting services for schools.


807/117

Figure 11-2 Forbearance Eligibility Chart

States that if a lender receives reliable information indicating that a borrower has become totally and permanently disabled, the lender may grant an administrative forbearance for a period of 60 days or until the date that the lender receives a complete loan discharge application or other form(s) approved by the Department, whichever is earlier.


823/121

11.19.C Closed School or False Certification

Remedies and enhances existing text by reorganizing the subsection, eliminating unnecessarily duplicative text and more succinctly describing claim filing requirements.

Closed school loan discharges initiated by any party, or closed school discharge claims filed by the lender on or after July 1, 2005, as applicable, unless implemented earlier by the guarantor.

784/121

11.19.E Death Incorporates a standardized policy, as supported by the Partial Discharge of Consolidation Loan Workgroup (a subcommittee of the NCHELP Program Operations Committee), for suspending collection activity on a Federal Consolidation loan that paid in full one or more underlying PLUS loans in the event of the death of the student for whom the PLUS loan was made.

Reliable notification of a student’s death received by a consolidating lender on or after July 1, 2005.

820/120


Summary of Changes Approved August 2004 through April 2005 iii

11.19.F Delinquency before a Deferment or Certain Forbearances

States that a lender may process an administrative forbearance to resolve an outstanding delinquency that precedes an administrative forbearance granted for military mobilization and local or national emergency, in addition to natural disaster. Also incorporates the term “exceptional circumstances” when referring to specific mandatory administrative forbearances and adds cross-references to other applicable subsections.

Administrative forbearance granted by the lender on or after July 1, 2003, unless implemented by the lender no earlier than November 1, 2002.

808/117

11.19.O Total and Permanent Disability

States that if a lender receives reliable information indicating that a borrower has become totally and permanently disabled, the lender may grant an administrative forbearance for a period of 60 days or until the date that the lender receives a complete loan discharge application or other form(s) approved by the Department, whichever is earlier.


823/121

11.21.A Death Incorporates a standardized policy, as supported by the Partial Discharge of Consolidation Loan Workgroup (a subcommittee of the NCHELP Program Operations Committee), for suspending collection activity on a Federal Consolidation loan that paid in full one or more underlying PLUS loans in the event of the death of the student for whom the PLUS loan was made.


820/120

Chapter 12: Due Diligence in Collecting Loans

12.4 Due Diligence Requirements Clarifies that a lender must ensure that no gap in collection activity of greater than 45 days (60 days in the case of a loan sale or transfer) occurs through the 270th day of delinquency (330th day for loans with repayment obligations less frequent than monthly). In addition, revised policy modifies the subheadings in subsections 11.4.A, “181-240 days delinquent” and 11.4.B, “241-300 days delinquent” to reflect “181-270 days delinquent” and “241-330 days delinquent,” respectively. Language also has been added under the respective subheadings to clarify that any collection effort made after the date the final demand letter is mailed must support the final demand.

Loans on which the first day of delinquency on the oldest outstanding due date is on or after July 1, 1996, unless implemented earlier by the guarantor.

801/115

12.4 Due Diligence Requirements Removes references to a “delinquent endorser” or an “endorser’s delinquency” and instead consistently refers to the “endorser of a delinquent loan.”


809/117

12.4 Due Diligence Requirements This change moves to the appropriate subsections language that addresses the default aversion assistance request period.

Loans for which the first day of delinquency on the oldest outstanding due date is on or after July 1, 2000, unless implemented earlier by the guarantor.

815/118


iv Summary of Changes Approved August 2004 through April 2005

12.4.A Due Diligence Requirements for Loans with Monthly Repayment Obligations

12.4.B Due Diligence Requirements for Loans with Repayment Obligations Less Frequent Than Monthly

Clarifies that a lender must ensure that no gap in collection activity of greater than 45 days (60 days in the case of a loan sale or transfer) occurs through the 270th day of delinquency (330th day for loans with repayment obligations less frequent than monthly). In addition, revised policy modifies the subheadings in subsections 11.4.A, “181-240 days delinquent” and 11.4.B, “241-300 days delinquent” to reflect “181-270 days delinquent” and “241-330 days delinquent,” respectively. Language also has been added under the respective subheadings to clarify that any collection effort made after the date the final demand letter is mailed must support the final demand.


801/115

12.4.A Due Diligence Requirements for Loans with Monthly Repayment Obligations

12.4.B Due Diligence Requirements for Loans with Repayment Obligations Less Frequent Than Monthly

This change moves to the appropriate subsections language that addresses the default aversion assistance request period.


815/118

Figure 12-1 Due Diligence Requirements for Loans with Monthly Repayment Obligations and with Repayment Obligations Less Frequent Than Monthly

Adds policy stating that the timing of the collection activities must ensure that no gaps of greater than 45 days occur through the 330th day of delinquency for loans with repayment obligations less frequent than monthly.


805/116

Figure 12-3 Due Diligence with a Rolling Delinquency or Special Occurrence1 – For Loans with Repayment Obligations Less Frequent Than Monthly

Clarifies that the timing of the collection activities must ensure that no gaps of greater than 45 days occur through the 330th day of delinquency.


806/116

12.5.A Default Aversion Assistance Request (DAAR)

This change moves to the appropriate subsections language that addresses the default aversion assistance request period.


815/118

12.7.D Endorser Address Skip Tracing Requirements

12.8.B Endorser Telephone Skip Tracing Requirements

Removes references to a “delinquent endorser” or an “endorser’s delinquency” and instead consistently refers to the “endorser of a delinquent loan.”


809/117

Chapter 13: Claim Filing, Discharge, and Forgiveness

13.8.B Closed School Remedies and enhances existing text by reorganizing the subsection, eliminating unnecessarily duplicative text and more succinctly describing claim filing requirements.


784/121

13.8.C Death Incorporates a standardized policy, as supported by the Partial Discharge of Consolidation Loan Workgroup (a subcommittee of the NCHELP Program Operations Committee), for suspending collection activity on a Federal Consolidation loan that paid in full one or more underlying PLUS loans in the event of the death of the student for whom the PLUS loan was made.


820/120


Summary of Changes Approved August 2004 through April 2005 v

13.8.D False Certification Remedies and enhances existing text by reorganizing the subsection, eliminating unnecessarily duplicative text and more succinctly describing claim filing requirements.

False certification loan discharges initiated by any party or false certification claims filed by the lender on or after July 1, 2005, unless implemented earlier by the guarantor.

762/121

13.8.E Total and Permanent Disability

Figure 13-3 Timely Filing Deadlines for Claims and Discharges*

States that a lender must file a disability claim within 60 days of receiving a complete loan discharge application or other form(s) approved by the Department.


824/121

13.9.B Teacher Loan Forgiveness Program

Incorporate the new statutory maximum loan forgiveness eligibility criteria and amount, to incorporate the new forgiveness eligibility criteria for the previous teacher loan forgiveness maximum, and to include information regarding both types of forbearance that may be applicable to loans for which a borrower is seeking loan forgiveness under the teacher loan forgiveness provisions. In addition, these changes reorganize existing text, eliminate redundancies, and insert subheadings to make the subsection more accessible to the manual’s users.

Teacher Loan Forgiveness Applications received by the lender on or after October 30, 2004, from a “new borrower” on or after October 1, 1998.

826/121

Chapter 14: Violations, Penalties, and Cures

14.2 Timely Claim Filing Violations States that a lender must file a disability claim within 60 days of receiving a complete loan discharge application or other form(s) approved by the Department.


824/121

14.4.A Original Filing Deadline Remedies and enhances existing text by reorganizing the subsection, eliminating unnecessarily duplicative text and more succinctly describing claim filing requirements.


784/121

Chapter 15: Federal Consolidation Loans

15.3.C Reviewing the Loan Verification Certificate

Includes additional exceptions under which the loan holder is not required to complete the LVC as published by the Department in Dear Colleague Letter FP-04-02.

None. 797/115

15.4 Disbursement

15.5.A Establishing the First Payment Due Date

15.5.B Disclosing Repayment Terms

Ensures that manual text is consistent with the Common Manual glossary definition of the term “discharge” (i.e., the release of a borrower or any comaker from all or a portion of his or her loan obligation, as applicable, due to bankruptcy, school closure, death, total and permanent disability, an unpaid refund by the school, or the school’s false certification of a FFELP loan).


802/115

Appendix B: PLUS/SLS Refinancing

Introduction

B.3 Option 3: Refinancing by Obtaining a New Loan

Ensures that manual text is consistent with the Common Manual glossary definition of the term “discharge” (i.e., the release of a borrower or any comaker from all or a portion of his or her loan obligation, as applicable, due to bankruptcy, school closure, death, total and permanent disability, an unpaid refund by the school, or the school’s false certification of a FFELP loan).


802/115


vi Summary of Changes Approved August 2004 through April 2005

Appendix F: FFELP Community Initiatives

Mapping Your Future, Inc. Adds description of the Mapping Your Future project. None. —

Appendix G: Glossary

Exceptional Performer Adds a general definition of “Exceptional Performer.” Retroactive to the implementation of the Common Manual.

810/117


Summary of Changes Approved August 2004 through April 2005 vii

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Table of Contents

Chapter 1: Overview

1.1 Introduction ....................................................................................................................................................... 11.2 About the Manual .............................................................................................................................................. 11.3 Using, Duplicating, and Reprinting of Portions of the Common Manual............................................................... 21.4 Disclaimer ......................................................................................................................................................... 21.5 FFELP Guarantors and Contact Information ........................................................................................................ 3

Chapter 2: About the FFELP

2.1 The Federal Family Education Loan Program (FFELP) ......................................................................................... 12.1.A Overview ........................................................................................................................................................... 12.1.B Types of Loans Available ................................................................................................................................... 12.2 The Life of a FFELP Loan ................................................................................................................................... 22.2.A Origination......................................................................................................................................................... 52.2.B The Interim Period ............................................................................................................................................. 72.2.C Repayment ........................................................................................................................................................ 82.3 Other FFELP Resources.................................................................................................................................... 102.3.A Federal Statute, Regulations, and Dear Colleague Letters/Dear Partner Letters ................................................ 102.3.B U.S. Department of Education Publications ...................................................................................................... 112.3.C Common Forms ............................................................................................................................................... 12

Chapter 3: Lender Participation

3.1 Eligible Lenders ................................................................................................................................................. 13.2 Schools Acting as Lenders ................................................................................................................................. 23.3 Participation and Guarantees ............................................................................................................................. 23.3.A Approval for Participation................................................................................................................................... 23.3.B Agreement to Guarantee Loans.......................................................................................................................... 33.3.C Transfer of Loan Guarantee ............................................................................................................................... 33.4 Lender Responsibilities and Standards............................................................................................................... 43.4.A Recordkeeping Requirements ............................................................................................................................ 43.4.B Loan Assignment, Sale, or Transfer ................................................................................................................... 63.4.C Prohibited Activities ........................................................................................................................................... 73.4.D Borrower Defenses ............................................................................................................................................ 83.4.E Charges to Borrowers ........................................................................................................................................ 83.5 Lender Reporting ............................................................................................................................................... 93.5.A Federal Origination Fee and Lender Fee ............................................................................................................. 93.5.B Interest Benefits and Special Allowance Reporting ........................................................................................... 103.5.C Credit Bureau Reporting................................................................................................................................... 103.5.D Reporting Loan Status Changes ....................................................................................................................... 113.5.E Reporting Loan Assignments, Sales, and Transfers .......................................................................................... 113.5.F Social Security Number Change Reporting ....................................................................................................... 113.5.G NSLDS Reporting ............................................................................................................................................. 123.5.H Reporting Loans Paid in Full............................................................................................................................. 123.6 Third-Party Servicers ....................................................................................................................................... 123.6.A Administrative Capability ................................................................................................................................. 133.6.B Financial Responsibility.................................................................................................................................... 133.7 Lender of Last Resort....................................................................................................................................... 153.7.A Eligible Lenders ............................................................................................................................................... 153.7.B Benefits of Participation ................................................................................................................................... 15

3.7.C How the LLR Program Works............................................................................................................................163.8 Independent Audits ..........................................................................................................................................163.8.A Annual Compliance Audits................................................................................................................................163.8.B Third-Party Servicer Audits...............................................................................................................................173.9 Exceptional Performer Designation ...................................................................................................................183.9.A Applying for the Designation.............................................................................................................................183.9.B Department Determination of Request for Designation .....................................................................................19

Chapter 4: School Participation

4.1 Institutional Eligibility..........................................................................................................................................14.1.A Establishing Eligibility.........................................................................................................................................14.1.B Written Agreements between Schools ................................................................................................................44.1.C Maintaining Eligibility .........................................................................................................................................54.1.D Loss of Eligibility ................................................................................................................................................94.2 Administrative Capability Standards .................................................................................................................114.2.A Financial Aid Administrator Responsibilities......................................................................................................114.2.B Financial Aid Administrator Training .................................................................................................................124.2.C Withdrawal Rates .............................................................................................................................................124.3 Financial Responsibility Standards ...................................................................................................................124.3.A General School Financial Responsibility Requirements......................................................................................134.3.B Specific Criteria for Determining School Financial Responsibility ......................................................................144.3.C Sufficient Cash Reserve Requirements .............................................................................................................144.3.D Composite Score..............................................................................................................................................164.4 Providing Information to Students.....................................................................................................................184.4.A Consumer Information......................................................................................................................................184.4.B Entrance Counseling ........................................................................................................................................214.4.C Exit Counseling ................................................................................................................................................224.5 Recordkeeping Requirements...........................................................................................................................234.6 Third-Party Servicers........................................................................................................................................254.7 Quality Assurance Program ..............................................................................................................................264.8 Independent Audits ..........................................................................................................................................26

Chapter 5: Borrower Eligibility

5.1 Eligibility Requirements for Stafford and PLUS Loans..........................................................................................15.1.A General Borrower and Student Eligibility Requirements ......................................................................................15.1.B Student Eligibility Requirements .........................................................................................................................15.1.C Parent Borrower Eligibility Requirements ............................................................................................................25.2 Federal Data Matches ........................................................................................................................................35.2.A Citizenship Data Match.......................................................................................................................................35.2.B Social Security Number Data Match ...................................................................................................................55.2.C Selective Service Registration Data Match..........................................................................................................55.2.D Prior Overpayment .............................................................................................................................................55.2.E Prior Default .......................................................................................................................................................65.3 Prior Loan Written Off.........................................................................................................................................75.4 Prior Loan Discharge Due to Total and Permanent Disability ...............................................................................85.4.A Conditional Discharge of a Prior Loan Due to Total and Permanent Disability ......................................................85.4.B Final Discharge of a Prior Loan Due to Total and Permanent Disability................................................................85.5 Effect of Exceeding Loan Limits on Eligibility ....................................................................................................105.6 Effect of Bankruptcy on Eligibility .....................................................................................................................105.7 Effect of Drug Conviction on Eligibility ..............................................................................................................105.8 Required High School Diploma or Equivalent ....................................................................................................115.9 Ability-to-Benefit Provisions .............................................................................................................................115.9.A Testing ATB Students with Special Needs.........................................................................................................125.9.B School Liability in ATB Testing..........................................................................................................................125.10 Student Enrollment Requirements ....................................................................................................................12

ii Table of Contents—July 2005

5.11 Use of Telecommunications and Correspondence in Programs of Study ........................................................... 135.12 Foreign Schools and Study-Abroad Programs .................................................................................................. 145.12.A Study at Participating Foreign Schools ............................................................................................................. 145.12.B Study-Abroad Programs................................................................................................................................... 145.13 Eligibility Requirements Specific to Transfer Students ...................................................................................... 145.13.A Financial Aid History for Transfer Students....................................................................................................... 145.13.B Students Who Transfer after Full Disbursement of the Loan ............................................................................. 155.14 Multiple School Enrollment .............................................................................................................................. 155.15 Ineligible Borrowers ......................................................................................................................................... 165.15.A Ineligibility Based on Borrower Error ................................................................................................................ 165.15.B Ineligibility Based on School Error .................................................................................................................... 175.15.C Ineligibility Based on Lender Error.................................................................................................................... 17

Chapter 6: School Certification

6.1 Defining an Academic Year ................................................................................................................................ 16.2 Determining the Loan Period.............................................................................................................................. 46.3 Determining Payment Periods............................................................................................................................ 46.3.A Number of Payment Periods .............................................................................................................................. 46.3.B Term-Based Credit-Hour Programs.................................................................................................................... 46.3.C Standard Term-Based Programs Offered in Modules.......................................................................................... 46.3.D Non-Term-Based Credit-Hour Programs ............................................................................................................ 56.3.E Clock-Hour Programs ........................................................................................................................................ 56.3.F Students Returning to a Non-Term Credit-Hour or Clock-Hour Program after a Withdrawal ................................ 66.4 Determining the Disbursement Schedule ........................................................................................................... 66.4.A Multiple Disbursements and Exceptions............................................................................................................. 76.4.B When Disbursements May Be Made................................................................................................................... 76.5 Determining the Student’s Cost of Attendance (COA).......................................................................................... 96.5.A COA Components............................................................................................................................................... 96.5.B COA Exceptions for Correspondence and Telecommunications Study............................................................... 106.5.C COA Documentation Requirements .................................................................................................................. 106.5.D Use of Professional Judgment to Determine COA ............................................................................................. 106.6 Determining the Expected Family Contribution (EFC) ........................................................................................ 106.6.A Performing Verification Requirements .............................................................................................................. 106.6.B Use of Professional Judgment to Determine EFC.............................................................................................. 116.7 Determining the Amount of Estimated Financial Assistance (EFA)..................................................................... 116.8 Determining the Student’s Dependency Status ................................................................................................ 126.9 Defining Enrollment Status............................................................................................................................... 136.10 Determining the Student’s Grade Level ............................................................................................................ 146.11 Loan Limits...................................................................................................................................................... 156.11.A Stafford Annual Loan Limits ............................................................................................................................. 156.11.B Stafford Aggregate Loan Limits........................................................................................................................ 186.11.C Increased Unsubsidized Stafford Loan Limits for Health Profession Students.................................................... 186.11.D Exceeding Loan Limits ..................................................................................................................................... 206.11.E Prorated Loan Limits........................................................................................................................................ 216.11.F Effects of Consolidation Loan on New Stafford Loan Eligibility .......................................................................... 216.12 Determining the Eligible Loan Amount ............................................................................................................. 226.13 Determining the Loan Amount at Schools with Credit-Hour Programs .............................................................. 226.14 Determining a Student’s Eligibility for Interest Subsidy on Stafford Loans......................................................... 236.14.A Subsidized Stafford Loans ............................................................................................................................... 236.14.B Unsubsidized Stafford Loans............................................................................................................................ 236.14.C Nonsubsidized Stafford Loans.......................................................................................................................... 236.15 School Certification of the Loan ....................................................................................................................... 236.15.A Preventing Overawards.................................................................................................................................... 246.15.B Stafford Loan Certification ............................................................................................................................... 246.15.C PLUS Loan Certification ................................................................................................................................... 246.15.D Additional Unsubsidized Stafford Loan Certification.......................................................................................... 25

Table of Contents—July 2005 iii

6.15.E Refusing to Certify a Loan or Reducing Borrower Eligibility ...............................................................................256.16 Applying for Federal Stafford and PLUS Loans ..................................................................................................266.17 Forwarding the Loan Information......................................................................................................................276.18 Facilitating Guarantee Processing.....................................................................................................................286.19 Guarantee of the Loan......................................................................................................................................286.20 Adjusting the Guaranteed Loan Amount............................................................................................................286.21 The NCHELP FFELP CommonLine Network .......................................................................................................29

Chapter 7: Loan Origination

7.1 Reviewing the Loan Request ..............................................................................................................................17.1.A General Determinations......................................................................................................................................17.1.B Creditworthiness ................................................................................................................................................17.1.C Effect of Bankruptcy on Creditworthiness ...........................................................................................................27.2 Reviewing the Promissory Note ..........................................................................................................................27.2.A Lender Responsibilities under a Master Promissory Note....................................................................................27.2.B Transfer Students and Master Promissory Notes ................................................................................................47.3 Processing the Loan Request .............................................................................................................................47.4 Establishing Stafford Loan Interest Rates............................................................................................................47.4.A Current Stafford Interest Rates ...........................................................................................................................57.4.B Reduced Stafford Interest Rates .........................................................................................................................57.4.C Previous Stafford Interest Rates .........................................................................................................................57.4.D Resolving Interest Rate Discrepancies on Stafford Loans ....................................................................................57.5 Establishing PLUS Loan and SLS Loan Interest Rates .........................................................................................77.5.A Current PLUS Interest Rate .................................................................................................................................77.5.B Reduced PLUS Interest Rates .............................................................................................................................77.5.C Previous PLUS and SLS Interest Rates................................................................................................................77.6 Borrower Disclosures .........................................................................................................................................97.6.A General Initial Disclosure Requirements..............................................................................................................97.6.B Income-Sensitive Repayment Disclosure Requirements....................................................................................107.6.C Guarantee Disclosure .......................................................................................................................................107.7 Disbursing the Loan .........................................................................................................................................107.7.A Earliest Date for Disbursement .........................................................................................................................117.7.B Multiple Disbursement .....................................................................................................................................127.7.C Disbursement by Individual Check....................................................................................................................127.7.D Disbursement by Electronic Funds Transfer (EFT) or Master Check...................................................................127.7.E Disbursement for Students in Study-Abroad Programs or Foreign Schools........................................................137.7.F Reissuing Disbursements .................................................................................................................................137.7.G Late Disbursement ...........................................................................................................................................147.7.H Effect of Loss of School Eligibility on Disbursement ..........................................................................................157.7.I Effect of Bankruptcy on Disbursement..............................................................................................................157.7.J Disbursement to Transfer Students ..................................................................................................................167.7.K Disbursement Cancellation...............................................................................................................................167.7.L Consummated and Unconsummated Disbursements ........................................................................................167.8 Processing Guarantee Fees ..............................................................................................................................177.8.A Paying the Guarantee Fee.................................................................................................................................177.8.B Recalculating the Guarantee Fee ......................................................................................................................177.8.C Refunding the Guarantee Fee ...........................................................................................................................187.9 Processing Federal Origination Fees.................................................................................................................207.9.A Collecting the Origination Fee...........................................................................................................................207.9.B Reporting the Origination Fee ...........................................................................................................................207.9.C Refunding the Origination Fee ..........................................................................................................................21

Chapter 8: Loan Delivery

8.1 Managing Loan Funds ........................................................................................................................................18.2 Required Notices................................................................................................................................................1

iv Table of Contents—July 2005

8.2.A Initial Notice of Funds ........................................................................................................................................ 28.2.B School Notice of Credit to Student Account ........................................................................................................ 28.2.C Borrower Notice to Cancel Loan......................................................................................................................... 28.2.D Notification and Confirmation Requirements for the Multi-Year Feature of the MPN............................................ 38.3 Required Authorizations..................................................................................................................................... 38.3.A Authorization Modifications and Cancellations.................................................................................................... 48.3.B Authorization for Release of EFT/Master Check Disbursements .......................................................................... 48.4 Assessing Satisfactory Academic Progress ........................................................................................................ 68.5 Completing Verification ...................................................................................................................................... 68.6 Managing Overawards ....................................................................................................................................... 68.7 Delivering Loan Funds at Eligible Schools .......................................................................................................... 78.7.A Delivery Time Frames ........................................................................................................................................ 78.7.B Delivering Second and Subsequent Disbursements.......................................................................................... 108.7.C Early Delivery................................................................................................................................................... 108.7.D Delayed Delivery.............................................................................................................................................. 118.7.E Late Delivery.................................................................................................................................................... 118.7.F Delivery to Borrowers in Special Circumstances............................................................................................... 128.7.G Delivery to Transfer Students........................................................................................................................... 138.7.H Delivery Methods............................................................................................................................................. 148.8 Managing Credit Balances ............................................................................................................................... 148.8.A Delivering Credit Balances ............................................................................................................................... 148.8.B Holding Credit Balances................................................................................................................................... 158.8.C Treatment of a Title IV Credit Balance When a Student Withdraws ................................................................... 158.9 Return of Loan Funds....................................................................................................................................... 168.9.A Return of Undelivered Loan Funds ................................................................................................................... 168.9.B Return of Ineligible Borrower Loan Funds......................................................................................................... 168.9.C Return of Unearned Loan Funds....................................................................................................................... 178.10 Delivery When Department Approval Is Required.............................................................................................. 218.11 Delivering Loan Funds in Cases of Lost School Eligibility .................................................................................. 218.11.A Exceptions to Delivery Restrictions at Ineligible Schools................................................................................... 218.11.B Delivery of Second or Subsequent Disbursements after a School Loses Eligibility............................................. 22

Chapter 9: School Reporting Responsibilities and the Return of Title IV Funds

9.1 Reporting Social Security Number Changes ....................................................................................................... 19.2 Student Enrollment Status Reporting.................................................................................................................. 19.2.A National Student Loan Data System (NSLDS) Enrollment Reporting .................................................................... 29.2.B Reporting Student Enrollment Status Changes to the Lender or Guarantor.......................................................... 49.3 Leave of Absence .............................................................................................................................................. 59.4 Withdrawal Dates .............................................................................................................................................. 69.5 Return of Title IV Funds...................................................................................................................................... 99.5.A Return Amounts for Title IV Grant and Loan Programs........................................................................................ 99.5.B Processing Returned Funds ............................................................................................................................. 159.5.C Responsibilities for Unpaid Refunds ................................................................................................................. 179.5.D Return of Title IV Funds Calculations for Students Subject to Verification.......................................................... 17

Chapter 10: Loan Servicing

10.1 Verifying Enrollment........................................................................................................................................... 110.1.A Lender Processing of Enrollment Changes ......................................................................................................... 210.1.B Lender Reporting of Enrollment Changes ........................................................................................................... 310.2 In-School Period ................................................................................................................................................ 410.3 Grace Period...................................................................................................................................................... 410.3.A Length of the Grace Period ................................................................................................................................ 510.3.B Payment of Interest during the Grace Period ...................................................................................................... 510.3.C Military Extension of the Grace Period................................................................................................................ 510.4 Establishing the Repayment Start Date .............................................................................................................. 6

Table of Contents—July 2005 v

10.4.A Stafford Loan Repayment Start Date...................................................................................................................610.4.B PLUS and SLS Loan Repayment Start Date.........................................................................................................610.4.C Aligning Repayment Start Dates for Stafford and SLS Loans...............................................................................610.5 Establishing the First Payment Due Date ............................................................................................................710.5.A Stafford Loan First Payment Due Date ................................................................................................................710.5.B PLUS and SLS Loan First Payment Due Date ......................................................................................................710.5.C Aligning First Payment Due Dates for Stafford and SLS Loans ............................................................................810.5.D Revised Out-of-School Dates before Conversion to Repayment...........................................................................810.5.E Revised Out-of-School Dates after Conversion to Repayment .............................................................................910.6 Establishing Repayment Terms ........................................................................................................................1010.6.A Determining the Borrower’s Indebtedness ........................................................................................................1010.6.B Length of the Repayment Period.......................................................................................................................1010.6.C Repayment Options ..........................................................................................................................................1110.6.D Minimum Payment Requirements.....................................................................................................................1110.6.E Adjusting the Borrower’s Repayment Terms .....................................................................................................1210.7 Disclosing Repayment Terms ...........................................................................................................................1310.7.A Time Frame for Disclosure ...............................................................................................................................1410.7.B Dispute of Loan Terms .....................................................................................................................................1510.8 Establishing a Repayment Schedule .................................................................................................................1510.8.A Standard Repayment Schedule.........................................................................................................................1510.8.B Graduated Repayment Schedule.......................................................................................................................1610.8.C Income-Sensitive Repayment Schedule............................................................................................................1610.8.D Extended Repayment Schedule ........................................................................................................................1610.9 Interest Charges...............................................................................................................................................1710.9.A Annual Variable Interest Rate Charges ..............................................................................................................1710.9.B Reduced Interest Rates ....................................................................................................................................1710.9.C Excess Interest Rebates ...................................................................................................................................1710.9.D Payment of Accrued Interest on Loans Not Eligible for Federal Interest Benefits................................................1710.10 Capitalizing Accrued Interest ............................................................................................................................1810.10.A Permitted Capitalization ...................................................................................................................................1810.10.B Capitalization Frequency ..................................................................................................................................1810.10.C Capitalization of Delinquent Interest Payments .................................................................................................1910.11 Applying Borrower Payments and Funds Returned by the School......................................................................1910.11.A Applying Regular Borrower Payments...............................................................................................................2010.11.B Applying Prepayments......................................................................................................................................2010.11.C Changing the Borrower’s Payment Due Date ....................................................................................................2110.11.D Applying Payments during Deferment or Forbearance ......................................................................................2110.11.E Applying Funds Returned by the School............................................................................................................2110.12 Paid-in-Full Loans ............................................................................................................................................22

Chapter 11: Deferment and Forbearance

11.1 Authorized Deferment ........................................................................................................................................111.1.A General Deferment Eligibility Criteria ..................................................................................................................111.1.B Documentation Required for Authorized Deferment ............................................................................................311.1.C Deferment Length ..............................................................................................................................................311.1.D Payment of Interest during Deferment ................................................................................................................311.1.E Reporting Deferments ........................................................................................................................................411.1.F Deferment of Loans in Delinquency ....................................................................................................................411.1.G Deferment of Loans in Default ............................................................................................................................411.1.H Post-Deferment Grace Period .............................................................................................................................511.1.I Establishing Repayment after Deferment............................................................................................................511.2 ACTION Program Deferment ...............................................................................................................................711.2.A Eligibility Criteria—ACTION Program ..................................................................................................................711.2.B Deferment Documentation—ACTION Program....................................................................................................711.2.C Length of Deferment—ACTION Program ............................................................................................................711.3 Economic Hardship Deferment ...........................................................................................................................7

vi Table of Contents—July 2005

11.3.A Eligibility Criteria—Economic Hardship.............................................................................................................. 711.3.B Deferment Documentation—Economic Hardship ............................................................................................... 811.3.C Length of Deferment—Economic Hardship ........................................................................................................ 911.4 Graduate Fellowship Deferment ......................................................................................................................... 911.4.A Eligibility Criteria—Graduate Fellowship ............................................................................................................ 911.4.B Deferment Documentation—Graduate Fellowship ............................................................................................. 911.4.C Length of Deferment—Graduate Fellowship ...................................................................................................... 911.5 In-School Deferment and Summer Bridge........................................................................................................ 1011.5.A Eligibility Criteria—In-School ........................................................................................................................... 1011.5.B Deferment Documentation—In-School ............................................................................................................ 1111.5.C Length of Deferment—In-School ..................................................................................................................... 1111.5.D Summer Bridge Extension................................................................................................................................ 1211.6 Internship/Residency Deferment ...................................................................................................................... 1211.6.A Eligibility Criteria—Internship/Residency ......................................................................................................... 1211.6.B Deferment Documentation—Internship/Residency........................................................................................... 1311.6.C Length of Deferment—Internship/Residency ................................................................................................... 1311.7 Military Deferment ........................................................................................................................................... 1311.7.A Eligibility Criteria—Military .............................................................................................................................. 1311.7.B Deferment Documentation—Military ............................................................................................................... 1411.7.C Length of Deferment—Military ........................................................................................................................ 1411.8 National Oceanic and Atmospheric Administration Corps Deferment ................................................................ 1411.8.A Eligibility Criteria—NOAA................................................................................................................................. 1411.8.B Deferment Documentation—NOAA .................................................................................................................. 1411.8.C Length of Deferment—NOAA........................................................................................................................... 1411.9 Parental Leave Deferment................................................................................................................................ 1411.9.A Eligibility Criteria—Parental Leave................................................................................................................... 1511.9.B Deferment Documentation—Parental Leave .................................................................................................... 1511.9.C Length of Deferment—Parental Leave............................................................................................................. 1511.10 Peace Corps Deferment ................................................................................................................................... 1511.10.A Eligibility Criteria—Peace Corps ...................................................................................................................... 1511.10.B Deferment Documentation—Peace Corps........................................................................................................ 1611.10.C Length of Deferment—Peace Corps ................................................................................................................ 1611.11 Public Health Service Deferment...................................................................................................................... 1611.11.A Eligibility Criteria—Public Health Service ......................................................................................................... 1611.11.B Deferment Documentation—Public Health Service .......................................................................................... 1611.11.C Length of Deferment—Public Health Service ................................................................................................... 1611.12 Rehabilitation Training Program Deferment...................................................................................................... 1611.12.A Eligibility Criteria—Rehabilitation Training Program ......................................................................................... 1711.12.B Deferment Documentation—Rehabilitation Training Program .......................................................................... 1711.12.C Length of Deferment—Rehabilitation Training Program ................................................................................... 1711.13 Tax-Exempt Organization Volunteer Deferment ................................................................................................ 1711.13.A Eligibility Criteria—Tax-Exempt Organization Volunteer ................................................................................... 1711.13.B Deferment Documentation—Tax-Exempt Organization Volunteer..................................................................... 1811.13.C Length of Deferment—Tax-Exempt Organization Volunteer ............................................................................. 1811.14 Teacher Shortage Area or Targeted Teacher Deferment ................................................................................... 1811.14.A Eligibility Criteria—Teacher Shortage Area ...................................................................................................... 1811.14.B Deferment Documentation—Teacher Shortage Area........................................................................................ 1911.14.C Length of Deferment—Teacher Shortage Area ................................................................................................ 1911.15 Temporary Total Disability Deferment .............................................................................................................. 1911.15.A Eligibility Criteria—Temporary Total Disability ................................................................................................. 1911.15.B Deferment Documentation—Temporary Total Disability................................................................................... 2011.15.C Length of Deferment—Temporary Total Disability............................................................................................ 2011.16 Unemployment Deferment ............................................................................................................................... 2011.16.A Eligibility Criteria—Unemployment .................................................................................................................. 2011.16.B Deferment Documentation—Unemployment.................................................................................................... 2111.16.C Length of Deferment—Unemployment ............................................................................................................ 2111.17 Working Mother Deferment.............................................................................................................................. 21

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11.17.A Eligibility Criteria—Working Mother..................................................................................................................2111.17.B Deferment Documentation—Working Mother...................................................................................................2211.17.C Length of Deferment—Working Mother............................................................................................................2211.18 Forbearance.....................................................................................................................................................2211.18.A Forbearance Types...........................................................................................................................................2311.18.B Documentation Required for Authorized Forbearance .......................................................................................2311.18.C Forbearance Length .........................................................................................................................................2311.18.D Payment of Interest during Forbearance ...........................................................................................................2311.18.E Reporting Forbearances ...................................................................................................................................2411.18.F Forbearance of Delinquent Loans .....................................................................................................................2411.18.G Forbearance of Defaulted Loans .......................................................................................................................2411.18.H Borrower Contact during Forbearance ..............................................................................................................2411.18.I Establishing Repayment after Forbearance.......................................................................................................2411.19 Administrative Forbearance..............................................................................................................................2611.19.A Bankruptcy Filing .............................................................................................................................................2611.19.B Borrower Ineligible for Deferment.....................................................................................................................2611.19.C Closed School or False Certification..................................................................................................................2611.19.D Cures ...............................................................................................................................................................2611.19.E Death ...............................................................................................................................................................2711.19.F Delinquency before a Deferment or Certain Forbearances ................................................................................2711.19.G Delinquency after a Deferment or Mandatory Forbearance ...............................................................................2711.19.H Documentation Collection and Processing ........................................................................................................2711.19.I Late Notification of Out-of-School Dates...........................................................................................................2811.19.J Loan Sale or Transfer .......................................................................................................................................2811.19.K Natural Disasters, Local or National Emergency, or Military Mobilization...........................................................2811.19.L New Out-of-School Dates after Conversion to Repayment ................................................................................2811.19.M Repayment Alignment ......................................................................................................................................2811.19.N Repurchase of a Non-Bankruptcy Claim ...........................................................................................................2811.19.O Total and Permanent Disability .........................................................................................................................2911.19.P Unpaid Refund Discharge .................................................................................................................................2911.20 Discretionary Forbearance................................................................................................................................2911.20.A Reduced-Payment Forbearance .......................................................................................................................3011.21 Mandatory Administrative Forbearance ............................................................................................................3011.21.A Death ...............................................................................................................................................................3011.21.B Exceptional Circumstances...............................................................................................................................3111.21.C Rep

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