OD_Reqs_-_Sec_4_-_OD_Processing-_Final_v_4_UPDATED_2-28-14.pdf

O&D Business Requirements

Section 4. O&D Processing

4.0 Overview

4.0.1 Purpose and Objectives

The Origination & Disbursement System (O&D System) shall receive, process, and respond to Common Record Documents submitted for Federal Student Aid Programs, i.e. Direct Loans (DL), Pell Grants, Iraq and Afghanistan Service Member Grants (IASG), ACG, National SMART, TEACH Grants, and other programs as required. Direct Loans include Direct Subsidized, Direct Unsubsidized Loans made to eligible students as well as Direct PLUS Loans made to parents of undergraduate students and graduate/professional students.

The O&D System shall also maintain and manage the school and program funding levels as well as manage school drawdowns and disbursements per FSA’s requirements.

4.0.2 Scope

For the Direct Loan, Pell Grant, IASG Grant, TEACH Grant and other programs as required, the O&D System shall accept and process originations and disbursements for current and active Award Years along with any related promissory notes, perform person (students, parents, endorsers) level, school level, award and disbursement editing, conduct credit checks for Direct PLUS Loans, and interface with other Federal Student Aid and external systems. The O&D System shall also process adjustment transactions for ACG & National SMART programs for the years provided by FSA (note: no new originations or disbursements shall be accepted for ACG and National SMART as the programs were terminated after the 2010-11 award year).

The O&D System shall process, perform edit checks on and accept or reject origination and disbursement data received in Common Record Documents from schools/third party servicers and O&D Web. The O&D System shall send responses back to schools regarding the data submitted and any edits failed during processing. The O&D system shall store all documents processed and the corresponding responses to those documents and allow O&D Web users access to the detailed information within each document. The data processed will be stored and viewable via the O&D Web. The O&D system shall log and retain audit trails on data received and processed, including changes to and from, source/user and date/time.

The scope of O&D Processing includes the following:

• Originations and Disbursements Processing, which includes the following:

o Receipt and Editing, which includes but is not limited to Incoming Record Processing, School Eligibility Verification, and Student Eligibility Verification;

o Direct PLUS Loan credit checks;

o Originations Processing and Disbursements Processing; and o Provide school and operational reports based on data processed.

o Provide operational reports for FSA;

• Funds Management, which includes establishing initial current funding levels, adjusting current funding levels, managing funding controls, supporting school

Federal Student Aid, O&D To-Be Requirements 4-1 O&D Processing substantiation, completing reconciliation activities, closing-out funding for each award year, and processing post deadline adjustments. It also includes easy access to and retrieval of data in an archive system.

• Financial Processing, which includes Student Level Processing, School Level Processing, Special Pell Grant, other Grant Processing and Pell (ACA) Processing, and running various global jobs; and,

• Loan Distribution, which includes distributing “booked loans & TEACH Grants” to FSA-approved Servicers using an adjustable algorithm. A loan/TEACH Grant is considered booked when the O&D System has an accepted award/origination, a linked Master Promissory Note/Agreement-To-Serve, and at least one funded disbursement record.

• Loan Consolidation –

4.0.3 Architectural Framework

Figure 4-1 illustrates the functional architecture of the O&D System, which is responsible for processing federal loans and grants originated by participating schools and managing the school funding process.

The O&D System shall consist of four major functional areas which include the key activities described above:

1. Origination & Disbursement Processing;

2. Funds Management;

3. Financial Processing; and

4. Loan Distribution.

Federal Student Aid, O&D To-Be Requirements 4-2 O&D Processing

Figure 4-1: Functional Architecture of Origination & Disbursement Processing System.

4.1 Origination & Disbursement Processing

The starting point for O&D Processing is the receipt of incoming origination and disbursement data. The following sections provide the business requirements for receiving incoming origination and disbursement data in the correct record format, verifying the edibility of the school to submit such records to FSA, and confirming the eligibility of the student to receive the intended federal student aid.

4.1.1 Incoming Record Processing

The O&D System shall receive and process origination and disbursement records submitted by schools participating in Title IV programs. A high level process flow for processing common records is captured in Figure 4-2 below.

Federal Student Aid, O&D To-Be Requirements 4-3 O&D Processing

Figure 4-2: High Level Common Record Processing Flow

A. Submission & Receipt

The O&D System shall accept Common Records in two ways:

• Batch Submission of records sent via FSA’s Student Aid Internet Gateway (SAIG) to the O&D mailbox. The Enterprise Service Bus (ESB) shall periodically sweep the O&D mailbox and transmit the Common Record data to the O&D System for processing.

• Online Submission - A school user manually enters Common Record data via the O&D Web, which is then converted into an XML document and transmitted in real-time to the O&D System for processing.

For each Common Record received, the O&D System shall return a receipt (optional for schools) to the source entity in the same manner (batch or web) that the Common Record was submitted. Subsequently, the O&D System shall generate appropriate Responses after the processing of the Common Record and shall send them back to schools and others, as Common Records, to communicate the relevant results and action(s) to be taken, if any.

B. Editing

The O&D System shall perform various edits on the Common Record data received including Document, Entity/School, Person/Student/Parent, Award, Disbursement information, to determine its validity and suitability for processing. Three edit modes shall be supported:

• Correction – For Pell Grant data only and by default, the O&D System shall automatically make corrections on the data, process the record, and send a Response record back to the submitting entity indicating corrections made. Pell Grant data corrections may include adjusting the amount of the Pell Grant award to the student. From the School Level Options in O&D Web, schools can elect to have Pell Grant records rejected instead of having them automatically corrected by the O&D System.

• Warning – The O&D System shall send a Response record to the submitting entity indicating a warning and relevant information but shall continue to process the data.

Common Record

Submission

Common Record Receipt

Common Record

Processing

Common Record Editing

Response Notification

Federal Student Aid, O&D To-Be Requirements 4-4 O&D Processing

Figure 4-3: PEPS to O&D Engine Interface

• Reject – The O&D System shall reject a Common Record with invalid/unacceptable data and shall send a reject Response record to the submitting entity. Rejected records are stored and held by the O&D System pending corrective action from the submitting entity. Common Records can be re-submitted via batch or online modes to correct rejected data.

Edits are performed for School Eligibility, Student Eligibility, Direct Loan Promissory Note linking, Direct PLUS Loan Credit Checks, Student Grant Repayment and other data.

4.1.2 School Eligibility Verification

A. Eligible Schools

The Postsecondary Education Participant System (PEPS) sends the O&D System a daily file that updates information on schools eligible to participate in Title IV programs. The interface to PEPS is specified in the PEPS Interface Control Document (ICD).

B. School Eligibility Edits

The O&D System shall use the PEPS file to verify the eligibility of the school to originate and disburse loans and grants. Eligibility checks are done at the Title IV and individual program levels. If the school is not eligible, the O&D System shall reject the record and return a Response record indicating the reject reason.

O&D Engine

Postsecondary Education Participants System

(PEPS)

Daily Extract of School

Eligibility

Federal Student Aid, O&D To-Be Requirements 4-5 O&D Processing

Figure 4-4: FAFSA Eligibility Determination Process

4.1.3 Student Eligibility Verification

A. Student Eligibility Interfaces

FAFSA Eligibility Determination

FSA’s Central Processing System (CPS) processes a student’s Free Application for Federal Student Aid (FAFSA) and determines a student’s aid eligibility and Expected Family Contribution (EFC). CPS then sends the results from the processed FAFSA to the student in the Student Aid Report (SAR), and sends an Informational Student Information Report (ISIR) to the schools the student indicated on the

FAFSA.

In addition, CPS sends the O&D System a daily file which contains applicant eligibility information. The O&D System uses the information in the CPS file to edit incoming records and to ensure that the students are eligible to receive Title IV aid. The interface to CPS is specified in the CPS Interface Control Document (ICD).

Loan Servicer Updates

The federal servicers send payment information to the O&D System that is used to determine additional eligibility for Direct Loan funds. When a borrower makes a payment on their Direct Loan within 120 days of the disbursement date, the O&D System shall use the payment information when editing student’s O&D records for compliance with the annual award limits. The payment updates shall be sent via the Loan Distribution System (LDE) and the interface to LDE is specified in the LDE Interface Control Document (ICD).

B. Student Eligibility Edits

When processing Common Record Document, the O&D System shall use data from CPS to validate the student’s eligibility to receive financial aid as determined by CPS.

The O&D System shall use data from CPS to verify student eligibility, including, but not limited to: social security number, date of birth, and name match; PELL eligibility flag; DOD match flag; and others.

If the student is deemed ineligible, the O&D System shall reject the award and disbursement data submitted for the student and return a Response record that includes the reject reason. Otherwise, the O&D System shall create and/or manage the student and award data, as appropriate. If the student data does not exist in the O&D Database, the incoming record must contain new award and disbursement data in order for the O&D System to create the student’s information within the system.

O&D Engine

School

Student/ Borrower

ISIR

FAFSASAR

Applicant Data

CPS

Federal Student Aid, O&D To-Be Requirements 4-6 O&D Processing

4.1.4 Originations Processing

The O&D System shall process school origination records that establish a new loan or grant award, or update an existing award for any of the Direct Loan, Pell Grant, IASG Grant, TEACH Grant, eCampus Based Programs, and other programs as required. It shall also process records that update existing ACG and National SMART awards.

The O&D System shall perform award edits on pertinent origination record fields, such as the student’s annual award, EFC (Expected Family Contribution), and COA (Cost of Attendance) to ensure they are complete, correct, and conform to FSA’s guidelines.

In addition to person and award data, the origination record contains anticipated/pending disbursement data. If the origination record is accepted, the O&D System shall check if the award is for an existing or new student, or whether the award already exists. Accordingly, it shall create or update the student and award data records in the O&D Database.

A. Direct Loans Originations

Direct Loan awards require a Master Promissory Note (MPN). When a Direct Loan award is originated, the O&D System shall check if an MPN already exists for the student. If an MPN is found, the O&D System shall link it to the award and shall notify the school(s) that originated the award(s) of the linkage using a Promissory Note Response. If an MPN is not found, the O&D System shall accept the origination with anticipated/pending disbursements and return a response to the school indicating that there is no MPN on file. Without a linked MPN, any actual disbursements received for the loan are rejected.

B. Direct Plus Loan Originations

To receive a Direct PLUS Loan, the borrower must pass a credit check. When a Direct PLUS Loan origination is received, O&D System shall verify that the borrower has an accepted credit check. If a current credit check is not available, O&D shall conduct a credit check when processing the origination. Once a credit check is accepted, O&D shall process the origination. See section 4.1.3 below additional information on Credit Check Processing.

C. TEACH Grants Originations

Applicants for a TEACH Grant are required to complete the TEACH Grant Subsequent Counseling and an Agreement-to-Serve (ATS) through the TEACH Grant website every year prior to receiving their grant. The ATS confirms the recipient’s acceptance of the terms of the grant, including the agreement to serve/teach in exchange for their grant. Schools participating in the TEACH Grant Program determine a student’s eligibility to receive a TEACH Grant. When a TEACH Grant award is submitted by the school as an origination and before the record is processed, the O&D System shall check if the school is eligible to participate in the TEACH Grant program. After confirming school eligibility, the O&D System shall check if an ATS has been completed by the student. If one is found, the O&D System shall link it to the award and notify the school of the linking through the origination response and in a System Generated Response.

Federal Student Aid, O&D To-Be Requirements 4-7 O&D Processing

D. Credit Check Processing

The O&D System is responsible for interfacing with Credit Bureaus to obtain credit check data for Direct PLUS Loans. Credit checks are valid for 90 days and “no credit” is considered “good credit”. A credit check decision may be returned as “pending” if information submitted to O&D (e.g., SSN/NAME/DOB) does not match information returned by the credit bureau. O&D shall interface with a minimum of two credit bureaus, one primary and one secondary, to perform credit checks. The O&D System shall perform credit checks on potential borrowers (parents and graduate students) and endorsers for Direct PLUS Loans. The O&D System shall possess the ability to provide credit check inquiries via the following:

• Applicant Web: When an applicant completes and submits a Direct PLUS Loan Request, the O&D shall initiate a credit check. This can be done without an award on file within the O&D System.

• O&D System: The O&D System shall automatically perform a credit check upon processing a Direct PLUS Loan award origination or an Endorser Addendum.

If an applicant’s/endorser’s credit check fails, the O&D System shall accept the PLUS Loan award but create the award with a status indicating that the credit is denied and send information back to the school stating that the borrower failed the credit check.

With a denied credit check, any actual disbursements received for the loan are rejected.

The system shall send correspondence to the borrower telling them that the credit is denied, why it was denied, what credit bureau was used to perform the credit check and what the options are for pursuing the PLUS loan. Paper correspondence must include an endorser addendum. The Applicant Web must include the ability for the user to access the correspondence and print the endorser addendum if the borrower wishes to do so.

Borrowers with a declined credit check may obtain an endorser or provide documentation of extenuating circumstances and receive a credit override decision before the borrower can receive a disbursement on the loan.

An applicant’s declined credit check may be overcome in the following ways:

• Documentation of Extenuating Circumstance and FSA/CSR Override:

The O&D System shall provide override functionality that allows Customer Service Representatives (CSR) or FSA staff to manually override credit check decisions based on Federal Student Aid approved criteria. The O&D System shall store the original credit decision and the override date and relevant information. The initiation of the process for documenting extenuating circumstances can be by phone or via the Applicant Web. The O&D School Support Center manages the credit decision appeal process.

• Endorser Addendum: The O&D System shall accept an endorser for the Direct PLUS Loan of an applicant with a failed credit check, as long as the endorser completes an passes his/her credit check Endorser Addendum acknowledging their legal responsibility to repay the applicant’s financial aid obligation. Endorsers are only eligible for a credit decision override if their Credit Report has incorrect information, such as a false account or identity theft.

Federal Student Aid, O&D To-Be Requirements 4-8 O&D Processing

If an applicant fails a credit check and then the declined credit check is overcome in one of the ways above, the O&D System shall notify the relevant school with the updated credit decision.

4.1.5 Applicant Award Completion

A. Master Promissory Notes (MPN’s)

Any student borrower of a Direct Loan (subsidized, unsubsidized, or Grad PLUS), recipient of a TEACH Grant, or parent borrower or endorser of a Parent PLUS Loan must sign an MPN (an ATS in the case of a TEACH Grant), either an electronic or paper one, acknowledging their legal responsibility to repay their obligation when it comes due.

When the O&D System receives an MPN, it shall attempt to match it to its existing student list (using the student’s name, SSN, and DOB). If the student exists in the O&D Database, the O&D System shall link the MPN to the student’s awards and shall notify the school(s) that originated the award(s) of the linkage using Promissory Note Acknowledgement(s). If no matching student information is found, then the O&D System shall store the MPN until an award is originated for that student and shall send an unsolicited MPN notification to the school(s) identified by the borrower on either their paper or electronic MPN.

The O&D System shall not accept an actual funded disbursement on an award unless it is linked to an MPN. An MPN shall be valid for a period of 10 years from the date it was signed as long as a disbursement is made within one year from the O&D System’s receipt of the MPN and the borrower does not close the MPN. A borrower may choose to close an MPN by contacting Applicant Support Services (see Section 9:

Applicant Support Services for more information).

MPN Signature Options

• Electronic MPNs (eMPNs) shall be accepted through the Applicant Web.

• Paper MPNs (pMPNs) shall be received through the Ancillary Services Module and processed by the O&D System. The data captured from the paper MPNs shall be treated similarly to the corresponding data embodied in the electronic MPNs. Paper MPNs need to be received, reviewed, imaged, stored, and made available electronically as well as archived long term per FSA’s data retention rules.

Multi-Year/Single-Year Schools

While all MPNs are multi-year, there are multi-year and single-year schools. The linking logic for MPNs is contingent upon whether the school is single year or multi-year. Loans from a multi-year school can link to MPNs that are used by single-year schools.

1. Multi-Year Schools: For schools that select the Multi-Year MPN feature through school level options on O&D Web, the O&D System shall use the

Figure 4-5: MPN Processing

Applicant Web (studentloans.gov)

Ancillary Services

MPN

Imaged P-Note

Federal Student Aid, O&D To-Be Requirements 4-9 O&D Processing same MPN for loans awarded in multiple academic years. The MPN does not have to be previously associated with that school. Foreign schools are required to be single-year schools.

2. Single-Year Schools: Schools may choose to process under the Single-Year MPN feature and the O&D System shall require a new MPN be signed for each academic year.

If an award is a Direct PLUS Loan with an endorser, then the MPN is only valid for a single year.

MPN Maintenance: The O&D System shall allow authorized users to perform MPN maintenance such as manual linking, unlinking, and relinking. In addition, users must be able to correct data elements that may have been entered incorrectly.

B. Direct PLUS Loans Requests

Applicants for Direct PLUS Loans are either graduate/professional students or parents of undergraduate students. PLUS Loan applicants may submit Direct PLUS Loan Requests through the Applicant Web.

The O&D System shall receive, process, and acknowledge data submitted via the Direct PLUS Loan Request submitted via the Applicant Web and shall perform the required applicant credit checks. The O&D System shall communicate to the school designated on the loan request the information provided.

C. Endorser Addenda

If an applicant’s credit check for a Direct PLUS Loan is declined, the applicant can obtain an endorser, who is responsible for repaying the loan in case the borrower does not. The endorser is required to complete and submit an Endorser Addendum. The endorser may complete the endorser addendum via the Applicant Web or submit a paper endorser addendum. Endorser Addendums can also be printed and submitted manually.

The O&D System shall receive, edit, process and acknowledge receipt of the Endorser Addendum. The O&D System shall process the Endorser Addendum, perform endorser credit checks (when paper endorser addendum is received), and notify the school that originated the loan of the results. If an endorser addendum is submitted prior to an origination record being received by O&D, it is stored and then linked to the origination record after all of the front end edits are processed. O&D shall send a response to the school to indicate that endorser information was received.

D. Entrance, Financial Awareness, and Exit Counseling

Students shall have the option of completing Entrance, Financial Awareness, and Exit Counseling through the Applicant Web. First time student borrowers are required to complete Entrance Counseling before a school can disburse funds to them. Financial Awareness Counseling provides users with relevant tools and financial information to understand their financial aid and manage their finances. Before a student with a loan withdraws, graduates, or drops below half-time attendance, they are required to complete exit counseling. Similarly, a TEACH Grant recipient is required to complete

Federal Student Aid, O&D To-Be Requirements 4-10 O&D Processing an exit counseling session upon withdrawing or graduating from their program of study.

When a student completes Entrance, Financial Awareness, and Exit Counseling on Applicant Web, the O&D System shall receive notice of completion. Schools shall have the option of choosing whether they want to receive “Daily” or “On-demand” responses when a borrower completes Entrance, Financial Awareness, and Exit Counseling on Applicant Web. For additional information on Applicant Web business requirements, see Section 6.

4.1.6 Disbursement Processing

The O&D System shall process disbursement records for Direct Loans, Pell Grants, IASG and TEACH Grants, and shall update existing disbursement records for Direct Loans, Pell Grants, ACG, National SMART, IASG and TEACH Grants submitted by schools and third party servicers. For Direct Loans and TEACH Grants, complete disbursement information is required when originating awards on O&D and the disbursement information may include anticipated disbursements, actual disbursements or a combination of the two. For Direct Loans and TEACH Grants, the sum of all disbursement information must match the award amount. There are two types of disbursements:

• Anticipated Disbursements are ones that the school expects to pay in the future.

When originating an award, the O&D System shall record Anticipated Disbursements and include them in the Pending Disbursement List Report. For Pell and IASG Grants, anticipated disbursements are not required.

• Actual/Funded Disbursements are the disbursements that are being or have been paid out to the student, either as a credit to their student account or a direct payment to the student. The O&D System shall accept an Actual Disbursement record up to 7 days ahead of the disbursement date and any time after, unless the school is on Stop Pay status / under HCM2 or Reimbursement funding control status. When a school is on Stop Pay, the record is put into review status, and does not count for substantiation or CFL adjustment until FSA reviews and approves it.

The O&D System shall accept a disbursement record if the following conditions apply:

• The disbursement record passes all edits;

• A Funded Disbursement is included;

• Disbursement date is “current” based on program rules, e.g. not more than 7 days after the receipt of the Disbursement record;

• Borrower has a linked MPN or ATS (for Direct Loans and TEACH Grants); and,

• A PLUS Loan borrower has an approved credit decision on file, a credit override or an endorser.

Disbursement information must be submitted in compliance with the reporting requirements, which requires that all data necessary to book a loan or subsequent disbursement be recorded within 15 days of the actual disbursement date. If the school is on Heightened Cash Monitoring 2 (HCM2) or Reimbursement status, the disbursement record will have to be reviewed and approved by an FSA payment analyst prior to acceptance. See Funds processing section below for more information on HCM2 and Reimbursement status.

For all programs, the sum of the accepted disbursements must be equal to total amount of the award in the origination record. Twice a day, the O&D System shall compile the list of

Federal Student Aid, O&D To-Be Requirements 4-11 O&D Processing accepted student disbursements. For each accepted disbursement record, the O&D System shall report payments that the school has credited to the student’s account or paid directly to the student. This will be done as part of the daily School-Level Financial Processing described below.Funds Management

The O&D System shall enable FSA’s business need to setup and manage the funding environment, which allows for the movement of funds between FSA the participating schools. For each program by award year, FSA establishes the initial “Current Funding Level” (CFL), adjusts the CFL as needed throughout the year, allows for drawdowns of funds, establishes funding control mechanisms, enables substantiation and reconciliation activities to ensure funds disbursed equal funds drawn down, and finally support close-out activities.

4.1.7 Current Funding Level (CFL) Processing – Initial CFL and CFL Adjustments The Current Funding Level (CFL) is the total (cumulative award year to date) amount of funding authorization given to a school at any point in time. FSA uses the CFL to ensure that schools are reporting disbursement records on a timely basis. For each program by award year, FSA processes the initial CFL either through a global job, a manual individual school adjustment, or through posting of the first adjustment batch. The O&D System adjusts the CFL as needed throughout the year, allows for drawdown of funds, establishes funding control mechanisms, enables substantiation and reconciliation activities to ensure funds disbursed equal funds drawn down, supports close-out activities, processes post deadline adjustments and allows for easy retrieval from an archive system. A school’s CFL may be adjusted upwards or downwards based on its reported disbursements and other activity throughout the year.

A. Initial CFL Calculation

At the beginning of each award year, the Internal Control Division (ICD) of FSA’s Program Management Service posts allotments from the Department of Education’s Budget Service for each program. ICD staff use an O&D web screen that 15-20 parameter driven fields comprising the Account Classification Code structure. FSA needs up to 12 allotments per award year per program and the posting must be real-time. An edit must be in place so that the total of the CFLs cannot exceed the amount allotted.

Loans

For Direct Loans, FSA bases the initial CFL amount on the institution’s prior year disbursement history. FSA staff generate the Initial Authorization using scenarios that are on a web page in the O&D System and are based on prior year data. The O&D System calculates the initial CFL amount for each eligible institution’s Direct Loans program, based on the CFL scenario parameters inputted by the ICD. Institutions that are subject to funding control status (described below) do not receive an initial CFL until their first actual disbursement records are submitted to and accepted by the O&D System. FSA staff generate an Initial Authorization soon after the New Award Year Set Up is released and this covers schools that can submit data early. Later in the spring, the O&D System should generate a second file consisting of an Initial Authorization for schools that submit data later in the spring as well as an increase for schools that

Federal Student Aid, O&D To-Be Requirements 4-12 O&D Processing received an Initial Authorization from the first file. FSA will generate several global increase files over the course of the award year that will be generated using data and parameters established in the O&D System.

Grants

For Pell, TEACH, and IASG Grants, institutions do not receive an initial CFL prior to the acceptance of submitted actual disbursement records by the O&D System. Upon the acceptance of their first submitted actual disbursement records, the O&D System shall calculate and set the initial CFL for each Grant program.

B. CFL Edits

Prior to calculating an institution’s initial CFL for a particular Title IV program, the O&D System shall validate the eligibility of the institution to participate in that program through the Postsecondary Education Participants System (PEPS). A CFL is not created if an institution is ineligible as reported by PEPS.

C. CFL Adjustment

The CFL shall be adjusted in one of the following ways:

• FSA staff can increase the CFL through O&D Web to reflect the needs of the school.

• A school can request a change to its CFL (for a specific program and award year) either through a batch incoming record, O&D Web or the O&D Customer Service. The O&D System shall perform the necessary CFL edits and, if needed, forward the request to FSA’s ICD staff for review. If the request is accepted, the CFL is increased. This applies to all Title IV programs.

• When a school’s total accepted actual disbursements exceed its CFL, the O&D System shall adjust the school’s CFL to allow it to draw down more funds.

Upon accepting actual disbursement records from the school, the O&D System shall calculate whether or not the school’s CFL should be increased for the corresponding program. For schools that are under funding control (described below), actual disbursement records are reviewed by FSA and if accepted, the O&D System is notified to perform the calculations to check if the CFL should be adjusted.

For all CFL adjustments, the O&D System needs to check that the sum of all CFLs (for Title IV programs) do not exceed the award-year allotment amount established by FSA’s ICD.

D. FMS CFL Updates

Upon calculating an institution’s initial CFL or adjusting its CFL, the O&D System shall send an update to FMS with new funding level information. FMS then sends an update to G5 with the new information. If there is a problem with the CFL Update matching FMS/G5 records, then FSA’s O&D Operations staff shall resolve the discrepancy.

Federal Student Aid, O&D To-Be Requirements 4-13 O&D Processing

E. Institution’s Funding Update

Anytime the CFL is set or adjusted, the O&D System shall send the Electronic Statement of Account (ESOA) to the institution informing it of its new funding level.

4.1.8 Drawdowns and Funding Controls

The Advanced Funding method is the primary method that is used for delivering funds to schools. Advanced funded schools can initiate funds drawdown directly from the G5 against their available balance (the difference between their CFL and their net drawdowns).

For accepted requests, funds are transferred electronically from the G5 to the school’s bank account.

As schools disburse funds to students (either directly or by crediting their school account), they submit disbursement records to the O&D System for processing, which can be done before, on, or after the disbursement date. Based on accepted actual disbursement records, the O&D System shall substantiate funds drawn down by the schools. A school’s ability to draw down funds may be dependent on their promptness in submitting actual disbursement records to the O&D System, which are used to substantiate funds already drawn. Schools with limited financial and/or administrative capability may be placed on Heightened Cash Monitoring 1 (HCM1), Heightened Cash Monitoring 2 (HCM2) or Reimbursement funding control status by FSA’s School Participation Team (SPT), which restricts their ability to draw down funds. See Funding Controls section below.

A. Funds Drawdown

Institutions are allowed to draw down funds from the G5 up to their Current Funding Level (CFL). For each program, the amount available for drawdown is the difference between that program’s CFL and the net drawdowns (drawdowns less any refunds or cash returns) that the institution has received for the award year.

Institutions that are not subject to HCM or Reimbursement status review may request drawdowns directly through the G5 system, which checks their eligibility, the validity of the request, and their available balances and approves or denies the request accordingly.

For accepted drawdowns, G5 sends daily updates to FMS to account for the drawdowns, and FMS in turn sends daily updates to the O&D System.

B. Funding Controls

Schools under HCM1 may not draw down on funds prior to disbursement records being accepted by O&D. Based on accepted disbursements, O&D shall perform a CFL calculation to determine if the CFL needs to be increased. HCM1 schools may submit disbursement records to O&D for processing generally seven days prior to the disbursement date. If the disbursements are accepted by O&D, the CFL will be adjusted and the school will be able to draw down funds through the G5 System.

HCM2 and Reimbursement schools may only submit disbursement records to O&D on or after the disbursement date and the submitted disbursement records are then subject to review by FSA for approval. The school’s CFL is increased based upon approval by the FSA’s School Participation Team (SPT). HCM2 and Reimbursement schools do not receive a CFL until the O&D System accepts and posts actual disbursements. If the disbursement is accepted, the O&D System notifies the SPT to review the disbursement

Federal Student Aid, O&D To-Be Requirements 4-14 O&D Processing record, along with required documentation from the school. The SPT validates the disbursement record and, if appropriate, initiates the funds drawdown through the G5 System on behalf of the school.

4.1.9 Substantiation

Substantiation is the difference between a school’s net drawdowns and its total actual disbursements accepted by the O&D System. Schools are responsible for substantiating their draw downs. For schools not on HCM2 or Reimbursement status, actual disbursement records can be submitted up to seven days prior to the disbursement date, allowing them to be used to substantiate funds drawn down, and disbursement records that are used to substantiate funds on a first-in/first-out basis.

If the O&D System has not received sufficient disbursement records to substantiate a school’s cash drawdowns for one or more Title IV program, then the school has Unsubstantiated Cash. In addition, if the school has submitted one or more disbursement records for disbursements that were made more than thirty days ago (30-Day Disbursement Reporting), then the O&D System shall send a warning edit to the school.

Schools that have Unsubstantiated Cash and/or 30-Day Disbursement Reporting are sent a weekly School Monitoring Report to highlight those conditions and assist the schools in managing their financial aid disbursement process.

FSA would like to revise the existing process for calculating unsubstantiated cash by basing the formula for calculating unsubstantiated cash on the last activity as opposed to the most recent drawdown.

4.1.10 Closeout

For Direct Loans, the O&D System shall provide the ability for schools to perform end of program year closeout activities for award year 2002-2003 and forward. The Direct Loan closeout deadline for a Program Year is July 31 of the year following the end of the Program Year (e.g., closeout deadline for a 2013-2014 Program Year is July 31, 2015). This is the last processing day of the program year, so all school data must be received and accepted by this date in order to be included in a school's final Ending Cash Balance for the year. The DL Closeout File shall reduce the CFL to the amount of the net accepted and posted disbursements for that Program Year. Reconciliation shall be performed on a monthly basis, and the final closeout stage should begin no later than the latest award end date at the school for a given program and year. Exceptions to the last processing day of the program year may be made on a case-by-case basis, if the school's processing period extends beyond the closeout deadline. Schools falling within this category must request extended processing via the O&D Web.

For Pell Grants and eCampus Based activity, the O&D System shall provide the ability for schools to perform end of Program Year closeout activities. The Pell Grant end of the Program Year closeout processing shall begin well after the completion of the Program Year.

For example, Pell Grant closeout processing for the 2012-2013 award year shall start after 10/01/2018. The O&D System shall not allow processing after the closeout process begins, except for the production of final reports. O&D Web shall display selected data after the closeout process begins.

Federal Student Aid, O&D To-Be Requirements 4-15 O&D Processing

Federal Student Aid, O&D To-Be Requirements 4-16 O&D Processing

4.2 Financial Processing

The back end module of the O&D System consists of the Financial Processing functions, which create the school-level financial transactions to send to FMS and receive the school funding updates from FSA’s Financial Management System (FMS). FMS is FSA’s accounting system, which interfaces with the Department of Education’s Grants Administration Payment System (G5), which in turn, interfaces to the US Department of Treasury to provide funding to schools. See Figure 4-6 below to further illustrate the financial processing flow.

Figure 4-6: High Level Financial Processing Diagram

FSA has defined enhancements to the financial processing of O&D transactions, which include:

• All transactions (including award, disbursement, and cash) shall be processed and reported in dollars and cents, beginning in the first new award year after the contract begins.

• O&D shall process all financial transactions including negative drawdown adjustments coming in from G5. FSA requires that all financial transactions be automated to mitigate any manual intervention.

Grants Administration Payment System (G5)

Drawdown/ Payments

Financial Management System

Payment Transactions

Payment and Funding

Transactions

Treasury

School

High Level Financial Processing Diagram

Federal Student Aid, O&D To-Be Requirements 4-17 O&D Processing

• O&D to FMS automated reconciliation. This automates the ability for O&D to compare disbursement records in its system to records sent to FMS by servicers.

This is currently a manual process.

O&D shall allow for the exception processing capability to create funding transactions manually outside of the batch processing and program and award year parameters. All of the following fields must be entered manually by an FSA staff member on a drop down window and the input must not update any Tables in the processing system:

o Program o Award Year o Appropriation ID o Organization Code o Object Class o Funding Fiscal Year o Budget Fiscal Year o Budget Fiscal Year o Limitation o Activity o CFDA o G5 Award Number o Grantee DUNS Number o Amount

The result will be a funding transaction that the new system sends to FMS & G5.

For Direct Loan disbursement records, the second and subsequent disbursement records need to tag back to the allotment from whence the first disbursement record was posted if schools submit them in the second year of the award year. Currently there is only one allotment covering the entire award year which encompasses two fiscal years. This will require one allotment for the first year of the award year and a second allotment for the second year of the award year.

Using 2013-2014 as an example, if a school submits a disbursement record at any time during the first half of the award year from the time that the award year release is implemented in February or March 2013 through September 30, 2013, this disbursement will post to the allotment for Funding Fiscal Year and Budget Fiscal Year 2013. After October 1, 2013 any first disbursement records will post against the new allotment with Funding Fiscal Year 2014 and Budget Fiscal Year 2014. Any second and subsequent disbursement records from the one posted in 2013 must post back to the allotment for the 2013 Budget Fiscal Year.

To further illustrate, here is an example using the 2013-2014 award year.

Student A Date Allotment 1st Disbursement August 31, 2013 Posts to Allotment #1 2nd Disbursement January 3, 2014 Posts to Allotment #1

Student B

Federal Student Aid, O&D To-Be Requirements 4-18 O&D Processing

1st Disbursement January 5, 2014 Posts to Allotment #2 2nd Disbursement June 1, 2014 Posts to Allotment #2

4.2.1 Student-Level Financial Processing

The Student-Level Financial Processing shall be performed twice daily, and shall be responsible for pulling accepted student disbursements that require processing, based on disbursements that are funded, have a current disbursement date based on program rules, and are for a borrow with a linked Direct Loan P-Note (or ATS for TEACH). Student accounts shall be updated in O&D based on accepted disbursements.

From the Student-Level Financial Processing, the input data for the School-Level Financial Processing shall be created. In addition, the following processes shall be performed:

• Pell Special Situations assessment shall be performed to evaluate whether incoming Pell disbursements require Negative Pending Processing or cause a Potential Over-award Process situation (Section 4.3.3).

• NSLDS shall be sent updates of relevant student information based on O&D processing. The O&D System updates NSLDS of grant awards and disbursements, whereas Servicers update NSLDS of loan awards and disbursements after they receive and process them.

4.2.2 School-Level Financial Processing

On a daily basis, the O&D System shall compile (or “pull”) the list of accepted student award disbursements based on the Student-Level Financial Processing and apply them to the appropriate school, Title IV program, and award year. On a daily basis, the O&D System shall sum up the accepted disbursements by school, program, and award year. For each school, the O&D System shall:

• Apply CFL Adjustment rules (Section 4.2) to determine if the CFL needs to be changed for each relevant Title IV program and shall update FMS and the school accordingly.

• Perform Refunds calculations for refunds initiated by the O&D System, which are used to generate refund transactions that are transmitted to FMS. The refund is entered via the O&D Web and sent to FMS.

• Transmit to FMS transaction data based a schools’ daily disbursement activity.

Apply Substantiation rules (Section 4.3.3) to balance the school’s actual disbursements against its total drawdowns.

• Apply Pell Administrative Cost Allowance rules (Section 4.3.3) for updating the Unduplicated Recipients count to reflect the number of students who received at least one disbursement for Pell Grant funds in the current award year.

4.2.3 Special Pell Grant Processing

The O&D System shall have the capability to perform the following Pell Grant processing functions. Some of these functions are performed on an individual Pell award basis and

Federal Student Aid, O&D To-Be Requirements 4-19 O&D Processing some are executed periodically on a batch basis to generate funding adjustments for all schools that meet certain criteria referred to as global jobs.

A. Verification W Pell Reduction

Schools are allowed to make a first Pell Grant disbursement for a student selected for verification, based on income reported on his/her FAFSA, prior to completing the verification process. If the school does not complete the verification within a certain time period, the O&D System shall reduce the disbursement down to zero. Effectively, the school will be responsible for any funds previously disbursed to a student who was not verified within the set time frame.

Periodically throughout the award year, the O&D System shall run mass jobs for all schools participating in the Pell Grant program to check if all of their students that were selected for verification and had accepted disbursements were actually verified within the required time frame. For those who were not verified, the O&D System shall generate negative disbursements and will inform their schools accordingly using the system-generated ND (Negative Disbursement) Response. In addition, the O&D System shall apply the CFL Adjustment rules (section 4.2) to reduce the schools’ Pell Grant CFLs based on the negative disbursements. The O&D System shall provide FSA with the ability to generate warning messages to schools listing all students with unverified status whose verification must be completed by a set date. The warning messages may be sent to schools as part of a batch job run by the O&D System.

B. Negative Pending Processing

If an update to Pell Grant Award information produces an award amount that is less than the total of all accepted disbursement amounts for that award, the O&D System shall create a Negative Pending Record for that award and shall send a response to the school that includes the Negative Pending amount. The O&D System shall give the school up to 30 days to either increase the award or decrease the disbursement by at least the Negative Pending amount. Otherwise, the O&D System shall reduce the disbursement by the Negative Pending amount, generate a negative disbursement, and notify the school through a system-generated ND (Negative Disbursement) Response.

In addition, the O&D System shall apply the CFL Adjustment rules (section 4.2) to reduce the school’s Pell Grant CFL based on the negative disbursements.

C. Potential Over-award Process (POP)

A student may receive Pell disbursements from more than one attended school during the course of an award year (but not concurrently). When more than one attended school reports disbursements for a student, the O&D System shall check to make sure that the student has not received more than 100% of his/her eligibility for a Federal Pell Grant. If the student did receive more than 100% of their eligibility for a Pell Grant, they are in a Potential Over-award Process (POP) situation. In such case, the O&D System shall accept the last disbursement that caused the POP situation, but shall inform all attended schools that the student is in a POP situation, using a POP Warning Response, and give them 30 calendar days to resolve the situation.

If the POP situation is not resolved within 30 days, the O&D System shall reduce all of the student’s Pell disbursements down to zero, generate negative disbursements, and

Federal Student Aid, O&D To-Be Requirements 4-20 O&D Processing notify all attended schools using the system-generated ND (Negative Disbursement) Response. The involved schools must then re-report the correct Pell disbursements to the O&D System. The CFL gets adjusted based on negative disbursements.

The O&D System shall send a weekly Pell POP Report to schools with accepted actual disbursements for students that are in or have been in a POP situation during the current award year.

4.2.4 Pell Grant (ACA) Processing

The O&D System shall have the capability to enable FSA’s requirement to provide schools with an Administrative Cost Allowance for each unduplicated recipient per award year.

FSA reimburses an institution participating in the Federal Pell Grant Program $5 for each Unduplicated Recipient at the institution who received a Pell Grant. This is referred to as the Administrative Cost Allowance (ACA). This money is paid to institutions to offset some of the cost of delivering financial aid to students. The O&D System shall update the Unduplicated Recipients count for an institution daily to include all students with at least one accepted actual Pell Grant disbursement during that award year. The Unduplicated Recipients count includes students who withdrew from the institution or were transferred even if all Pell Grant funds were recovered.

The process of generating the Pell Administrative Cost Allowance (ACA) payment shall be done using an obligate only method whereby the processing system creates a funding transaction and the school draws down the funds in G5. As a part of the ACA process, FSA’s ICD generates the ACA amounts and sends them to the O&D System for processing.

The ACA processing job is kicked off through O&D Web and then run via batch by the O&D System. This job is usually run three times a year.