Withdrawals and the Return of Title IV Funds
As part of the Higher Education Amendments of 1998, Congress passed new provisions governing what happens to a student’s federal financial assistance if a student completely withdraws from school in any semester. The policy covers all federal loan programs, including Federal Perkins Loan and Federal Direct Loans, but does not affect Federal Work Study.
During the first 60 percent of the term, students earn Title IV funds in proportion to the time they are enrolled. If a student receives more aid than he/she earned, the unearned portion must be returned to the Department of Education. If a student receives less aid than the amount earned, he/she may be eligible for a late disbursement. The new law assumes that a student “earns” federal financial aid awards directly in proportion to the number of days of the term the student attends classes. If a student completely withdraws from school during a term, the school must calculate according to a specific formula the portion of the total scheduled financial assistance the student has earned and is therefore entitled to receive up to that point in time. If a student receives (or the College receives on the student’s behalf) more assistance than the student has earned, the unearned excess funds must be returned to the Department of Education.
If, on the other hand, the student receives (or the College receives on the student’s behalf) less assistance than has been earned, the student may be able to receive those additional funds. The portion of federal grants and loans a student is entitled to receive is calculated on a percentage basis by comparing the total number of days in the semester to the number of days the student completed before withdrawing from classes. For example, if a student completes 30 percent of the semester, the student earns 30 percent of the assistance the student was originally scheduled to receive. This means that 70 percent of the scheduled awards remain unearned and must be returned to the federal government.
Once a student has completed more than 60 percent of the semester, the student can be said to have earned all (100 percent) of the student’s assistance. If a student completely withdraws (either officially or unofficially) before this point, the student may have to return any unearned federal funds that may have already been disbursed.
If a student has received excess funds that must be returned, the College shares with the student the responsibility of returning those excess funds. The College portion of the excess funds to be returned is equal to the lesser of:
- the entire amount of the excess funds, or
- the student’s total tuition and fee charges multiplied by the percentage of unearned funds.
If the College is not required to return all the excess funds, the student must return the remaining amount. Any loan funds that a student must return must be repaid according to the terms of the student’s promissory note. If a student must return any grant funds, the law provides that the amount to be repaid be reduced by 50 percent. This means that the student only has to return half of any excess funds he/she receives.
Any amount that a student has to return is considered a federal grant overpayment. The student must either return that amount in full or make satisfactory arrangements with either the College or the Department of Education to repay the amount. The student must complete these arrangements within 45 days of the date of the College’s notifying him/her of the student’s overpayment status or risk losing eligibility for further federal financial assistance.