June 2001 The Blue Book 4-1

Requesting, Managing, and

Returning Title IV Funds

Summary

This chapter contains guidelines that schools must follow to ensure sound cash

management practices. Much of the information in this chapter is based on the

cash management regulations contained in 34 CFR 668, Subpart K. These

regulations establish uniform rules and procedures that a school must follow

to request, maintain, disburse, return, and otherwise manage Title IV

program funds.

Actual Disbursement Roster (ADR)

advance payment method

allowable charges

Anticipated Disbursement Listing

(ADL)

Automated Clearinghouse (ACH)

award period

cash monitoring

cash on hand (COH)

closeout period

credit balance

current value of funds rate

delayed disbursement

delivery

disbursement

Education Central Automated

Processing System (EDCAPS)

electronic funds transfer (EFT)

Electronic Statement of Account

(ESOA)

enrolled

excess cash

excess funds

Federal Reserve Bank (FRB)

FEDWIRE

generally accepted accounting

principles (GAAP)

Grant Administration and Payment

System (GAPS)

idle cash

immediate need

issuing checks

just-in-time payment

liquidation period

master check

multiple disbursement

Office of the Chief Financial Officer

(OCFO)

payment period

peak enrollment period

performance period

period of enrollment

Recipient and Financial

Management System (RFMS)

reimbursement payment

return of Title IV funds

suspension period

UCC-1 statement

Key Terms*

Chapter

4

*Key terms are in boldface type when they first appear in the text.
The Blue Book June 2001 4-2

Chapter 4

4.1 Overview of Cash Management

Schools that participate in Title IV programs are responsible for establishing and

maintaining an internal financial management system that effectively:

♦ promotes sound cash management of Title IV funds,

♦ minimizes the financing cost to the federal government for making Title

IV funds available to schools and students, and

♦ minimizes costs that accrue for students and parents who receive Title IV

loans.

To ensure adequate cash management practices, a school must have in place a

cash management system that adheres to federal regulations and other standards.

A school’s cash management practices are governed by:

♦ generally accepted accounting principles (GAAP),

♦ standards prescribed by the federal Office of Management and Budget

(OMB),

♦ U.S. Department of Treasury regulations, and

♦ U.S. Department of Education (ED) regulations.

At a minimum, a school should establish internal cash management standards

and practices to ensure that:

♦ the school official who authorizes requests for Title IV funds knows the

school’s available Title IV funds balance when making requests;

♦ the cash balance maintained for all Title IV programs is no more than the

minimum needed to cover immediate disbursements (referred to as

“immediate need”);

♦ the school’s cash management system tracks drawdowns and

disbursements of funds, showing that for every drawdown there is an

equal disbursement (however, this is not necessarily the case for upward

or downward adjustments); and

♦ the school’s cash management system contains adequate controls so the

school does not spend more funds than it has authority to spend (except

in limited circumstances, a school may not request or hold excess funds

for future disbursements).

Adhering to cash management guidelines assures ED a school is financially

responsible with federal funds.

 Reference:

• 34 CFR 668.161-167

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• SFA Audit Guide 2000
June 2001 The Blue Book 4-3

Requesting, Managing, and Returning Title IV Funds

4.2 Projecting Cash Needs

A school on the advance payment method must determine the amount of

funds it needs before it transmits a request to the Grant Administration and

Payment System (GAPS). The amount requested must be limited to the

minimum amount needed to make disbursements, so excess funds do not exist

after disbursements are made. The amount must be enough to meet:

♦ Federal Pell Grant disbursements to students,

♦ the federal share of Federal Supplemental Educational Opportunity

Grant (FSEOG) disbursements to students and, if it applies, an

administrative cost allowance (ACA),

♦ the federal share of Federal Work-Study (FWS) payroll disbursements

and ACA,

♦ the federal share of Federal Perkins Loan disbursements and ACA, and

♦ Federal Direct Loan disbursements.*

The following equation may be used to calculate projected immediate needs:

Anticipated Disbursements

minus Balance of Cash on Hand

minus Anticipated Recoveries

minus ACH/EFT Cash in Transit

equals Projected, Immediate Need

In general, a school’s request for funds should not exceed its immediate need.

Immediate Need

Immediate need is defined as the amount of Title IV program funds a school

needs to make disbursements within three business days following the date the

school receives the funds. This definition of immediate need applies to all Title

IV program funds, regardless of whether the school draws down funds by

electronic funds transfer (EFT) through Automated Clearinghouse (ACH)

or through FEDWIRE. Receiving amounts beyond immediate need may result

in excess cash, and there are penalties for holding excess cash. Because of this,

schools may want to carefully review the excess cash tolerances regulation.

Immediate need is determined by the amount of cash a school needs to make

disbursements to students within a specified period of time. The specified time

period is determined by the type of funds received and the method of

disbursement. As long as the school makes disbursements within that time

period, including disbursements made by properly issuing checks, it has

satisfied the immediate need standard.

*Direct Loan funding

requests must be

made separately; they

cannot be combined

with cash requests for

other Title IV funds. In

addition, not all Direct

Loan schools may

request Direct Loan

funds directly from

GAPS. Standard

Origination and

Origination Option 1

schools must request

funds through the

Loan Origination

Center (LOC). The

LOC then initiates a

GAPS payment request

for those schools.

 Reference:

• 34 CFR 668.166(b)

• See section 4-32 of

this book for

information on excess

cash tolerances.
The Blue Book June 2001 4-4

Chapter 4

Special Program Considerations

To accurately determine the total amount of Title IV program funds needed to

make disbursements, a school must consider certain program-specific student

eligibility requirements for each Title IV program.*

Federal Pell Grant Program

A school must pay Federal Pell Grants to students who have a valid Institutional

Student Information Record (ISIR) or Student Aid Report (SAR) on file at the

school or, if a student has withdrawn, the school received either document

before the student withdrew.* A school must establish a system for tracking the

status of these documents and determining when a student’s Federal Pell Grant

award is ready to be paid.

For schools that use the advance payment method, the maximum amount of

Federal Pell Grant funds a school may draw down is based on the school’s

Federal Pell Grant authorization, as reported to the school in its Electronic

Statement of Account (ESOA). The first ESOA (the initial authorization)

received by a school for an award year contains ED’s estimate of the amount of

funds the school will need to make first disbursements to students. As the award

year progresses, the school receives adjusted Pell Grant drawdown authorizations

on the basis of student payment information it reports.

Campus-Based Programs

Each campus-based program—Federal Supplemental Educational Opportunity

Grant (FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan—

requires that awards made to students be a combination of both federal and

nonfederal funds.

To accurately determine its immediate cash need for campus-based programs,

a school must calculate the portion of disbursements from each program that

may be made up of federal funds. The amount of funds drawn down represents the federal

share only.

♦ For the Perkins Loan Program, if a school deposits its federal funds in its

Perkins Loan fund, this eliminates any excess cash condition. However,

if a school draws down those funds, it must expend them within three

business days. The school is reminded to deposit the school ICC match

at the time the federal draw is deposited.

The maximum amount of federal funds a school may draw down from each

campus-based program is based on the school’s initial allocation and

supplemental allocation (for which some schools may be eligible) for that

program, as reported to the school in its Final Funding Authorization from ED.

For the FSEOG Program, a school must time its drawdowns to coincide with

the date it expects to disburse FSEOG funds to students. FSEOG disbursements

*Students must meet

other eligibility

requirements as well.

See Chapter 1 of this

book for more

information about

eligible students.

 Reference:

• 34 CFR 668, Subpart C
June 2001 The Blue Book 4-5

Requesting, Managing, and Returning Title IV Funds

must be made within three business days following the date the funds are drawn

down and deposited.

For the FWS Program, a school must time its drawdowns to coincide with its

payroll dates. A school must estimate the amount of federal funds needed to

meet payroll for a given pay period and draw down only the appropriate federal

share of wages to be paid. Student wages, in accordance with FWS rules and

other wage labor laws (the combined federal and nonfederal share, if it applies),

must be paid within three business days following the date funds are drawn

down and deposited.

For the Federal Perkins Loan Program, a school must determine whether the

cash available in its Federal Perkins Loan fund is sufficient to make loan

advances to students. A school may draw down a portion of the Federal Capital

Contribution (FCC) it needs to cover disbursements. A school must determine

its available funds and draw down only the amount of FCC needed to cover

disbursements within three days. A school must time its drawdown of FCC to

coincide with the dates it expects to advance (disburse) loans to students.

William D. Ford Federal Direct Loan Program (Direct Loan Program)

Direct Loan funding requests are initiated directly to GAPS only by schools that

participate in the William D. Ford Federal Direct Loan Program (Direct Loan

Program) under Origination Option 2. The Loan Origination Center (LOC)

initiates funding requests for schools that participate under Origination Option 1

and Standard Origination.

Unlike the Federal Pell Grant Program and the campus-based programs, there is

no set school allocation or authorization level for the Direct Loan Program.

Schools participating in the Federal Direct Loan Program determine drawdown

amounts on the basis of the amount of funds needed to make loans to eligible

borrowers. The school or the LOC draws down only the net amount of the loan

funds. Before ED does their drawdown, loan fees are subtracted from the gross

amount.

An Option 2 school estimates the amount of funds it needs to make anticipated

disbursements on an ongoing basis. A school can use the Direct Loan Program

software or its own school computer software to calculate the amount of funds

needed. Loan records flagged in the system as “eligible for payment” will be

included in the computer-generated estimate of funds needed. The school may

need to adjust this figure to account for Direct Loan funds on hand and

anticipated recoveries. For each borrower eligible for a loan payment, the Direct

Loan Program software deducts a loan fee of up to 4 percent for Direct

Subsidized and Direct Unsubsidized Loans; it deducts a loan fee of 4 percent for

Direct PLUS Loans.

A school is not required to collect a signed, completed promissory note from a

borrower before drawing down funds for that borrower. However, a school may

not disburse funds to any borrower until it or the LOC (whichever entity is

 Reference:

• Direct Loan School

Guide

• DLB 98-18

• DLB 98-38

 Reference:

• http://e-Grants.ed.gov/

gapsweb

 Reference:

• See Chapter 3 of this

book for more about

campus-based

allocations.
The Blue Book June 2001 4-6

Chapter 4

collecting promissory notes) has received the borrower’s signed, legally

enforceable promissory note.

Timing Issues

When a school initiates a drawdown from GAPS, a school should consider that

processing requests within GAPS typically takes one to three business days and

whether the school is using ACH/EFT or FEDWIRE. Schools should also be

aware of system downtime, federal holidays, and other delays in processing cash

requests when determining immediate need.

4.3 Grant Administration and Payment System

(GAPS)

EDCAPS

ED has a centralized financial management system called the Education

Central Automated Processing System (EDCAPS). EDCAPS is designed to

integrate ED’s separate financial processes, including financial management,

contracts and purchasing, grants administration, and payment management.

EDCAPS was put in place to improve ED’s financial management performance

by integrating three formerly separate system modules into a single system:

♦ Financial Management Systems Software (FMSS)

♦ Contracts and Purchasing Support System (CPSS)

♦ Grant Administration and Payment System (GAPS)

The EDCAPS module that directly affects schools is GAPS.

GAPS Overview

GAPS provides full financial management support services in a single system.

Functions supported by GAPS include everything from award authorizations to

disbursing funds to final grant close out.

GAPS uses funds-delivery systems and financial management technologies, such

as relational databases, Internet technology, and a Windows environment. Using

these technologies allows for such customer-service improvements as easy

system access to request funds and report expenditures, user-friendly retrieval of

award and payment histories, and immediate update and notification of changes

in awards, such as authorization changes.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• GAPS Payee Guide –

August 2000

 Reference:

• http://e-Grants.ed.gov/
June 2001 The Blue Book 4-7

Requesting, Managing, and Returning Title IV Funds

In addition, GAPS is the central repository for payment transactions of schools

that receive funds* from ED through the Office of the Chief Financial Officer

(OCFO). GAPS is a system; OCFO is the office within ED that administers the

system. A school uses GAPS to request funds for:

♦ the Federal Pell Grant Program

♦ the Federal Supplemental Educational Opportunity Grant (FSEOG)

Program

♦ the Federal Work-Study (FWS) Program

♦ the Federal Perkins Loan Program

♦ the Federal Direct Loan Program (Option 2 schools only; Option 1 and

Standard Origination schools do not request [drawdown] funds from

GAPS, the LOC does it on their behalf.)

When ED implemented GAPS, it changed its procedures for schools that receive

and manage ED funds. These procedural changes include how schools request

funds.

Accessing GAPS

Schools request federal funds electronically using GAPS. To request funds, a

school must access the GAPS External Access System through the World Wide

Web.

Schools access GAPS on the World Wide Web through e-Payments (formerly

GAPSWeb), ED’s new portal page for grant administration. E-Payments is part

of e-Grants, ED’s portal site for electronic grant access.

♦ To log on to GAPS, the user must enter an ID and password.

♦ To obtain its user ID and password, a school completes the External

Security Access form. This form can be accessed through the ePayments Web site or the GAPS Payee Hotline at 1-888-336-8930. The

form can be faxed to 202-401-0006.

The school then requests funds by program (Federal Pell Grant, FSEOG,

Federal Perkins Loan, FWS, or Direct Loan). The applicable screen contains the

amount of Title IV funds the school has available to draw down.

Alternatively, schools can also call the GAPS Payee Hotline between 8 a.m. and

8 p.m. Eastern Time (ET) to request funds. Requests made after 2 p.m. are not

processed by GAPS until the next business day.

♦ A school may also call the GAPS Payee Hotline if it has problems

receiving its payment.

*GAPS controls funds

for both Title IV and

non-Title-IV

programs.

 Reference:

• http://e-Grants.ed.gov/

• GAPS Payee Hotline:

1-888-336-8930
The Blue Book June 2001 4-8

Chapter 4

To practice using GAPS, access the e-Payments Web site and click on “GAPS

Training.” Then enter “gapsuser” as the ID and “training” as the password. The

user will be able to enter data for a fictional school, while becoming familiar with

the screens.

4.4 Requesting Funds

Before discussing how funds are requested, two terms need to be defined –

grantee and payee.

Under GAPS, a grantee is an entity (not a person) that applies for and receives a

grant award from ED; a payee is an entity (not a person) identified by the grantee

to request and manage federal funds on behalf of the grantee. The grantee and

payee may be the same entity or different entities. For Title IV financial aid

purposes, the grantee is the financial aid office and the payee is the business

office.

Schools request funds for all Title IV program expenditures directly from the

federal government, with the exception of the Federal Family Education Loan

(FFEL) Program. FFEL Program funds are obtained by schools from banks,

savings and loan organizations, credit unions, and other financial institutions that

serve as FFEL Program lenders.

Award Periods

Before a school requests funds, it should understand the award periods for

GAPS program authorizations.* The length of the award periods vary by

program and authorizing statute. The award period dictates when the payee can

request funds. There are four award periods:

1. performance period

2. liquidation period

3. suspension period

4. closeout period

Performance Period

The performance period is the period between the grant award (this includes

loan funds and FWS) begin date and the grant award end date. During this period,

schools can draw down funds.** However, to do so, schools have to obligate

funds to students (such as submitting to ED disbursement records for students

eligible for the Federal Pell Grant Program).

 Reference:

• GAPS Payee Guide –

August 2000

 Reference:

• 34 CFR 668.162

 Reference:

• GAPS Payee Guide –

August 2000

*Schools having

problems with their

program

authorizations should

contact the

appropriate program

office. See Appendix

D for a list of program

offices.

**Generally, schools

may draw down funds

no later than June 30 of

the award year of their

authorization, unless a

post-withdrawal

disbursement is due

after June 30 for the

applicable year. 

See 34 CFR 668.22 and

668.164(g) for details.
June 2001 The Blue Book 4-9

Requesting, Managing, and Returning Title IV Funds

The performance period is six years and three months from the grant award

begin date. During this period:

♦ payees may request payments,*

♦ payees may modify payment requests,

♦ payees may adjust drawdowns, and

♦ changes may be made to the Student Financial Assistance (SFA)

Program’s grant awards authorizations.

Once the performance period ends, the closeout process begins, which includes

liquidation, suspension, and closeout.

Liquidation Period

The liquidation period* is one month, and it immediately follows the

performance period. During this period:

♦ no new authorizations may be processed against a grant award,

♦ payees may request payments for expenditures incurred during the

performance period, and

♦ payees may adjust drawdowns for expenditures incurred during the

performance period.

The last date a school can draw down funds from ED is the end of this period.

Suspension Period

The suspension period** is one month and follows liquidation. During the

suspension period, no payment actions can take place without the approval of

the program office. ED program offices use this period to prepare for final

closeout.

Closeout Period

The closeout period immediately follows the suspension period. The grant

award is closed and any remaining funds are deobligated.

For the 2000-01 award year, a grant’s:

♦ performance period lasts from July 1, 2000 to September 30, 2006;

♦ liquidation period lasts from October 1, 2006 to October 31, 2006;

*The length of this

period is program

specific.

**The length of this

period is program

specific.
The Blue Book June 2001 4-10

Chapter 4

♦ suspension period lasts from November 1, 2006 to

November 30, 2006; and

♦ closeout begins on December 1, 2006.

Methods of Receiving Funds

Schools can receive funds from ED using electronic funds transfer through

Automated Clearinghouse (ACH) or FEDWIRE.

Automated Clearinghouse (ACH)

One way ED sends funds to schools is using ACH. Once schools request funds

and these requests are approved,* the next business day GAPS electronically

transfers the school’s payment through the Federal Reserve Bank (FRB)

network to the school’s depositor bank account.

ACH requests made by 3 p.m. ET will be deposited the next business day.

Requests made after 3 p.m. will be deposited within two business days.

Before a school begins disbursing funds, it should always check its bank account

for an ACH deposit from ED to make sure a payment has been received. A

school should keep records of all payments it has requested. These records

provide an audit trail of requested funds and help the school reconcile its

accounts with GAPS.

FEDWIRE

The other method by which schools can receive funds is using FEDWIRE.

After a school’s GAPS request is accepted, the funds are then transferred directly

from ED through the FRB network to the school’s depositor account.

Schools are allowed to make same-day payment requests. To receive a same-day

payment, the transaction must be completed no later than 2 p.m. ET. Any

requests made after 2 p.m. will have funds deposited the next business day.

Before a school begins disbursing funds, it should always check its bank account

to make sure a FEDWIRE payment has been deposited. A school should also

keep records of all payments it requests to help reconcile its accounts with

GAPS.

A school may also request FEDWIRE or ACH payments by calling the GAPS

Payee Hotline directly. This method should only used be when GAPS is

malfunctioning or the school is having difficulty accessing it. The GAPS Payee

Hotline (1-888-336-8930) accepts phone questions and requests by phone

between 8 a.m. and 8 p.m. ET.

*Because drawdowns

are done online,

schools will receive

immediate

notification if their

fund requests are not

approved in GAPS.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• GAPS Payee Guide –

August 2000

 Reference:

• GAPS Payee Guide –

August 2000
June 2001 The Blue Book 4-11

Requesting, Managing, and Returning Title IV Funds

Payment Methods

Institutions are paid using one of the following four payment methods:

♦ advance (before Title IV program funds are disbursed to students and/or

parents)

♦ just-in-time (near or on the date Title IV funds are disbursed to students

and/or parents)

♦ reimbursement (after institutional funds have been disbursed to students

and/or parents)

♦ cash monitoring (only after institutional funds have been disbursed to

students and/or parents)

ED determines the payment method each school uses.

Advance Payment Method

Most schools are paid in advance. Under the advance payment method, GAPS

accepts a school’s request for cash and electronically transfers the amount

requested to the school’s bank account using ACH or FEDWIRE.*

A school’s advance request for cash may not exceed the amount of funds the

school needs within three business days to make disbursements to students. A

school must make the disbursements as soon as administratively feasible, but no

later than three business days following the date the school receives the funds.

Alternatively, schools can pay their students with their own funds before

receiving funds from ED.

If the payee is paid in advance, the school requests funds by using the GAPS

External Access System Web site or by calling the GAPS Payee Hotline at

1-888-336-8930 between 8 a.m. and 8 p.m. (ET).

Just-in-Time Payment Method

The just-in-time payment method is available for the Federal Pell Grant

Program only under a pilot project. A small group of schools, chosen by ED

from schools that volunteered, are currently using this payment method.

A school can find out more information about the just-in-time pilot program by

contacting the Federal Pell Grant Program’s Customer Service staff at 

1-800-4PGRANT or 1-800-474-7268.

Under this payment method, a school electronically submits a disbursement

record for the Federal Pell Grant Program no earlier than five calendar days

before the actual date of disbursement. The request includes the date and

amount of the disbursement the school will make or has made to each student.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.162(b)

• GAPS Payee Guide –

August 2000

*Under the Recipient

Financial

Management System

(RFMS), advance

payment schools will

continue to receive

their initial

authorization.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

 Reference:

• 34 CFR 668.162(c)

• DCL P-98-5

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

 Reference:

• 34 CFR 668.162(a) to (e)
The Blue Book June 2001 4-12

Chapter 4

For each request the Recipient Financial Management System (RFMS)

accepts for a student, RFMS automatically sends a transaction to GAPS

requesting that funds be directly deposited into the school’s bank account

through EFT. This whole process takes generally between 24 and 48 hours. In

effect, the disbursement record drives placing funds into the school’s bank

account. No initial authorization is necessary, and the school does not need to

interact directly with GAPS.

If, at the time of disbursement, a student is not eligible for the original Federal

Pell Grant amount requested, the school must request the amount of funds for

which the student is eligible within 30 days of the date the school becomes aware

of the change. In this case, a school is permitted to disburse funds to a student

before submitting a record of the modified disbursement to ED. However, if

the student’s eligibility for those funds changes again by the actual date of the

modified disbursement, any additional adjustment must be reported.

A school can disburse funds intended for one student to another student if the

original student is not eligible for the entire grant or a portion of the grant. If the

school does so, it must ensure that all the required student transactions are sent

to RFMS within the 30-day reporting period. The school must also do a

“negative” disbursement for the ineligible student and do an off-setting

“positive” disbursement for the student who actually received the funds.

Schools using the just-in-time payment method are exempt from several cash

management requirements. These exemptions include:

♦ not having to meet the three-day-use rule required for the advance

payment method;

♦ not having to reverify student eligibility for a Federal Pell Grant award at

the time of disbursement;

♦ not having to maintain Federal Pell Grant funds in an interest-bearing

account; and

♦ not having to follow the normally applicable rules governing excess

cash.*

Using this payment method, schools will have only nominal amounts of excess

cash created by minor adjustments. Because ED will modify new requests for

funds after deducting any adjustments reported by the school, large amounts of

excess cash should not occur.

The just-in-time-payment method will enable the delivery system to provide the

most current payment information to students and other system users, thereby

reducing burden related to reconciling payment data. This method will improve

reconciliation between a school’s financial aid office and business office.

Moreover, it should simplify the close-out process because adjustments are made

throughout the year and all records should be in agreement.

 Reference:

• Federal Pell Grant

Desk Reference for

2001-02

 Reference:

• 34 CFR 668.166(a)(2)

*The excess cash

exemption only

applies to Title IV

funds received under

the just-in-time

payment method.

Title IV funds received

by other payment

methods are still

subject to excess

cash rules.

 Reference:

• DCL P-00-1

• DCL P-99-4

• DCL P-99-3

• DCL P-98-4

• See Section 6.1 of this

book for more

information about

RFMS.
June 2001 The Blue Book 4-13

Requesting, Managing, and Returning Title IV Funds

Reimbursement Payment Method

A school may be placed on the reimbursement payment method if ED

determines that there is a need to monitor the school’s use of federal funds or if

a school has monetary liabilities that need to be recovered by administrative

offset (for example, owing funds to ED as a result of an audit or program review

determination).

The reimbursement procedure begins with the school filling out a Request for

Advance or Reimbursement Form (SF-270) and sending it to the appropriate ED

regional office for approval. If the request is approved, the regional office

processes a payment request in GAPS.

Under the reimbursement payment method, a school must make credit or cash

disbursements to eligible students before it may submit a request to the ED

regional office for cash for Federal Pell Grant, campus-based, and Direct Loan

funds. The amount of the request may not exceed the amount of actual

disbursements the school made to students included in the request.

A school must submit documentation that each student included in a

reimbursement request was eligible to receive and did receive payment for the

Title IV program funds that the school is requesting.

The ED regional office approves the request for reimbursement and

electronically transfers the requested amount to the school’s bank account if:

♦ the school properly determined each student’s eligibility for Title IV

program funds;

♦ the school made payments to students for the correct amounts of

Title IV program funds;

♦ the school submitted any required documentation that shows each

student included in that request was eligible to receive and was disbursed

Title IV program funds; and

♦ sufficient program-specific funds are available to the school in the

school’s GAPS account.

Cash Monitoring Payment Method

When ED places a school on the cash monitoring payment method, the school

requests funds after the school makes disbursements to students and parents.

The school will then be paid using either the advance payment method or the

reimbursement payment method.

If a school is paid using the advance payment method and ED approves the

request for funds, ED processes the request in GAPS and electronically transfers

the amount requested to the school’s bank account using ACH or FEDWIRE.

 Reference:

• 34 CFR 668.162(e)(1)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• GAPS Payee Guide –

August 2000

 Reference:

• 34 CFR 668.162(d)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility
The Blue Book June 2001 4-14

Chapter 4

A school’s advance request for cash may not exceed the amount of the actual

disbursements the school made to students and parents in the request.

If a school is paid using the reimbursement payment method, the school must

first make disbursements to eligible students and parents before ED processes a

request for payment in GAPS. The amount of the request may not exceed the

amount of actual disbursements the school made to students and parents in the

request.

A school may be required to submit documentation* that each student included

in a request was eligible to receive and did receive payment for Title IV program

funds for which the school is requesting reimbursement.

ED approves the request for reimbursement, and GAPS electronically transfers

the requested amount to the school’s bank account, if:

♦ the school accurately determined each student’s eligibility for Title IV

program funds,

♦ the school accurately determined the amounts of Title IV program funds

paid to students and parents,

♦ the school submitted any required documentation to support its request

for reimbursement, and

♦ sufficient funds are available to the school in the school’s GAPS account.

William D. Ford Federal Direct Loan Program

(Direct Loan Program)

Procedures used to draw down funds for the William D. Ford Federal Direct

Loan Program (Direct Loan Program) differ from those used to draw down

other Title IV funds. In addition, requests for Direct Loan funds may not be

combined with requests for other Title IV funds.

There are two methods by which a school may handle funding requests. These

methods depend on whether a school participates under Origination Option 2 or

Origination Option 1 or Standard Origination.

Schools Participating Under Origination Option 2

Origination Option 2 Direct Loan schools initiate their own funding requests.

These requests are made separately from those requests made for Federal Pell

Grant, campus-based, and other ED program funds because Direct Loan funds

come from a different congressional appropriation.

Once a school has determined its immediate need, a drawdown request is made

to GAPS. The school can either make a drawdown request on the GAPS Web

 Reference:

• • 34 CFR

668.162(e)(2)

*The documentation

requirements may be

modified or changed

by the appropriate

ED regional office.

 Reference:

• Direct Loan School

Guide

• Direct Loan Desk

Reference

 Reference:

• http://e-Grants.ed.gov/

 Reference:

• 34 CFR 668.162(e)(2)
June 2001 The Blue Book 4-15

Requesting, Managing, and Returning Title IV Funds

site or by calling the GAPS Payee Hotline at 1-888-336-8930. GAPS requests

cannot be made using EDExpress.

To resolve payment problems with GAPS and to maintain a written record of

funds distributed, Option 2 schools should retain copies of Direct Loan

drawdown requests.

GAPS edits a school’s drawdown request and creates an ACH payment file for

transmittal to the Federal Reserve Bank (FRB). Any problems with requests are

transferred to a holding file so ED personnel can either approve the transaction

or contact the school to resolve the problem.

The FRB receives the ACH file and transfers funds directly to the school’s bank

account. A school’s bank should receive funds within 48 to 72 hours after the

school transmits the drawdown request. The FRB notifies ED if there is a

problem with an ACH transmission or if a school’s transaction is rejected. ED

then contacts the school to resolve the problem.

Schools Participating Under Origination Option 1 or Standard Origination

Schools participating in the Direct Loan Program under Origination Option 1 or

Standard Origination do not initiate funding requests. Rather, their funding

requests are handled by the Loan Origination Center (LOC).

The LOC requests funds for Option 1 and Standard schools based on

anticipated disbursement dates and amounts provided by the school in loan

origination records and promissory notes. Standard Origination schools do not

prepare promissory notes. Funds are requested for those anticipated

disbursements for which the LOC has an accepted loan origination record and

signed promissory note.

Approximately 30 to 45 days before the anticipated disbursement dates listed in

the loan origination records, the LOC sends an Anticipated Disbursement

Listing (ADL) to the school that shows anticipated disbursements by borrower

and loan type. The school reviews the list and, if necessary, updates or adjusts

the information with the LOC through the change record process.

The LOC requests a school’s funds from GAPS five days before the anticipated

disbursement date. The same day the request is made, the LOC creates and

sends an electronic Actual Disbursement Roster (ADR) to the school that lists

individual borrowers, their loan types, and their disbursement amounts (minus

loan fees), as well as the total amount of funds included in the request. A school

should retain copies of all ADRs.

The funds received from a drawdown are deposited directly into a school’s bank

account through FEDWIRE.

 Reference:

• Direct Loan School

Guide

• Direct Loan Desk

Reference
The Blue Book June 2001 4-16

Chapter 4

Timing Issues

From time to time, the Loan Origination Center (LOC) shuts down to update

existing files and prepare the Direct Loan System for the upcoming year’s

processing cycle. When this happens, ED notifies schools in advance in a

Direct Loan Bulletin.

To ensure that they have adequate funds to disburse during this shutdown

period, Option 2 schools should project their cash needs for the length of the

shutdown period and request the funds before the shutdown begins.

4.5 Maintaining Funds

The cash management regulations in 34 CFR 668, Subpart K contain guidelines

schools must follow to adequately manage federal funds.

Bank Account

All schools must maintain a bank account into which ED transfers (or a school

deposits) Title IV program funds. This account also must meet certain federal

requirements. (Funds received from the Federal Family Education Loan [FFEL]

Program are excluded from the requirements.) The bank account must be

federally insured or secured by collateral of value reasonably equivalent to the

amount of Title IV program funds in the account.

Regardless of the type of account or number of accounts in which a school

maintains Title IV funds, the school must properly indicate that the account(s)

contain federal funds. A school may meet this requirement by:

♦ ensuring that the name of the account clearly includes the phrase “federal

funds” or

♦ notifying its bank of the accounts that contain federal funds and (except

for a public school) filing a UCC-1 statement with the appropriate state

or local government entity disclosing that the account contains federal

funds and retaining copies of the bank notice and proof of submitting

the UCC-1 statement in its records.

♦ The format and content of the forms used for UCC-1 statements

vary from state to state. UCC-1 statements and information about

filing them are available from the state corporation council or

secretary of state in your state. Blank UCC-1 statements are available

from local legal office supply stores.

A school is not required to maintain a separate bank account for Title IV

program funds. However, in certain circumstances, a school may be required to

maintain all Title IV program funds in a bank account that contains no other

type of funds. This is the case if ED determines that:

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.163(a)(1)

 Reference:

• 34 CFR 668.163(a)(2)

• 34 CFR 668.163(a)(2)(ii)(B)
June 2001 The Blue Book 4-17

Requesting, Managing, and Returning Title IV Funds

♦ the school’s accounting and internal control systems do not identify:

♦ cash balances of Title IV program funds maintained in the school’s

bank account as readily as if those funds were maintained for each

program in a separate account, or

♦ the interest or investment revenue adequately earned on Title IV

program funds maintained in the school’s bank account; or

♦ the school’s financial records are:

♦ not maintained on a current basis,

♦ not accurately reflective of all Title IV program transactions, or

♦ not reconciled at least monthly; or

♦ the school has otherwise failed to comply with recordkeeping and

reporting requirements required by applicable federal regulations.

Interest-Bearing Account

A school must remit to ED, at least annually, the interest or investment revenue

earned on Title IV program funds maintained in an interest-bearing or

investment account.

A school may retain up to $250 a year of the interest or investment revenue

earned on Title IV program funds (except for Federal Perkins Loan funds)

during an award year. By June 30 of that award year, the school must send ED

any interest or investment revenue earned on Title IV programs funds over $250,

except for interest or investment revenue earned on Federal Perkins Loan funds.

The school must leave all interest and investment revenue earned for Federal

Perkins Loans in its revolving Federal Perkins Loan fund.

For any award year, a school that participates in the Federal Perkins Loan

Program must maintain its Federal Perkins Loan funds in:

♦ an interest-bearing account that is federally insured or secured by

collateral of value equivalent to the amount of Title IV program funds in

the account or

♦ an investment account that consists predominantly of low-risk incomeproducing securities, such as obligations issued or guaranteed by the U.S.

government. If a school maintains federal funds in an investment

account, the account must remain sufficiently liquid to make required

disbursements to students.

A school that does not participate in the Federal Perkins Loan Program must

maintain other Title IV program funds in an interest-bearing account if the

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

 Reference:

• 34 CFR 668.163(c)(3)

and (4)
The Blue Book June 2001 4-18

Chapter 4

school does not meet the criteria listed in the next paragraph. If applicable, the

account must meet the same, just-cited, interest-bearing or investment-account

requirements.

A school is not required to maintain an interest-bearing account if:

♦ the school drew down less than $3 million from Title IV programs in the

previous award year and anticipates it will draw down less than 

$3 million in the current award year;

♦ the school demonstrates by its cash management practices it would not

earn more than $250 in interest by maintaining in an interest-bearing

account the total amount of Title IV program funds it will draw down

during the current award year; or

♦ the school requests those funds using the just-in-time payment method.

If a school is not required to maintain separate accounts, it must maintain

accounting and internal control systems that:

♦ identify the cash balance of the funds of each Title IV program that is

included in the institution’s interest-bearing or investment account and

♦ identify the earnings on Title IV funds maintained in the school’s

interest-bearing or investment account.

In addition, a school must maintain its accounting financial records accordingly.

Schools that request funds using the just-in-time payment method are exempt

from having an interest-bearing account for those funds because the payment

method is designed to ensure expeditious fund disbursement.

4.6 Obtaining Federal Family Education Loan

(FFEL) Program Funds

The Federal Family Education Loan (FFEL) Program includes Federal Stafford

Loans (subsidized and unsubsidized), Federal PLUS Loans (for parents), and

Federal Consolidation Loans.

FFEL Program loans are made to students and parents by banks, savings and

loans, credit unions, and other financial institutions. A school obtains a

borrower’s funds directly from the lending institution or servicer.

Federal statute requires that proceeds from Stafford Loans and PLUS Loans be

disbursed directly to schools for delivery to borrowers.

 Reference:

• 34 CFR 668.163(c)(1)

and (2)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

 Reference:

• 34 CFR 668.163(d)
June 2001 The Blue Book 4-19

Requesting, Managing, and Returning Title IV Funds

Electronic Funds Transfer (EFT) and Master Checks

A school may receive a borrower’s FFEL funds from a lender by EFT. To do

so, a school must enroll in EFT with the lender or the lender’s disbursing agent

to enable FFEL funds to be deposited directly into the school’s designated bank

account.

A school may also receive a borrower’s loan proceeds by master check if the

school and lender or the lender’s disbursing agent have entered into an

agreement to use master checks. A master check is a single check, written by a

lender, that contains all the lender’s FFEL Program funds for the school’s

borrowers for a given disbursement date.

Funds provided by EFT or master check must be accompanied by a list of

names, Social Security numbers, and loan amounts of borrowers whose

payments are considered a part of those funds. The list enables a school to

identify eligible borrowers to whom loan proceeds are to be delivered.

A school may request loan proceeds by EFT or master check no earlier than

13 days before the first day of a student’s enrollment period. If a Stafford Loan

borrower is subject to delayed disbursement, disbursement by EFT or master

check may not be requested until the 27th day of the student’s enrollment period.

A school must obtain a borrower’s written authorization to receive his or her

loan funds by EFT or master check. Authorization may be given in the

borrower’s loan application (master promissory note [MPN] or PLUS Loan

application and promissory note), or it may be obtained separately. If written

authorization is not given in the borrower’s loan application, it must be obtained

not more than 30 days before the beginning of the enrollment period for which

the loan is intended.

♦ The EFT approval is for the school to accept loan funds from the lender.

It is not for direct payment to the student’s bank account.

Individual Checks

A school may receive a borrower’s Stafford Loan funds from a lender in the

form of an individual bank check made payable to the borrower or co-payable to

the borrower and the school. In the case of a co-payable check, the school and

the borrower must endorse the check. A school must deliver loan funds to a

student borrower within 30 days of the date it receives the check.

Co-payable PLUS Loan checks must be sent directly to a school by a lender. A

school must deliver PLUS proceeds to a parent borrower within 30 days of

receiving a check. However, a school is not required to endorse a PLUS check

before sending it to a parent borrower. The school may require the parent

borrower to endorse the check and return it to the school for the school’s

endorsement. The school then endorses the check, deposits it, and disburses the

funds.

 Reference:

• 34 CFR 682.604(c)(3)

 Reference:

• 34 CFR 668.167(a)(2)

 Reference:

• 34 CFR 668.167(a)(1)
The Blue Book June 2001 4-20

Chapter 4

In no case may a school request loan funds by individual check earlier than

30 days before the first day of the student’s enrollment period. If a Stafford

Loan borrower is subject to delayed disbursement, a school may not request

Stafford Loan funds earlier than the first day of classes of the student’s first

payment period.

4.7 Disbursing Title IV Program Funds

Cash management regulations contain a specific definition of the term

“disburse.” Title IV program funds are disbursed when a school credits a

student’s account with funds or pays a student or parent directly with:

♦ Title IV funds received from ED,

♦ Federal Family Education Loan (FFEL) Program funds received from a

lender, or

♦ institutional funds used before receiving Title IV program funds.

Before a school disburses Title IV program funds, the school must notify the

student of the amounts of Title IV funds expected to be received and how and

when those funds will be paid.

However, there are three exceptions that do not result immediately in a Title IV

disbursement when crediting institutional funds labeled as Title IV funds to a

student’s account before receiving the actual Title IV program funds:

♦ If a school credits a student’s account with the institutional funds before

receiving Title IV funds earlier than ten days before the first day of class of a

 Reference:

• 34 CFR 668.164(a)(2)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.164(a)(1)

• 34 CFR 674.16

• 34 CFR 675.16

• 34 CFR 676.16

• 34 CFR 682.207

• 34 CFR 682.604

• 34 CFR 685.303

• 34 CFR 690.78
June 2001 The Blue Book 4-21

Requesting, Managing, and Returning Title IV Funds

payment period, the Title IV disbursement occurs on the tenth day before

the first day of class*; or

♦ For a student whose loan funds are subject to 30-day delayed

disbursement, if a school credits the student’s account with institutional

funds before receiving Title IV program funds earlier than 30 days after the

first day of the payment period, the Title IV loan disbursement occurs on the

30th day after the beginning of the payment period; or

♦ If a school simply makes a memo entry for billing purposes or credits a

student’s account and does not identify it as a Title IV credit (for

example, an “estimated Federal Pell Grant”), the disbursement does not

occur until the posting is subsequently converted to an actual credit.

To disburse Title IV program funds to a student or parent a school may:

♦ release the FFEL check to the student or parent directly by

♦ issuing a check** (or other instrument) payable to the student and

requiring the student’s endorsement or certification (or, in the case of

a parent borrowing under the Direct Loan Program or FFEL

Program, requiring the endorsement or certification of the student’s

parent);

♦ initiating an EFT to a bank account designated by the student (or, in

the case of a parent borrower, designated by the parent); or

♦ dispensing cash to the student for which the school obtains a signed

receipt from the student; or

♦ credit a student’s account at the school. In the case of Direct Loan

funds, a school must credit the student’s school account.

Federal regulations require schools to notify a student or a parent borrower of

the amount of Title IV program funds the student can expect to receive and how

and when those funds will be paid. In the case of Direct Loan or FFEL Program

funds, the notice must indicate which funds are subsidized loans and which are

unsubsidized loans.

Paying Students or Parents Directly

If a school does not credit a student’s school account with payments of Title IV

program funds for allowable charges, it must pay the student or parent directly.

A school may use more than one payment method. For example, a school might

credit a student’s account for tuition and fees, then pay remaining Title IV funds

directly to the student.

*However, a school

can make a credit

disbursement with

institutional funds

earlier than ten days

before the first day

of classes of a

payment period, but

it is not a Title IV aid

disbursement.

**A school may

endorse a lender’s

co-payable FFEL

check or FFEL PLUS

check and issue that

check to the

borrower as

payment of the loan

proceeds.

 Reference:

• 34 CFR 668.164(c)

• 34 CFR 675.16

 Reference:

• 34 CFR 668.165(a)(1)

 Reference:

• 34 CFR 668.167
The Blue Book June 2001 4-22

Chapter 4

Issuing Checks

A school may pay a student or parent by issuing a check. A Direct Loan school,

however, must first credit the student’s school account; then it may issue a check

for any remaining funds.

For loans made under the FFEL Program, the check issued by the lender may be

the check delivered to the student. A school may endorse a lender’s co-payable

Federal Stafford Loan or Federal PLUS Loan check and issue that same check to

the student borrower or parent borrower. Or the school can have the borrower

sign the check, the school endorses the check and deposits it, and then the

school credits the student’s school account. The funds credited are used either

to pay allowable charges or, with the borrower’s permission, are held as funds in

excess of allowable charges.

For all Title IV program funds, a school may issue checks drawn from the bank

account in which the school maintains federal funds or from the school’s own

general account.

To properly issue a check for Title IV funds, including FFEL funds, a school

must release, distribute, or otherwise make the check available by:

♦ mailing the check to the student or parent (for PLUS Loan borrowers

only) or

♦ notifying the student or parent that the check is available, on request, for

immediate pickup.

EFT

A school may pay a student or parent by electronically transmitting Title IV

program funds directly to the student’s or parent’s (for PLUS Loan borrowers

only) designated bank account. The school must obtain written authorization

from the student or parent to pay Title IV funds through EFT.

Crediting a Student’s Account

Crediting a student’s account (at a school) is defined as posting a payment of

funds to a student’s account. In the context of federal regulations governing

Title IV programs, a student’s school account may be any recordkeeping system

that a school uses to post institutional charges and payments of Title IV program

funds. The system may be manual or automated.

If a school credits a student’s school account with Title IV program funds, it may

apply those funds only to allowable charges. Allowable charges include:

♦ tuition and fees,

♦ board, if the student contracts with the school for board, and

 Reference:

• 34 CFR 668.164(c)(3)

• 34 CFR 668.165(b)

(1)(i)

 Reference:

• 34 CFR 668.164(d)(2)

(i) and (ii)

 Reference:

• 34 CFR 668.164(d)

 Reference:

• 34 CFR 668.164(c)(1)

and (2)
June 2001 The Blue Book 4-23

Requesting, Managing, and Returning Title IV Funds

♦ room, if the student contracts with the school for room.

If a school obtains a student’s or parent’s written authorization to use

Title IV program funds to pay other costs, these costs may include:

♦ institutional charges that were incurred by the student for educationally

related activities and

♦ minor prior-year charges if these charges are less than $100 or if the

payment of these charges does not, or will not, prevent the student from

paying his or her current educational costs.

However, in general, Title IV program funds are only used to pay for educational

expenses a student incurs in the period for which the funds are provided. When

students request that Title IV funds be used for prior-year charges, schools

should handle such requests in a very judicious manner.

A school may not require or coerce a student or parent to authorize the use of

Title IV funds to pay for other costs. Furthermore, if a student or parent elects

to give such authorization to a school, the school must allow the student or

parent to modify or rescind the authorization at any time. The school must also

clearly explain how it will honor the authorization received from the student or

parent.

An institution may, at a student’s request, make Federal Work-Study payments

directly to the student’s bank account or may credit a student’s account at the

institution for tuition and fees, room and board, and other institutionally

provided goods and services.

Title IV Loan Programs

When a school disburses Direct Loan funds by crediting a student’s account at

the school, the school must first use those funds to pay outstanding current

charges and authorized charges.

When a school credits a student’s account with Federal Perkins Loan funds,

Direct Loan funds, or Federal Family Education Loan (FFEL) Program funds

received by EFT or master check, it must notify the student or parent (for PLUS

Loan borrowers), in writing or electronically, no earlier than 30 days before and

no later than 30 days after crediting the student’s account of:

♦ the date and amount of the disbursement,

♦ the borrower’s right to cancel all or a portion of the loan, and

♦ the procedures and time by which the borrower must notify the school

that he or she wishes to cancel all or a portion of the loan.

 Reference:

• HEA, Section 445(c)

• 34 CFR 675.16(a)(3)(iii)

 Reference:

• 34 CFR 668.164(d)(3)

 Reference:

• 34 CFR 668.165(a)(3)

(i) and (ii)

• DCL CB-96-8

 Reference:

• 34 CFR 668.165(b)(2)

 Reference:

• 34 CFR 682.207

• 34 CFR 682.604

• 34 CFR 685.301

• 34 CFR 685.303
The Blue Book June 2001 4-24

Chapter 4

In addition, if the school sends the notice electronically, it must require the

recipient of the notice to confirm receipt of the notice and the school must

maintain a copy of that confirmation.

The school must return the loan proceeds, cancel the loan, or do both, if the

school receives a request from the borrower to return and/or cancel the loan

within 14 days after the date the school sends the disbursement notice. If the

school sends the disbursement notice more than 14 days before the first day of

the payment period, it must honor the borrower’s request by the first day of the

payment period. In addition, a school may return the loan proceeds, cancel the

loan, or do both, if the school receives the notice from the borrower after this

deadline, but it is not required to do so. This is the school’s decision.

A school must notify a student or parent, in writing or electronically, about the

outcome of any cancellation request.

Separation of Functions

At some schools, the business office and financial aid office are located in one

shared office. Although this setup might provide good student services, it is

essential to remember that federal regulations require a school to divide the

functions of authorizing payments and disbursing funds so that no single office

or individual has the responsibility for both functions for any student receiving

Title IV funds.

♦ For example, under the Perkins Loan Program, the financial aid office

might award Perkins Loan funds. The business office might be

responsible for disbursing Perkins Loans, collecting and handling

promissory notes, billing borrowers in repayment, collecting payments,

authorizing deferments, canceling loans, counseling students, and

reporting on Perkins Loans to NSLDS. Or schools might contract with a

third-party servicer for some of these activities; some schools have a

separate loan office that is part of either the business office or the

financial aid office.

Title IV Credit Balances

When a school applies Title IV funds to a student’s school account and

determines that the amount of the funds exceeds allowable charges the school

assessed the student, the school must pay the credit balance directly to the

student or parent borrower as soon as possible, but no later than the 14-day

deadline described below. The only exception is when the school has the

student’s permission to hold a credit balance.

A school must pay a credit balance directly to a student borrower or parent

borrower within 14 days of:

♦ the date the balance occurs, if it occurs after the first day of class of a

payment period; or

 Reference:

• 34 CFR 668.164(e)

 Reference:

• 34 CFR 668.165(a)(4)

 Reference:

• 34 CFR 668.165(a)(5)

 Reference:

• 34 CFR 668.16(c)(2)

 Reference:

• 34 CFR 668.16(c)(2)
June 2001 The Blue Book 4-25

Requesting, Managing, and Returning Title IV Funds

♦ the first day of class of a payment period, if the balance occurs on or

before the first day of class of that payment period; or

♦ the date the school receives the student’s or parent’s cancellation of the

school’s authorization to hold a Title IV credit balance.

The two examples below illustrate how schools can pay a Title IV credit balance.

Early Disbursements

A school may not make a payment to a student or credit a student’s account until

the student is enrolled for classes for the applicable payment period or

enrollment period. Federal regulations define “enrolled” as the status of a

student who:

♦ has completed registration requirements (except for paying tuition and

fees) at the school the student is attending or

♦ has been admitted into an educational program offered predominantly by

correspondence and, after being accepted for enrollment, has submitted

one lesson completed by the student without the help of a representative

of the school.

Except for students subject to the 30-day delayed disbursement, the earliest a

school may pay a student directly or credit a student’s account with Title IV

 Reference:

• 34 CFR 668.2(b)

 Reference:

• 34 CFR 668.164(f)(1)

and (2)
The Blue Book June 2001 4-26

Chapter 4

funds is ten days before the first day of an enrollment period for which that

disbursement is intended.*

Multiple Disbursements

A school generally disburses Direct Loan funds or delivers FFEL proceeds in

multiple installments. If the school is required to do so, the disbursements must

be in substantially equal installments and no installment may exceed one-half of

the loan.

For clock-hour programs, nonterm credit-hour programs, and nonstandard term

programs that do not use terms substantially equal in length** for a loan period,

the second disbursement of Direct Loan Program or FFEL Program funds

cannot be made until the later of:

♦ the calendar midpoint between the first and last scheduled days of the

loan period,

♦ the date determined by the school that the student has completed half of

the academic course work in the loan period for nonterm credit-hour

programs or nonstandard term programs, or

♦ the date determined by the school that the student has completed half of

the clock hours in the loan period for clock-hour programs.

For credit-hour programs with standard terms, if the loan period is more than

one payment period, loan funds must be delivered at least once in each payment

period. If the loan period is one payment period (for example, one semester),

the second disbursement of Direct Loan Program funds or the second delivery

of FFEL Program funds cannot be made until the calendar midpoint between

the first and last scheduled days of class of the loan period.

There are, however, some situations in which a school is allowed to make a single

disbursement:

♦ If one or more payment periods have elapsed before the school makes a

disbursement, the school may include loan proceeds for completed

payment periods in the disbursement.

♦ If the loan period is equal to one payment period and more than one-half

of it has elapsed, the school may include loan proceeds for the entire

payment period in the disbursement.

♦ If a school has a cohort default rate of less than 10 percent for each of

the three most recent fiscal years for which data are available, the school

may disburse a loan in a single installment if the loan period is not more

than one semester, one trimester, one quarter, or, for nonterm-based

schools or schools with nonstandard terms, four months.

 Reference:

• 34 CFR 682.604(c)

(7) and (8)

• 34 CFR 685.301(b)

(5) and (6)

*Schools may incur

liabilities if they

disburse Title IV funds

earlier than allowed by

the ten-day rule.

 Reference:

• 34 CFR 682.604(c)(6)(i)

and (ii)

• 34 CFR 685.301(b)(3)(i)

and (ii)

 Reference:

• 34 CFR 682.604(c)(10)

• 34 CFR 685.301(b)(8)

**Terms in a loan

period are

substantially equal

in length if no term

is no more than any

other term in that

loan period.

 Reference:

• 34 CFR 682.207(d)

• 34 CFR 685.301(b)(4)(i)

and (ii)

 References:

• 34 CFR 682.604(c)(9)

• 34 CFR 685.301(b)(7)
June 2001 The Blue Book 4-27

Requesting, Managing, and Returning Title IV Funds

♦ If a school is an eligible home institution that has a cohort default rate of

less than 5 percent for the single, most recent fiscal year for which data

are available and is certifying or originating loans for students in studyabroad programs, if those programs are approved by the home

institution, it may disburse the loan in a single installment.

♦ If a school is not located in a state, it is not required to make more than

one disbursement.

Delayed Disbursements

A student borrowing under the Direct Loan Program or FFEL Program is

subject to delayed disbursement if the student:

♦ is enrolled in the first year of an undergraduate program of study and

♦ has not previously received a Direct Loan Program or an FFEL Program

loan.

A school may not release the first disbursement of a Direct Loan Program or

FFEL Program loan to a first-year, first-time, undergraduate student borrower

until 30 calendar days after the first day of the student’s program of study for

which the loan is intended. The reason: The student might change his or her

program of study, drop out, or take a leave of absence within the first

30 calendar days of the enrollment period; delayed disbursement means that in

these circumstances the student won’t have received funds that then will need to

be repaid. Because of this, the student may not receive loan proceeds until after

he or she has been enrolled and attending the new program of study for

30 calendar days.

This requirement does not apply to:

♦ a school that has a cohort default rate or a weighted average cohort rate

of less than 10 percent for each of the three most recent fiscal years for

which data are available for FFEL Program loans and Direct Loan

Program loans;

♦ an eligible home institution that has a cohort default rate or a weighted

average cohort rate of less than 5 percent for the single, most recent

fiscal year for which data are available and is certifying or originating

loans for students in study-abroad programs, if those programs are

approved by the home institution; or

♦ a school that is not located in a state.

A school is not required to delay disbursement of Direct PLUS Loan or Federal

PLUS Loan proceeds borrowed by a parent on behalf of a dependent student for

30 days, even if the student is a first-year, first-time undergraduate student.

 Reference:

• 34 CFR 668.164(f)(3)

• 34 CFR 682.604(c)(5)

• 34 CFR 685.303(b)(4)

 Reference:

• HEA, Section 428G

(b)(1)

• 34 CFR 682.604(c)(5)

• 34 CFR 685.303(b)

 Reference:

• 34 CFR 668.164(g)(2)

(i) and (ii)

 Reference:

• 34 CFR 682.604(c)(10)

• 34 CFR 685.301(b)(8)
The Blue Book June 2001 4-28

Chapter 4

Late Disbursements

A formerly eligible student may be eligible to receive a late disbursement. An

institution may make a late disbursement if:

♦ for the Pell Grant, FSEOG, and Perkins Loan Programs, the student is

no longer enrolled at the school for the award year and

♦ for the Direct Loan and FFEL Programs, the student is no longer

enrolled at the school as at least a half-time student for the loan period.

A school may also make a late disbursement if it has determined through a

return of Title IV funds calculation that the student has earned aid that was not

disbursed before the student’s withdrawal. This type of disbursement is

considered to be a post-withdrawal disbursement and is subject to certain return

of Title IV funds restrictions.*

Depending on the Title IV program, there are conditions a school must meet

before disbursing funds to a formerly eligible student. To be eligible for a late

disbursement, the student must have educational costs incurred while enrolled at

the school. A school may pay a formerly eligible student if, before the date the

student became ineligible, the school:

♦ received a SAR or ISIR with an official, calculated expected family

contribution (EFC);

 Reference:

• 34 CFR 668.164(g)(1)

(i) and (ii)

 Reference:

• 34 CFR 668.164(g)

(i) and (ii)

• 34 CFR 668.22

*See Chapter 2 of this

book for more

information about

return of Title IV

funds.

 Reference:

• 34 CFR 668.164(g)(2)

(i) and (ii)
June 2001 The Blue Book 4-29

Requesting, Managing, and Returning Title IV Funds

♦ has a valid SAR or ISIR, for a Pell Grant;

♦ has awarded the student a grant or loan, for the FSEOG Program award

or the Perkins Loan Program;

♦ has created an electronic origination record, for a Direct Loan Program

loan;

♦ has certified a loan application, for a FFEL Program loan; and

♦ has checked that a first-year, first-time undergraduate borrower

completed the first 30 calendar days of enrollment of his or her program

of study, for a Direct Loan or a FFEL Program loan.

A school may not make a late second or subsequent disbursement of a Federal

Direct Subsidized Loan, Federal Direct Unsubsidized Loan, or a FFEL Stafford

Loan unless the student has graduated or successfully completed the period of

enrollment for which the loan was intended. This applies even if the student

qualifies for a post-withdrawal disbursement under a return of Title IV funds

calculation.

If a student or parent borrower qualifies for a late disbursement, a school may

make a late disbursement if the funds are used to pay for educational costs that

the school determined were incurred for the period in which the student was

enrolled and eligible.

♦ The school must make the disbursement to the student no later than 90

days after the student becomes ineligible.

Holding Title IV Credit Balances

A school, as fiduciary for the benefit of a student, may hold amounts of Title IV

funds that exceed allowable charges if the student or parent borrower authorizes

the school to retain the credit balances to assist the student or parent borrower in

managing those funds.

If a student authorizes a school to hold a credit balance,* and if the school

chooses to hold the credit balance, the school:

♦ must identify the student and the amount of the credit balance the school

holds for that student in a subsidiary ledger account designated for the

purpose of holding funds;

♦ must maintain, at all times, an amount of cash in its bank account that is

at least equal to the amount of the credit balance the school holds for the

student; and

♦ may retain any interest earned on the student credit balances.

 Reference:

• 34 CFR 668.164(g)(2)

(ii)(A) and (B)

 Reference:

• 34 CFR 668.164(g)(3)

(i) and (ii)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.163 (c)

Reference:

• 34 CFR 668.165(b) (1)(iii)

• 34 CFR 682.604

(d)(1)(ii)(B)

• 34 CFR 668.165(b)(5) (i)

and (ii)

*ED may prohibit

schools under the

reimbursement payment

method from holding

student credit balances.
The Blue Book June 2001 4-30

Chapter 4

However, notwithstanding any authorization the school obtains from the student

or parent, the school must pay to the student or parent any remaining balance on

the loan funds by the end of the loan period and any other remaining Title IV aid

funds by the end of the last payment period in the award year for which they

were awarded and were intended to be disbursed.

If ED determines that a school’s reimbursement method has failed to meet these

standards of financial responsibility, the school may not be allowed to hold credit

balances for any purpose.

Student/Parent Authorizations

A school must obtain written authorization from a student or parent to:

♦ disburse Title IV program funds to a bank account designated by the

student or parent,

♦ use Title IV program funds to pay for other allowable charges under the

HEA, or

♦ hold a Title IV credit balance.

A school may not require or coerce a student or parent to provide an

authorization for any of these activities. If a student or parent opts to authorize

a school to perform any of these activities, the school must allow the student or

parent to rescind the authorization at any time. The school must also clearly

explain to a student or parent how it will carry out these functions.

An authorization is good for the period during which the student is enrolled at

the school. An initial authorization will continue to be valid for subsequent

award years or enrollment periods as long as the student or parent does not

rescind it.

♦ A break in enrollment does not invalidate the authorization.

♦ The written authorization must give the student or parent the

opportunity to cancel or modify the provisions of the original

authorization.

 Reference:

• 34 CFR 668.165(b)(5)

(iii)

 Reference:

• 34 CFR 668.165(b)(1)

 Reference:

• 34 CFR 668.165(b)(2)

 Reference:

• 34 CFR 668.165(b)(5)

(iii)
June 2001 The Blue Book 4-31

Requesting, Managing, and Returning Title IV Funds

Alternative Methods of Disbursing Title IV Funds

Title IV funds can be disbursed or delivered to a student by EFT to the student’s

bank account, if the student authorizes it.

Schools must obtain written authorization from the student to hold funds in the

student’s account.

Another method of distributing funds to students is issuing debit cards. At some

schools, debit cards are issued by the school and allow students to have access to

their Title IV funds by automatically “debiting” the student’s school account

each time the card is used. Proper electronic security measures must be in place.

4.8 Excess Cash

Excess cash is any amount of Title IV program funds (other than Federal

Perkins Loan Program funds) that a school does not disburse to students by the

end of the third business day following the date the school received the funds.

Except as described in the next section on tolerances, a school must reallocate

funds to other programs or promptly return to ED* any amount of excess cash

in its bank account.

♦ Schools receiving funds under the just-in-time payment method are

exempt from this requirement (for those funds), as they don’t ever have

excess funds.

A school may have excess cash in its account if:

♦ the funds result from a reduction to reported expenditures on a closed

award**;

♦ the school has unused funds and expects no more funding from ED, or

no more student expenses;

♦ the school earned interest or investment income on federal funds in

excess of $250 (with the exception of the Federal Perkins Loan

Program);

♦ funds were drawn down and not used according to immediate need rules;

♦ the school owes ED for disallowed program expenditures found during

an audit or program review; or

♦ the school reports large Federal Perkins Loan cash on hand (COH)

balances on the FISAP.

**GAPS does not report

expenditures for

closed awards.

Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.166(a)

(1) and (2)

*FFEL Program funds

that cannot be delivered

to the intended student

cannot be reallocated to

other Title IV programs

and must be returned to

the lender.

 Reference:

 • DCL CB-00-14
The Blue Book June 2001 4-32

Chapter 4

Tolerances

If a school draws down Title IV program funds in excess of its immediate cash

needs, the school may maintain the excess cash balance in its bank account only

if:

♦ the amount of the excess cash balance is less than three percent of the

school’s total prior-year drawdowns for a peak enrollment period

during which the drawdown occurs or

♦ the amount of excess cash balance is less than one percent of its total

prior-year drawdowns for any other period.

If the school qualifies for either of these criteria, the school must eliminate its

excess cash balance within the next seven days by disbursing Title IV funds to

students for at least the amount of the balance.

A peak enrollment period occurs when at least 25 percent of a school’s students

start classes during a given 30-day period. For any award year, a school calculates

the percentage of students who started classes during a given 30-day period by:

1. determining the number of students who started classes during that

period for the prior award year in which the 30-day period began;

2. determining the total number of students who started classes during the

entire prior award year in which the 30-day period began;

3. dividing the number of students in step 1 by the number of students in

step 2; and

4. multiplying the result obtained in step 3 by 100.

 Reference:

• 34 CFR 668.166(b)(1)

(ii)

 Reference:

• 34 CFR 668.166(b)(2)

(i) to (iv)

 Reference:

• 34 CFR 668.166(b)(3)

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.166(b)(1)

(i)(A) and (B)
June 2001 The Blue Book 4-33

Requesting, Managing, and Returning Title IV Funds

To determine total prior-year drawdowns, a school participating in the Direct

Loan Program may include the total amount of loans guaranteed under the

FFEL Program for students attending the school during that year.

Liabilities

If ED finds that a school maintains excess cash balances in its bank account that

are greater than those allowed, ED may:

♦ require the school to reimburse the federal government for costs incurred

in making those excess funds available to the school and

♦ initiate proceedings to fine, limit, suspend, or terminate the school’s

participation in one or more Title IV programs.

If ED finds that a school has excess cash, ED considers a school to have issued a

check to a student on the date the check cleared the bank, unless the school can

demonstrate it issued the check shortly after writing it.

If ED finds that a school has maintained excess cash, ED calculates (or requires

the school to calculate) a liability for maintaining excess cash according to

ED-established procedures. Under those procedures, ED assesses a liability

equal to the difference between the earnings that the excess cash balance would

have yielded if it had been invested under the applicable current value of funds

rate and the actual interest earned on the balance.

The current value of funds rate is an annual percentage rate, published in a

Treasury Financial Manual (TFM) bulletin, that reflects the current value of

funds to the U.S. Department of Treasury (Treasury) on the basis of certain

investment rates. The current value of funds rate is computed each year by

averaging investment rates for the 12-month period ending every September.

The TFM bulletin is published annually by Treasury. Each annual bulletin

identifies the current value of funds rate and the date that rate becomes effective.

Disallowed Program Expenditures

If disallowed program expenditures are discovered during an audit or program

review, a school is considered to have excess cash if:

♦ The school draws down funds, credits the student’s account, and then

the student no longer attends the school and is ineligible for the funds.

♦ The school must cancel the disbursement and return funds to its

federal cash account. This might cause the school to have excess

cash, depending on its cash needs.

♦ The school draws down more money than it spends.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• 34 CFR 668.166(c)(1)

(i) and (ii)

 Reference:

• 34 CFR 668.166(c)

(2)(ii)

 Reference:

• 34 CFR 668.166 (c)

(2)(i)

 Reference:

• http://www.fms.treas.

gov/tfm/
The Blue Book June 2001 4-34

Chapter 4

♦ Because the unused funds were drawn down and deposited in the

school’s cash account, the school must return the money as excess

cash or adjust its next drawdown if it is within the timelines allowed

by regulations.

♦ The school draws down funds and disburses them improperly.

♦ This is considered a liability. Because the school had use of the

improperly disbursed funds, the school is charged interest on the use

of those funds.

♦ This situation occurs when the school credits the student’s account

with Title IV financial aid and fails to cancel the award(s) when the

student doesn’t attend or when the school fails to provide matching

(nonfederal) funds for the campus-based programs.

4.9 Methods for Returning Funds

Procedures for returning funds vary, depending on the circumstances under

which a school is returning funds. If ED notifies a school that it must return

funds, the notification usually contains specific instructions the school must

follow.

Excess Cash for the Federal Pell Grant and Campus-Based

Programs

Excess cash exists when any grant award in GAPS has a positive cash balance.

This occurs when the school, as a payee, has net draws that exceed expenditures

for one or more of the payee’s grant awards three business days after the funds

have been deposited into its bank account.

Payees should reconcile their grant awards on a regular basis and are required to

resolve any excess cash balances throughout the year. A payee can resolve an

excess cash balance by:

♦ returning excess cash to ED or

♦ reallocating drawn funds among grant awards in GAPS to comply with

immediate cash needs.

If a school must return funds to ED, the school must follow appropriate

procedures for returning funds. Schools with fewer than 25 open awards have

the option of using the GAPS online refund function. To use the online refund

function, schools should access the e-Payments Web site, log on to the site,

select “refunds,” select “excess cash,” select “initiate a refund,” and click on

“continue.” This brings up the school’s open awards from which the school can

choose the document and bank account desired. GAPS will then take the money

 Reference:

• GAPS Payee Guide –

August 2000

• Federal Pell Grant Desk

Reference 2000-01

 Reference:

• See Section 4.2 of this

book for more

information about

immediate need.

 Reference:

• http://e-Grants.ed.gov/

gapsweb

•
June 2001 The Blue Book 4-35

Requesting, Managing, and Returning Title IV Funds

from the selected bank account and credit the appropriate document. The

transaction will be posted in GAPS within two business days.

To help payees reconcile their internal accounting records with ED’s information

in GAPS, payees can access GAPS Activity Reports through the e-Payments

Web site.

If a school fails to resolve cash balances, the school, as a payee, may be subject to

penalties.

Closed Award

If a school needs to return funds as a result of reducing expenditures on a closed

award, the school simply sends a check to the lockbox at:

U.S. Department of Education

P. O. Box 952023

St. Louis, MO 63195-2023

The remittance should include the school’s DUNS number and Document

Award Number; it also should indicate that the remittance is for a closed award.

The collections for closed awards are posted in FARS* (Receivable) as unbilled

collections under the school’s DUNS number. No receivables are established,

nor is the school’s account adjusted in GAPS. The funds are posted to

Miscellaneous Receipts and ultimately returned to the U.S. Department of

Treasury.

Federal Pell Grant

For any award year that is more than five years old (the 1995-96 award year as of

September 30, 2001 and the 1996-97 award year as of September 30, 2002),

decrease adjustments are both canceled and closed in PGRFMS. PGRFMS does

not process these adjustments, and GAPS does not post the adjustments to the

school’s account or adjust expenditures. Schools should no longer submit

Decrease Award Reports previously described in the various post-deadline

adjustment letters.

Schools should return closed Federal Pell Grant award funds to the

St. Louis lockbox address (given above) used for returning unbilled and

voluntary refunds described earlier.

Funds from an Audit or Program Review

If a school owes payments to ED, a copy of its Final Audit Determination Letter

(FADL) or Final Program Review Determination (FPRD) letter is sent to ED’s

Receivables and Cash Receipts Team (RCRT) where an account receivable is

established for the school. A school is billed for the disallowed amount of funds,

accrued interest, and penalties through ED’s billing agent. Payment instructions

are included with the bill.

*FARS is a general

ledger of the

Financial

Management System

Software (FMSS)

under EDCAPS.

 Reference:

• GAPS Payee Guide –

August 2000
The Blue Book June 2001 4-36

Chapter 4

♦ If a school owes ED $100,000 or more, it must remit payment through

its financial institution by FEDWIRE.

♦ If a school owes ED less than $100,000 it must remit payment by check

to ED’s billing agent.

A school may not reduce amounts reported as net drawdowns on its GAPS

Activity Reports to account for expenditures disallowed as a result of an audit or

program review. Any Title IV funds returned for this purpose will not be

credited to a school’s GAPS account.

Unless otherwise directed by the FADL or FPRD letter, a school may not

attempt to adjust its prior-year FISAPs or Federal Pell Grant processed payment

information to reflect expenditures disallowed as a result of an audit or program

review, nor may it make repayments directly to any FFEL Program lender or to

the Direct Loan Servicing Center. Sometimes ED requires schools to:

♦ buy loans,

♦ make a required refund to a lender,

♦ send in a separate check for Direct Loan liabilities, or

♦ return other federal funds to the applicable programs.

Interest Earned

If a school receives funds through advance payment and retains those funds in

an interest-bearing or investment account, the school is required to return to ED,

at least annually, the amount of interest or investment earnings that exceeds

$250. The exception: For Perkins Loan funds, a school must retain and use all

interest or investment income earned for authorized purposes of the program.

Schools must return excess interest income to ED by check, indicating on the

check that it represents interest earnings. The check should be sent to:

U.S. Department of Education

P.O. Box 952023

St. Louis, MO 63195-2023

The remittance should include the school’s DUNS and Document Award

Number; it should also indicate that the remittance is for interest earned.

Technical Assistance

Schools needing technical assistance with returning Title IV funds should contact

their ED regional office for help.

 Reference:

• GAPS Payee Guide –

August 2000

• 34 CFR 668.163(c)(4)

 Reference:

• Student Financial Aid

Handbook , Volume 4:

Campus-Based Common

Provisions

• DPL CB-00-11

• DPL CB-99-11

• Dear FAA Letter

CB 98-7 (LD)
June 2001 The Blue Book 4-37

Requesting, Managing, and Returning Title IV Funds

4.10 Releasing Campus-Based Funds

If a school does not use its total allocation of funds for Title IV campus-based

programs (Federal Perkins Loan, Federal Supplemental Educational Opportunity

Grant, and Federal Work-Study), the school is required to release unexpended

amounts to ED.

In July or August each year, ED electronically sends schools a letter and a

Campus-Based Reallocation Form (E40-4P).* The letter advises them that they

must release funds not spent by June 30 of that year. In addition, schools are

asked to determine the amount of FSEOG and FWS funds they have spent by

that date and the amount of Federal Capital Contribution they have not yet

requested from GAPS by the same date. Later, a school also must determine the

actual amounts spent as of the end of the award year, and during the GAPS

liquidation period it must adjust drawdowns for expenditures incurred during the

GAPS performance period.

A school’s funds are reduced by the amounts released for the campus-based

programs authorization in GAPS for that award year. ED will reallocate these

“released” funds by September 30 of the subsequent award year as supplemental

allocations for other schools that qualify to receive them for that award year.

Deadlines for submitting the Campus-Based Reallocation Form to ED are issued

each year in a “Dear Partner” letter.

4.11 Returning Federal Family Education Loan

(FFEL) Program Funds

It is sometimes necessary for a school to return all or a portion of a loan made

under the Federal Family Education Loan (FFEL) Program to the lender that

made the loan. FFEL Program funds must be returned if:

♦ a student fails to enroll for an enrollment period for which the loan is

intended;

♦ a student fails to meet satisfactory academic progress or other eligibility

requirements (for example, completing entrance loan counseling) at the

time the loan is due to be delivered;

♦ the student withdraws or drops out during an enrollment period for

which the loan is intended before funds are delivered to a student, and

the student is not eligible for a post-withdrawal disbursement;

♦ a return of funds is due to a lender as a result of a return of Title IV

funds calculation; or

♦ a student or parent requests a school to return FFEL Program funds to

reduce the borrower’s principal loan balance.

Regulations provide for three periods for disbursing and returning FFEL

Program funds:

1. initial period

*The Campus-Based

Reallocation Form is

distributed to

schools as an

attachment to the

FISAP software.

 Reference:

• Student Financial Aid

Handbook , Volume 8:

Direct Loan and FFEL

Programs

 Reference:

• 34 CFR 668.167

 Reference:

• See Chapter 3 of this

book for more

information about

releasing campusbased funds and

supplemental

allocations.

 Reference:

• See Chapter 2 of this

book for more

information about

return of Title IV funds.
The Blue Book June 2001 4-38

Chapter 4

2. conditional period

3. return period

Schools are required to “return funds no later than ten business days” after the

school determines the student to be ineligible for FFEL Program funds. This

means a school must return a check or initiate an EFT of FFEL funds to the

lender by the close of business of the last day of the return period.

Initial Period

Funds that a school receives from a lender in the form of a check made payable

to the borrower or co-payable to the borrower and school must be disbursed to

the borrower no later than 30 calendar days after the school receives the funds.

Funds received by the school through EFT or master check must be disbursed to

the borrower no later than three business days after the school receives the

funds.

Conditional Period

A school has ten business days after the last day of the initial period to deliver

FFEL funds received by EFT or master check only if:

1. the school determines that the student has not completed but will

complete, the required number of clock hours or credit hours in the

preceding payment period within those ten-business days, or

2. the student has not met all of the FFEL eligibility requirements (such as

registering for the required number of hours, completing entrance loan

counseling, or making satisfactory academic progress), but the school

expects the student to meet those requirements during this ten-businessday period.

A school on the reimbursement payment method may delay returning funds to

the lender for an additional 30 calendar days from the date the school receives

the funds by EFT or master check.

Return Period

For FFEL Program funds that a school does not disburse by the end of the

initial period or conditional period, as applicable, the school must return the

funds to the lender promptly but no later than ten business days from the last

day of the initial period or conditional period. However, if a student becomes

eligible to receive FFEL Program funds during the return period, the school may

deliver those funds to the student provided the delivery of funds is made on or

before the last day of the return period, which most often is 30 calendar days.

♦ If a student fails to enroll or fails to meet other loan eligibility

requirements and the school has disbursed the funds, a school must

 Reference:

• Student Financial Aid

Handbook , Volume 8:

Direct Loan and FFEL

Programs

• 34 CFR 668.167(b)(1)

(ii) and (iii)

 Reference:

• Student Financial Aid

Handbook , Volume 8:

Direct Loan and FFEL

Programs

• 34 CFR 668.167(b)

(2) and (3)

 Reference:

• Student Financial Aid

Handbook , Volume 8:

Direct Loan and FFEL

Programs

• 34 CFR 668.167(b)(2)

and (3)

 Reference:

• 34 CFR 668.167(c)(2)
June 2001 The Blue Book 4-39

Requesting, Managing, and Returning Title IV Funds

return loan proceeds to a lender within 30 calendar days of the school

determining that the student is not eligible for the loan.

♦ If a student withdraws from school and is subject to a return of Title IV

calculation, a school must return loan proceeds according to the time

frame established by the return of Title IV funds regulations. The school

must return the funds as soon as possible, but no later than 30 calendar

days after the date the school determined the student withdrew.

When a school returns a student’s FFEL Program loan proceeds within the

30-calendar-day requirement, it must return them to the original lender or the

subsequent holder (if the loan has been transferred and the school knows the

new holder’s identity). The school must also notify the student or parent

borrower, in writing, that the funds have been returned.

4.12 Returning Direct Loan Funds

Schools must return Direct Loan funds in the event of excess cash, idle cash, or

return of Title IV funds calculations.

Direct Loan Excess Cash

Like other Title IV funds, Direct Loan excess cash is any amount of Direct Loan

funds a school does not disburse to borrowers by the end of the third business

day following the date the school receives the funds. This includes excess funds

that result from a downward adjustment of an actual disbursement.

There are three methods by which schools may return excess Direct Loan cash

to ED:

♦ Check—A check may be used if the amount of excess cash is less than

$100,000. The check should include all excess funds that need to be

returned at a given time, not just those for an individual borrower or type

of loan. The check and/or accompanying correspondence should

include the school’s Direct Loan school code and the academic year the

funds should be applied against. The school should also indicate that the

funds are excess Direct Loan cash. The check should be mailed to:

Loan Origination Center

Attn: Excess Cash

P.O. Box 2011

Montgomery, AL 36102-2011

♦ FEDWIRE—An electronic-transfer method should be used if the

amount of excess cash is $100,000 or more. A school must instruct its

bank that the reason for the remittance is Direct Loan excess cash. In

the beneficiary section of the wire, include the Direct loan school code,

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• Direct Loan School 

Guide

• DLB 00-40

• DLB 00-22

• DLB 00-19

• DLB 99-40

 Reference:

• 34 CFR 682.607(c)

• 34 CFR 668.22(j)

• See Chapter 2 of this

book for more

information on

determining withdrawal

dates.

 Reference:

• 34 CFR 682.607(a)

• 34 CFR 668.22
The Blue Book June 2001 4-40

Chapter 4

 program year, and the words “Excess Cash.” The funds are transferred to:

Wachovia Bank, NA, Atlanta GA 

Routing Number 061000010

Account Number 13028525

♦ GAPS Online Refund Function—Schools with fewer than 25 open awards

have the option of using the GAPS online refund function. To use the

online refund function, schools should access the e-Payments Web site,

log-on to the site, select “refunds,” select “excess cash,” select “initiate a

refund,” and click on “continue.” This brings up the school’s open

awards from which the school can choose the document and bank

account desired. GAPS will then take the money from the selected bank

account and credit the appropriate document. The transaction will be

posted in GAPS within two business days.

Idle Cash

For the Direct Loan Program, cash that has been disbursed becomes idle cash*

if and when it is returned to the school’s Title IV account(s). The return must be

reflected in the school’s general ledger or subsidiary ledger. This return may be

because of a refund, or it may be because other circumstances exist.

♦ For example, a student might receive a Direct Loan disbursement but

later returns all or a portion of the loan to the school. Or a student might

receive a disbursement and later withdraw or change his or her

enrollment status so that all or a portion of the loan proceeds must be

returned to the school’s Title IV account(s).

A school may maintain idle cash in its federal bank account for up to seven

calendar days in order to disburse to, or on behalf of, the student or other

students.

Return of Direct Loan Funds

If a school determines that a student has become ineligible for a portion or all of

his or her Direct Loan disbursement, the school must return those funds to the

Direct Loan Program. The school must adjust the actual disbursement

downward (downward adjustment) and initiate a return of funds. If the school

returns the funds to its federal bank account, excess cash tolerances and rules

apply.

If a school is returning loan funds at the borrower’s request within 120 days of

disbursement because the borrower has decided that all or a portion of the funds

aren’t needed, the school makes the appropriate downward adjustment to the

loan record and returns the funds. The borrower is not charged loan fees or

interest on the portion of the loan that was returned. If the funds being returned

at the borrower’s request is more than 120 days after disbursement, then the

 Reference:

• Road to Reconciliation

Participant’s Workbook

(2000)

•

*The provision in 

34 CFR 668.166(b)

concerning the amount

of an excess cash

balance does not apply

to idle cash.

 Reference:

• Student Financial Aid

Handbook , Volume 2:

Institutional Eligibility

• Direct Loan School

Guide

• DLB 99-74

 Reference:

• http://e-Grants.ed.gov/

gapsweb
June 2001 The Blue Book 4-41

Requesting, Managing, and Returning Title IV Funds

school must send a check to the Direct Loan payment center to be credited to

the borrower’s account. No downward adjustment or adjustment to the

borrower’s loan records are needed. In this case, the borrower will be charged

loan fees and interest on the entire loan amount. (See 120-Day Rule chart on

page 4-42.)

♦ Adjusting actual disbursements (downward adjustment) — If a Direct Loan

return is made within 120 days of a loan’s disbursement date, a school

may process the return by adjusting an actual disbursement.

♦ When an Option 2 school makes a downward adjustment, it returns

the net adjustment amount (the amount the borrower returns) to the

school’s “federal” bank account. An Option 1 or Standard

Origination school returns the net adjustment amount to the LOC.

When loan funds are returned, the borrower is not responsible for

interest or loan fees if the school returns funds to comply with

statutory or regulatory requirements.

With this method, for Option 2 schools, the amount that is canceled

or adjusted is returned to the school’s federal bank account where it

immediately must be disbursed to other eligible borrowers (within

three business days) or returned to ED as excess cash.

♦ Sending a check — A school can handle a Direct Loan return much as it

handles an FFEL Program loan return, that is, by sending a check to be

applied as a payment to a borrower’s account. When loan funds are

returned, the borrower is not responsible for interest or loan fees if the

school returns funds to comply with statutory or regulatory requirements.

♦ If a school uses the check method, the school must also supply the

information needed to apply the funds to the borrower’s account. If

a school is returning funds for more than one student, it should send

only one check and attach a list of borrowers’ names, loan ID

numbers, and refund amounts. The school must indicate on the

check, list, or other accompanying correspondence that the funds are

to be applied to borrowers’ accounts as payments. The check and

other information should be mailed to:

Direct Loan Servicing Center

Attn: Payment Center

P.O. Box 746000

Atlanta, GA 30374-6000

If the student withdraws or drops below half-time enrollment or the school

identifies an overaward 120 days after the date of disbursement, the funds cannot

be returned by canceling or adjusting actual disbursements. In these cases, the

funds must be returned to the Direct Loan Servicing Center as a payment to the

borrower’s account. The borrower may or may not be eligible to receive a credit
The Blue Book June 2001 4-42

Chapter 4

for the loan fee (see the chart below). Schools should not make an electronic

adjustment to the borrower’s account.

A borrower may also return his or her Direct Loan funds. A credit for the loan

fee and interest is given only if the borrower sends the return within 120 calendar

days of disbursement. This rule is commonly referred to as the “120-Day Rule.”