Federal Student Aid - IFAP
   
DCLPublicationDate: 8/1/2000
DCLID: GEN-00-12
AwardYear:
Summary: Elimination of the Paper Financial Aid Transcript (FAT)


August 2000

GEN-00-12

Subject: Elimination of the Paper Financial Aid Transcript (FAT)

Summary: This letter authorizes, effective July 1, 2000, schools to use NSLDS to monitor financial aid history for all students, including those who transfer mid-year. It also announces the results of recent negotiated rulemaking that, if finalized, will completely eliminate the paper FAT. Finally, this letter clarifies the way capitalized interest is reported by NSLDS.

Dear Partner:

Effective July 1, 2000 schools are authorized to use data from the National Student Loan Data System (NSLDS) to monitor the financial aid history of all applicants for Federal student aid, including those who transfer mid-year.

The only limitation on this authority is that for mid-year transfers schools must access NSLDS no earlier than 30 days prior to the beginning of the first payment period for which the school expects to pay the student Title IV federal student aid. This letter also describes the agreement recently reached during negotiated rulemaking that, if made final in the Student Assistance General Provisions regulations, will remove this 30-day requirement and officially end the use of paper FATs.

Also, in this letter we provide clarification on how NSLDS reports any capitalized interest that may be included in the outstanding principal balances of a student's FFEL or Direct Loans and the effect of such capitalization on aggregate loan limits.

Background of NSLDS/FAT Issue:

Current Regulatory Requirements:
In the Fall of 1995, we amended the Student Assistance General Provisions regulations at 34 CFR 668.19 to allow, but not require, schools to use NSLDS to obtain financial aid history information when determining a student's eligibility for federal student aid. While those regulations allow schools to use NSLDS for most of their transfer students, they still require schools that receive requests for FAT information from another school, or from the student, to provide the requested FAT information to the requesting school or to the student. In addition, the regulations provide that the Secretary will announce the specific conditions under which the NSLDS can be used for student eligibility purposes.

Current Guidance: Guidance was provided to schools in Dear Colleague Letter GEN-96-13 issued in July of 1996. That letter, in addition to describing how NSLDS data can be used by schools, placed limitations on the use of NSLDS for any student who transfers from one school to another during the same award year (mid-year transfer student), as opposed to one whose transfer occurs from one award year to another. These limitations generally require a school to continue to request paper FATs from the school the mid-year transfer student had previously attended. [
See GEN-96-13, Q&As 40 through #47]. Because of delays in the reporting of data into NSLDS from the various NSLDS data providers, we were concerned that disbursements made to a student for attendance at one school during the award or academic year might not be reported to NSLDS in time to be available to the new school before it made its awards and disbursements.

New Guidance: We, of course, are anxious to drop the mid-year transfer restrictions and have schools use NSLDS information for all students -- finally eliminating the paper FAT. To this end we have been reviewing and analyzing data reported to NSLDS with specific attention to actual disbursement dates, reporting dates, and frequency of reporting. We also looked at the reporting of disbursement data related to the most common transfer patterns (i.e. Summer term to Fall term, Fall term to Winter or Spring term).

Based upon this analysis and the increasing accuracy and timeliness of the data submitted to NSLDS by data providers, we have concluded that we can now relax those earlier limitations. Therefore, beginning July 1, 2000, schools may obtain student eligibility information for a mid-year transfer student directly from NSLDS instead of obtaining a paper FAT from the prior school. However, until additional regulatory and operational changes are made (see discussion below regarding negotiated rulemaking), the school must access the NSLDS no earlier than 30 days prior to the beginning of the first payment period for which the school expects to pay the student Title IV aid. For example, if the mid-year transfer student will begin attending the new school for the Spring term that starts on January 29, the school must access NSLDS on or after December 29. By checking NSLDS no earlier than 30 days before payment, we increase the probability that any late payments made for attendance at other schools will be included and considered by the new school.

Schools may rely on NSLDS information in determining a student’s eligibility for Title IV aid by querying NSLDS, either using the NSLDS WEB FAT pages or through the NSLDS batch FAT process. It is important to remember that NSLDS information provided to a school as part of the Institutional Student Information Record (ISIR) does not meet the new requirement unless the ISIR was processed by the CPS within the 30 day period preceding the student’s first payment period at the new school.

While using NSLDS instead of requesting paper FATs is still optional, we hope that schools enrolling mid-year students will use the new option to reduce burden that otherwise is placed on the schools that are required to respond to paper FAT requests. We also want to remind, and strongly encourage, schools to use NSLDS for all of their transfer students and to request paper FATs only when absolutely necessary. We are proposing to amend the current regulations to require the use of NSLDS and finally eliminate all vestiges of paper FATs. We hope that schools will be ahead of us in this regard and stop requesting paper FATs as soon as possible.

In the meantime, schools must comply with the current regulations that require them to promptly respond to a request from another school or from a student for financial aid transcript information.

New Regulatory Proposal: During the just completed negotiated rulemaking, we presented the committee with language that would amend the regulations governing financial aid transcripts to be consistent with the revised guidance discussed above. Most of the institutional members of the committee, while supportive of our objectives, thought that instead of requiring schools to access NSLDS and obtain financial aid history for each mid-year transfer student, we should provide financial aid history information for these students only when necessary and directly to schools that need it. We agreed and reached consensus on a revised proposal that would eliminate the use of paper FATs entirely.

Under this proposal, schools would no longer have to request or respond to paper FATs for any transfer student, mid-year or otherwise. Instead, all schools would be required to use NSLDS information for obtaining financial aid history information on their transfer students. For non-mid-year transfers, schools could use the existing ISIR/SAR process or access NSLDS directly.

For mid-year transfer students, a school would specifically request NSLDS to provide it with financial aid history information for a student once the school learned that the student was interested in attending that school. The school would make this request at any time by providing NSLDS with information identifying the student. When NSLDS receives the school’s request, it would compare its current financial aid history information to the history reported to schools on the latest ISIR. If NSLDS has more recent information that related to the year in which the student was transferring, it would send the updated information directly to the school(s) that indicated interest in the student.

After making its request, a school would have to wait seven days before it could disburse Title IV funds to the student. This seven-day timeframe provides a minimum but sufficient amount of time for NSLDS to process the school’s request, query its database, and report back to the school. However, if the student is otherwise eligible, a school would be allowed to disburse funds within the seven-day period once it receives any updated information from NSLDS, or obtains that information itself by accessing NSLDS on-line at the nsldsfap.ed.gov website.

If the proposed changes to the regulations are finalized they would be effective beginning on July 1, 2001. In the meantime, we have been meeting with focus groups consisting of financial aid administrators from different types and sizes of institutions in order to develop the operational details of the proposal.

Capitalized Interest:

There has been some confusion over the effect of capitalized interest on aggregate loan limits for FFEL and Direct Loan borrowers and how any capitalized interest is reported by NSLDS. In order to clarify these issues, we are providing the following "Q&A"s.

Q1. What is capitalization of interest in the Direct Loan and FFEL Programs?

A1. In both the FFEL and Direct Loan programs interest that has accrued on a loan, including interest accrued during the in-school and grace periods for unsubsidized loans, may be periodically added to the amount borrowed. This "capitalization" of interest results in an increased outstanding principal balance upon which additional interest is calculated.

Q2. Is capitalized interest that becomes part of the outstanding principal balance of a loan considered when determining whether a borrower is approaching or has exceeded an aggregate loan maximum?

A2. No. When calculating whether a borrower has reached his or her aggregate loan limit in either the FFELP or Direct Loan Program, only the outstanding principal balance that results from loans made and disbursed should be considered. Any portion of a loan's outstanding principal balance that is the result of the capitalization of interest should be excluded when calculating remaining aggregate eligibility.

Q3. Is capitalized interest included in the amount of the "Outstanding Balance" reported through the SAR and ISIR NSLDS Financial Aid History process?

A3. Yes. Once interest is capitalized it legally becomes part of the outstanding principal balance and must be recorded and reported as such. When the NSLDS reports a loan to the CPS for inclusion on SARs and ISIRs, the Outstanding Principal Balance reported includes any interest that was capitalized.
Similarly, aggregate outstanding principal balance amounts displayed for each loan on the NSLDS web screens also include any capitalized interest.

Q4. How does a school handle the apparent contradiction between the answers to Questions #2 and #3 when determining if a student is eligible for additional loan funds?

A4. In order to eliminate the effect of capitalized interest when determining whether an applicant for additional loan funds under the FFEL or Direct Loan programs is approaching or has exceeded an aggregate loan maximum, NSLDS makes an adjustment when reporting the "Aggregate Amount" of FFELP and Direct Loans on SARs and ISIRs. The same adjustment is made when aggregate amounts are displayed on the NSLDS web screens.

NSLDS makes this adjustment by reviewing each reported loan and using, for purposes of calculating Aggregate Amounts, the lessor of the Outstanding Balance, the Net Loan Amount, or the total of all of the disbursements made for the loan. We do this because (1) the only way the outstanding balance of a loan can be greater than the loan amount (or total disbursements) is if interest had been capitalized and added to the outstanding principal balance, or (2) if the outstanding principal balance of a loan is less than the original loan amount (or total disbursements), there either is no capitalized interest or it has been paid down by the borrower.*1*

In summary, capitalized interest is not included in determining the aggregate amount of FFELP and Direct Loans. NSLDS makes any necessary adjustments when it reports Aggregate Amounts on SARs and ISIRs, as well as on the NSLDS web screens. Schools may use these reported amounts when determining the eligibility of a student for additional loans.

Additional Information:

If you have any questions, please contact our SFA Customer Support Service. Staff is available Monday through Friday between the hours of 9:00 AM and 5:00 PM (Eastern Time) at 1-800-433-7327. After hours calls will be accepted by an automated voice response system. Callers leaving their name and phone number will receive a return call the next business day. You may FAX an inquiry to the Customer Support Service at (202) 260-4199, or E-mail one to sfa_customer_support@ed.gov.

Thank you for your continued support of the Student Financial Assistance programs.

Sincerely,


Kay Jacks, General Manager
Schools Channel
Student Financial Assistance
U.S. Department of Education


Jeff Baker, Director
Program Development Division
Student Financial Assistance
U.S. Department of Education


[[*1*Since, by definition interest capitalized becomes part of a loan's outstanding balance, there is no real concept of paying either the capitalized interest first or of paying the original loan amount first. However, for purposes of making these adjustments to aggregate loan amounts, we assume that any payments made on the loan were first applied to "capitalized interest", if any.]]