Disbursement and Delivery

Disbursement of Title IV funds encompasses more than just student loan proceeds. For purposes of Title IV funds, disbursement occurs on the date the school credits a student’s account or pays a student or parent directly with:

• funds received from the Secretary;
• funds received from a FFELP lender; or
• institutional funds used in advance of receiving Title IV funds.

For more specific information on each of the sections included on this page, refer to the three chapters included in Volume 4 of the Federal Student Aid (FSA) Handbook - Processing Aid and Managing FSA Funds.

For term-based schools that measure progress in credit hours, the payment period is the academic term (i.e., semester, quarter, etc.). This includes standard term programs and non-standard terms that are substantially equal in length. Terms that are substantially equal in length are terms in a loan period that are about equal in length, and no term in the loan period is more than two weeks longer than any other term in that loan period.

For non-term-based schools that measure progress in credit hours, but do not have academic terms, the payment period varies, depending on the length of the program.

Typically, the payment period is as follows:

• The first payment period is the period of time in which the student completes half the number of credit hours and half the number of weeks in the academic year or program.
  
• The second payment period is the period of time in which the student completes the remainder of the academic year or program.

Depending upon the length of the program, the payment periods may vary.

If a school is unable to determine when a student has completed half the credit hours in a program, academic year, or the remainder of a program, the student is considered to begin the second payment period of the program, academic year, or remainder of a program at the later of:

• The date, as determined by the school, that the student has completed one-half of the academic coursework in the program, academic year, or remainder of the program.

• The point at which half the number of weeks of instructional time have elapsed in the program, academic year, or remainder of the program.

For an eligible program that is one academic year or less in length, the following applies:

• The first payment period is the period of time in which the student completes half the number of clock hours and half the weeks of instructional time in the academic year or program.
• The second payment period is the period of time in which the student completes the remaining number of clock hours and weeks of instructional time in the academic year or program.

For an eligible program that is more than one academic year in length, for the first academic year and any subsequent full academic year, the following applies:

• The first payment period is the period of time in which the student completes half the number of clock hours and half the weeks of instructional time in the academic year.
• The second payment period is the period of time in which the student completes the remaining number of clock hours and weeks of instructional time in the academic year.

For any remaining portion of an eligible program that is more than one half an academic year, but less than a full academic year in length, the following applies:

• The first payment period is the period of time in which the student completes half the number of clock hours and half the weeks of instructional time in the program.
  
• The second payment period is the period of time in which the student completes the remaining number of clock hours and weeks of instructional time in the program.

For any remaining portion of an eligible program that is not more than one half of an academic year, the payment period is the remainder of the program.

A school may choose to have more than two payment periods in the academic year. In that case, the number of payment periods must correspond to portions of the academic year. For example, if a school chooses to have three payment periods, each payment period must correspond to one third of the academic year. If three payment periods are used and the program or its remaining portion is more than one third, but less than two thirds of the academic year, two payments are required, with each payment period covering one half of the remaining portion. If the remaining portion is greater than two-thirds of the academic year, but less than one academic year, three payments are required, each covering one third of the remaining portion.

For non-term based and credit and clock hour programs, a program of study less than one academic year in length may only be divided into two equal payment periods. An academic year may only be divided into two equal payment periods. Schools may disburse one payment period's payment in multiple installments within a payment period. Disbursements of grants may be made in unequal installments. Disbursements of loans must be made in equal installments.

The term disburse under 34 CFR 668, subpart K (Cash Management regulations), means the same as deliver loan proceeds used under 34 CFR 682 for FFELP. For purposes of clarity, ISAC will continue to use the term disburse for lender FFELP activities and the term delivery for school FFELP activities.

Disbursement is defined as the transfer of loan proceeds by the lender to a borrower, school, or escrow agent. Disbursement may occur through a variety of methods:

• electronic funds transfer (EFT) from the lender to the school or escrow agent;
• master check made payable to the school that contains funds for multiple borrowers attending that school; or
• individual check made payable to the borrower and sent to the school or made co-payable to the borrower and school and sent to the school.

Schools must schedule FFELP disbursements in accordance with the standardized payment periods.

If the loan period includes more than one payment period, the school must schedule and deliver at least one disbursement per payment period (e.g., quarter schools must schedule at least three disbursements, one for each term, for a full-year loan).

If the loan period includes only one payment period, the school must schedule and deliver at least two disbursements. The second disbursement cannot be delivered earlier than the calendar midpoint between the first and last scheduled days of the loan period.

NOTE: Single term loans do not have to be multiply disbursed for qualifying schools. For first-year, first-time borrowers attending certain colleges, the 30-day delayed delivery requirement may be waived.

ISAC will set disbursement dates only when the school provides an invalid disbursement date on an incoming loan application. Disbursement dates will be set for all schools as follows:

• First disbursement date will be equal to the guarantee date or the first date of the period of loan, whichever is later.
• Second disbursement date will be equal to the midpoint of the loan period.
• Schools will need to process a loan revision if the above disbursement formula does not correspond to their payment periods or disbursement policy.

For Federal Stafford borrowers not subject to delayed delivery and Federal PLUS borrowers, the earliest a school may request disbursement from the lender of loan proceeds is:

• 30 days before the first day of classes for the payment period for disbursements by individual check; or
• 13 days before the first day of classes for the payment period for disbursements by electronic funds transfer (EFT) or master check.

For Federal Stafford loan borrowers subject to delayed delivery, the earliest a school may request disbursement from the lender of loan proceeds is:

• the first day of classes for the payment period for disbursements by individual check; or
• 27 days after the first day of classes (28th day) for the payment period for disbursements by EFT or master check.

Disbursement Reminders

• The school must deliver loan proceeds in substantially equal installments, and no installment may exceed one-half of the loan.
  
• If one or more scheduled disbursement dates have passed before a lender makes a disbursement and the student is still enrolled, the lender may include loan proceeds for previously scheduled, but unmade, disbursements.
  
• The loan period cannot exceed 12 months.

When establishing a disbursement schedule, schools should allow for necessary mail and processing time, and provide dates on which they would expect the lender to issue the check, master check or generate the EFT transaction—not the date on which the school anticipates receiving the funds.  In addition, the school must schedule disbursement dates that comply with applicable delivery requirements.

Loan Delivery

Loan delivery pertains to the school’s processing of loan proceeds and delivering those proceeds to the borrower.  Provisions governing these processes are outlined in the Cash Management regulations (34 CFR 668, Subpart K) and in the FFELP and DL regulations (34 CFR 682 and 685, respectively).

Disbursing and Returning FFELP Funds

The time frames for disbursing and returning FFELP proceeds are different, in general, depending on how the school receives the funds: by individual check, master check, or EFT.

• Initial Period
  • A school has 3 business days after receiving loan proceeds by EFT or master check to deliver those proceeds.
  • A school has 21 calendar days to deliver the loan proceeds after notifying the student that loan proceeds by individual check are available for pick up.
    
• Conditional Period
  • Schools have an additional 10 business days after the initial 3-business day period (EFT and master check) or 30-calendar day period (individual check) to deliver proceeds if the borrower has not completed all FFELP requirements (e.g., loan counseling, completing required clock or credit hours in a preceding payment period, registering for the required number of hours) to be eligible for the proceeds, and the school anticipates the student will be eligible within this additional 10-business day period.
    
    Note: This is not an automatic 10-day extension for all borrowers. Schools should use this additional 10-business day period on a case-by-case basis and document the reason for delaying delivery for the additional period of 10 business days.
    
    
• Return Period
  
  • If a school has not delivered loan proceeds by the required delivery date, based on the method of disbursement and/or when all FFELP requirements are met, the school must return the funds to the lender promptly, but no later than 10 business days after the latest applicable delivery date.
  • If during the preparation to return funds to the lender a borrower becomes eligible to receive those funds, the school may deliver the proceeds rather than return them to the lender, provided they are delivered by the end of the Return Period.

Methods of School Disbursement/Delivery

Schools may disburse Title IV funds by making direct payment or crediting a student's account.

For loan proceeds credited to the student’s account from disbursements received via EFT or master check (or with Direct Loan or Federal Perkins Loan funds), schools must send a notice to the student or parent borrower of:

• the amount and date of the disbursement;
• the right to cancel the loan; and
• the time frame and how to cancel the loan.

Authorizations

A school must obtain authorization from a student (or parent borrower) before:

• disbursing FSA program funds (including Federal Work-Study) by EFT to a bank account designated by the student or parent (unless authorization is already on file);
• using FSA program funds (including Federal Work-Study) to pay for allowable charges other than tuition, fees, and room and board (if the student contracts with the school);
• transferring FFELP funds via EFT or master check (if an authorization is not obtained on a Master Promissory Note or PLUS Loan Application);
• holding excess FSA program funds (credit balances); and
• applying FSA program funds to prior-year charges.