Direct LendingAn Overview

Legislation• Higher Education Opportunity Act (HEOA)

▫ Enacted on August 14, 2008▫ Nursing and Medical Schools ▫ Campus Crime & Audit Requirements

• Student Aid and Fiscal Responsibility Act (SAFRA)▫ Signed into Law on March 30, 2010▫ 100% Direct Lending

• Negotiated Rulemaking for Foreign Schools (NR)▫ The Department is engaged in a negotiated rulemaking

process. Proposed rules affecting Eligibility and Participation published in Federal Register

Loan Origination

•Q1.  What work around is there in the DL Tool to use an EFC other than the 9 month EFC?

•Schools will need to enter the loan amounts manually, without the use of a COA and Award Profiles. This can be done during Step 3 of the process in the DL Tool.

Loan Origination Numbers

•Q. Would the loan origination number in COD change for each disbursement or is it set for the full duration of the academic year?  

•If this is in reference to the award number, then yes it is generated by COD and will stay with the loan

G5 Processing•Q What triggers the draw down of funds from G5? Is it attached to the value of loan disbursements? Is there a limit on how much can be drawn down?

• An accepted loan record in COD triggers the loan funds to be available in G5. For COD to accept a record it must have: • A loan origination record, • An MPN on file, and • the Disbursement Release Indicator set to True (DRI can be

set to True up to 7 days before the disbursement date)▫

•The school then initiates the draw from its G5 account. The school cannot draw more than the balance on hand in the G5 account.

Separation of Duties• Q.  We would like more information regarding separation of

duties-origination vs. disbursement. Do these terms apply strictly to USDE systems COD/G5?

• 34 CFR 668.16(c) requires adequate checks and balances in a school’s internal controls; schools must divide the functions of authorizing payments & disbursing /delivering funds to ensure no office has responsibility for both functions for any student. The functions of authorizing payments & disbursing/ delivering funds must be divided so that the 2 functions are carried out by at least 2 organizationally independent individuals who are not members of the same family or who do not together exercise substantial control over the institution [as defined in 668.15(f)]

Separation of Duties and G5• Q Where does the separation of duties lie - the use of

G5? (e.g., Student Funding will use COD only and Student Fees will use G5)

• A The Student Funding office (financial aid office) will handle student eligibility and creating loan origination records in COD. The Student Fees (business office) will be responsible for the actual disbursement of funds (G5). Generally the financial aid office has view-only access in G5 and the business office has full access to G5.  School’s choice.   Student level data for Funding and Fees are processed in COD.

G5 Amounts and AuditQ What is a school's "auditable" amount each year - the amount they "certify" on COD, or the final amount they actually draw down from G5 within a fiscal year?  

Schools will be audited on disbursement and adjustment amounts made to student accounts. Schools must also reconcile the draw downs from G5 to the booked disbursements in COD, monthly and annually. Auditors will comment on a school’s reconciliation actions.

Which system?• Q Please clarify when a foreign school must use

EDConnect, EDExpress, and FAA Access to receive information from their SAIG mail box, pushed ISIR's, etc?

• Regulations at 34 C.F.R. 668.24(c)(1) that refer to the use of the ISIR or SAR permit foreign schools to use FAA Access to CPS Online to view student SARs. However, if this solution is used, the institution must check FAA Access on a regular basis to ensure any new SAR transactions are reviewed and then document the student’s file with a copy of the SAR used to disburse the Direct Loan.

Obtain EDconnect Software

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• https://www.fsadownload.ed.gov/• Select “Software and Associated Documents”• Select “EDconnect” from list • Software and reference materials available for download• EDconnect Technical Support: CPSSAIG@ed.gov

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• EDconnect Training Module contained within EDExpress 2010-2011 Online Training

• (Web-Based Training - WBT)• Interactive simulation for using and

setting up EDConnect• http://ifap.ed.gov/edexpress/

1011index.html • Log-in to training website (create your

own user ID and password)• Select “Overview” Menu• Then select option #7 “Navigating

EDconnect”

Obtain EDconnect Training

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Direct Loan Origination Tool•Select Students•Assign COA Profile

•Assign Award•Review & Submit•Review MPN

•Confirm Entrance Counseling Completed

•Complete & Send Disbursement Amount

•Make UpdatesUse FAA Access for SAR records. Print SAR to document. Use EDconnect to open SAIG Mail Box notices.

School’s

SAIG

Mail Box

EDconnect

• Acknowledgements

• Disbursements (Acceptance/Rejection)

• Entrance counseling

• MPN

• Credit Check

• NSLDS Student Listing

• eCDR

Open SAIG Messages using:

• Excel

• Note Pad

• EDExpress

• Other Software Options

ED Sends Information

School Accesses Mail Using

Foreign School Funding – Foreign Bank

Using the G5-Treasury-NY Fed ‘ITS’ process, Direct Loan funds for foreign schools go thru the Federal Reserve Bank of NY for transfer to school’s account at its foreign bank

Always U.S.

Dollars

Federal Reserve Bank of New York

US Department of Treasury

G5

Common Origination & Disbursement

(COD)

Foreign School

School’s Bank in Foreign Country

BankingQ.  Can the institution use a US dollar account in a non-US bank even if it is not federally insured? In some countries foreign currency accounts are not government insured.

The Department of Education has always required that bank accounts be federally insured. The local bank that set up a Domiciliary account insures that portion of their asset. The Department considers it risky for the US dollar account not to be insured. This question is being researched further and any change to this requirement will be posted to IFAP.

BankingQ If an institution cannot secure Title IV, HEA program funds in a bank or investment account that is Federally insured or secured by collateral of a value reasonably equivalent to the amount of those funds, What are some alternatives for meeting this requirement? Would a guaranty or stand-by letter of credit from the university work?

This question is under discussion with our Policy and General Counsel Offices and if any alternatives are identified they will be posted to IFAP.

BankingQ  The regulations require that the foreign university have an account with a bank that is a “Financial Institution designated by the Secretary of the Treasury as a depository of public money and has been permitted to charge checks to the General Account of the United States Treasury”. A number of UK Banks do not have this designation and cannot sign this form. Is there an alternative approach to this requirement?

The Federal Reserve Banks in NY and Richmond are serving as the “financial institution designated by the Secretary.” Foreign schools just need to fill out the SF1199A Direct Deposit Sign-Up Form and obtain access to G5.

BankingQ. Can institutions return funds to the Federal

Reserve by EFT?

If an institution has a:

• U.S. Bank Account, funds are returned electronically thru G5 • Foreign bank account, at this time, money must be returned by

paper checks* to:

COD Schools Relations CenterAttn: Refunded CashP.O. Box 9001Niagara Falls,  NY 14304

* The Department is currently modifying G5 to accept electronic refunds from foreign banks and will inform schools when this change is complete.

Overnight/Requiring Signature:COD Schools Relations CenterAttn: Refunded Cash2429 Military Rd, Suite 200Niagara Falls, NY 14304

BankingQ. When staff request funds through G5, can the number be changed/reduced?

Yes, however, users only have a few minutes to make a modification to a payment request after it has been successfully submitted in G5.  The window to change the request is typically 10 – 15 minutes.   If this change modifies the original loan amount, a corresponding adjustment must be made to the actual disbursement record in COD

Medical SchoolQ Clarify the USMLE passage rate requirements for medical schools, 75% or 60% and for what dates? Is it true for data compiled from calendar year 2009, the passage rate must be 75% by July 2010?

The increase in the ECFMG passage rate was part of the HEOA, and has an effective date of July 1, 2010.

Medical SchoolQ If students do not submit their USMLE results to their School & ED by September, are they then ineligible for Federal Loans in the following award year?

Reporting ECFMG pass rates to the Department is an annual institutional responsibility. 600.57 states, in part, In the case of a foreign graduate medical school, continued eligibility is dependent upon annual submission of the data and information required under 600.55(a)(5)(i), which refers to ECFMG data. To answer the question, if the institution doesn’t submit the data, the institution becomes ineligible, not just a student.  

Medical SchoolQ What if medical students who are US citizens do not intend to return home to USA for Intern years or to work later on, and do not want to sit for the exam until they return to the States, does this prevent them from receiving Federal Financial Aid? A student is not ineligible because they don’t take the tests administered by the ECFMG. It’s their choice. 34 CFR Section 600.56(a)(5)(i)(B) states that for a foreign graduate medical school outside Canada, at least [75] percent of the school’s students and graduates who took any step of the examinations administered by the ECFMG … received passing scores on the exams. This is an institutional eligibility requirement, not a student eligibility requirement.

Entrance CounsellingQ.  Can foreign institutions continue using Mapping Your Future for the required counseling of borrowers?

Yes, however, for the Direct Loan Program the Department prefers that your students complete entrance counseling through studentloans.gov. In fact, the new DL Origination Tool will pull this information into COD, and inform a school that entrance counseling has been completed.

Student data shown is fictional!

Average Indebtedness

682.604(f)(1)(v)(f) Initial counseling.

(1) A school must ensure that initial counseling is conducted with each Stafford loan borrower prior to its release of the first disbursement, unless the student borrower has received a prior Federal Stafford, Federal SLS, or Direct subsidized or unsubsidized loan. The initial counseling must— (v) Inform the student borrower of sample monthly repayment amounts based on a range of student levels of indebtedness or on the average indebtedness of Stafford loan borrowers, or student borrowers with Stafford and PLUS loans, depending on the types of loans the borrower has obtained at the same school or in the same program of study at the same school.

682.604(f)(2)(i)(2) A school must ensure that initial counseling is conducted with each graduate or professional student PLUS loan borrower prior to its release of the first disbursement, unless the student has received a prior Federal PLUS loan or Direct PLUS loan. The initial counseling must--(i) Inform the student borrower of sample monthly repayment amounts based on a range of student levels of indebtedness or on the average indebtedness of graduate or professional student PLUS loan borrowers, or student borrowers with Stafford and PLUS loans, depending on the types of loans the borrower has obtained, at the same school or in the same program of study at the same school;

 682.604(f)(5)(v)

(5) Initial counseling for Stafford Loan borrowers must —(v) Inform the student borrower of sample monthly repayment amounts based on a range of student levels of indebtedness or on the average indebtedness of Stafford loan borrowers, or student borrowers with Stafford and PLUS loans, depending on the types of loans the borrower has obtained, at the same school or in the same program of study at the same school.

 682.604(g)(2)(1)(2) The exit counseling must–

(i) Inform the student borrower of the average anticipated monthly repayment amount based on the student borrower's indebtedness or on the average indebtedness of student borrowers who have obtained Stafford loans, or student borrowers who have obtained Stafford and PLUS loans, depending on the types of loans the student borrower has obtained, for attendance at the same school or in the same program of study at the same school;

 

Amendment to 10 day ruleQ. Will there be published guidance on the extension of the 10 days disbursement rule to 30 days?  

The 30 day disbursement is under discussion with our Policy staff and not final. We will publish this Q&A and others like this in the new foreign schools section at www.ifap.ed.gov

Or you can log on directly to: http://www.ifap.ed.gov/ForeignSchoolInfo/ForeignSchoolInfo.html

IFAP includes information on Direct Loan set up and processing; school eligibility requirements; FAQs; handbooks and guides