NASFAA Reauthorization Task Force Recommends Changes to Return of Title IV Funds

 Reauthorization - Masthead  

Late in March, a task force of 17 NASFAA members forwarded an initial list of 61 recommendations for changes to the Higher Education Act in the upcoming Reauthorization to the NASFAA Board of Directors. The Board accepted most of those recommendations, although it requested that some be further developed.  This is the sixth in a series of articles that highlight those recommendations. NASFAA encourages members to suggest additional areas where legislative change is needed in the return of Title IV funds process. To do so, you may comment publicly below or send your concerns privately to Reauth@nasfaa.org. For comprehensive coverage of all reauthorization topics, please refer to NASFAA’s HEA Reauthorization Web Center. 

When NASFAA’s Reauthorization Task Force (RTF) held listening sessions to identify membership concerns, the return of Title IV funds (R2T4) process was the third most commented-on topic.

Under current law, a student who withdraws before completing the period for which he or she has received Title IV student aid funds is considered to have “earned” the right to those funds on a prorated basis. A student who has completed more than 60% (in time) of the payment period has earned 100% of aid that was or may still be disbursed. Up through the 60% point, aid is earned in proportion to the percentage of time enrolled as measured by the length of the entire payment period. Thus, a student who was enrolled for 60% of the payment period earns 60% of aid, while a student who was enrolled 61% of time earns 100% of aid. A student who was enrolled even one day earns a portion of his or her aid; post-withdrawal disbursements must be disbursed or at least offered. Under current regulation, these calculations are performed in days for credit hour programs (with scheduled breaks of at least 5 days excluded) or in scheduled hours for clock hour programs.

The lynchpin of the calculation is determining the student’s withdrawal date. Schools must have a withdrawal process that students can easily access.  A withdrawal date can be identified for students who follow those procedures, although there are complications even in that aspect of the rules. Students who drop out without notifying the school are far more difficult to treat, unless the school takes attendance. The law differentiates between schools that are or are not “required to take attendance” in defining withdrawal date, but the Department has gone far beyond that simple distinction in defining what is meant by “required to take attendance.”

While the basic concept underlying the return of Title IV funds (R2T4) is quite straightforward, the details have become so complicated that it has become very burdensome to explain to students and to administer. Even the Department needs over 200 pages in the Handbook to describe and illustrate this process. Errors are virtually inevitable in so complex a set of rules. Further, given the wide range of program formats, individual student circumstances, and other factors, it is very difficult to address all scenarios that arise logically under a “one size fits all” highly regulated approach.

The RTF put forward, and the NASFAA Board approved, the following recommendations.

1. Restrict the R2T4 process to undergraduates.  Leave treatment of graduate students up to the institution. Graduate students receive no Pell or subsidized loans.  Institutional investment in graduate students is generally much higher, and selection for admission more rigorous.

2. Narrow the definition of schools that are required to take attendance. This definition should apply only to academic programs for which the school is required to take attendance for all students throughout the entire payment period by the accrediting or state licensing agency.  Continue the current practice of allowing schools that are not required to take attendance to use a documented last date of attendance or other academic activity for any student at the school’s option.

3. Continue to require that schools have an accessible, publicized withdrawal procedure that recognizes the student’s withdrawal date as the date the student initiates that procedure. (The school continues to define what constitutes the beginning of the withdrawal process.) Eliminate the “intent to withdraw” rules. Eliminate rules concerning students rescinding their decision to withdraw, and leave that entirely up to school policy.

4. For students who do not follow the school’s official withdrawal procedure (mostly students who drop out without notifying the school), allow a school that is not required to take attendance to set the withdrawal date under its own defined policies. (Unofficial withdrawals would thus not be regulated by ED.)  This would also allow the institution complete discretion to set the withdrawal date if the student could not follow official procedures because of illness etc.

5. Retain a  pro-rata approach, but simplify the rules as follows:  Establish weekly increments based on calendar time rather than the day-by-day calculation that excludes certain days under certain conditions. Fractions of weeks would be rounded up: attendance in any day of the week counts that week. Retain 60% as the point at which all aid is earned, but express it as attendance in 60% of the weeks (so that fractions count as a week). Until that point, for each week at least started by the student, aid is earned in proportion to the number of weeks constituting 60%. (That would avoid the “cliff effect” currently seen.)

For example, a semester runs from September 3, 2013, through December 13:  15 weeks by the calendar. A student earns all aid by remaining enrolled in 60% of the weeks in a payment period: .6 x 15 = 9 weeks regardless of any breaks. The 9th week begins October 27.  A student who withdraws anytime during the week of October 27 has earned all aid. For the 15-week semester, a student who withdraws any time during the first week earns 1/9th of aid. A student who withdraws anytime during the 8th week earns 8/9ths of aid.

6. To the extent possible, the law should lay out the basic requirements and parameters of an R2T4 policy, which schools must fill in but have some discretion over. The law should clearly identify those areas over which the institution has sole discretion.

7. Restore authority for post-withdrawal disbursements to be at the discretion of financial aid administrators based on publicized institutional policy (i.e., not necessarily on a case-by-case basis; schools can set parameters).

Retain the rule that the school should ask the student first if a loan disbursement should be made, and, in light of the lifetime limits, extend that to Pell as well.

8. Modify the assumption that Title IV aid is applied to institutional charges first. Allow aid that is specified for a particular cost of attendance (e.g., tuition) and that will not need to be returned under the source’s rules to be deducted from institutional charges when determining the amount of unearned aid that must be returned by the institution.

9. Conforming amendment: Allow more time for schools to process R2T4 by increasing from 45 to 60 days the period of time the institution has to return funds.

10. Amend the order of return language. Make the order of return subject to regulation, but specify TEACH Grant and loans first, with a directive to repay least advantageous loans first. Remove references to FWS.

11. Direct ED to seek public input on ways to decrease the burden and complexity of R2T4 regulations and procedures within a set period of time after enactment, and to conduct a subsequent negotiated rulemaking session devoted solely to R2T4. Included in the dedicated rulemaking should be the treatment of modules. Require a report to Congress by a date certain detailing ways in which R2T4 can be made less burdensome, including treatment of various program formats.

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