ADDITIONAL REQUIREMENTS WITH RESPECT TO DISBURSEMENT OF STUDENT LOANS.

SEC. 2004. ADDITIONAL REQUIREMENTS WITH RESPECT TO DISBURSEMENT OF STUDENT LOANS. (a) Amendment.—Part B of title IV of the Higher Education Act of 1965 is amended by inserting after section 428F (20 U.S.C. 1078–6) the following new section: “requirements for disbursement of student loans “Sec. 428G. (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. “(b) Disbursement and Endorsement Requirements.— “(1) SLS loans to first-year students.— The first installment of the proceeds of any loan made under section 428A 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. “(2) Other students.—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. “(c) Method of Multiple Disbursement.—Disbursements under subsection (a)— “(1) shall be made in accordance with a schedule provided by the institution (under section 428(a)(2)(A)(i)(III)) that complies with the requirements of this section; and “(2) may be made directly by the lender or, in the case of a loan under sections 428 and 428A, may be disbursed pursuant to the escrow provisions of section 428(i). “(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 103 STAT. 2116which the student is eligible under this title, 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 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 or PLUS, Consolidation, and Foreign Study Loans.—The provisions of this section shall not apply in the case of a loan made under section 428B or 428C or made to a student to cover the cost of attendance at an eligible institution outside the United States. “(f) Beginning of Period or Enrollment.—For purposes of this section, a period of enrollment begins on the first day that classes begin for the applicable period of enrollment”. (b) Conforming Amendments.— (1) Transmittal of institution schedules to lenders.— Section 428(a)(2)(A)(i) of the Higher Education Act of 1965 (20 U.S.C. 1078(a)(2)(A)(i)) is amended— (A) by striking “and” at the end of clause (I); and (B) by inserting after clause (II) the following: “(III) sets forth a schedule for disbursement of the proceeds of the loan in installments, consistent with the requirements of section 428G; and”. (2) Federally insured loans.—Section 427(a)(4) of the Higher Education Act of 1965 (20 U.S.C. 1077(a)(4)) is amended to read as follows: “(4) the funds borrowed by a student are disbursed in accordance with section 428G.”. (3) Stafford loans.— Section 428(b)(1)(O) of the Higher Education Act of 1965 (20 U.S.C. 1078(b)(1)(O)) is amended to read as follows: “(O) provides that the proceeds of the loans will be disbursed in accordance with the requirements of section 428G;”. (c) Effective Date.—The amendments made by this section shall apply with respect to loans made to cover the cost of instruction for periods of enrollment beginning on or after January 1, 1990.