Title 20 — EducationRelease 119-73
§1078–7 Requirements for disbursement of student loans
Title 20 › Chapter CHAPTER 28— - HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE › Subchapter SUBCHAPTER IV— - STUDENT ASSISTANCE › Part Part B— - Federal Family Education Loan Program › § 1078–7
Summary
Require student loans for a period of enrollment to be paid in at least two parts, and no single part can be more than half the loan. The gap between the first and second parts must be at least half of the enrollment period, unless the second part needs to come at the start of the second semester, quarter, or similar split. Schools with a 3-year cohort default rate below 10 percent may give a whole loan in one payment for periods up to one semester, trimester, quarter, or 4 months; that 10 percent rule took effect February 8, 2006 and changes to 15 percent on October 1, 2011. The first disbursement to a new undergraduate borrower who has never had this loan must not be presented for the student’s signature until 30 days after classes start (the school can receive the money earlier). Loans for other students cannot be paid out more than 30 days before the enrollment period starts. Payments must follow the school’s schedule and may come from the lender or through escrow. With the borrower’s OK, lenders can pay weekly or monthly in equal amounts over the enrollment period. If a borrower stops attending before a later installment, that installment must be withheld and applied to the loan as a prepayment. If a disbursement plus other aid is more than allowed, the school must return the excess to the lender and treat it as a prepayment. The rules do not apply to loans under section 1078–3 or to approved study-abroad costs if the home school’s cohort default rate is under 5 percent. A period of enrollment starts on the first day classes begin. A lender may not sell a loan note until the final disbursement is made, unless the sale does not change who will receive payments and the first disbursement has already been made.
Full Legal Text
Title 20, §1078–7
Education — Source: USLM XML via OLRC
(a)(1)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)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)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.
(4)Beginning on October 1, 2011, the special rule under paragraph (3) shall be applied by substituting “15 percent” for “10 percent”.
(b)(1)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.
(2)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.
(3)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”.
(c)Disbursements under subsection (a)—
(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 section 1078 and 1078–1 11 See References in Text note below. 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)(1)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)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.
(e)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)For purposes of this section, a period of enrollment begins on the first day that classes begin for the applicable period of enrollment.
(g)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)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
(2)the first disbursement of such loan has been made.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
section 422(d) of the Higher Education
Amendments
of 1998, referred to in subsecs. (a)(3) and (b)(1), is section 422(d) of Pub. L. 105–244, set out as an Effective and Termination Dates of 1998 Amendment note below. section 1078–1 of this title, referred to in subsec. (c)(2), was repealed by Pub. L. 103–66, title IV, § 4047(b)–(d), Aug. 10, 1993, 107 Stat. 364, eff. July 1, 1994, except with respect to loans provided under that section as it existed prior to Aug. 10, 1993. Subsequently, a new section 1078–1, relating to voluntary flexible agreements with guaranty agencies, was enacted by Pub. L. 105–244, title IV, § 418, Oct. 7, 1998, 112 Stat. 1691. Codification Text of subsec. (a)(3) and second sentence of subsec. (b)(1), which was temporarily added by Pub. L. 105–244, § 422(a), (b), and then omitted, was restored pursuant to amendment by Pub. L. 109–171, § 8010(1), (2). See 1998 and 2006 Amendment notes and Effective and Termination Dates of 1998 Amendment note below.
Amendments
2009—Subsec. (c)(1). Pub. L. 111–39, § 402(f)(4)(A), substituted “section 1078(a)(2)(A)(i)(II)” for “section 1078(a)(2)(A)(i)(III)”. Subsec. (c)(3). Pub. L. 111–39, § 402(f)(4)(B), added par. (3) and struck out former par. (3) which read as follows: “notwithstanding subsection (a)(2) of this section, 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 in substantially equal weekly or monthly installments, as the case may be, over the period of enrollment for which the loan is made.” 2008—Subsec. (a)(4). Pub. L. 110–315, § 427(a), added par. (4). Subsec. (b)(3). Pub. L. 110–315, § 427(b), added par. (3). 2006—Subsec. (a)(3). Pub. L. 109–171, § 8010(1), inserted “Notwithstanding section 422(d) of the Higher Education
Amendments
of 1998, this paragraph shall be effective beginning February 8, 2006.” at end. See Codification note above and Effective and Termination Dates of 1998 Amendment note below. Subsec. (b)(1). Pub. L. 109–171, § 8010(2), inserted “Notwithstanding section 422(d) of the Higher Education
Amendments
of 1998, the second sentence of this paragraph shall be effective beginning February 8, 2006.” at end. See Codification note above and Effective and Termination Dates of 1998 Amendment note below. Subsec. (e). Pub. L. 109–171, § 8010(3), struck out “, made to a student to cover the cost of attendance at an eligible institution outside the United States” after “section 1078–3 of this title”. 1998—Subsec. (a)(3). Pub. L. 105–244, § 422(a), (d), temporarily added par. (3) which read as follows: “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.” See Codification note and 2006 Amendment note above and Effective and Termination Dates of 1998 Amendment note below. Subsec. (b)(1). Pub. L. 105–244, § 422(b), (d), temporarily inserted at end “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.” See Codification note and 2006 Amendment note above and Effective and Termination Dates of 1998 Amendment note below. Subsec. (e). Pub. L. 105–244, § 422(c), substituted “, made to a student” for “or made to a student” and inserted before the period at end “, 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”. 1993—Subsec. (c)(3). Pub. L. 103–208 directed the substitution of “disbursed by the lender” for “disbursed” and was executed by making the substitution the first place “disbursed” appeared, to reflect the probable intent of Congress. Subsec. (e). Pub. L. 103–66 substituted “consolidation” for “PLUS, consolidation,” in heading and “section 1078–3” for “section 1078–2 or 1078–3” in text. 1992—Subsec. (c)(3). Pub. L. 102–325, § 421(a), added par. (3). Subsec. (d)(2). Pub. L. 102–325, § 421(b), inserted “, 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” before period at end of first sentence. Subsec. (g). Pub. L. 102–325, § 421(c), added subsec. (g). 1990—Subsec. (b)(1). Pub. L. 101–508 amended par. (1) generally. Prior to amendment, par. (1) read as follows: “The first installment of the proceeds of any loan made under section 1078–1 of this title that is made to a student borrower who has not successfully completed the first year of a program of undergraduate education 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— “(A) 30 days after the borrower begins a course of study; and “(B) the institution certifies that the borrower continues to be enrolled and in attendance at the end of such 30-day period, and is maintaining satisfactory progress; but may be disbursed to the eligible institution prior to the end of such 30-day period.”
Statutory Notes and Related Subsidiaries
Effective Date
of 2009 AmendmentAmendment by Pub. L. 111–39 effective as if enacted on the date of enactment of Pub. L. 110–315 (Aug. 14, 2008), see section 3 of Pub. L. 111–39, set out as a note under section 1001 of this title.
Effective Date
of 2006 AmendmentAmendment by Pub. L. 109–171 effective July 1, 2006, except as otherwise provided, see section 8001(c) of Pub. L. 109–171, set out as a note under section 1002 of this title. Effective and Termination Dates of 1998 AmendmentAmendment by section 422(c) of Pub. L. 105–244 effective Oct. 1, 1998, except as otherwise provided in Pub. L. 105–244, see section 3 of Pub. L. 105–244, set out as a note under section 1001 of this title. Pub. L. 105–244, title IV, § 422(d), Oct. 7, 1998, 112 Stat. 1696, provided that: “The
Amendments
made by subsections (a) and (b) [amending this section] shall be effective during the period beginning on
October 1, 1998, and ending on
September 30, 2002.”
Effective Date
of 1993
Amendments
Amendment by Pub. L. 103–208 effective as if included in the Higher Education
Amendments
of 1992, Pub. L. 102–325, except as otherwise provided, see section 5(a) of Pub. L. 103–208, set out as a note under section 1051 of this title. Amendment by Pub. L. 103–66 effective with respect to loans for which the first disbursement is made on or after Oct. 1, 1993, see section 4109(c) of Pub. L. 103–66, set out as a note under section 1078–2 of this title.
Effective Date
of 1990 Amendment Pub. L. 101–508, title III, § 3003(b), Nov. 5, 1990, 104 Stat. 1388–26, provided that: “The amendment made by this section [amending this section] shall be effective for loans made on or after the date of enactment of this Act [Nov. 5, 1990] to cover the cost of instruction for periods of enrollment beginning on or after January 1, 1991.”
Effective Date
Section applicable with respect to loans made to cover cost of instruction for periods of enrollment beginning on or after Jan. 1, 1990, see section 2004(c) of Pub. L. 101–239, set out as an
Effective Date
of 1989 Amendment note under section 1077 of this title.
Reference
Citations & Metadata
Citation
20 U.S.C. § 1078–7
Title 20 — Education
Last Updated
Apr 6, 2026
Release point: 119-73