NASFAA often receives questions about disbursing Direct Loan proceeds to students enrolled in term-based credit-hour modular programs. During the NASFAA conference, ED reviewed requirements governing the disbursements of Direct Loan proceeds to students enrolled in these types of programs. This article highlights requirements for which we receive the most questions.
If the payment period consists entirely of sequential modules or the student is not registered for a course that spans the entire length of the payment period, the earliest the school may disburse any loan proceeds is dictated by the first module the student attends or is expected to attend. The student need not have begun attendance in enough hours to be half time; however, the school must have some indication supporting the student’s plan or intention to enroll at least half time during the payment period. For example, the student could have begun attendance in a three-credit module and also have registered (but not necessarily have paid) for a later module in the payment period that would bring the student to at least half-time enrollment status.
If multiple disbursement requirements apply, schools must be careful in scheduling the second disbursement. For a nonstandard term program with terms that are substantially unequal or any term shorter than eight weeks, the second disbursement may not occur until the student has completed both half the credit hours and half the weeks in the payment period. For a standard term program or a nonstandard term program with substantially equal terms that are at least nine weeks in length, the second disbursement is a the midpoint of the overarching term. However, the second disbursement must be delayed if midpoint is during a module the student is not attending. For example, suppose the term consists of three 5-week modules and the student is expected to enroll in Modules 1 and 3 only. Because the midpoint occurs during Module 2 when the student is not enrolled, the school must wait until Module 3 to make the second disbursement.
Schools also should note that, for modular programs, ED’s treatment of disbursed loan proceeds to a student who never begins attendance during the payment period is different from the treatment of a student who begins attendance in the payment period but never attends at least half time. If the school disbursed loan proceeds but the student never begins attendance in any module, the student never established eligibility for the loan. In this situation, the student is sent a 30-day demand letter for the full repayment of the loan. If the student does not fully repay the loan proceeds within 30 days, the loan goes into default.
On the other hand, a different set of rules apply if the student begins attendance during the payment period but fails, as originally expected, to attend a later module that would have made the student at least half time for the payment period. In this situation, ED stated the student’s commencement of attendance in the earlier module legitimized the first disbursement. The student would be given a grace period and would enter normal repayment.
Publication Date: 8/9/2012