Does Direct Loan Disbursement Cancellation Under the CARES Act Apply To Complete Withdrawals and Partial Drops?

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This guidance is not award-year-specific and applies across award years.

This AskRegs Knowledgebase Q&A was updated to include the latest guidance about the end date of the following COVID-19 waiver or flexibility in the June 14, 2023 Electronic Announcement (GENERAL-23-46).

No. Loan disbursement cancellation only applies to complete withdrawals.

Under the CARES Act and according to the May 15, 2020 Electronic Announcement, the entire loan disbursement for the applicable payment period within the covered period (see below) will be cancelled for all students who completely withdrew during that payment period because of COVID-19. The disbursement cancellation does not apply only to those students who withdrew before the 60% point. It applies to official and unofficial withdrawals whenever they withdrew during the covered payment period.

Loan disbursement cancellation will not occur for students who dropped some classes, but remained enrolled in other classes during the payment period (i.e., they were not withdrawals).

Even though the May 15th announcement uses the language "payment period or period of enrollment," it is NASFAA's understanding that the disbursement cancellation only applies to the applicable payment period, even when the Direct Loan was originated for the full academic year period of enrollment. For example, when the loan was originated for the fall and spring terms, only the spring disbursement will be cancelled, not the full loan. Section 3508(c) of the CARES Act itself only mentions the payment period, and the reporting requirements only include the payment period start and end dates for the payment period the student didn't complete.

When the Coronavirus Indicator is set, ED will cancel the loan disbursements for the covered payment period for all student and parent Direct Loan borrowers (subsidized, unsubsidized, graduate PLUS, and parent PLUS).

Covered period refers to the fact that the May 15, 2020 Electronic Announcement allows schools to apply the R2T4 waiver and withdrawal benefits to: 1) payment periods or periods of enrollment that include March 13, 2020; or 2) payment periods or periods of enrollment that begin between March 13 and the last date that the national emergency is in effect.

Per the June 14, 2023 Electronic Announcement, this waiver concludes at the end of the payment period or period of enrollment that includes the date of May 11, 2023. Because different programs at the same institution may have different payment periods, this waiver may end at different times for those programs. For example, assume that an institution offers Programs A and B. Both programs have spring terms that include May 11, 2023, but Program A’s term ends on May 26 while Program B’s term ends on June 9. In that situation, this waiver ends for Program A on May 26, while the same waiver ends for Program B on June 9.

See also AskRegs Q&A, How Do We Determine If a Withdrawal Was the Result Of a Qualifying Emergency Due To Coronavirus?

AskRegs Q&As represent NASFAA's understanding of regulatory and compliance issues. They are FOR INTERNAL USE ONLY. While NASFAA believes AskRegs Q&As are accurate and factual, they have not been reviewed or approved by the U.S. Department of Education (ED). If you should need written confirmation of AskRegs information for audit or program review purposes, please contact your ED School Participation Division. NASFAA shall not be liable for technical or editorial errors or omissions contained herein; nor for incidental or consequential damages resulting from the furnishing, performance, or use of this material.