Request to Identify Burdensome Regulations: R2T4 and Direct Loan Rules

By Joan Berkes, Policy & Federal Relations Staff

As noted in yesterday's Today's News article on regulatory reform, NASFAA is seeking help from members to identify regulations that should be recommended to the Department of Education (ED) as in need of repeal, replacement, or modification. Yesterday's article explained the basis of this solicitation and requested input on verification. Today we seek member opinions on regulations governing the return of Title IV funds for students who withdraw (R2T4), and on the Direct Loan Program.

Many issues related to these areas of Title IV administration are statutory in nature; regulations cannot alter law. However, regulations represent ED's interpretations of statutory provisions and impose other requirements it deems necessary to implement the Title IV programs.

Please give your recommendations either as a comment to this article, or in an email to [email protected], with the subject line "R2T4 Reform" or "Direct Loan Reform."

When writing your recommendations, you may want to consider the following:


Current law requires the proportional return of Title IV aid based on the portion of the payment period for which the student remained enrolled, and details several requirements surrounding R2T4. The law differentiates between schools that are required to take attendance versus those that are not. Regulations further interpret and build out the law. Regulations, for example, define what it means to be required to take attendance and last date of academic activity. Regulations define what withdrawal means in nonterm, non-standard term, and modular formats. Regulations set rules for leaves of absence, re-enrollment, and post-withdrawal disbursements, including notification requirements.

The complexity of R2T4 makes it appear perennially among the top compliance exceptions in audits and program reviews. How do you think R2T4 regulations can be simplified and revised to avoid compliance errors?

What troublesome issues do you encounter when trying to determine how much aid must be returned on behalf of a student who withdraws from school before completing a payment period?

How can burden be reduced while protecting reasonably good stewardship of public funds? Are there other, simpler regulations and requirements that are in place or that could be developed to protect the integrity of Title IV funds in the case of students who do not complete a payment period?

Direct Loan Program

The limitation on student eligibility for Stafford loan interest subsidy ("SULA") is statutory, but the interpretation of how that provision must be implemented is regulatory. Are there aspects of those rules that could be improved?

Initial and exit counseling are also a mix of statutory and regulatory requirements, as are disbursement rules. What aspects of those processes are burdensome to students and/or schools? Are there any other rules associated with the Direct Loan Program that could be repealed or improved?


Publication Date: 8/3/2017

Joseph D | 8/8/2017 5:39:27 PM

Thoughts on R2T4:

• Why include loans? They already have to be repaid under the conditions of their MPN.
o Including loan in the calculation as “aid that could have been disbursed” but can’t be disbursed because they were not half-time at the time of withdrawal. Let’s just not count it, since they are not eligible anyways.
• Modules –
o To determine if an R2T4 is necessary, every drop/withdrawal must be reviewed with careful consideration of when the drop/withdrawal occurred in relation to the other courses student is enrolled. For example, if the student dropped a course before it started, but before their other course ended, no R2T4. If the student dropped the course before it started, but after their other course ended, an R2T4 calculation is required.
o Additionally, a student may successfully pass a course, but may still be subject to an R2T4 calculation.
o Having to collect in writing that a student is planning on attending a course they are later enrolled in. They are enrolled, if they had planned to not attend, they would have dropped it when they withdrew from their other course.

Tara O | 8/7/2017 1:16:31 PM

R2T4 is so complex that it takes an entire volume and 216 pages in the handbook to discuss the regulations and various scenarios. This combined with being one of the top audit finding surely proves the difficulties in processing withdrawals correctly, not to mention trying to explain this to a student.

Why is 60% the cutoff that determines if funds are returned? Why are loans included, specifically Unsub and GradPLUS? Why are graduate and professional students included when Unsub and GradPLUS are the only loans (and only TIV funds they're eligible for except FWS which isn't included anyways)? In my humble opinion, It's nothing more than a burden to the student and the institution. I concur with many of the comments that have already been suggested.

In addition, SULA reporting for grad/professional students makes no sense whatsoever when they're not eligible for these loans to begin with.

Loan repayment really needs to be simplified. It's become so confusing and difficult to explain the various options. There has to be a better way to offer just a few repayment options that best meet the needs of students.

If I could have just one wish granted in FA, it would be to remove loans altogether in the R2T4 calculation and therefore making it no longer necessary with graduate/professional students. SAP will catch these folks fairly quickly to ensure abuse is not prevalent.

Kamia M | 8/7/2017 8:7:26 AM

Agreeing with those who have posted.

R2T4 should not include loans. The student repayment process should take care of that. School should not responsible for students' personal decisions through the R2T4 process. And if this process is to remain, then Congress should recognize this as the "skin in the game" in which they desire schools to participate.

Loan proration, SULA and origination fee changes as part of the sequester/budget process at Congressional levels should be removed. The school incurs costs (programming, staff time) for this, and so this creates a minuscule amount of funding for other uses while usurping money from institutions.

All of these generate concerns from students and parents. They are confusing rules that families don't understand, as clearly seen with the FSA Feedback system. Now it is documented that confusing laws and procedural rules are what is generating complaints, not the schools who are simply trying to implement them.

Michelle H | 8/6/2017 1:38:14 PM

I agree with the posters here and would specifically like to mention:

1. Do away with proration for graduating fall grads. It is confusing and an administrative burden.

2. Revise R2T4 to a much simpler approach. Passing at least one class should mean no R2T4 is needed. SAP will catch this student.

3. Do away with SULA. It is a tremendous amount of work and confusion for something that already has a $23,000 limit.

4. Do away with classes towards degree. It is a huge manual burden for schools to manage this, especially if students change majors, etc. SAP will catch students. It is a really burdensome regulation that for many years was never enforced. Students are going to sign up for a second minor in these cases just to keep their aid so it defeats the purpose.

5. Only send c-codes for students who EXCEED the Pell LEU. Having to clear students less than 600% adds a tremendous manual burden.

6. V4/V5 tracking. Extra work for something that seems so insignificant.

7. Non-filer letter. While I am pleased to see that 18/19 will not require it for dependent students, it will make it harder for some of us to manage by only requiring it for independent students. It is yet a new set of instructions we have to create.

8. Having to be IRS experts. E.g. We have to stop federal financial aid for students who may use Head of Household filing status incorrectly. But where is the crackdown on "tax places" who may have advised family to file that way? It seems unfair to make us have to catch these and punish the students.

Heather B | 8/5/2017 4:24:12 PM

R2T4 - the way the rules are written in terms of modules don't seem consistent and fair at all. If a student drops coursework in a future module, but isn't enrolled, then the rules say you must do an R2T4. But - if a student drops coursework in a future module and is still enrolled no R2T4 is required, but recalc is required. So if a student completes a first summer term at my school and then decides to not attend the second term on the break in between, we must do an r2T4 calc. But if that same student decides not to attend the second summer term on the last day of the first term while still enrolled, I don't have to do an R2T4. That just makes no sense to me and is impossible to monitor - well, it's not impossible, but we have to review every single change in summer term attendance to see when the student drops.

Also, I think loan proration for a period of enrollment that is shorter than an academic year is crazy as well. If the student has eligibility and hasn't hit the aggregate, and of course has need, I don't understand why they can't have the loan. At my school, many of these students are early graduates, and they don't like only getting a portion. Plus it's extremely burdensome - when we do the proration the student is in 12, but then suddenly they add to 13 - we have to check to see if the course counts, then change the proration. Much, much work.

Joy P | 8/4/2017 11:10:35 AM

Regarding R2T4's, I've never understood why loans are included at all. R2T4's should be only relating to grants as the loans need to be repaid regardless. Do away with modules and just determine if the student passed any classes at the end of the term. Schools should not be the ones returning aid for the student. It wasn't the school's idea for the student to withdraw, stop attending, or fail all of their classes. The school still has to pay to support the class once the student has committed to attending. The school should not have to return money on the student's behalf just because a student doesn't attend and then waste their resources trying to chase down a student to repay what they owe. This is not a school issue, the R2T4 is the student's problem. At the end of the semester once determined the student did not pass anything, a calculation should be made on the grants only and added to NSLDS as an overpayment for the students to repay their balance owed directly to the Department.

Regarding loans, the government should not be charging origination fees. If you want to make up those origination fees, do so with higher interest rates. It's too much of a burden for schools to cancel loans in October and repost them with the new origination fees. Also eliminate SULA. There was never a need to create something that burdensome and ridiculous. Just stick with the aggregate limits that already exist or reduce the amount of subsidized eligibility if you feel $23,000 is too much.

Joel T | 8/4/2017 10:32:37 AM

R2T4's in general are too burdensome and complex. The fact that we have seen them in the "Top 5 Compliance Findings" list for a decade should be an indicator to ED that the regulations are too convoluted and complex. I would submit that R2T4's for modules are the most confusing part for administrators and students.

For example:

Our Nursing students take two 8-week courses each semester that are five credit hours each. If a student is taking NUR 111 and fails to pass, she is dropped from her upcoming NUR 112 once the grade is entered and it is determined that she no longer meets prerequisites. In years past, this would have not been a R2T4 since she completed a course in the semester. Now it is considered a R2T4 since the NUR 112 course was not dropped PRIOR to NUR 111 ending - which is impossible since the student (and the college) didn't know if they were going to pass or fail. Now the student is unable to continue in the program AND they're a R2T4 and owe money. The last date of attendance is the last date of NUR 111 since they completed the course, but you have to use ALL of the days in the term since the NUR 112 course was scheduled to run eight more weeks. This affects the percentage of aid earned and just causes more money to be returned.

This whole process is nearly impossible to explain to a student, not to mention that it penalizes students that are in modular programs of this nature more than a traditional 16-week program.

The best thing that could happen would be simply moving to a system that asks a question at the end of a semester: Did you pass a course this semester? If the answer is yes, move on and leave the student alone. If they failed 5 out of 5 courses they're going to get caught up in SAP anyway. If they didn't pass any courses, use the mid-point method for everyone and get away from LDA's and/or Date of Notification.

Zilma L | 8/3/2017 12:59:49 PM

Regarding R2T4, ;would love to see modules go away completely. Also, the 14 day requirement to determine that a student withdrew from all courses for schools that are required to take attendance is burdensome. Faculty members often forget to report attendance or are trying to work with the student for retention purposes and it could take longer than 14 days for the FAO to be notified, which then can leave little to no time to perform recalculation, notify students, and return funds to DOE within 45 days.

As it pertains to Direct Loans, thankfully I work at an institution that no longer participates in the federal loan program. However, when I did work with loans, I thought it was extremely unfair to have cohort default rates for the schools and hold them responsible for students who fall into default. That should be the responsibility of the lender. Default management is burdensome!.

Hope this helps!

Susan J | 8/3/2017 12:58:32 PM

Unofficial withdrawals are the ultimate catch-22. We are not required to take attendance, but we are required to know whether a student ceased attendance. This puts a burden on faculty, especially those teaching large classes, to identify these students. It’s a burden on Financial Aid to have to explain this policy to faculty to make sure they are following guidelines. R2T4 should not be concerned with grades. Satisfactory Academic Progress is the regulation concerned with grades, and if a student has a 0.0 GPA, then they will not be meeting SAP.

I agree with the comments on modules. Students do not understand why they need to provide in writing that they will attend a future class when we can see they are enrolled for those classes.

Pamela F | 8/3/2017 12:30:44 PM

Paying for only those classes that count toward the degree or program. How are we to do that? Degree audit systems are not that sophisticated to alert you when a course is not considered an elective or does not apply to degree requirements.

Chandra O | 8/3/2017 11:54:30 AM

Loan proration, SULA, and origination fees (especially with the change occurring in October - this causes a lot of administrative burden with the loan fees changing slightly mid-semester).

James K | 8/3/2017 11:31:00 AM

I agree with the comments listed, in particular "SULA is extremely burdensome--both to monitor and to try to explain to a student. Not to mention, most students are out of subsidized loan eligibility before reaching the 150% rule anyway." We find the same thing, it is extremely confusing for staff and students and is duplicitous given there are annual and aggregate limits. We generally see the same thing, students will run out of subsidized eligibility before reaching the 150% rule.

Rebecca K | 8/3/2017 11:7:48 AM

I second Emily S's comment. R2T4 and SAP are a double whammy for students. Have SAP and let it determine financial aid eligibility for students who are repeatedly withdraw.

Lisa P | 8/3/2017 10:57:50 AM

Move the Oct 1 loan change date to the end of the aid year August 1. Changing regs in what for most schools is the middle of a term is burdensome.
Also, same loan amounts for all undergrad levels. Do away with loan proration for December grads. Also, make Pell chart simpler by having fewer EFC ranges.

Kim E | 8/3/2017 10:49:50 AM

I recommend removing SULA all together. There are already set caps per grade level and aggregate limits. Why implement additional calculations that are problems for year-around, module degree programs. When you call NSLDS and half the time they can't tell you how the calculation came up with a percentage, there is a problem.

Marguerite J | 8/3/2017 10:21:35 AM

Consider a uniform loan amount across grade levels, freshmen pay the same tuition as juniors but don't receive as much aid to cover it. Since financial aid is about creating access, we should at least consider allowing freshmen and sophomores the ability to borrow as much as juniors and seniors.

Emily S | 8/3/2017 9:49:12 AM

The R2T4 requirement in conjunction with SAP has a double whammy effect on students. Why not just allow the SAP completion rate to weed out students who withdraw from classes?

Jeff A | 8/3/2017 9:20:59 AM

Good points on modules. One more big module concern is requiring Pell to be adjusted to the new enrollment status for usually one module, then pro-rating Pell once again based on days attended in the entire payment period. This truly is 'double pro-ration' and is very unfair to students.
There was a rule that no R2T4 applied when someone completed any course in the semester, so that should be easy to re-instate.
Let's also have return of federal funds determined in 10% increments rather than daily. Daily pro-ration just creates micro-findings, and you really can't isolate educational expenses to degrees of well below 1% of a payment period.

Janet L | 8/3/2017 9:10:00 AM

Make entrance counseling a forced process for first time loan borrowers. Students constantly do one process (mpn or ec) and not the other. If they were forced to do the entrance counseling before getting to the mpn, it would alleviate the burden on schools.

Thomas D | 8/3/2017 9:5:40 AM

For schools with modules: When a student withdraws from a current module and is already registered in a subsequent module in the term, do away with the "intent to enroll form (ITE)". If the student fails to commence the future module the withdraw date for the R2T4 reverts to the original withdraw date. The ITE is unnecessary paperwork.

Chelsey A | 8/3/2017 8:50:41 AM

As others have said, the requirement to calculate an R2T4 on a student who has completed one module but withdraws from a later module seems unnecessarily burdensome. In the majority of situations that I have encountered, by the time the student drops the second module he has already attended past the 60% completion point anyway, so no funds are being recouped.

This is also a very difficult concept to try to explain to students because the rest of the institution treats this situation as just dropping a course. This creates the sense of a lack of consistency between departments from the student-perspective.

Amanda K | 8/3/2017 8:40:43 AM

I agree with James C that R2T4 should not be required if a student completes one module. I also agree with ending the pro-ration requirement for graduating students. That is a huge inconvenience.

Sue M | 8/3/2017 8:38:32 AM

I agree with an earlier comment, end the requirement to prorate Direct Loans for the final semester of graduating students. This is extremely burdensome and doesn't make sense to those students--especially if they attend less than full-time.

Also, get rid of loan fees. With sequestration, this is particularly burdensome with the need to repackage loans for students who fail to have their loan disbursed before October 1 each year.

SULA is extremely burdensome--both to monitor and to try to explain to a student. Not to mention, most students are out of subsidized loan eligibility before reaching the 150% rule anyway.

James C | 8/3/2017 8:19:10 AM

For R2T4 modular programs, if the student completing one module make it so no R2T4 is required. However, schools would need to adjust the COA to only include the weeks in which the student attended.

For Direct Loan, end the pro-ration requirement for graduating students

Daniel S | 8/3/2017 8:11:45 AM

I have two recommendations for simplifying the regulation for R2T4. Both recommendations apply to Modular Programs.

1. Stipulate that, as long as a student completes one or more modules in the term, no R2T4 for that term would be required (although Pell Grant Recalculation may still be required).


2. Regard existing enrollment in future classes in the term as confirmation of a plan to attend those future modules in the term.

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