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					                                                                                PSC-ED-FSA-TISD
                                                                             Moderator: Angela Smith
                                                                              04-08-10/12:30 pm CT
                                                                             Confirmation # 6216905
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                                    PSC-ED-FSA-TISD

                                Moderator: Angela Smith
                                     April 8, 2010
                                     12:30 pm CT



Coordinator:    Welcome and thank you for standing by. At this time, all participants are in a
                listen-only mode until the question-and-answer period. If you need any
                assistance during the call, please dial star then 0. Today’s conference is being
                recorded, if you have any objections you may disconnect at this time.


                I will now turn it over to Ms. Jamie Malone. You may begin.


Jamie Malone:   Thanks, (Jackie). Good afternoon to everyone. My name is Jamie Malone and
                I’m a Training Officer with the Department of Education in the Chicago
                Regional Office.


                I’d like to welcome you to the U.S. Department of Education’s Direction Loan
                Business Officer Training. This training consists of two modules. Module 1
                focused on Direct Loan Participation and Funding, which includes G5
                Drawdown System, and Module 2, which is what we’re doing today, revolves
                around the cash management rules.


                For those of you that missed Module 1 it will be presented one more time on
                April 20 and today’s will also be presented one more time on April 22.
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                                                                              Moderator: Angela Smith
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                                                                              Confirmation # 6216905
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                 Our presenters today will be Kevin, Training Officer in our Dallas office, and
                 (Natasha Webb), Training Officer in our New York office.


                 We do have a handout of the slides available for you. If you go up on the top
                 of your Toolbar on the left-hand side and click on Q&A, a box will open that
                 will allow you to download the handout to your own computer and then you
                 can print it from your own computer, you cannot print it from the Web.


                 Also, because of the large number of people we have with us today, we cannot
                 allow you to ask questions orally, but you can submit your questions
                 electronically. If you click on the Q&A tab and you’ll be able to type in your
                 question and click on the word Ask. Please do not click on the raised hand as
                 that will not allow us to respond to you.


                 And I just realized that I goofed up when I was talking about the handout. You
                 don’t want to click on Q&A to get the handout; you want to click on the icon
                 on the right-hand side of the page, which looks like three white pieces of
                 paper. And if you click on that that’s what will open a box to allow you to
                 download the handout. I’m sorry.


                 Click on the Q&A if you want to type in a question and we will be working in
                 the background to answer your questions. Hopefully, we will have enough
                 time at the end so that we can read some of your questions aloud and provide
                 the answers to everyone.


                 So without further delay, I’d like to turn it over to Kevin to begin. Kevin?


Kevin Campbell: Thank you, Jamie. Today we’re going to discuss the cash management
                 regulations that apply to the Direct Loan Program. These are the same cash
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                                                            Moderator: Angela Smith
                                                             04-08-10/12:30 pm CT
                                                            Confirmation # 6216905
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management regulations that apply to all Title IV programs and these
regulations can be found in 668 Subpart K of the Code of Federal Regulations.


Obtaining and maintaining Direct Loan funds will rest primarily with the
business office. Your responsibilities will flow into many different aspects of
the Direct Loan program from disbursing to reconciling. Where possible, we
are highlighting specific aspects of the Direct Loan Program and how they
interact with various cash management requirements. However, one important
thing to keep in mind as we go through this session is that many of the cash
management requirements we discuss today are -- in most cases -- applicable
to all Title IV Programs.


The Direct Loan Program is formerly called the William D. Ford Federal
Direct Loan Program. However, throughout this presentation you will hear us
refer to the program as Direct Loans or simply DL. Though many of you may
be new to Direct Loans, the program itself is not new. It has been in existence
since 1995. The Direct Loan Program is a Federal Student Aid Program and
they are often referred to as FSA Programs or Title IV Programs, so named
because of Title IV is a section in the Higher Education Act of 1965 that
governs the program.


The Direct Loan Program exists alongside another student loan program for
the rest of this award year, and that program is called the Federal Family
Education Loan Program or FFEL. The two programs are very similar to each
other. Both programs offer Subsidized, Unsubsidized, Parent PLUS, and Grad
PLUS loans. And the regulations that govern each of these programs are very
similar, including those that govern annual and aggregate loan limits.


If you remember from Module 1, if you attended Module 1, the major
difference between the FFEL Program and the Direct Loan Program is where
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                                                               04-08-10/12:30 pm CT
                                                              Confirmation # 6216905
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the money comes from. In the FFEL Program, private financial entities likes
banks, credit unions, student loan companies, et cetera, lend to students and
the Department of Education guarantees the lender that the loans will be
repaid.


In the Direct Loan Program, the source of the funds that are lent to borrowers
is the U.S. Department of Education. Title IV Administration is a school
obligation, which in turn makes the administration of Direct Loans a school
obligation.


However, it is not the obligation of a particular individual or office within the
school. The school itself is the participant in the Title IV Programs and like so
many components of Title IV Administration; Direct Loan cash management
requires a high level of communication and cooperation between the financial
aid office and the business office.


Some examples of what your office and financial aid will be working on in the
Direct Loan Program include timelines associated with Direct Loan funds,
deadlines for disbursing and/or returning Direct Loan funds, disbursing Direct
Loan funds to borrowers, and understanding the rules associated with
handling Direct Loan funds.


With all that said, let’s talk about some key aspects related to Direct Loan
funding. Most business offices want to know the answer to this question. How
do schools get Direct Loan money to lend to borrowers at our school?” Well,
let’s find out.


Let’s first look at the steps involved in funding a Direct Loan for one of your
borrowers. For those schools participating in the Federal Pell Grant Program,
you’re going to see many similarities in this funding process. The Direct Loan
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                                                              04-08-10/12:30 pm CT
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funding lifecycle starts with an initial authorization for Direct Loan funds in
the G5 system and an initial Current Funding Level or a CFL of Direct Loan
funds in the Common Origination and Disbursement system, or sometimes
referred to as COD.


The initial authorization establishes an amount of Direct Loan funds that can
be obtained from the G5 system and used to disburse Direct Loan funds to
your student. This authorization level is increased throughout the award year
if needed to allow the school to continue to lend to eligible Direct Loan
borrowers.


The financial aid office will record the originations and disbursements of
Direct Loans on an individual student basis in COD, while the business office
-- your office -- will drawdown Direct Loan funds through the G5 system.


In Module 1, we spent a great deal of time discussing the Direct Loan
Program monthly reconciliation requirement, remember you must reconcile
your financial aid system with the amounts reported to COD and the amounts
recorded in the General and Subsidiary Student Account Ledgers. This
process helps your school meet the Direct Loan Program Closeout obligations.


G5 is the Department of Education’s Web-based system that is used to
disseminate a variety of ED funds, including Direct Loan funds, to
participating schools and educational entities. Module 1 in our Direct Loan
Business Officer Webinar series, contains an in-depth walkthrough of various
functions your office may need to perform in G5.


It is important to note that G5 is currently undergoing a multi-year system
upgrade, and as part of that process, the name for the system changed from
GAPS to G5. G5 will be primarily used by your office to perform the
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                                                              04-08-10/12:30 pm CT
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following cash functions; drawing down Direct Loan funds, making
adjustments to prior drawdowns, refunding funds back to the Department of
Education, and obtaining reports showing drawdown activity and
modification.


The G5 URL address is www.g5.gov. Note that the address is different from
many of the Department’s Web site URL addresses that end in ed.gov. This
site simply ends in .gov. On this slide, you can see the G5 Homepage. On the
Homepage there’s a section for News and Events, Frequently Asked
Questions, a place to Login, and information about the G5 Help Desk.


We do want to point out that there’s a new requirement associated with using
G5. In the past, Title IV Funds were obtained through the Federal Reserve.
Now, Title IV Funds will be obtained directly from the United States
Treasury. Though this won’t result in major changes from a G5 users point of
view, one change is the Treasury will need to have your Taxpayer
Identification Number or TIN with each payment.


To ensure that G5 has this information, you must register your TIN and
DUNS number with the Central Contractor Registration Web site, otherwise
known as CCR. In order to register with CCR, you will need to go to CCR’s
Web site listed on this slide, www.ccr.gov.


It is here that you’ll register your TIN and your DUNS number. If you
encounter any difficulty in the registration process there is a CCR Help Desk.
It can be reached at 866-606-8220. It takes about three to five days to process
your registration.


Most, if not all of you, have done this already. You’ll note that the deadline
for having done this was just the other day, March 31, 2010. If you have not
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done so, you will want to give the CCR Federal Service Desk a call and ask
for their assistance in processing your registration.


G5 sends Direct Loan funds to schools electronically. Therefore, we need to
know what bank account you wish to have these funds deposited. Schools that
participate in other Federal Student Aid Programs, other than FFEL, already
have a designated bank account for those FSA funds.


Schools may choose to drawdown Direct Loan funds into the already existing
Federal Funds bank account or they may establish a separate Direct Loan
Federal Funds bank account. If a school chooses to deposit Direct Loan funds
in an existing Title IV bank account, it must always be able to identify the
Direct Loan funds in that account.


For this reason and for easier accounting purposes, many schools establish a
separate Direct Loan bank account. Schools find administering the Direct
Loan Program with a separate Direct Loan Federal Funds bank account to be
more efficient and make it easier to reconcile on a monthly basis.


A new requirement in G5 associated with the school bank account is that
schools must now designate a bank account that will be used for performing
refunds in G5. Refunds is the process in G5 by which schools send back
federal funds to the Department of Education. This can be the result of a
return of Title IV funds calculation, a mistake that’s been made, a change in
the amount required to make disbursements, there are many reasons that might
result in you refunding money from the school back to the government.


A school has several options for this process. You may use the same account
that you currently use for drawing down funds, you may set up a separate
account that will only be used for refunds, or you may designate some other
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account to be used for this purpose. Many schools that are choosing the
Federal Funds account that they’ve used all along, simply have to go in and
designate this account number as the account to be used for refunds.


The first time you attempt to do a refund, and many of you have already done
this and completed this, G5 is going to direct you to designate the bank
account information needed to mark the account as the refund account. This
step is only necessary the first time you do a refund, not each time you
perform a refund in the future.


Also, an additional requirement, your school will need to provide your
banking institution with the ACH Company ID that you see on your screen. It
is 9102000102. That number will help the financial institution know what to
do with processing refunds back to the Department.


As touched on earlier, a school has several options when establishing a bank
account to process Direct Loan funds within the G5 system. One option is to
establish one bank account for all Title IV drawdowns, including Direct
Loans. Another option is to establish one account for all Title IV funds except
for Direct Loans, and establish a separate account just for Direct Loan funds.


This option allows schools to immediately identify Direct Loan funds and to
more easily reconcile those funds on a monthly basis. Some schools choose to
have more than two accounts with Title IV funds being drawn down into those
multiple accounts in a manner established by the school, for example, one for
Pell, one for Direct Loan, one for Campus-based funds, et cetera.


In addition, schools can establish a separate bank account solely for the use of
refunding money. No matter what you decide, you need to remember that
these are options. The only requirement is that a bank account be established
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and the G5 be given the required information about that account in order to
send and return Title IV funds.


In the event that you are establishing a bank account for a G5 process, log on
to the G5 Web site and familiarize yourself with the instructions. They’re
located in the Frequently Asked Question section of the G5 Homepage. If you
need additional help you can call the G5 Help Desk at 888-336-8930. That
number is also listed on the G5 Homepage. Please note that it does take
approximately two to three days to process the bank account information so
that it can be used within the G5 system.


Since we’re talking about bank accounts, we need to point out that bank
accounts established to hold Federal Student Aid Funds have several
requirements associated with them. One major requirement is that Direct
Loan, Pell, ACG, Smart, TEACH, FSEOG, and Federal Work-Study funds
must be in an interest bearing account or in a low-risk, income producing
securities investment account.


However, there are two major exceptions to this rule. The first is if a school
drew down less than $3 million in Federal Student Aid Funds in the prior
award year, and anticipates the same level of FSA activity for the current
award year the account does not have to be interest bearing. Or the second
exception, if a school can demonstrate that it will earn $250 or less in interest
for the current award year, the account does not have to be interest bearing.


If the Title IV funds mentioned are in an interest bearing account, your school
may keep the first $250 of interest that it earns during an award year. Any
interest earned above $250 during an award year must be sent to the U.S.
Department of Education. Your office must send these funds to ED via the G5
system by June 30 of each year.
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Another requirement associated with a bank account holding Federal Student
Aid funds is that it must be federally insured by the FDIC or a similar agency.
An alternative to an insured account is an account secured by collateral that
has a reasonably equivalent value to the federal funds in the accounts.


One key bank account requirement that some schools forget about is that the
bank account must have the phrase Federal Funds in the name of the account.
This notifies the financial institution that the account contains federal funds. If
your school does not wish to do this an alternative method is to notify the
financial institution in writing that the bank contains federal funds and the
school must file a UCC-1 Statement with the appropriate state or local
government entity.


The UCC-1 stands for Uniform Commercial Code Form Number 1. It is often
filed with the state’s Office of the Secretary of State, but this can vary from
state to state. The UCC-1 Form is used to indicate that an asset, in this case
them money in the bank account, maybe claimed by someone else; in this
case, the U.S. Department of Education.


Note that a public school that has chosen to pursue this option is not required
to file the UCC-1, but it still must notify the financial institution in writing
that the account contains federal funds.


Program integrity is a key phrase within ED and it is very important to
remember that the Direct Loan Program has similar, if not the same,
requirements associated with establishing effective accounting procedures and
internal controls as those for all Title IV funds. Your school must be able to
identify its account balance related to Direct Loan funds at any given time. It
must be able to identify any earnings on those Direct Loan funds.
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In addition, your school must retain its Direct Loan records in compliance
with regulations. Specifically, the regulations found at 668.24. While this is a
lengthy set of regulations, some highlights of documents to retain include
financial records that account for the receipt and expenditure of Direct Loan
funds that are in accordance with generally accepted accounting principles,
also financial records that reflect each Direct Loan transaction, and the date
and amount of each disbursement of Direct Loan funds.


Records must be retained for the required retention period. The required
retention period can differ depending on exactly what type of document is
being retained. And records must always be made available for the
Department’s review upon the Department’s request. One internal control that
is specifically regulated for the Direct Loan Program is monthly
reconciliation.


Remember that the Direct Loan reconciliation is a regulatory requirement, not
just a best practice. In reconciliation, schools must compare the following; the
Direct Loans funds that the school has obtained from the G5 system,
compared with actual disbursement records that have been accepted by the
Common Origination and Disbursement System, compared to the schools
internal records showing Direct Loan disbursements to individual borrowers.


When reconciling a vital tool that schools use to track and reconcile Direct
Loan funds is the Direct Loan School Account Statement or an SAS. The SAS
is a COD generated file that contains information about the schools Direct
Loan activity.


You may choose to receive a monthly cash detail and/or year-to-date cash
detail in your SAS report. You can also determine the level of detail you wish
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to receive in the loan and disbursement level detail sections of the SAS report.
Reconciliation is explained in much more detail in our Direct Loan Business
Officer Module 1 Webinar.


And finally, an accounting and internal control that’s essential to
administering all Title IV funds is the separation of duties. That is, the duty of
authorizing Aid, versus the duty of disbursing Aid. An example of this within
the Direct Loan Program is your schools procedure that separates the duty of
authorizing who will receive a Direct Loan, and the duty of disbursing those
Direct Loan funds to the borrower.


This separate of duties means that these two functions cannot be performed by
the same office. By office we mean an organizational unit, such as the
Financial Aid office or the Business office. Also, someone who is involved in
one of these duties cannot be related to someone else involved in the other
duty.


In other words, anyone involved in authorizing of Direct Loan funds cannot
be related to anyone involved in disbursing those Direct Loan funds, and vice
versa. A family member, for this purpose, is defined as a parent, a sibling, a
spouse, a child, a spouse’s parent, a spouse’s sibling, or a sibling’s spouse, or
a child’s spouse.


Now that you have a pretty good idea of how you will receive Direct Loan
funds and some key requirements about proper receipt of those funds, let’s
discuss how those funds are actually disbursed to borrowers.


When disbursing funds it is important to know what parameters may exist for
timely disbursement. Direct Loan funds are intended to be used within a loan
period established by the school; usually the academic year. A Direct Loan is
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usually disbursed in multiple disbursements within set payment periods.
Payment periods are determined by the method used to measure an academic
program, as established by regulation.


Academic or instructional program are generally measured in one of three
ways. Number one, the program has standard terms. Standard terms are
traditional semesters, quarters, or trimesters. Number two, the program has
terms that do not meet the definition of a standard term. These are referred to
as non-standard terms. The third way to measure is a program that does not
have terms at all; these are referred to as non-term programs. Non-term
programs can use either credit or clock hours. All clock hour programs are
non-term programs for Title IV purposes.


In some cases, the Direct Loan payment period is going to be whatever
academic term is being used for the program of study. If the program uses
standard terms the Direct Loan is disbursed in equal amounts within each
standard term.


Similarly, if the program uses non-standard terms that are substantially equal,
Direct Loan funds will be disbursed equally within each of those terms.
Substantially equal means that the length of each term is equal to the others or
only differs by two weeks or less.


In other instances, the term will not be the payment period for Direct Loans. If
the program uses a non-term system of measurement, there is no term to use
as a payment period. Also, if the program uses non-standard terms that are
substantially unequal, the term cannot be the payment period for Direct Loan.
Remember, we defined a substantially equal non-standard term as one that
was equal in length to the other non-standard term, or only differed by two
weeks or less.
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Therefore, substantially unequal means that at least one of the non-standard
terms differs in length by more than two weeks from any of the other non-
standard terms. Therefore, programs without terms or programs using
substantially unequal non-standard terms will not use terms as a payment
period in the Direct Loan program.


So, what will they use? How will Direct Loan funds be disbursed? Let’s find
out. When terms cannot be used as a payment period a different system based
on the student’s progress through the program is used to determine payment
periods in the Direct Loan program. In short, the loan period is divided into
two payment periods.


The student completes the first payment period when he or she successfully
completes both 1/2 of the hours, credit or clock, and 1/2 of the weeks of
instruction in the loan period. It is at this point that your office will be able to
disburse the second Direct Loan disbursement in the academic year or the loan
period.


For example, if the loan period contains 24 semester credit hours and 30
weeks of instruction, the student must complete 12 semester credit hours and
15 weeks of instruction in order to complete the first payment period before
you can disburse more Direct Loan funds.


A clock hour example might have a loan period of 900 clock hours and 26
weeks of instruction. The student in this case would have to complete 450
clock hours and 13 weeks of instruction in order to complete the first payment
period. Note that the student must successfully complete 1/2 of the hours,
credit or clock, and 1/2 of the weeks. It’s not either/or.
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                 Now, (Natasha)’s going to take over and she’s going to start off by talking
                 about Direct - disbursing Direct Loan.


(Natasha Webb): Thank you, Kevin. And now that you have an understanding about payment
                 periods and their importance in determining when Direct Loan funds can be
                 disbursed, we can now discuss what a disbursement actually is, and how
                 Direct Loan funds can be disbursed.


                 What is a disbursement? It sounds simple enough, but there are some key
                 definitions to remember. As noted earlier, Direct Loan funds are disbursed by
                 the payment period and the disbursement may be made in one of two ways.
                 The school may credit the students account or pay the student directly. And in
                 the case of a Parent PLUS loan, the parent may be paid directly.


                 Disbursements may be made using actual Direct Loan funds drawn down
                 from the Department of Education and then disbursed. Or they may be made
                 up of school funds that are simply labeled as Direct Loan funds in anticipation
                 of the school drawing down those funds through the G5 system at a later date.
                 The second option is often seen as the school reimbursing itself.


                 Please note that regardless of the source of funds, such as the school using
                 their own funds upfront, if they are labeled as FSA funds, they are considered
                 a disbursement of FSA funds and makes the student a recipient a FSA funds.
                 There are several rules, rights, and responsibilities attached to this designation
                 of being an FSA disbursement, which we will describe in the slides that
                 follow.


                 Let’s first look at crediting the students account. Generally speaking, when
                 credits in a student’s account, schools may only pay current allowable charges
                 with FSA funds. Allowable charges include current tuition and fees for the
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student. If the student is also contracting with the school for room and board,
those charges are considered allowable charges too. If a charge does not meet
this definition the school may not use FSA funds to pay for them.


However, if the school has obtained written authorization from the student and
in the case of a parent for a parent loan the school may also pay other charges
for educationally related expenses that might appear on the students account.
Examples of other educationally related expenses might be books and supplies
or parking permits, or other expenses that are part of their educational
experience, but does not fit the restriction of tuition and fees, room and board.


So, most schools will first credit the students account with Title IV aid, a
school could choose to disburse funds directly to a student instead of crediting
the funds to the students account. Some methods include writing a check to
the student or the parent, if we’re talking about a PLUS loan, paying in cash,
and if used, make sure you always get a proper receipt, that is if you’re paying
in cash.


There are also a variety of ways a school may electronically transfer funds to
the student, or of course to the parent if we’re talking about a PLUS loan. The
student or parent may designate a bank account for which the funds will be
transferred.


Some schools choose to make disbursements using a stored-value card. This is
a prepaid debit card that can be used to withdraw cash from an ATM or to
purchase goods from a merchant. We distinguish a stored-value card from a
traditional debit by defining a stored-value card as not being linked to a
checking or a savings account.
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Another disbursement options is a debit card, which would be linked to a
checking or savings account, and we’ll talk more about the specifics of these
later when we discuss paying credit balances to the student.


In order to even make a disbursement of Direct Loan, your school must
submit an origination record and have a proper Master Promissory Note for
MPN on file, because remember this is a loan. The origination record
establishes the loan in the COD system. A Master Promissory Note has to be
completed and signed by the borrower before a disbursement can be made.


An MPN can be accepted before the origination record done, but these two
items must be in place before a disbursement may be made. Without these two
items in place, the disbursement record since the COD will be rejected.


Except for addition of a Promissory Note that has to be in place before
disbursing Direct Loan funds, the process is virtually the same as you are
accustomed to when dealing with Federal Pell Grants. The financial aid office
provides a list of students to be paid, you drawdown the funds, and then you
make the disbursement.


As we discussed a few minutes ago, Direct Loans are generally disbursed by
the payment period and at different times, depending on how your school
structures their educational program, because of these parameters usually the
financial aid office will notify your office when it is time to disburse and to
whom.


As mentioned, the process of making a Direct Loan to a student has several
steps; creating an origination record, receiving a signed Promissory Note, and
reporting a disbursement. The desired end result is a booked loan, meaning
that there is a binding obligation between the borrower and the Department of
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Education. Now, a book loan is a Direct Loan that has been accepted with an
origination record in COD and accepted first actual disbursement in COD, and
also has an accepted MPN on file.


Though your office will actually disburse funds to a student’s account, it is
important to be aware of the fact that the financial aid office also plays a role
in the disbursement process. The financial aid office will set anticipated
disbursements and also report the actual date of disbursement in COD. The
actual disbursement date reported in COD must be the date your school credits
Direct Loan funds to a student’s account, or pays the student directly with
cash, check, or electronic funds transfer.


The actual disbursement date that you report to COD is important because
several regulatory requirements are based on that date, including interest
calculations and the period in which the borrower has the right to cancel a
loan. Actual disbursement data can be reported seven days before the date the
actual disbursement will occur. But, it must be reported within 30 days or
credited in the students account.


If there are adjustments that have to be made to a disbursement the adjustment
must be reported within 30 days of the change in COD. Schools must also
develop certain procedures to make sure their Direct Loan process runs
smoothly.


One important process to have in place is one to ensure that Direct Loan
disbursement and adjustments are reported to COD within 30 days. This is not
only a regulatory requirement of the Direct Loan Program; it is also a practice
that is beneficial to you in managing your schools loan program.
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Schools will receive a 30-day warning report in COD which contains a listing
of loans that are unbooked. This means that COD hasn’t received all three of
the elements that go into deeming a loan to be booked. Although this report is
ominously called a warning, it is actually another tool that enables schools to
track possible unbooked loans and get all of their loans in booked status. From
the business office standpoint, it is of course crucial that any adjustments that
the financial aid office reports to COD also matches record - matches
adjustment that are recorded on the students account.


When disbursing Direct Loans there are two types of notifications a school
must provide. These notifications must be written either on paper or
electronically. First, a general notification for all students receiving FSA funds
is required. The notice must inform the family of the amount and type of FSA
funds they can expect to receive, and how and when those funds will be
disbursed.


This notification must be sent before a disbursement is made. If the funds
include a Direct Loan the notice must also indicate the amount of the
Subsidized and Unsubsidized loan. This is often referred to as an Award
Letter.


In addition to the general notification, when a student or parent is receiving a
Direct Loan and the funds are being credited to the student’s account, the
school must also notify the student or the parent of the anticipated date and the
amount of the disbursement, their right to cancel all or part of the loan or
disbursement, and explain the procedure and details and deadline for the
student to notify the school that he wishes to cancel the loan or the
disbursement.
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Associated with the notification is the process by which a student indicates
that they want to receive a loan. Affirmative confirmation is a process under
which a school obtains written confirmation from the student or the parent’s
desire to accept the type and amount of the FSA program loan that the school
was awarded. This confirmation is done before the school credits the students
account with loan funds.


This provides the school a relatively wide timeframe within which to notify
the student or the parent of the disbursement. Schools that have an affirmative
or active confirmation process must notify students or parents no earlier than
30 days before and no later than 30 days after credited Direct Loan funds to
the students account.


Some schools do not obtain affirmative confirmation of the students or the
parents desire to accept the loan offer. In those cases, the school must notify
the student or the parent no earlier than 30 days before and no later than seven
days after credited in the students account with the loan funds.


(In order for notification provided) -- I’m sorry -- through the notification
provided you might have noticed that a student can cancel a loan. If the
borrower wants to cancel all or part of a loan he must inform the school. A
school must return the loan proceeds, cancel the loan, or do both if the school
receives a loan cancellation request within the following timeframe.


If the school uses affirmative action confirmation the school must receive the
requested cancel of loan by the latter of the first day of a payment period or 14
days after the date the school notifies the borrower of his right to cancel all or
part of that loan. If the request to cancel a loan is received during the specified
timeframe, the school must comply with the borrowers’ wishes.
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Now, if the request to cancel is received after the specified timeframe, the
school may honor the request to cancel, but it is not required to do so.
Regardless of when the request is received, the school must inform the
borrower in writing of the outcome of the request to cancel.


Borrowers attending schools that do not obtain affirmative confirmation of the
loan may cancel the loan within 30 days from the date the school notifies the
borrower of his right to cancel. Again, if the borrower’s request to cancel is
received after the 30-day timeframe, the school may cancel the loan, but it is
not required to do so. The school must communicate in writing to the
borrower the outcome of the request to cancel the loan.


(Disbursement) dates can be very important when administering Title IV
funds. Let’s talk about the definition of the date of the disbursement. It is
important to find the date of disbursement because several regulatory
requirements are based on that date. For instance, you must disburse an FSA
credit balance to a student within 14 days of the date it was credited, so 14
days of the first day of class, and you must notify a student of a loan
disbursement within a timeframe related to the date of that disbursement.


The date of disbursement also determines when the student becomes an FSA
recipient and has the rights and responsibilities of an FSA recipient. For
example, when Direct Loan funds are disbursed to a recipient, the borrower
assumes responsibility for the loan and has the right to cancel the loan.
Remember that a disbursement occurs when the school credits the students
account or pays a student directly with FSA funds received from ED or a
schools fund labeled as FSA funds in advance of receiving the FSA funds.


It is important to note that if your school simply makes a memo entry for
billing purposes or credits a student’s account and does not identify it as an
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FSA credit, for example a Federal Direct Loan -- it is not considered a
disbursement. For instance, some schools prepare billing statements or
invoices showing that the estimated amount of FSA funds that a school - that a
student is eligible to receive, these estimated amounts are not FSA
disbursements.


As the business office you may choose to use funds - school funds in advance
of receiving FSA funds. It is, however, important to point out that if a school
credits a student’s account with its own funds earlier than ten days before the
first day of classes of a payment period that credit is not considered an FSA
disbursement until the tenth day before the first day of classes. Early
disbursements will be discussed later on in this session.


Another exception is - when school funds are not treated as FSA funds is first
time, first year, Direct Loan borrowers that are a subject to a 30-day delay
after the term starts. If a Direct Loan borrower is subject to the 30-day
disbursement delay and a school credits the students account with its own
funds before the 30-day has elapsed, it is not counted as an FSA loan
disbursement until the thirtieth day after the payment period begins.


As touched on under the date of disbursement discussion, your office will
have the ability to disburse Direct Loan funds earlier than when your payment
period or term begins. For term-based programs you can disburse Title IV
funds, which means drawdown and credit actual federal funds, including
Direct Loan, up to ten days prior to the first day of classes.


For clock hour programs and non-term credit hour programs, you can disburse
Federal Title IV funds ten days before the first day of classes of the first
payment period. After the first payment period funds cannot be disbursed until
the student has successfully completed the prior payment period. And there
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may be several reasons your school may want to disburse federal funds early,
and that would include account practices, student charges, funds access,
student needs, and situations like that. Whatever you decide needs to be right
for your school and for the student.


As mentioned before, the first disbursement of a Direct Loan to a first year,
first time borrower may not be made to a student or students account until 30
days after the first day of the student’s program of study begins. This is called
the 30-day Delay Rule.


However, if your school has a cohort default rate of less than 10% for the
three most recent years of published cohort default rates, the school is not
subject to this 30-day rule. This may be an area you want to clarify with your
financial aid office. And just as a note of interest, since a lot of the schools are
coming from (FFEL) to Direct Loans, you may be wondering if the cohort
default rate of your school’s previous years in (FFEL) will be used, and the
answer is yes.


Now, opposite the early disbursement is the late disbursement. Generally
speaking, a student is no longer eligible for a Direct Loan disbursement after
he drops below 1/2 time of enrollment or is no longer enrolled at all.
However, if certain conditions are met, students must be considered for a
disbursement after the date they became ineligible. These disbursements are
called late disbursements. If a payment is determined to be a late disbursement
it must be made no later than 180 days after the student became ineligible.


Now, let’s see what conditions must be met in order for a student to qualify
for that late disbursement. For Direct Unsubsidized or Subsidized loan, in
order for a student to be eligible for a late disbursement, the Department of
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Education had to have processed a SAR or ISAR with an official EFC before
the student became ineligible.


In addition to receiving the official EFC before the student became ineligible,
the Direct Loan must have been originated before the date the student became
ineligible. And in the case of a first time, first year borrower, the 30-day delay
must have passed if the school is subject to this delay.


Since Parent PLUS loan borrowers technically do not have to complete a
FAFSA, a SAR, or ISAR, it is not required. In the case of a school not having
a SAR or ISAR for a Parent PLUS loan, the school may not disburse a PLUS
loan until the school documents that the student for whom the loan is intended
meets all of the applicable eligibility requirements.


There are differences in how a school must treat a late disbursement when a
student completes the payment period or period of enrollment or withdraws,
versus a student who just drops below 1/2 time enrollment. When a student
qualifies for a late disbursement and the student either completes the payment
period or period of enrollment or if the student withdraws, the school must
offer to make a late disbursement to that student.


In the case of a withdrawal, the late disbursement is called a post-withdrawal
disbursement. Of course, the borrower must have signed the Promissory Note
in time for the loan funds to be included in the return to Title IV calculation.


Now, on the previous slide, we mentioned that students who just drop below
1/2 time enrollment are handled differently with regards to the late
disbursement. If a student drops below 1/2 time enrollment and is still
currently enrolled or completes the period, the school may, not must, make the
late disbursement.
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As long as the school has previously confirmed that a student started the loan
period, enrolled at least 1/2 time, the school is not required to reconfirm a
student’s attendance before making a late disbursement of a Direct Loan.


If the school chooses to make a late disbursement to the student who ceased to
be enrolled at least 1/2 time, the school determines the amount of the late
disbursement -- I’m sorry -- the school determines the amount of the late
disbursement that it will offer the student by determining the educational
course the student incurred for the period of instruction during which the
student was enrolled at least that 1/2 time.


Now, please note a school must contact a student before making any late
disbursement of FSA loan funds and explain the student obligations to repay
the loan funds if they are disbursed. The notice must include enough
information for the student or parent to make an informed decision about
acceptance or rejecting the disbursement of the loan funds.


Some of the type sort of late disbursement is post-withdrawal disbursement.
Unfortunately, students withdraw from school from time to time and if a
student withdraws or cease to attend, the school must do a return of Title IV
funds calculation. If there are FSA funds that were not disbursed before the
student withdrew, but the student has earned some of the funds based on their
time and attendance, it is possible that a student may be owed outstanding
Title IV funds known as the post-withdrawal disbursement.


One key item to remember about the late loan disbursement is that a second or
subsequent disbursement of Direct Loan may not be made late unless the
student has graduated or successfully completed the period of enrollment. So
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obviously, this rules out that second disbursement that would be otherwise
made late if the student has withdrawn.


When Direct Loan funds are received -- as with all Title IV funds -- the funds
must first be used to cover any current year charges. Current year charges are
defined as charges incurred for the award year, which is July 1 through June
30. If no (fellow) Direct Loan are present or change - or charges incurred for
the loan period, often referred to as an enrollment period, if Direct Loan funds
are present.


We need to remember that the amount of current Title IV funds are based in
part on the anticipated educational costs associated with the current or
upcoming payment period. Though current Title IV funds may only be used to
cover current year charges. It is possible for a school to a total of $200 of prior
year charges with the current year funds. This amount can never be exceeded
and there are not exceptions to this rule.


To pay up to the $200, no student or parent authorization is required for
payment of tuition and fees, room and board if contracted with the school.
Student or parent authorization is required to pay other educationally related
prior year charges. For a more detailed discussion about prior year charges,
please see the Departments Dear Colleague Letter GEN-09-11.


When disbursing aid, a very common issue that occurs is a credit balance or
what schools often to refer to a student’s refund amount. A Title IV credit
balance occurs when your school credits Title IV or FSA funds to a student’s
accounts and the Title IV funds are greater than the allowable charges on the
student’s account.
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This slide shows institutional charges of $3000 and a total of $6147 in various
funds credited to the student’s account. If you were to look at just debits and
credits on this account, you would say that there is a $3147 credit balance on
this account, right? Now, note that the $6147 includes a scholarship, which is
a source of funds that is not Title IV.


Now, look at the definition of a Title IV credit balance. Title IV funds credited
exceed total allowance charges assessed by the institution, so we count only
the Title IV funds, which in this case is only $5147. The $1000 scholarship
does not count in the total for this purpose. That makes the Title IV credit
balance $2147.


This Title IV credit balance must be paid to the student within specific
timeframes that we’ll look at in a minute, but first think about why this Title
IV credit balance has occurred. The cost of attendance for a student is based
on institutional charges as well as books and supply, transportation, dependent
care, personal, possible room and board, and other living expenses. This credit
balance is due to the student to help - is due to the students to help pay for all
of these other indirect costs associated with going to school.


Once a Title IV credit balance is established, the school must pay the Title IV
credit balance to the student or the parent if there is a PLUS loan involved as
soon as possible, but no later than 14 calendar days after the date the balance
occurred on the student’s account if it occurs after the first day of classes. If
the Title IV credit balance occurred on or before the first day of classes of that
payment period, remember you can do early disbursement. The credit balance
must be paid within 14 calendar days after the first day of classes.


The law also requires that any excess PLUS loan funds be returned to the
parent unless the parent has authorized your school in writing to transfer the
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proceeds of a PLUS loan to the student directly. It is also important to note
that a school may not require a student to take any action to obtain his or her
credit balance. It is the sole responsibility of the school to pay or make
available any FSA credit balance within the 14-day regulatory timeframe.


A school that is paying a student his credit balance with a direct disbursement
must pay the student within the 14 calendar day timeframe. Aside from
actually sending the check, electronically transferring the funds, or adding
funds to a stored-value card is possible for a school to meet this requirement,
if they send a notice to the student that his money is available.


A school that sends a notice is considered to have met the 14-day requirement
to give the student his credit balance as long as the school’s process complies
with the rest of the regulations. That is the school must be able to give the
student a check when the student comes to the office within the 14-day
timeframe.


If a student is told within that 14-day period to come to the business office to
pick up his credit balance, the student must be able to leave the business office
with the funds in some form. And that could be cash, check, or stored-value
card. He cannot come in and then be told that a check will be mailed to him.


In addition, a student a student may hold the check for up to - a school may
hold a check for up to 21 days after the date it notifies the student that his
credit balance check is available. If the student does not pick up the check
during this 21-day period, the school must immediately mail the check to the
student or the parent if it is a PLUS loan. Initiate an EFT to a designated bank
account or return those funds to the Department.
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Aside from checks, which a lot schools are trying to move away from, schools
may establish a policy requiring its student to provide information about an
existing bank account, or require them to open an account at the bank of the
student’s choosing. However, if the student does not comply with the school’s
policy, the school must still disburse the funds to the student either by cash or
by issuing a check within the regulatory timeframe.


If a school opens a bank account on behalf of a student or parent, the school
must have written permission to do so. The owner of the account must be
informed of the terms and conditions associated with that account. The school
cannot make claims against the account except for correcting an error or with
written permission.


The student or parent must not incur any costs in opening the account or
initially receiving any type of debit card, stored-value card, or other type of
automated teller machine card or a similar transaction device that is used to
access the funds in that account.


Also, students must have convenient access to a branch office of the bank or
ATMs of the bank so that no costs are associated with making cash
withdraws. The branch or ATMs must be on the school’s campus or
immediately adjacent to that campus. The debit card, stored-value card, or
ATM card may not be limited to particular vendors and must be easily
converted to cash.


And lastly, the card may not be marketed or portrayed as a credit card or
credit instrument or subsequently converted - or subsequently convert the
account or card into a credit card. And for more information, you can see the
Department’s Dear Colleague Letter Gen-05-16.
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Instead of having to disburse all Title IV credit balances within 14 days, it is
possible for a school to hold Title IV credit balance for a student if the student
or parent has voluntarily authorized the school to do so. In this case, the
school must identify the amount of funds that it holds for the student or parent
in a subsidiary ledger account designated for that purpose.


The school must also maintain at all times cash in its bank account that is at
least equal to the amount that it holds for that student. Now, any interest
earned on these funds may be returned - retained by the school. The
authorization for a school to hold credit balance funds for the student or the
parent last throughout the time the school - the student is enrolled unless it is
revoked by the student or the parent, which can happen at any time.


However, regulations require that Title IV credit balances created by loan
funds must be disbursed by the end of the loan period. Other Title IV funds
must be disbursed by the end of the last payment period in that award year for
which they were awarded. These deadlines may not be exceeded even with
student or parent authorization.


In the event that a student or parent can’t be located through a reasonable
means, any credit balance funds must be returned to the Title IV program. It is
up to the school to determine which Title IV funds created the Title IV credit
balance. However, we encourage schools to return funds to Direct Loans first
since that will benefit the students by reducing the loan amount that they must
repay.


The Department considers excess cash to be any amount of FSA program
funds other than Federal Perkins Loan Program funds that has a school has not
disbursed to the students or parents by the end of the third business day
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following the date that the school received the funds, or deposited or
transferred the funds to its federal funds bank account.


This includes previously disbursed Title IV funds received from the
Department such as those resulting from award adjustments, recoveries, or a
cancellation. In limited circumstances; however, there are excess cash
tolerances that a school may wish to utilize to assist in their financial process.


A school may retain for up to an additional seven calendar days, after that
third business day, an amount of excess cash that does not exceed 1% of the
total Title IV funds drawn down in the prior award year. The school must
immediately return to ED any amount of excess cash over the 1% tolerance
and any amount remaining in its account after the seven day tolerance period.


Though we would like to think that once Direct Loan funds have been
disbursed that is the end, various situations can occur that require funds to be
returned. Some include when a student has received an overpayment, when
the student withdraws and the return of Title IV cancellation shows that the
student has been paid more than he earned, Direct Loan funds drawn down for
students you expected to pay, but that are not eligible and you don’t have
other eligible students to make the disbursement to.


So in these instances, what do you do? And exception to having to return
Direct Loan funds back to ED through the G5 system is the ability of the
business office to disburse Direct Loan funds removed from one student and
placed in their Federal Funds bank account to another eligible student’s
account.


Of course, this requires a lot of communications between your office and the
financial aid office because your records must reflect the proper debits and
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credits associated with the loan funds. And the financial aid office must
properly increase and decrease the two student records in COD to accurately
show which student received the disbursement and which one did not receive
the disbursement.


Some schools may be very comfortable with this process since it’s similar to
the process that schools can use within the Federal Pell Grant Program.
However, if Direct Loan funds have to be returned to ED the preferred method
and best practice for the school is to us G5 for returning Direct Loan funds.


Money returned to G5 immediately receives a confirmation number that COD
and schools can track. Refunds of cash greater than $100,000 must be returned
electronically via G5. The Direct Loan Business Officer Module 1 Webinar in
this serious - in this series provides much more detail about how to return
funds through the G5 system.


Though not encouraged, it is also possible for a school to return money by
check in exceptional circumstances, such as when you are returning the funds
that are so far beyond the end of the award year that you cannot use G5 to
return those funds.


If returning funds via a paper check, a completed Direct Loan Refund of Cash
form must be included along with your school code, loan number, and the
award year on the check itself. If you are returning funds for more than one
school you will need to send a separate form and a separate check for each
school. For more information and a copy of the Return of Funds form, please
see the Direct Loan Bulletin (ELB)-08-01.


Now, at this point we have covered all of the main topics associated with the
Direct Loan and the cash management rules. It is important to remember that
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                no person or office can administer the Title IV program, including Direct
                Loans.


                Listed on this slide are various resources that you may find helpful when
                trying to administer the Direct Loan Program. For those familiar with the
                Fiscal Office of Blue Book, ED is in the process of finalizing a new Blue
                Book for its business users, so stay tuned for additional information.


                Aside from written material, it is sometimes who you know that is more
                important than what you know. For more information about COD and
                reporting Direct Loans added to ED, please contact the COD Customer
                Service Help Desk at 1-800-848-0978. For more information about G5 or to
                help address any questions related to drawing down or returning Title IV
                funds, please contact the G5 Help Desk at 1-888-336-8930.


                And above all else, if this training has taught you anything, it is how important
                your financial aid office is to your ability to properly obtain, maintain, and
                return Title IV funds. Regular meetings, trainings, and discussions around the
                administration of Title IV funds is a necessity between your offices to ensure
                that effective, efficient, and accurate award and disbursement of Title IV
                funds is taking place.


                And now, I will turn over the remainder of this session to Jamie Malone.


Jamie Malone:   Thank you, (Tasha) and thank you Kevin. I apologize for the frog in my
                throat. We did get a fair number of questions and so what I thought I would do
                was just repeat them for you and provide you with the answers.


                The first question that came in asked about a deadline for completing the
                monthly reconciliation that the regulations require for Direct Lending. There
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is no deadline because that is not a report that you must submit to the
Department of Education.


It is a process that the business office and the financial aid office should have
in place so that on a regular monthly basis, whether it’s the fifteenth of the
month, the first of the month, or the second Wednesday, whenever, you are
actually going through and reconciling records. And you can show that to an
auditor that you have this process and that your records are being continually
reconciled.


We did get some questions about the bank account and remember that for
those of you that participated in Title IV programs, the bank account is no
different than the bank account for which we are depositing Pell, ACG,
SEOG, or Federal Work-Study.


We will, if you want us to, deposit your direct lending money into a totally
separate account from everything else, but that is not required. You can have
the direct lending money deposited into the same account to which you
deposit Pell or Federal Work-Study.


A couple people said that they have the Title IV funds deposited directly into
their general operating account. That is okay too, but you have to remember
the regulatory requirement that you must notify the bank that that bank
account does contain federal funds.


And someone indicated that they do not have the word Federal in the title of
the account, so if you’re not putting the word Federal in the title of your
general operating account, then you would have to notify the bank that that
account does contain federal funds.
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If you don’t want to do that then the best idea would be set up a separate
account for the Department to deposit your draws into and then you have three
business days to move that money from the deposited account to your general
operating account.


A couple people asked about why money has to be placed into an interest
bearing account, and the easiest answer is because it is a regulatory
requirement that the money be placed in an interest bearing account.


Someone else comment that it really doesn’t earn any interest and that may
very well be true. Most of you don’t let it sit in there for anymore than a
period of a couple hours and the interest rates are relatively low now, but it
can sit there for as long three business days. And depending on the going
interest rate, it may be able to generate some dollars in interest.


(Tasha) and Kevin used the term period payment a lot and I did notice a
couple questions that came in that asked, “What is a payment period?” If you
are a term-based school, credit hour term-based and you have semesters or
quarter, that term is your payment period.


You disburse Direct Loan funds once in each term, just like you do disburse
Pell and FSEOG and ACG. If you are non-term-based, then you have a period
of credit hours or a period of clock hours during which you disburse the fund,
and that becomes your payment period.


I also had a question about the 30-day delay for first time, first year
borrowers. That rule applies in the direct lending program just like it applies
in the FFEL program. So, if you have a - if you are at a school that must
follow the 30-day delay requirement because of your default rate in FFEL,
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                  you must also follow the 30-day delay requirement in direct lending as well.
                  There is no difference there.


                  Question about returning funds to the Department, if you send the student a
                  credit balance check or an excess cash check and the check comes back to you
                  that the address is no good or whatever, there are regulations, relatively new
                  regulations in place that provide you with a timeframe in which you either
                  have to try again to send the student that money or return that money to the
                  Title IV programs. And that can be found in Section 668 164 and it is in small
                  letter h. And again, it is relatively a new regulation that provides a timeframe
                  for which you must return those funds to us.


                  Another question that came in had to do with, “What is a first time borrower
                  in direct lending?” If a student has already borrowed in the FFEL program,
                  they are not considered a first time borrower in the direct lending program,
                  which means that the 30-day delay would not apply and it also means that
                  entrance counseling would not apply again. You could -- of course -- choose
                  to do it, but the student is not considered a first time borrower if they have
                  already borrowed in the FFEL program.


                  Kevin or (Tasha), did you see anything else that you thought we should share?


(Natasha Webb): No, I think you covered the gist of the questions that were asked repeatedly.


Kevin Campbell: Someone just asked a question about, “Is the bank forbidden to charge an - a
                  fee on the account?” And it’s not that the bank was ever forbidden from
                  charging fee, it’s that you’re not allowed to use Title IV funds to pay that fee,
                  and that requirement is still in place.
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Jamie Malone:   Okay. I think we did cover most of them. Thanks very much to everyone for
                joining us today. Again, these - this Webinar will be repeated on April 22 and
                the Participation and Funding Webinar will be repeated on April 20...


((Crosstalk))


Jamie Malone:   ...please have a great afternoon, and please do fill out the survey - the slide has
                just come up now. We do want your comments and your feedback.


                Thanks a lot.


Coordinator:    Thank you for joining today’s call. You may disconnect at this time.




                                            END

				
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