Publication Date: August 2002
DCL ID: GEN-02-06
Expiration
of the current statutory exceptions to certain loan disbursement rules for low-default
rate schools.
August 2002
GEN-02-06
G-02-337
L-02-231
SUBJECT: Expiration
of the current statutory exceptions to certain loan disbursement rules for low-default
rate schools.
SUMMARY: This letter discusses
the impending expiration of statutory exceptions to certain loan disbursement
rules for low-default rate schools in the Federal Family Education Loan Program
(FFEL) and the William D. Ford Federal Direct Loan (Direct Loan) Program. These
exceptions will expire on September 30, 2002, unless legislation to extend them
is enacted.
Dear Colleague:
Section 428G(a)(3) and
(b)(1) of the Higher Education Act of 1965, as amended, (HEA) provide exceptions
to the multiple disbursement and 30-day delayed disbursement requirements. These
exceptions apply to FFEL and Direct loans made to students for attendance at
a school whose cohort default rates (as determined under section 435(m) of the
HEA) are less than 10 percent for the three most recent years. Under, section
428G(a)(3), such schools may disburse an FFELP loan or Direct Loan in one installment
if the loan period is only one term or, for non-term and non-standard term programs,
the loan period is equal to or less than four months in length. Section 428G(b)(1)
exempts such low default rate schools from the 30-day delayed disbursement requirement
that normally applies to first-time, first-year undergraduate borrowers.
Both exceptions expire
on September 30, 2002. Recent attempts to pass legislation to extend these provisions
have been unsuccessful and it is unclear if legislation will be enacted to extend
these exceptions. Therefore, after these exceptions expire on September 30th,
loans certified in the FFEL Program or originated in the Direct Loan Program
on or after October 1, 2002 for students at these schools will be subject to
multiple disbursements and 30-day delayed delivery of loan proceeds. If legislation
is enacted to extend these provisions prior to September 30, we will notify
you immediately.
To avoid possible disbursement
problems and borrower confusion related to a sudden reversion to the regular
disbursement rules, schools that are currently operating under the exceptions
permitted by sections 428G(a)(3) and 428G(b)(1) of the HEA should consider making
the necessary changes now and advising their borrowers of the changes. Thank
you in advance for your efforts to prevent problems that could result from the
impending termination of these loan disbursement exceptions.
Sincerely,
Jeffrey R. Andrade
Deputy Assistant Secretary for
Policy, Planning, and Innovation
Office of Postsecondary Education
