Chuck Hirman & Pat Kennedy | Dec. 2013 U.S. Department of Education

1. Session 11 Direct Loan Processing Tips & Troubleshooting Chuck Hirman & Pat Kennedy | Dec. 2013 U.S. Department of Education 2013 FSA Training Conference for Financial Aid Professionals

2. Direct Loan Processing Today we’re going to cover those elements we feel most impact a school’s ability to comply with Direct Loan requirements and meet the objectives of efficient processing In a nutshell, we’ll be discussing processing tips and troubleshooting

3. Agenda Processing Tips • Effective Processing • COD Reports • COD School Options for managing StudentLoans.gov Troubleshooting • Cash Management Concerns • Common Problems • Disbursement Issues • Edits • Reconciliation • Training, Resources, & Contact Information

4. Processing Tips Effective Processing • Timely reporting • Sequestration • Monitoring COD Reports • Subsidized Usage Limit (SUL) report • COD Newsbox COD Options - SLG Remember: finish what you start!

5. Timely Reporting – Loan Records • Warning Edit 111 - removed in November 2012 • Sent when COD received the loan origination record less than 5 days before the first disbursement date • Designed to give COD time to meet regulatory requirements for lender disclosures to borrowers • Removed because we could never get it to work right Tip: the regulations haven’t changed – we must get the disclosures out on time. Please send those origination records as early as possible

6. PLUS Loans – Originate Them Too often schools hold off originating PLUS loans • Delays usually over credit decisions • Borrowers are pursuing an appeal or endorser • However, when credit is finally resolved on some loans the loan period has passed • It’s then too late to pursue that loan – even through late disbursements Tip: originate the loan even if credit is not yet approved. This is just an award-level warning edit and there is no regulatory prohibition from originating the loan, only from disbursing the loan 036W Award PLUS Credit Decision Status is not accepted for this PLUS award No credit decision has been accepted for this award.

7. Update or Originate a New PLUS Loan? You have a PLUS loan with accepted credit, more than 90 days have passed since the credit check was run, and the borrower would like additional loan funds • If you originate a new PLUS loan a new credit check will be run That may or may not come back approved. But if it is denied you cannot disburse additional PLUS funds unless/until appealed or endorsed Tip: the credit check is actually good for the whole year on that PLUS loan in the absence of information to the contrary. So, better to increase the loan amount of the existing PLUS loan if your system/process will allow

8. Does the Order of Processing Matter? It depends … • The loan can be originated before the eMPN is signed or entrance counseling is completed; or after • The PLUS loan can be originated before approved credit is obtained; or after • The PLUS loan can even be originated before the PLUS Application is completed in SLG – provided the borrower has given you permission in writing for a credit check to be run, and has indicated how much they want to borrow • But disbursements are a whole different matter • Loan origination record first – then disbursement • eMPN first – then disbursement • Entrance counseling first – then disbursement • Approved PLUS credit first – then disbursement

9. 15-Day Reporting Requirement • Federal Register – 2/28/2013 • Disbursements made on/after 4/1/2013 • Adjustments too • Pell LEU, Subsidized Loan limitations all need earlier reporting to COD • COD edits will lag but the regulation was in place on 4/1/2013 – take note • School Monitoring Report • 30-Day Warning Report • Warning edit 055 No. Edit Type Block Message 055 W Disbursement Disbursement Information Received 30 Days after Date of Disbursement

10. Sequestration - Loan Origination Fees Loan fee changes due to Sequestration may be a fact of life for several years • 10/25/2013 Electronic Announcement – on IFAP • Earliest Disbursement Date (EDD) before 7/1/2013 • Subsidized/Unsubsidized: 1.0% • PLUS: 4.0% • EDD 7/1/2013 thru 11/30/2013 • Subsidized/Unsubsidized: 1.051% • PLUS: 4.204% • EDD 12/1/2013 thru 9/30/2014 • Subsidized/Unsubsidized: 1.072% • PLUS: 4.288%

11. Sequestration – Loan Origination Fees On 10/18/2013 COD implemented coding to edit/accept loans with new fees - for EDD’s on/after 12/1/2013 • What does this mean? • If you submitted these loans after 10/18 you’re fine • COD will have accepted them if the correct fees are associated with the proper EDD’s • COD will have rejected them if the fees were not 1.072% or 4.288% (for EDD’s on/after 12/1/2013), depending on loan type • When the actual disbursements are sent COD will process them • However, if you submitted these loans before 10/18 they would only have been accepted using outdated loan fees so you will need to fix them • Follow the instructions in the attachment of the 10/25 EA • If you fail to either fix the original loan or submit a new correct loan - when the actual disbursements hit COD they will be rejected

12. Monitoring Timely Disbursement Reporting Do you have a way of monitoring if you are sending actual disbursement records (and actual disbursement adjustments) to COD within the required 15 days? • If you have an EDExpress database you can run the Disbursement Measurement Tool Report out of Direct Loan Tools • Or your system may have an equivalent canned report • Or you should routinely query your system to measure the length of time between the actual disbursement date and when that record was sent to/accepted by COD; and when it was booked

13. Monitoring Timely Batch Processing

14. COD Reports – Can Help You Manage: Disbursement processing • Actual Disbursement List • Pending Disbursement List • COD Action Queue • 30-Day Warning Report • Inactive Loan Report Loan origination process • Completed PLUS Request Report • Duplicate Student Borrower Report Master Promissory Notes • Completed MPN Report • MPNs Due to Expire Report • Expired MPN Report • MPN Discharge Report

15. COD Reports – COD Technical Reference FSADownload.ed.gov • What the report can be used for • Business Rules • Formats • Message classes • When it’s generated • Record Layouts • What data is included • Mock-up Samples

16. COD Reports – Format and Delivery

17. Set Your COD Report Options on COD Website

18. Subsidized Usage Limit (SUL) - Report Direct Loan Subsidized Usage Change Report • Implemented with COD Release 13.0 (Spring 2014) • Replaces Direct Subsidized Loan Usage Limit (SUL) report • Weekly • COD Newsbox • CSV format • Displays Subsidized loans for a borrower when there is a change to the borrower’s Subsidized Usage Limitation calculated values • Report is generated when, during the previous week, borrowers have changes to: • Maximum Subsidized Eligibility Period • Actual (or Anticipated) Subsidized Usage Period • Actual (or Anticipated) Non-Cred Teacher Cert Subsidized Usage Period

19. COD Newsbox

20. COD Newsbox School Monitoring Report discussed later in the session

21. COD Options - StudentLoans.gov COD School Options for managing StudentLoans.gov • You set SLG options in COD: School/School Information/Options • Your choice whether to use any/all of SLG functionality, or • do those functions yourself on campus • Everything a borrower does in SLG is communicated to schools in Responses and COD reports, or • schools can search for results on the COD website SLG COD

22. Non-Award Year Specific COD Options for Managing StudentLoans.gov

23. Award Year Specific COD Options for Managing StudentLoans.gov

24. LOR Required to Complete eMPN Your choice but do you want to put this obstacle in? The school you have selected requires an award prior to submitting a Master Promissory Note. Please contact your school’s financial aid office.

25. Messages • eMPN message (Non-Award Year Specific screen) • PLUS Application message (Award Year Specific screen) • Your choice … • You tell us what to tell them • If we have the borrower’s e-mail address we will send them an e-mail when they’ve successfully completed the eMPN and/or PLUS Application • This can be a valuable “what to do next” or “who to see with questions” piece of information for your borrowers

26. Responses: Daily vs. On-Demand Daily • If a borrower completed an eMPN or Counseling session (entrance, financial awareness, exit) or PLUS Application that day then during COD’s evening processing the corresponding Response will be sent to your TG Mailbox On-Demand • No Responses will be sent unless/until you make the request to receive them • In many SLG functions this is the way you elect not to participate – simply make no on-demand requests

27. Troubleshooting • Cash Management Concerns • School Monitoring report • Drawdowns and Refunds • Cash balance • Common Problems • Disbursement Issues • Edits • Reconciliation

28. School Monitoring Report • COD July 2012 implementation (see EA 6/29/2012) • Replaces School Monitoring E-mail • Same information as original School Monitoring E-mail from COD • Distributed weekly • SAIG mailbox (preformatted): SCHMONOP • COD Newsbox (DL or Pell) in PDF format • Sent to COD Newsbox if: • Unsubstantiated cash > 30 days* • Pell POP • 30-day reporting requirement* *Important: Regulations now require disbursements to be reported within 15 days of the disbursement date The report might be In your COD Newsbox so check periodically.

29. Cross-Year Issues We are seeing multiple years out of balance • Make sure you draw from the year you are disbursing to • When students return funds or withdraw and R2T4 funds are refunded • Either return them to G5 for the year they were drawn from • Or re-disburse them to another borrower – but for that same program and program year • In other words – do not cross years or programs

30. Where to Send Refunds • Returning Direct Loan return funds to G5 • You drew down too much (borrower not eligible within three business days) • Borrower’s absolute right to cancel • Borrower returns funds to you within 120 days • R2T4 calculations • You’ve drawn from the wrong year • You’ve drawn from the wrong program • Returning Direct Loan funds to the loan servicer If a borrower brings funds back to you after 120 days of the disbursement direct them to their loan servicer instead The 120-day rule does not apply to regulatory or statutory returns

31. How to Send Refunds • Return funds electronically to G5 • Far more accurate and timely • Paper checks: • Are a problem! • Schools too often mail them to the wrong place • They are far slower than electronic G5 refunds If $100,000 and over cash management regulations require funds be returned electronically

32. Tracking Your Cash Balance To effectively process Direct Loans you need to understand what makes up and how to compute your Direct Loan ending cash balance • Total Net Drawdowns • – Total Net Booked Disbursements • = Ending Cash Balance (ECB) The complete calculation: Beginning cash balance + Total drawdowns from G5 - Total refunds in G5 - Total actual disbursements +/- Total disbursement adjustments = Ending Cash Balance

33. COD Cash Management Screens The COD website has a number of screens to help you track your funding and cash management: • School Funding Information • CFL, Available Balance, NAPD • Net Draws, Cash>NAPD • Cash Activity • Printer friendly button in right corner • Lists your drawdowns and refunds • # of days left to substantiate a drawdown • School Summary Information • Cash>NAPD over than 30 days • School Summary Financial Information • Same info and format of School Account Statement Cash Summary page COD.ED.GOV

34. COD Tracks Your Cash Balance • Remember - COD computations may differ from yours due to timing • Understanding what impacts COD computations, and when, will help you understand FSA’s monitoring of school balances Which of the following impact your ECB at COD? • Initial $2M funding level set up in G5 for new award year • Borrower requests PLUS loan for $10,000 in StudentLoans.gov • You originate $100K in loans, send to COD, one loan for $5K rejects • Draw $50K from G5 • Two loan origination change records sent to COD, increasing loan amount approved for upcoming loans Continued …

35. COD Tracks Your Cash Balance Which of the following impact your ECB at COD (continued)? • Credit students’ accounts for $45K in actual disbursements • $5K refund returned to G5 • $45K in actual disbursements sent to COD,$42K worth are accepted • $3K actual disbursement corrected, resent, accepted at COD • R2T4 results in $5K of downward disb adjustments sent to/accepted at COD Your ECB at COD at this snapshot in time is: +$5,000

36. Need Additional Direct Loan Funds? • Schools on Heightened Cash Monitoring have funding levels set as a result of actual disbursements accepted at COD • Advanced Funded schools (the majority) are given an initial funding level and then periodic increases at pre-set times throughout the year • If at any time you need additional funding apart from that pre-set date: • Contact your Customer Service Representative at COD (1-800-848-0978) • They will first check to make sure you’ve substantiated what you’ve already drawn down • If the award year is drawing to a close they will want to see the loan origination records on the COD system which have pending disbursements totaling the amount you are requesting

37. Common Problems: Student Fails to Begin Student fails to begin attending any classes* • Return all funds that were applied directly to student’s account • Return amount of any payments made by the student to the school, up to amount of disbursement • Not responsible to return portion which was given directly to student • But must notify servicer so a 30-day demand letter can be issued * Dear Colleague Letter GEN-13-02 dated 1/17/2013

38. Student Attends Less than Half-time Student begins attendance but less than half-time* • Of course, will need to have enrolled in at least half-time course load • Report through normal enrollment reporting process • Servicer will take usual steps with changing student’s status • School is not required to return loan proceeds but future disbursements cannot be made * Dear Colleague Letter GEN-13-02 dated 1/17/2013

39. Inadvertent Over-Borrowing School discovers student has inadvertent over-borrowing of annual loan limit* • Can the student simply contact loan servicer to repay the overaward amount? • If not, the student should contact the servicer to begin satisfactory repayment arrangement procedures/reaffirmation • Or, the student can consolidate the loan that put them over as that is considered a satisfactory repayment arrangement * Dear Colleague Letter GEN-13-02 dated 1/17/2013

40. Disbursement Date Edits • Some schools are correctly originating loans, processing actual disbursements, then later sending change records which shorten the loan period such that an actual disbursement is now over 180 days from the loan period end date • What are we missing, why is this being done? • COD Reject 050 will not catch this, only looks at the initial loan/disbursement submissions • Causing issues of invalid disbursements and possible loan servicing complications

41. Actual Disbursement Adjustments Downward adjustments • Borrower gets break on interest as it is recomputed as if the lower amount was disbursed on the initial date • Increase your cash balance Upward adjustments • Should only be used to correct an error • Otherwise borrower will be charged interest on the higher amount from the initial disbursement date • Create a new disbursement in most cases • Decrease your cash balance

42. Upward Disbursement Adjustments • Should only be made to correct an erroneously reported disbursement • Interest is recalculated from the Sequence-01 date • If you give additional funds make a new disbursement for that additional amount

43. Disbursements - 120-Day “Rule” For any loan type (Sub, Unsub, or PLUS) if the borrower returns funds, asking the disbursement be reduced, at any time up to 120-days past the disbursement date you may accept those funds: • Reduce disb and report to COD • Re-disburse or return the money (to G5) • Borrower gets a break on interest and loan fees of returned amount • You are not required to do this beyond the regulatory right to cancel timeframes. However, a reduction in debt burden is a borrower less likely to default Does not apply with returns required for regulatory reasons. Those must be made no matter when they’re discovered

44. Pending Disbursements – still pending? Warning Edit 054 - what are we telling you? • As with some “Warning” edits, this is just a reminder, we have a loan with an anticipated disbursement date within range that it could be an actual • Have you disbursed on it? Will you be? • Remember, per GEN-13-13 you should be zeroing out unused disbursements and adjusting the loan period dates

45. Pending Disbursements – stillpending? • The COD website Action Queue can help you identify pending disbursements but these will only be from loan origination records sent to and accepted by COD • Found under “Batch” on the COD website • The Action Queue/pending disbursements help schools estimate upcoming funding needs • Periodically you should query your system to see if you’ve paid/disbursed on any of these but not reported them as actuals

46. Other Common Disbursement Issues Disbursement Records: actual disbursements, actual disbursement adjustments • Unsent/unacknowledged disbursement records/batches • Rejected disbursements • Disbursements not entered in any system (pending actuals) • Disbursements recorded in business office but not in financial aid office/system • Unbooked records • Timing: records sent to COD near the end of the month • Disbursements using cents • School data loss

47. COD Edits – Rejects and Warnings Watch your rejects Rejected disbursements = unsubstantiated funds • Rejects – record was not “built” and will not be in Person/Award search • Warnings – record was processed, an FYI concerning your processing/timing

48. COD Rejects and Warnings COD Technical Reference, Volume II, Section 4

49. COD Technical Reference - Edits

50. COD Rejects • Responses • Work the responses when you import them • Query your system for rejects • Most systems will keep resending rejected records until they are accepted • COD website Batch Search functionality • Since rejected records are not found in Person or Award search – the batch search functionality will tell you what the reject edits were