§ 1078-7. Requirements for disbursement of student loans
(a)
Multiple disbursement required
(1)
Two disbursements required
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.
(2)
Minimum interval required
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.
(3)
Special rule
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.
(b)
Disbursement and endorsement requirements
(1)
First year students
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.
(c)
Method of multiple disbursement
Disbursements under subsection (a) of this section—
(1)
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;
(2)
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
(3)
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.
(d)
Withholding of second disbursement
(1)
Withdrawing students
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.
(2)
Students receiving over-awards
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 and part
C of subchapter
I of chapter
34 of title
42, 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
2753
(b)(4) of title
42 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.
(e)
Exclusion of consolidation and foreign study loans
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.
(f)
Beginning of period of enrollment
For purposes of this section, a period of enrollment begins on the first day that classes begin for the applicable period of enrollment.
(g)
Sales prior to disbursement prohibited
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—
[1] See References in Text note below.