Loan Guarantee & Disbursement

Once a loan is guaranteed, the loan funds are disbursed by the lender to the school, in accordance with standardized payment periods, and the school is responsible for ensuring that the funds are delivered to the borrower. There are specific cash management regulations that define the process for verifying the borrower’s eligibility to receive the funds and the timeframe during which they must be delivered to the borrower.

Federal regulations [34 CFR 668.16(4); 668.32(f)] require that a school measure a student's satisfactory academic progress (SAP) in accordance with the school's published SAP policy before delivering the loan proceeds. 

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

• individual paper check;
• master check; or
• electronic funds transfer (EFT).

Loan delivery pertains to the school’s processing of loan proceeds and delivering those proceeds to the borrower. Provisions governing these processes are outlined in the Cash Management Regulations (34 CFR 668, Subpart K) and in the FFELP and DL regulations (34 CFR 682 and 685, respectively). Volume 4 of the FSA Handbook - Processing Aid & Managing FSA Funds provides guidance on the disbursement and delivery of loan proceeds, including cash management.

Various situations, such as a change in the student's financial situation or academic plans, may arise during the loan guarantee and disbursement process which may require the school to make changes to the loan amount guaranteed. Colleges are also required to counsel students on the importance of borrowing and the consequences of default. Guidance on how to handle these issues, as well as links to additional resources such as ISAC's Default Prevention Outreach Programs and the Common Manual are included in this section.