TG telephone conference Things that make you go hmmm questions and answers

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1 TG telephone conference Things that make you go hmmm questions and answers Q: I am a school that certifies loans in a school-initiated flow. In other words, during the awarding process, I certify loans up front for every student or parent who appears eligible. If a student withdraws and the borrower has not signed his or her Master Promissory Note at the time of withdrawal, can I include the loan amount as aid that could have been disbursed in the student s return of Title IV funds (R2T4) calculation? A: It depends. If the borrower signs his or her Master Promissory Note before you complete the student s R2T4 calculation, you can include the loan funds as aid that could have been disbursed in the calculation. And by including the loan funds as aid that could have been disbursed in the calculation, should the student be eligible for a post-withdrawal disbursement of the loan funds, you can offer the funds to the student. Just a reminder: you must give the student 14 days to respond to an offer of a post-withdrawal disbursement. The student can accept the funds. The student can decline the funds. You must abide by the student s decision if he or she responds within the 14-day period. You have the option to abide by the student s decision after the 14-day period. Q: Does this mean that I can offer a post-withdrawal disbursement of Stafford loan funds to a student who is a first-year, first-time borrower who withdraws before completing the 30 th day of his or her program of study as long as the student has completed his or her Master Promissory Note before I complete the student s R2T4 calculation? A: While you should include these funds as aid that could have been disbursed in the student s R2T4 calculation, remember that you cannot offer a student a post-withdrawal disbursement unless it meets the conditions of a late disbursement. In this case, since the student is a firstyear, first-time borrower who has not completed the first 30 days of his or her program of study, the conditions of a late disbursement have not been met and you cannot offer such a student a post-withdrawal disbursement. The same is true for a second or subsequent disbursement. If a student withdraws, and the borrower (student or parent, as applicable) completes his or her Master Promissory Note before the date you complete the R2T4 calculation, you can include the second or subsequent disbursement as aid that could have been disbursed in the student s R2T4 calculation, but you cannot offer the student a post-withdrawal disbursement of a second or subsequent disbursement of loan funds because the student who has not successfully completed the loan period. Q: Up until now, our school has been including as aid that could have been disbursed in R2T4 calculations any loan funds certified prior to the date of withdrawal whether or not the borrower completed the Master Promissory Note. Are we required to go back and recalculate R2T4 calculations before now or face getting cited in our next program review? A: No, ED did not specifically address this issue prior to the release of GEN on October 27, 2005, and states in the DCL that any school that operated under a different but reasonable interpretation of this issue will not be considered noncompliant before this date. However, all R2T4 calculations performed on or after October 27, 2005, must follow this guidance. Q: My school has standard term-based programs. Some of the terms of the programs, such as the summer term, are comprised of a series of modules. If a student attends one module but withdraws in another, is R2T4 required? What if a student withdraws during the first module, begins another, and then withdraws again? Page 1

2 A: Let s do a comparison. Let s say that Sam is attending a 16-week semester without modules and Kelly is attending a 16-week semester comprised of a series of four 4-week modules. Both are registered for 12 hours Sam is registered for 12 hours over the course of the full semester, and Kelly is registered for 3 hours for each of her 4 modules. Sam hits a rough patch midway through the full semester and drops from 12 to 3 hours. Even though he completes the semester at less-than-half-time enrollment, he completed at least one course, so no R2T4 calculation is required. Let s see how Kelly did. Kelly begins module 1 of the semester and withdraws; she subsequently begins module 2 and withdraws. She begins and completes module 3 but withdraws from module 4. Is R2T4 required? No, because, like Sam, Kelly ended the semester having completed at least one course she also finished 3 out of 12 hours for the semester. Let s change Kelly s outcome a bit. Let s say Kelly begins and withdraws from module 1, then begins and withdraws from module 2. She never attends modules 3 and 4. Is R2T4 required? Yes, because Kelly did not complete a course within the semester. So how would you complete the calculation? Would you do separate calculations for the two modules from which Kelly withdrew? No, you would do one calculation for the whole semester, and you would determine the percentage of the period completed by using the number of days Kelly attended both modules 1 and 2 divided by the total number of days in the semester. This will yield the percentage of aid that Kelly earned. Check out the Federal Student Aid Handbook, page 5-64, for a great summary of information about R2T4 and modules. Q: A student withdraws due to military mobilization, but we don t know the reason for the withdrawal. We perform the R2T4 calculation. We later find out (when the student returns to reenroll) why the student withdrew. Should we reverse the R2T4 calculation? A: No, even if you had known that the reason for the student s withdrawal was due to military mobilization, you would have been required to perform the R2T4 calculation. And if the calculation had resulted in an amount of Title IV funds for the school to return, you should have returned those funds as normal, and this should not be reversed. In addition, if the calculation had resulted in a grant overpayment owed by the student, you would have, per Dear Colleague Letter GEN-03-06, correctly referred the overpayment to ED. However, now that you know the reason for the student s withdrawal, you should correct the reason for the referral of the overpayment as due to Military Mobilization on the overpayment report to prevent the student from being considered responsible for repayment of the overpayment and ineligible for further Title IV funds. If you need to correct a previously referred overpayment, you should fax or mail a letter explaining the situation to ED Collections, per the Federal Student Aid Handbook, page Q: Can we use the Web to send a student his or her award letter, and the notice that we are required to send when we credit loan funds toward the student s school account to pay for institutional charges? A: Yes, ED has authorized schools to send students to a secured Web site to obtain these required notifications. Please keep in mind that, as described in Dear Colleague Letter GEN-05-16, electronic notifications are regulated by more than just the Higher Education Act, namely the Gramm-Leach-Bliley Act and the E-SIGN Act, as outlined in Dear Colleague Letter GEN Q: Regarding the school s notice of funds to credit the student account, sometimes called the EFT notification, when is a school required to send this notice to the borrower? Page 2

3 A: Per the Common Manual subsection 8.2.B, this notice must be issued no earlier than 30 days before and no later than 30 days after the school credits the student s account. The notice may be written or electronically transmitted and must include the date and amount of the disbursement and, for proceeds disbursed by EFT or master check, a statement explaining the student or parent borrower s right to cancel all or a portion of the loan or loan disbursement and have the proceeds returned to the lender. Q: What are the required components of the award letter? A: Per the Common Manual subsection 8.2.A, the award letter must include the amount of proceeds the student or his or her parent can expect to receive for each type of aid; when the proceeds will be delivered and by what method; and which proceeds are from subsidized and unsubsidized Stafford loans, PLUS loans, and other Title IV programs. Q: We get a lot of requests from dependent students to be awarded additional unsubsidized Stafford loan funds based on statements from parents that they are unable to obtain a PLUS loan. Under what circumstances can a school award additional unsubsidized Stafford loan funds to the student? A: ED guidance defines several types of exceptional circumstances under which a school can certify additional unsubsidized Stafford loan funds for a dependent student. These exceptional circumstances include, but are not limited to: The student s parent is incarcerated. The student s parent s whereabouts are unknown. The student s parent has adverse credit, as demonstrated by a credit report or documentation from a bankruptcy court prohibiting future borrowing. (This guidance comes from DCL GEN ) The student s parent is not a U.S. citizen or eligible noncitizen. (This guidance also comes from DCL GEN ) The student s family income is limited to public assistance or disability benefits. A parent s refusal to borrow does not constitute an exceptional circumstance. Q: OK, you mentioned bankruptcy in that list of exceptional circumstances. Are you saying that if a parent has filed for bankruptcy, we can certify additional unsubsidized Stafford loan funds for the dependent student? A: No, merely filing for bankruptcy is not a sufficient basis for a PLUS loan denial. A parent who has filed for bankruptcy may still be able to obtain a PLUS loan, unless, as stated earlier, the parent has documentation that one of the conditions of the bankruptcy filing is that the parent cannot incur any more debt. In this case, you could certify additional unsubsidized Stafford loan funds for the dependent student. Q: As stated in Dear Colleague Letter GEN-05-16, if a student's parent is neither a U.S. citizen nor an eligible noncitizen, a school can certify additional unsubsidized Stafford loan funds for the student. What documentation do we need to obtain to verify that a parent is neither a U.S citizen nor an eligible noncitizen? A: That s a really good question. So good that TG sought guidance from ED on this subject. We have learned that ED is actually developing a response to this issue that it intends to release to the industry in mid-january of next year. In the meantime, TG has received interim guidance that a parent s self-certification of noneligible status is not adequate documentation to award the Page 3

4 additional unsubsidized Stafford loan funds to the student. In fact, ED feels that if a parent is in the U.S. as a guest worker or under some other status, the parent should be able to document that status; or, as an alternative, the parent should be able to document his or her citizenship from another country. Again, definitive guidance on acceptable documentation for this purpose is forthcoming. Q: What if a parent is denied a PLUS loan because he or she has indicated to the lender, for example, that the parent will use the PLUS loan funds to take a no-holds barred, luxury suite, luau on the beach, full-body massage at the spa, pull-out-all-the-stops trip to Hawaii? Is this an exceptional circumstance that can be the basis for certifying additional unsubsidized Stafford loan funds? A: While this sounds like an exceptional vacation, this does not constitute an exceptional circumstance. A general rule is that you can certify additional unsubsidized Stafford loan funds if the parent is unable to obtain a PLUS loan. This parent is not unable to obtain a PLUS loan, the parent has been denied because he or she has indicated that the parent plans to use the money for a purpose other than to pay for the educational expenses of the dependent student. This would not be grounds for certifying additional Stafford loan funds for the student. Q: Can more than one parent borrow a PLUS loan for the same student for the same loan period? A: Yes, per the Common Manual subsection 5.1.C, all of a dependent student s eligible parent borrowers may borrow separately to provide for the educational expenses of the student provided that the combined borrowing of the parent borrowers does not exceed the student s cost of attendance (COA) minus estimated financial assistance (EFA), also known as resources. Also remember that for the purposes of obtaining a PLUS loan, an eligible parent borrower is a student s biological or adoptive mother or father. The spouse of a parent who is remarried is also an eligible parent borrower if the spouse s income and assets would have been taken into account when calculating a dependent student s expected family contribution (EFC). Q: We run into this scenario often. Parent X applies for a PLUS loan with Lender A and is approved. Thus, we get the certification request from Lender A and certify the PLUS loan. Subsequently, we get a PLUS loan denial from Lender B. What does the school do in this case? A: Regarding this scenario, ED states the following in the Federal Student Aid Handbook, page 3-62: A school can refuse to certify a dependent student for additional Stafford based on a PLUS loan denial if the parent could have gotten a loan from an FFEL lender, but shopped around to find a lender who would refuse to make a loan. Although ED does not expressly state that a school should refuse to certify the additional unsubsidized Stafford loan for the dependent student, it appears to be encouraging the school to do so, since the parent in this scenario is not unable to obtain a PLUS loan. However, as stated in the Common Manual, subsection 6.15.D, based on guidance in Dear Colleague Letter 96-L-186/96-G-287, If a parent of a dependent student is initially determined to be eligible for a PLUS loan but subsequently is denied additional PLUS loan funds for the same loan period, the school may choose to certify additional unsubsidized Stafford loan funding for the student, not to exceed the maximum additional unsubsidized loan amounts. So, you could certify an additional unsubsidized Stafford loan for a student if his or her parent applies for more money later in the loan period and is denied. The manual goes on to say that Any eligible PLUS loan proceeds delivered or scheduled for future delivery during the loan period must be included in the estimated financial assistance used in determining eligibility for the additional unsubsidized Stafford loan. The school need not recover or return PLUS loan funds for which the parent was Page 4

5 previously determined eligible and that have been released to the parent or student before the parent was determined ineligible for additional funding. This is confirmed in the FSA Handbook, page 4-9. Q: What about the following scenario? Parent Y applies for a PLUS loan with Lender C and is denied. We certify additional unsubsidized Stafford loan funds for Parent Y's student. Subsequently, we get a PLUS loan approval and certification request for Parent Y from Lender D. What should the school do in this case? A: Guidance on this topic is also provided in the Common Manual, subsection 6.15.D, based on guidance in Dear Colleague Letter 96-L-186/96-G-287. The Common Manual states, If either parent subsequently is determined to be eligible for a PLUS loan after the school certifies the student for additional unsubsidized Stafford loan funds, the school must return to the lender any additional unsubsidized Stafford loan funds received by the school but not yet delivered to the student for that loan period. The school must request the cancellation of any future disbursements of the additional unsubsidized Stafford loan funds. So, now that the school knows that the parent is eligible for a PLUS loan, the school must cancel any undelivered additional unsubsidized Stafford loan disbursements for the student. The manual goes on to say that The school is not responsible for recovering and returning Stafford loan funds for which the student was previously determined eligible and which have been released to the student. However, those Stafford funds must be included in the estimated financial assistance used in determining eligibility for the PLUS loan. So, you must make sure that when determining the PLUS loan amount, you take into account any Stafford loan funds that made it out the door to the student. Q: If two parents apply independently for a PLUS loan and one is approved while the other is denied, can the school certify additional unsubsidized Stafford loan funds for the dependent student? A: No, per the Federal Student Aid Handbook, page 4-9, Only one parent must apply for a PLUS and be denied based on adverse credit. However, if both parents apply independently and one is approved and the other denied, the dependent student is not eligible for the increased loan amounts. Q: Can a school refuse to certify a Stafford loan until after the student has completed entrance counseling? A: Yes. There is nothing the regulations that would prohibit a school from establishing this particular flow. Since entrance counseling and loan certification must both be completed prior to the point of a first disbursement of a Stafford loan, the order in which these two prerequisite steps occur is really a matter of workflow preference for the school. Q: In that same vein, can a school refuse to certify a PLUS loan until after a parent has obtained a credit pre-approval from a PLUS lender? A: No. A school may encourage parent borrowers to use a more efficient school-preferred flow by requesting that a parent borrower obtain credit pre-approval prior to the school certifying a PLUS loan. However, federal regulations in 34 CFR (e)(3) say that a school may not engage in any practice that impedes a borrower s access to FFELP loans because of the borrower s selection of a particular lender. If the borrower elects to use an eligible lender that does not participate in a school s pre-approval flow, the school cannot refuse to certify a PLUS loan application based on the borrower s choosing a non-pre-approval lender. So, the bottom line is that schools can encourage a pre-approval flow, but not require it. Page 5

6 Q: When certifying a Stafford loan, do you adjust the cost of attendance for the actual amount charged for tuition and fees? For example, a student has a full-time equivalent budget, but is only attending half time. When determining the student s loan eligibility, do we have to adjust the cost of attendance down for the actual amount paid in tuition and fees? A: Section 472 of the Higher Education Act provides the components of the cost of attendance (COA), and the first component is Tuition and fees normally assessed for a student carrying the same academic workload. Therefore, if a student is enrolled half time instead of full time, you should have, as the tuition and fees component of that student s COA, the amount normally assessed a student with a half-time workload. This does not have to be, but can be, the actual amount charged to the student for tuition and fees. In addition, the Common Manual, section 6.9 on determining enrollment status for the purposes of loan certification, states that A student s enrollment status may affect the student s cost of attendance (COA), and, therefore, the amount of loan funds the school may certify. So, yes, the student s half-time enrollment status affects the student s COA, and, therefore, affects the amount of Stafford loan funds the school can certify for the student. Q: Can you add the cost of the purchase of a car to a student s cost of attendance? A: No. Guidance from the version of the ED online training module FSA COACH (located at module 5-01, category #2, states that the school may include in a student's transportation allowance the "Costs of operating and maintaining (but NOT purchasing or leasing) a car for local commuters." This is based on final regulations that were published in the November 10, 1986, Federal Register that states, under the definition of "estimated cost of attendance" that "[A student's] expenses may not include the purchase of a motor vehicle" and the Federal Student Aid Handbook, page 5-8, that states, "Transportation may include the cost of travel between the student's residence and the school, and travel costs required for completing a course of study. When public transportation is not available for travel to and from school, the cost of operating and maintaining a car (gas, oil, license, insurance, and repair, for example) may be included." Q: My school is considering making the switch between using summer as a header to using summer as a trailer for the purposes of scheduled academic year and Stafford loan annual limits. How would we make that switch? A: A school with standard term-based programs that uses summer as a header could sandwich two borrower-based academic years in between two scheduled academic years to make the switch to using summer as a trailer. The academic years would be as follows. Year #1 would be a scheduled academic year of summer, fall, spring, with summer as a header. Year #2 would be a borrower-based academic year of summer and fall. Year #3 would be a borrower-based academic year of spring and summer. And year #4 would be a scheduled academic year of fall, spring, summer, with summer as a trailer. Now, a lot of schools out there are probably getting tension headaches thinking of the stress involved with keeping up with all of these academic years and their applicable loan limits. You can, of course, go straight from using summer as a header one year to using summer as a trailer the next year; however, you would have to make sure that in so doing, you didn t award any Stafford loan funds in the second summer to those students to whom you awarded Stafford loan funds the first summer. For example, if you had a scheduled academic year of summer 2005, fall 2005, and spring 2006, with summer 2005 as a header, and you wanted to switch to using summer 2006 as a trailer, you could do so, but you would have to make sure not to award Page 6

7 Stafford loan funds in summer 2006 to any of those students who received loan funds in summer Q: Can a student receive federal aid for attendance at two different schools at once? A: On this subject, the Federal Student Aid Handbook, page 3-66, states the following: Unlike Pell Grants, it is possible for a student who is separately enrolled and eligible at multiple schools to get a Stafford (and the parent to receive a PLUS) at more than one school for the same period. The schools that the student is attending are responsible for coordinating to make sure that the total amount of the loans the student receives does not exceed the applicable annual loan limit. In addition, the schools must ensure that there is no duplication of noninstitutional costs when determining the student s cost of attendance. (Note that loan funds awarded at one school are not to be included as estimated financial assistance by any other school the student is attending when determining the student s loan eligibility for the same period.) In order for each school to certify a Stafford or PLUS loan for the student, the student would, of course, have to be at least half time at that school. What the Handbook doesn t address is how both schools in this scenario deal with the student s expected family contribution (EFC), which is intended to apply to the student s total postsecondary educational attendance for the period for which the EFC is calculated, yet each school is using the full EFC to determine the student s financial need. This means that the EFC is being counted twice. Unfortunately, this issue has not yet been addressed in ED guidance. Q: Can a school use a stored-value card to issue credit balances (also sometimes known as refunds) to students? A: Yes, per DCL GEN-05-16, you can use a stored-value card to issue credit balances and FWS wages to students, but you must have the borrower s written authorization to do so, just as you must have the borrower s authorization to directly deposit a credit balance into a designated bank account. Q: Can a school have a policy for students who have authorized that their funds be delivered by direct deposit and who have been awarded both a Stafford and a PLUS loan that any credit balance (whether it is composed of Stafford funds or PLUS funds, or both) is sent to the student s bank account? A: Per the FSA Handbook, page 4-19, you must obtain the parent borrower s written authorization to transfer the proceeds of a PLUS loan to a student directly or to a bank account in the student s name. The Handbook goes on to say that you have the latitude to determine which Title IV program funds create a credit balance because, at this time, ED does not specify how a school must determine which Title IV program funds create a credit balance. So, you may want to decide to apply PLUS funds for which a student is eligible toward the student s institutional charges before other student aid funds, so that a credit balance of PLUS loan funds is unlikely. That way, you won t have to concern yourself with obtaining the parent s authorization to deliver PLUS loan funds into the student s bank account. Q: Must a school obtain an authorization from the borrower to pay for minor prior-year charges or to pay for current-year charges other than tuition, fees, and room and board? A: Yes, for both. See the Common Manual Figure 8-1 for a comprehensive list of authorizations a school must obtain, including an authorization to hold a credit balance. Page 7

8 Q: Some schools elect to use third-party servicers since they can provide students with certain conveniences related to the delivery of their financial aid, like debit cards, for instance. What is the difference, from a regulatory perspective, in a school transferring funds directly to a student s bank account and a school contracting with a third-party servicer to transfer funds to an account the servicer opens on the student s behalf? A: From a compliance standpoint, for the school, there is no difference. Let me clarify up front that a third-party servicer, is any entity that contracts with a school to administer any part of the schools responsibilities under the Title IV programs. With specific regard to debit and stored value cards, ED considers their use as equivalent to making a direct payment to the student as long as the school cannot recall the payment, or receive a payment from that account, if it is not specifically authorized in writing by the student. More generally, a school that uses a third-party servicer remains responsible for ensuring that all requirements associated with aid delivery are met. Federal regulations require that contracts between Title IV participants and third-party servicers require the servicers to comply with all statutory and regulatory provisions of the Title IV programs. The contracts also must state that both the school and the servicer agree to be held jointly and severally liable for any violation by the servicer of Title IV requirements. This makes a school potentially 100% liable for any violation of Title IV rules its servicer might commit. If a school uses a servicer, for example, to obtain a student s authorization to perform electronic transfers, open a bank account for the student, issue a bank account debit card, or any other aspect of Title IV administration, the school is responsible for ensuring that the third-party servicer performs each of those actions in accordance with Title IV requirements. So in essence, the rules allow a school to contract out some of its duties, but none of its responsibilities. Q: I ve heard schools refer to loan delivery timeframe requirements as both the rule and as the 23-day return period. What s the difference in these two rules, if any? A: Both terms refer to the same rule, which, by the way, applies only to funds received by EFT or master check. Delivery timeframes are different for funds received by individual paper check. Also, let s clarify up front that all days referred to in this answer are business days, not calendar days. Referring to EFT/master check delivery timeframe requirements as the rule is an accurate reflection of the requirement, whereas the 23-day return period refers to a popular misconception. There are three separate periods involved in EFT loan delivery timeframes: the 3-day initial period, the 10-day conditional period, and the 10-day return period. Although when taken together, these delivery timeframes do add up to 23 days, it s not correct to think that a school necessarily has 23 days to return undelivered loan funds. The initial delivery period is the 3-day period a school has to deliver loan proceeds directly to the student or parent borrower or to credit the student s account and determine if any remaining credit balance exists. The 10-day conditional period is a period that starts after the initial 3-day period has expired when a school may continue to hold undelivered loan proceeds in anticipation that a borrower who has yet to meet all the eligibility requirements for the funds soon will. Maybe the student needs to complete an examination before he or she will be considered as having completed all the required credit or clock hours from a preceding payment period. Or maybe the student had an unresolved default that the student asserts has been resolved. If the school believes that the student will establish eligibility at some point during the 10-day conditional period, the school can delay returning those funds to the lender in anticipation of delivering them to the student once the student has established eligibility. Page 8

9 But here is where the misconception comes in: the 10 days allowed in the conditional period is the maximum duration of a variable period, not a 10-day entitlement. At the time the school determines that the student s eligibility situation is resolved, the school must either deliver the proceeds, assuming the eligibility issue resolves in favor of the student, or begin the return period, if the eligibility issue does not resolve in favor of the student. For example, if the school discovers on the second day of the conditional period that the student will not establish eligibility for the loan, the 10-day return period clock starts running. In this situation, with the school learning on the second day of the conditional period that the borrower will not establish eligibility, the school will have a total of 15 days (and not 23) to return loan funds to the lender: the 3-day initial period, plus the 2-day conditional period, plus the 10-day return period. The 10- day return period is exactly what it sounds like, the maximum amount of time a school has to return ineligible loan proceeds to the lender. Let s clarify that these provisions don t apply in situations where the school is waiting on the completion of verification activities. If an applicant is selected for verification and verification is not completed within 45 days of the date the school receives the loan proceeds, the school can delay delivery during verification, but the 10 day return period automatically begins at the conclusion of the verification period and the school must return the proceeds to the lender. Also, if, during the return period, the student establishes eligibility, the school may deliver the proceeds to the student instead of returning them to the lender, provided the delivery is made before the end of the return period. The school should document in its files any reason for delaying delivery beyond the initial 3-day period. There s an excellent treatment of loan delivery requirements in chapter 8 of the Common Manual that includes clear succinct tables and lots of great examples. I highly recommend it to anyone with questions on the delivery of FFELP funds. Q: When is it appropriate to request student loan funds as a late disbursement and when is it appropriate to request them as a reissue? What s the difference? Are the timeframes different? A: A late disbursement occurs when funds are disbursed to a school on behalf of a student who is no longer enrolled on an at least half-time basis, but who was enrolled at least half time when the loan was certified on or before the last day of the loan period. A late disbursement is used to cover educational costs incurred during the period in which the student was eligible. A reissue occurs when a school, or in some cases the school and the student, requests reissued funds to replace eligible loan proceeds that were not delivered, were canceled, or remain unconsummated. Some reasons a school may request a reissue are if the disbursement check is lost, if the school returns the original disbursement and requests a reduced amount, if the school returns the original disbursement and requests a reissue to restart the time clock to accommodate compliance with delivery restrictions, or to have the disbursement rescheduled to coincide with a student s expected return from an approved leave of absence. Except in the case of exceptional circumstances, the school must deliver late disbursements and the lender must disburse reissues both within 120 days of the earlier of the end of the loan period or the last day the student was enrolled at least half time. See the Common Manual subsections 7.7.F and 7.7.G for more information. Q: Is there a time limit on how long it takes a lender to process a Consolidation loan application from the date the lender receives the application? Can a lender s processing timeline affect the interest rate on the Consolidation loan? In particular, can a lender wait to disburse a Page 9

10 Consolidation loan while waiting for a borrower to exhaust his or her grace period or a deferment period so that the loan will carry the repayment interest rate? A: There is no specified time period in FFELP regulations in which a lender must disburse a Consolidation loan after having received a borrower s Consolidation loan application. However, DCL GEN states: A lender may hold an application only for the period of time necessary to receive and process the loan verification certificate and disburse payoff amounts to the borrower s loan holders. DCL GEN clarified regulations regarding Consolidation loan interest rates and borrower eligibility to standardize the application received date and not the loan made date as the key trigger event used to establish both eligibility and the applicable interest rate for a Consolidation loan. [See also 34 CFR and (a)(4).] A lender s processing timelines should impact a borrower s Consolidation loan interest rate only with regard to the lender s procedure for determining the Consolidation loan application received date, and the previously mentioned DCL GEN instructs lenders to use a consistent method with regard to determining the received date of a Consolidation loan application. The specific question we received that prompted the inclusion of this issue as one of those things that make you go hmmm was whether a lender could use a pre-july 1 date for determining the interest rate category of the underlying loans, but hold the Consolidation loan application until after the expiration of a deferment so that the repayment interest rate could be used. Taking the consistency provisions of the DCL into account, the prohibition on holding an application any longer than is necessary, and the application received trigger event, the answer is no, a lender can t use one date to determine the year into which the applicable interest rate belongs and another date to determine whether the in-school or repayment interest rate should be used. Q: Can same-sex couples report their marital status as married on the FAFSA? A: In Dear Colleague Letter GEN-05-16, ED quotes the Defense of Marriage Act of 1996, which states that "...the word 'marriage' means only a legal union between one man and one woman as husband and wife." Therefore, since ED adheres to this definition of marriage, ED states that same-sex couples cannot report their marital status on the FAFSA as married. Q: Does the guidance in GEN regarding the fact that same-sex couples cannot report their marital status on the FAFSA as married apply to spousal consolidations (i.e., can same-sex partners obtain a spousal Consolidation loan)? Is it true that same-sex marriage is not recognized by ED? A: Again, in GEN-05-16, ED quotes the Defense of Marriage Act of 1996, which also states that "... the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife." Since ED adheres to this definition of spouse, ED would not consider same-sex partners to be eligible to obtain a spousal Consolidation loan. In addition, per the Federal Student Aid Handbook, page AVG-10, ED states that same-sex unions are not considered marriages for federal purposes, including the FAFSA. This text demonstrates that ED does not recognize same-sex marriage for any federal purpose. Q: Is it true that the Taxpayer-Teacher Protection Act of 2004 has expired? A: The Taxpayer-Teacher Protection Act (Act), among other things, provides for an increased teacher loan forgiveness amount of up to $17,500 for an otherwise eligible math, science, or special education teacher who serves for five complete, consecutive years at a Title I school. Such a qualified borrower must have, per the Act, borrowed his or her first federal student loan on or after October 1, 1998, but before October 1, While the Act did not expire, per se, there is currently no legislation that extends the increased teacher loan forgiveness benefits to a borrower who borrows his or her first loan on or after October 1, However, industry Page 10

11 participants fully expect that through either the reauthorization of the HEA, or the budget reconciliation process that Congress is currently undertaking, this effective date limitation of October 1, 2005, will be eliminated and otherwise qualified current and future borrowers will be able to take advantage of these increased teacher loan forgiveness benefits. Q: Why is the final item of Worksheet B on the FAFSA, which is "Money received or paid on your behalf not reported elsewhere on this form" xxx-ed out for parents? Some parents receive money from relatives, friends, etc. Should this not be counted? A: The reason that this item on FAFSA Worksheet B is xxx-ed out for parents is that the Higher Education Act itself requires that the information be collected from the student only. So this is based on congressional intent as far back as the 1986 reauthorization of the HEA, when the language cash support or any money paid on the student s behalf entered into the law. Q: The satisfactory academic progress (SAP) regulations require that we count all prior academic record, even for semesters that the student did not receive financial aid. Why do the taxpayers care about semesters for which the student did not ask for or receive federal assistance? A: The SAP regulations in 34 CFR (e) state that a school s standards for measuring whether an otherwise eligible student is maintaining satisfactory progress in his or her educational program are reasonable if the standards are the same as or stricter than the institution's standards for a student enrolled in the same educational program who is not receiving assistance under a Title IV, HEA program. We read this to mean that ED (as a steward of the Title IV programs on behalf of the taxpayer) wants each student to be treated equally, regardless of his or her status as either a cash-paying customer or a Title IV recipient at the school. It is our understanding that ED does not feel that a student who is receiving federal student aid should have his or her academic progress assessed any differently than a non-federal student aid recipient; and it would be that way if the school was, in the determination of a student s academic progress, able to exclude the academic performance of the student during periods that he or she was not receiving aid. Q: If a student loan borrower has defaulted on his or her Stafford loan, how can the student resolve that default situation in order for the student s Title IV aid eligibility to be reinstated? If a student s eligibility is reinstated, can we certify a new loan for the term in which the student regains eligibility or for the full academic year (including previous terms in that academic year)? A: Per the Common Manual subsection 5.2.E, A borrower with one or more defaulted Title IV loans may have his or her eligibility for Title IV aid reinstated by requesting reinstatement and making satisfactory repayment arrangements, and fulfilling those arrangements with the holder of each defaulted loan. Satisfactory repayment arrangements constitute six consecutive, full, voluntary, on-time monthly payments to the appropriate holder for each defaulted loan. Once the student has his or her Title IV aid eligibility reinstated, the school may certify a loan for the entire academic year in which the borrower satisfies those payment requirements to regain Title IV eligibility, as long as the student is otherwise eligible. Q: Would a parent s incarceration be sufficient grounds for us to approve a dependency override for the parent s student, assuming that there is no other parent from whom a student could derive support? A: First of all, it is important to state that dependency override decisions are professional judgment decisions that a school makes based on its consideration of all of the information available pertaining to a student s personal circumstances. Second of all, it is important to highlight that in 2003, ED released a Dear Colleague Letter GEN which provides a great Page 11

12 deal of guidance on dependency overrides and circumstances under which an override would and would not be warranted. However, the issue of parental incarceration and dependency overrides is not addressed either in this DCL or in the Federal Student Aid Handbook. Thus, based on the fact that this particular circumstance is not addressed in ED guidance, and, thus, there is nothing prohibitive written on dependency overrides based on parental incarceration; and based on the fact that parental incarceration is an exceptional circumstance that permits a school to award a student additional unsubsidized Stafford loan funds, we do not feel it would be unreasonable for a school to consider this circumstance as grounds for granting a student a dependency override. Q: With respect to ED guidance pertaining to Hurricanes Katrina and Rita, while we have gotten guidance with respect to issues involving affected students for the award year, we have not seen any published guidance for award year. In just a few weeks, our affected families will need direction on filing the FAFSA, and the school will need guidance on verification and other topics. Do you have any information in this regard? A: To our knowledge, the guidance that ED has issued in all of the electronic announcements and in DCL GEN-05-17, all of which have been released since Hurricanes Katrina and Rita, has pertained to the award year only. We are not aware of any published guidance that pertains to periods beyond this current award year. If you feel that additional guidance is needed for the upcoming award year, please let TG s policy department know and we will be happy to convey your suggestions to ED. To contact TG on this or any other policy matter that makes you go hmmm, call (800) or send an message to cust.assist@tgslc.org. Happy holidays!! Page 12