20 U.S.C. § 1078–7 — Requirements for disbursement of student loans
submitted 37 years ago by Pub. L. 89-329 to r/title-20-EDUCATION · 982 words · no verdicts yet
Student loans generally must be paid in at least two installments spread across the enrollment period. The section also sets timing rules, exceptions for schools with low cohort default rates, rules for withholding later payments, and limits on selling loans before final disbursement.
(a) Multiple disbursement required.
(1) A loan for an enrollment period must be paid in at least 2 installments, and no installment may be more than half the loan.
(2) The first and second installments must be at least half an enrollment period apart, unless needed to pay the second at the start of the second semester, quarter, or similar division.
(3) A school whose cohort default rate, as determined under section 1085(m), for each of the 3 latest available fiscal years is below 10 percent may pay a loan in one installment when the enrollment period is no longer than one semester, trimester, quarter, or 4 months. Despite section 422(d) of the Higher Education Amendments of 1998, this paragraph applies beginning February 8, 2006.
(4) Beginning October 1, 2011, this special rule uses 15 percent instead of 10 percent.
(b) Disbursement and endorsement requirements.
(1) First-year students. For a student borrower entering the first year of an undergraduate program who has never received a loan under this part, the school may not present the first installment for the student’s endorsement until 30 days after the borrower begins a course of study, regardless of the loan amount or the length of the enrollment period. The school may receive the money before those 30 days end. A school whose cohort default rate, as determined under section 1085(m), for each of the 3 latest available fiscal years is below 10 percent is exempt from this paragraph. Despite section 422(d) of the Higher Education Amendments of 1998, the exemption begins February 8, 2006.
(2) Other students. A loan for any student other than one described in paragraph (1) may not be paid more than 30 days before the enrollment period begins.
(3) Beginning October 1, 2011, the exemption in paragraph (1) uses 15 percent instead of 10 percent.
(c) Method of multiple disbursement. Payments under subsection (a) must follow a schedule provided by the school under section 1078(a)(2)(A)(i)(II) that complies with this section. The lender may pay them directly or, for a loan under sections 1078 and 1078–1, under the escrow rules in section 1078(i). With the borrower’s permission, the lender may instead pay them weekly or monthly in substantially equal weekly or monthly installments over the enrollment period.
(d) Withholding of second disbursement.
(1) Withdrawing students. If the lender or escrow agent is informed by the borrower or the institution that the borrower stopped being enrolled before the second or a later installment is paid, it must withhold that installment. The withheld amount is credited to the loan as a prepayment.
(2) Over-awards. If an installment plus the student’s other aid exceeds the student’s eligible assistance, the school must withhold and return to the lender or escrow agent the excess part, or all, of the installment. An over-award allowed by section 1087–53(b)(4) is not counted as an over-award for this paragraph. The returned amount is credited to the loan as a prepayment.
(e) This section does not apply to a consolidation loan under section 1078–3 or to a loan for approved study abroad when the home school’s cohort default rate, calculated under section 1085(m), is below 5 percent.
(f) An enrollment period begins on the first day classes begin for that period.
(g) An eligible lender may not sell or transfer a promissory note for a loan before the loan’s final disbursement, unless the sale does not change who receives payments and the first disbursement has already been made.
The proceeds of any loan made, insured, or guaranteed under this part that is made for any period of enrollment shall be disbursed in 2 or more installments, none of which exceeds one-half of the loan.
The interval between the first and second such installments shall be not less than one-half of such period of enrollment, except as necessary to permit the second installment to be disbursed at the beginning of the second semester, quarter, or similar division of such period of enrollment.
An institution whose cohort default rate (as determined under section 1085(m) of this title) for each of the 3 most recent fiscal years for which data are available is less than 10 percent may disburse any loan made, insured, or guaranteed under this part in a single installment for any period of enrollment that is not more than 1 semester, 1 trimester, 1 quarter, or 4 months. Notwithstanding section 422(d) of the Higher Education Amendments of 1998, this paragraph shall be effective beginning on February 8, 2006.
Beginning on October 1, 2011, the special rule under paragraph (3) shall be applied by substituting “15 percent” for “10 percent”.
The first installment of the proceeds of any loan made, insured, or guaranteed under this part that is made to a student borrower who is entering the first year of a program of undergraduate education, and who has not previously obtained a loan under this part, shall not (regardless of the amount of such loan or the duration of the period of enrollment) be presented by the institution to the student for endorsement until 30 days after the borrower begins a course of study, but may be delivered to the eligible institution* prior to the end of that 30-day period. An institution whose cohort default rate (as determined under section 1085(m) of this title) for each of the three most recent fiscal years for which data are available is less than 10 percent shall be exempt from the requirements of this paragraph. Notwithstanding section 422(d) of the Higher Education Amendments of 1998, the second sentence of this paragraph shall be effective beginning on February 8, 2006.
The proceeds of any loan made, insured, or guaranteed under this part that is made to any student other than a student described in paragraph (1) shall not be disbursed more than 30 days prior to the beginning of the period of enrollment for which the loan is made.
Beginning on October 1, 2011, the exemption to the requirements of paragraph (1) in the second sentence of such paragraph shall be applied by substituting “15 percent” for “10 percent”.
Disbursements under subsection (a)—
shall be made in accordance with a schedule provided by the institution (under section 1078(a)(2)(A)(i)(II) of this title) that complies with the requirements of this section;
may be made directly by the lender or, in the case of a loan under sections 1078 and 1078–1 1 of this title, may be disbursed pursuant to the escrow provisions of section 1078(i) of this title; and
notwithstanding subsection (a)(2), may, with the permission of the borrower, be disbursed by the lender on a weekly or monthly basis, provided that the proceeds of the loan are disbursed by the lender in substantially equal weekly or monthly installments, as the case may be, over the period of enrollment for which the loan is made.
A lender or escrow agent that is informed by the borrower or the institution that the borrower has ceased to be enrolled before the disbursement of the second or any succeeding installment shall withhold such disbursement. Any disbursement which is so withheld shall be credited to the borrower’s loan and treated as a prepayment thereon.
If the sum of a disbursement for any student and the other financial aid obtained by such student exceeds the amount of assistance for which the student is eligible under this subchapter, the institution such student is attending shall withhold and return to the lender or escrow agent the portion (or all) of such installment that exceeds such eligible amount, except that overawards permitted pursuant to section 1087–53(b)(4) of this title shall not be construed to be overawards for purposes of this paragraph. Any portion (or all) of a disbursement installment which is so returned shall be credited to the borrower’s loan and treated as a prepayment thereon.
The provisions of this section shall not apply in the case of a loan made under section 1078–3 of this title, or made to a student to cover the cost of attendance* in a program of study abroad approved by the home eligible institution if the home eligible institution has a cohort default rate (as calculated under section 1085(m) of this title) of less than 5 percent.
For purposes of this section, a period of enrollment begins on the first day that classes begin for the applicable period of enrollment.
An eligible lender shall not sell or transfer a promissory note for any loan made, insured, or guaranteed under this part until the final disbursement of such loan has been made, except that the prohibition of this subsection shall not apply if—
the sale of the loan does not result in a change in the identity of the party to whom payments will be made for the loan; and
the first disbursement of such loan has been made.
Source credit: (Pub. L. 89–329, title IV, § 428G, as added Pub. L. 101–239, title II, § 2004(a), Dec. 19, 1989, 103 Stat. 2115; amended Pub. L. 101–508, title III, § 3003(a), Nov. 5, 1990, 104 Stat. 1388–26; Pub. L. 102–325, title IV, § 421, July 23, 1992, 106 Stat. 534; Pub. L. 103–66, title IV, § 4109(b), Aug. 10, 1993, 107 Stat. 369; Pub. L. 103–208, § 2(c)(41), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 105–244, title IV, § 422(a)–(c), Oct. 7, 1998, 112 Stat. 1696; Pub. L. 109–171, title VIII, § 8010, Feb. 8, 2006, 120 Stat. 164; Pub. L. 110–315, title IV, § 427, Aug. 14, 2008, 122 Stat. 3235; Pub. L. 111–39, title IV, § 402(f)(4), July 1, 2009, 123 Stat. 1943.)
- 1989Enacted · Pub. L. 89-329 · 103 Stat. 2115
- 1990Amended · Pub. L. 101-508 · 104 Stat. 1388
- 1992Amended · Pub. L. 102-325 · 106 Stat. 534
- 1993Amended · Pub. L. 103-66 · 107 Stat. 369
- 1993Amended · Pub. L. 103-208 · 107 Stat. 2466
- 1998Amended · Pub. L. 105-244 · 112 Stat. 1696
- 2006Amended · Pub. L. 109-171 · 120 Stat. 164
- 2008Amended · Pub. L. 110-315 · 122 Stat. 3235
- 2009Amended · Pub. L. 111-39 · 123 Stat. 1943
A history note hasn’t been published yet. The record shows enactment by Pub. L. 89-329 on 1989-12-19.
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