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

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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 payment period that includes March 13, 2020 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 payment period (before and after March 13).

Loan disbursement cancellation will not occur for students who dropped some classes, but remained enrolled in other classes during the covered 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 payment period that includes March 13, 2020, 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 U.S. Department of Education (ED) has fully implemented the return of Title IV funds (R2T4) reporting process, 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).

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.