When is a Disbursement a Disbursement?
It is a routine question asked of students: “When will my loans be disbursed?” Likewise, the Business Office regularly inquires of the Financial Aid Office: “When do we expect Ima Student’s loans to be disbursed?” Well, that is a good question! One response heard across the country is the old standby, “It depends….” That response can be apropos at times, for example when the Financial Aid Office is waiting on a student to turn forms in to complete his or her file. But, more specifically, there is a definite point in time when the students’ loans are disbursed. This precise definition of “disbursement date” at times may be misunderstood. To clarify the explicit meaning of the term, the U.S. Department of Education (ED) recently disseminated an Electronic Announcement to schools to remind everyone what “disbursement date” truly means, especially as it applies to Federal Direct Loans.
The fact that ED distributed this reminder would indicate that they note schools are having issues in utilizing the correct disbursement date, especially for Direct Loans. What is the “disbursement date”? The disbursement for Direct Loans occurs on the date that one of three things takes place:
- A school credits a student’s account with the Direct Loan funds at the school,
- The school pays the student (or parent borrower) directly with the Title IV funds, or
- The school advances its own funds to the student (or parent borrower) in advance of actual receipt of the Title IV funds.
In essence, then, we see that the disbursement date is the date that the funds are actually made available to the student (or, borrower, in case of a parent PLUS Loan). This definition of disbursement date is especially critical to the Direct Loan program. This is because the date, as defined above, must be reported to the COD System as the actual disbursement date. The actual disbursement date is in contrast to the anticipated disbursement date utilized in the loan origination process through the COD System. Naturally, it is understood that the anticipated disbursement date submitted at the time of loan origination is the date when, at that point in time, the school expects to disburse the loan. However, the reality of when the loan disburses could change for any number of reasons. Thus, it is essential that schools subsequently report to the COD System the actual date of disbursement if it differs from the anticipated date previously submitted.
Why does it make a difference if the actual disbursement date is reported? The disbursement date is used as the key factor in a number of areas related to a borrower’s loan. First, and perhaps most importantly to a majority of students, is the fact that the interest begins to accrue on unsubsidized loans at the time of disbursement—whether it is a student’s Unsubsidized Direct Loan or a parent’s or graduate/professional student’s PLUS Loan. Thus, if an anticipated date of disbursement is earlier than the actual date of disbursement and the actual date is not reported timely, a borrower is being charged more interest than legally authorized.
Another impact of an incorrect date of disbursement relates to the 120-day rule for the return of funds should a borrower elect to return loan funds. Regulations allow a borrower to return their loan or some portion thereof within 120 days of the disbursement date without being charged interest or fees. If the correct, actual disbursement date is not reported, the borrower will potentially be charged interest or late fees if the funds are correctly returned within the 120 days of the actual disbursement date, but COD still shows an anticipated disbursement date as the incorrect actual date.
Further, with the changes that occur in loan origination fees, and even interest rates (e.g., the change that took place on July 1, 2013, and that will occur in subsequent years on July 1), a borrower may incur greater costs for their loans than they should if the correct and actual disbursement date is not reported. This is due to the fact that the effective date of the origination fee rate or interest rate is, generally, dependent upon the actual disbursement date rather than the anticipated disbursement date.
Finally, a potential impact on a school’s work flow is that reporting inaccurate actual disbursement dates (or, similarly, failure to update an anticipated date to the actual date) may result in needless additional COD System warning edits. If a school experiences a large number of these, this fact may prompt a finding by an auditor or program reviewer in regard to administrative capability or incorrect reporting.
So that a school avoids the negative impacts of incorrect disbursement dates described above, it should make certain that it updates the COD System with the correct actual disbursement dates. Schools can do this by updating the Disbursement Release Indicator (DRI) in the COD System from “False” to “True” to verify the actual disbursement date when it truly takes place. (NOTE: FAME clients that have contracted with FAME to do its COD reporting will have this accomplished by FAME. Schools should be able to affirm the actual disbursement dates reported to COD on your monthly Financial Aid Journal report by reviewing the “Paid” column. Should you have any questions, please contact your Client Services Representative via support.fameinc.com.)
The bottom line is that schools must ensure that the correct actual disbursement date is reported to the COD System. And, as a reminder, any changes in a disbursement date should be reported within 15 days of the actual disbursement occurring.