NASFAA Reauthorization Task Force Preliminary Recommendations

Return of Title IV Funds Issues

Issue: 1:  Applying Return of Funds Provisions [Section 484B]

Recommendation:  Allow federally-aided students one withdrawal without requiring the school or the student to return grant assistance.

Rationale:  This recommendation acknowledges that the majority of withdrawals are for first year students who may not be adequately prepared to begin college. Students in a position of owing an overpayment of Title IV funds often find it impossible to re-enter college. This recommendation would remove a barrier to higher education for students willing to acquire a degree. The Department of Education would record the first withdrawal. A student would be allowed to re-enrolled and apply for Title IV aid; the student would be subject to Return of Funds if the student subsequently withdrew. 

Issue 2:  Extraordinary Circumstances [Section 484B]

Recommendation:  Allow financial aid administrators to override the Return of Funds requirements in the event the withdrawal resulted from extraordinary circumstances.

Rationale:  This recommendation acknowledges that certain students experience unavoidable circumstances that force them to withdraw from college. In the tragic circumstance where a student experiences the death of an immediate family member, a Pell Grant repayment might still be required despite additional expenses that may be incurred as a result.

Issue 3:  Federal Funds Included [Section 484B(a)(1)]

Recommendation:  Exclude LEAP/SLEAP from the funds included in the Return of Funds calculation.

Rationale:  It is difficult to determine whether state grants actually include LEAP funds.  This change ensures that all students are treated equitably.

Issue 4:  Amount Disbursed [Section 484B(a)(3)(A)(ii)]

Recommendation:  After the student withdraws but before the school calculates the Return of Funds, nothing shall prohibit a school from choosing to substitute undisbursed grant funds (for which the student was eligible) for the portion of earned funds originally derived from loans.

Rationale:  Schools determine the disbursement date of Title IV funds. It may be no fault of the student if disbursement of some Title IV funds was delayed until after the student withdraws. This recommendation would allow the student access to all Title IV funds that were awarded without regard to arbitrary disbursement dates.

Issue 5:  Unofficial Withdrawals [Section 484B(c)(1)(A)(iii)]

Recommendation:  Repeal requirement to identify unofficial withdrawals.

Rationale:  This recommendation recognizes that identifying unofficial withdrawals is equivalent to the Department requiring all schools to take attendance. However, the Department has repeatedly stated that it does not wish to require schools to take attendance. Faculty members at many institutions refuse to take attendance. Students who withdraw from one of these schools are unfairly treated because 50% of their Title IV funding must be returned simply because it is impossible to document their attendance beyond the mid-point of the term. It is unnecessary to return funds because of unofficial withdrawals since the student's withdrawal is dealt with as part of the Satisfactory Academic Progress standards of each institution.  

Issue 6:  Withdrawal Date [Section 484B(c)]

Recommendation:  Affirm the institutional determination of the withdrawal date.

Rationale:  The statute clearly states that the date of withdrawal is the date the institution indicates that the student withdrew, in accordance with institutional policies. As the Department has imposed a more restrictive definition, a change is needed to reinforce the current statute. This recommendation will clarify attendance-taking requirements and other issues related to the determination of withdrawal date. Determination of withdrawal dates should be determined by institutional policy and not by regulation. 

Issue 7:  Percentage of Payment Period or Period of Enrollment Completed [Section 484B(d)]

Recommendation:  If a student withdraws beyond the 50% point in the payment period or period of enrollment, the student has earned 100% of the Title IV aid. In addition, if the student withdraws on or before the 50% point in the payment period or period of enrollment, the number of days or the number or clock hours used to determine the denominator of the fraction of the payment period or period of enrollment completed shall be 50% of the number of days or the number of clock hours in the payment period or period of enrollment.

Rationale:  This recommendation acknowledges that by the mid-point of the term students have participated in a significant way in the course of study. These students have incurred full liability for their tuition, fees, and room and board. Currently, grants and loans are adjusted to account for withdrawal through the 60% point in the term. Students who withdraw on or before the 60% point in the term incur very large liabilities with the school since at least 40% of their Title IV aid must be returned. We believe that students who attend at least 50% of the term earns 100% of their Title IV aid. In addition, using 50% of the number of days or clock hours in the payment period or period of enrollment as the denominator for the fraction determining the earned percentage recognizes the fact that the student's expenses for the semester are not linear, but primarily incurred during the first month of the term. This recommendation will also eliminate the cliff effect experienced when a student withdraws near the 60% point in the term. If the student withdraws at the 59% point, 41% of Title IV aid must be returned, but if the student withdraws at the 61% point, no Title IV aid is to be returned. Under this recommendation, if the student withdraws at the 49% point, 2% of the Title IV aid must be returned, and if the student withdraws at the 51% point, no Title IV aid is to be returned.  The cliff effect is eliminated.

Issue 8:  Post-Withdrawal Disbursements [Section 484B(a)(4)(A)]

Recommendation:  Restore authority for late and post withdrawal disbursement at the discretion of financial aid administrators.

Rationale: This recommendation acknowledges that financial aid administrators are in the best position to determine a student's need for funds after the student has ceased enrollment. Either mandating or denying these late disbursements could have devastating consequences for individual students, by causing them to receive and then immediately repay funds that they may not need or by failing to offer the needed financial support for expenses they have already incurred.

Issue 9: Institutional Charges [Section 484B]

Recommendation:  Eliminate the category of books and supplies from inclusion in Institutional Charges.

Rationale:  The financial aid community lacks clear guidance and understanding on this issue, as evidenced by the Department's 8-page document explaining when books and supplies qualify as institutional charges. To ensure that all students are treated equally without regard to the school that they attend, book and supplies should not be considered as institutional charges.

Issue 10: De Minimus Repayment Amounts [Section 484B(b)]

Recommendation:  Authorize a de minimus repayment amount of $100 for students and schools.

Rationale: Recognizing both the necessity of protecting the federal fiscal interest in the instance of students who withdraw after receiving Title IV program funds and the significant administrative costs of institutions, we believe that there is a minimum threshold below which neither students nor schools should be required to return calculated repayment amounts. 

Issue 11:  Returning Funds [Section 484B(b)(3)]

Recommendation:  Permit schools to retain a student's loan funds that the school would otherwise have to return to the lender if the loan funds would be used to pay the student's outstanding balance owed to the school.

Rationale:  This recommendation acknowledges that students borrow for educational expenses from Title IV programs in order to have the opportunity of an extended period for repayment. Schools are often required to return a student's loan proceeds, creating a debit balance on the student's account. The student is then required to pay the school without the benefit of an extended repayment period. Allowing the school to retain Title IV loan funds would benefit students by enabling them to return to school without the barrier of an unpaid balance due to the school.

Issue 12:  Grants Repaid by Student [Section 484B(b)(2)]

Recommendation:  Determine the grant protection by subtracting one-half of the original grant amount for which the student is eligible from the amount of grant the student is expected to repay.

Rationale:  The Department's current interpretation simply divides in half the amount of grant the student must repay providing the least possible grant protection to students. We do not believe it was Congress's intent for the provision to work in this way. 

Issue 13:  Time Frame [Section 484B]

Recommendation:  Allow the school 60 days after the date of the school's determination that the student withdrew to: return Title IV funds, notify student of grant overpayment requirements, and notify student of eligibility for post withdrawal disbursement.

Rationale:  This recommendation acknowledges that schools are often unable to meet the 30-days requirement for various reasons. The 30-day period does not discount weekends or school holidays thus reducing the 30-day period to as few as 15 working days. Withdrawals that occur within the add/drop period are particularly difficult to monitor at some schools because of the volume of students and because they are able to drop and add courses via an automated system. Students may drop all of their classes on one day and then reregister the next during this period with no penalty. Because of the lateness of some official census dates, schools run the risk of not being in compliance with the 30-day rule. This period needs to be extended to allow schools to fully comply with the Return of Funds requirements.      

Issue 14: Leaves of Absence [Section 484B(a)(2)]

Recommendation:  Clarify that multiple leaves of absence are permitted within the statutory timeframe.

Rationale:  The Department has interpreted the statute as allowing a student only one leave of absence and has created a complex set of exceptions. Circumstances that would cause a student to request such a leave are often repetitive and it is certainly possible that a student may need to request a second leave. The statue is clear that such leaves may not exceed a total of 180 days in any 12-month period, and does not imply any need for regulatory restrictions.  

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Posted October 11, 2002 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2002.
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