| AwardYear: 1996-1997 EnterChapterNo: 2 EnterChapterTitle: Student Eligibility and Financial Need SectionNumber: 2 SectionTitle: Overview of Financial Need PageNumbers: 49-67 A student must demonstrate financial need to receive all Student Financial Assistance (SFA) except for unsubsidized loans under the Federal Family Education Loan (FFEL) Program and the Direct Loan Program. These loans include unsubsidized Federal Stafford Loans, Federal PLUS Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Unlike scholarship programs that may award funds based on academic merit or based on the student's field of study, SFA Program aid is administered based on the family's need for assistance. The policy of providing aid based primarily on need is not a policy carried out solely at the federal level. For years, many school and state financial aid programs have been providing need- based student aid. [[The illustration on page 2-49 is currently unavailable for viewing. Please reference your paper document for additional information.]] Financial need is simply defined as the difference between the student's cost of attendance (COA) and the family's ability to pay these costs. Note that the student's financial need will be reduced by aid that is awarded to the student. Education costs for the SFA Programs are defined by statute and are fairly easy to calculate based on the student's tuition and fee charges, living situation (e.g., on campus, off campus with parents, off campus without parents), as well as other factors affecting the student. However, the student's ability to contribute toward these costs, as measured by the Expected Family Contribution (EFC), is much more complicated to assess. This section examines the concepts related to financial need. The section first discusses family contribution analysis and the definition of the independent student. Discussion of the COA follows, along with examples that illustrate how to calculate the COA. Then overawards and financial aid packaging are addressed. Lastly, major changes made to the 1996-97 Free Application for Federal Student Aid (FAFSA) and to the 1996-97 Student Aid Report (SAR), as well as other processing changes, are summarized. EXPECTED FAMILY CONTRIBUTION The EFC is the amount that a family can reasonably be expected to contribute toward college costs. The EFC is based on an analysis of the family's financial strength, including the income and assets of the student and the student's spouse or--if the student is dependent--the student and his or her parents. The EFC formula also takes into account the family's expenses and considers factors such as the number of persons in the household, the number of those persons attending college, and the special costs of families in which both heads of household work. As mandated by the Higher Education Amendments of 1992, the EFC is produced by a need analysis formula known as the Federal Needs Analysis Methodology. For more information on how the EFC is calculated, see The EFC Formula Book, 1996-97. You may order a copy by calling the Federal Student Aid Information Center at 1-800-4-FED-AID. [[Maximum EFC: 2270]] If the EFC is less than the COA (in other words, if the student's family cannot be expected to contribute the full costs faced), the student is considered to have financial need. In the case of eligibility for a Federal Pell Grant, however, a maximum eligible EFC is determined annually. Although a student whose EFC exceeds the maximum may have financial need, he or she is not eligible for a Federal Pell Grant. For 1996-97, the maximum EFC that a student may have to qualify for Pell eligibility is 2270. As long as the EFC is less than the cost of attendance, the student will remain eligible for aid from other SFA Programs, provided that he or she meets the other eligibility requirements of those programs. [[Simplified needs test]] The EFC for some students will sometimes be calculated using more than one formula. The Central Processing System (CPS) will calculate a simplified EFC for a student who meets certain income and tax-filing requirements. When an applicant meets the requirements for a simplified needs test, family assets are not considered in the calculation; therefore, the student does not need to provide this information on the application. If the student does provide the information on family assets, however, the CPS will calculate two EFCs--a Primary EFC, which uses the simplified formula, and a Secondary EFC, which uses the full formula. In all cases, the Secondary EFC will be equal to or higher than the Primary EFC. The financial aid administrator may use either figure to determine eligibility for aid from any SFA Program. [[Eligibility requirements under simplified formula]] A student must meet each of the following qualifications to be eligible for the simplified formula: 1. Of those family members whose financial information must be reported on the application, none is required by IRS rules to file an IRS Form 1040 for 1995. For an independent student, if either the student or the student's spouse is required to file a Form 1040, the student does not qualify for the simplified formula. For a dependent student, if either the student or the student's parents are required to file a Form 1040, the student does not qualify for the simplified formula. If the student (or spouse, if applicable) filed a 1040 but was eligible to file a 1040A, 1040EZ, or 1040TEL, the student should indicate 1040A, 1040EZ, or 1040TEL (whichever is appropriate) for question 53 on the financial aid application. Likewise, if the parents of a dependent student filed a 1040 but were eligible to file a 1040A, 1040EZ, or 1040TEL, they should indicate 1040A , 1040EZ, or 1040TEL for question 65 on the financial aid application. 2. The family's 1995 adjusted gross income (AGI) (or the family's earned income, in the case of nonfilers) did not exceed $49,999. This income limit to qualify for the simplified formula applies to the income of an independent student and spouse or to the income of a dependent student's parents. The income of a dependent student is not counted toward this limit. [[EFC for nine-month enrollment]] [[EFC for other than nine-month enrollment]] The EFC found in the upper right hand corner of the first page of the Student Aid Report (SAR) is based on a nine-month enrollment period and should always be used for awarding a Federal Pell Grant, even if the student is attending for a longer or shorter period. Part 1 of the SAR includes the FAA Information area. The second section of this area contains the headings "MONTHS," "PRIMARY EFC," and "SECONDARY EFC," as well as a grid of one- to twelve-month alternate EFCs. The figures in the grid represent alternate EFCs that the financial aid administrator may use to award aid--other than Federal Pell Grants for which the nine-month figure is always used-- if the student is attending for less than or greater than the standard nine-month period. For dependent students, the alternate EFCs for periods of attendance other than nine months are calculated by the CPS according to a formula prescribed in the HEA. For independent students, the law does not specify the adjustments, so the CPS performs a simple proration of the EFC by month for the convenience of the financial aid administrator. Note that if only a Primary EFC appears in this area, either the student has not met the simplified-formula criteria (based on income or tax-filing status) or the student met the criteria but did not supply sufficient asset information to permit a Secondary EFC calculation. [[Special circumstances]] If the student has special circumstances not taken into account by the EFC formula, the financial aid administrator may use professional judgment to adjust--on a case-by-case basis--the value of specific data reported on the student's SAR. Special circumstances are conditions that differentiate an individual student, not conditions that exist for a whole class of students. Adjustments may increase or decrease a student's specific data item used to calculate the EFC or used in calculating the COA. For example, if a dependent student's parent had been retired since 1995 and, thus, the family expected to have a lower income for 1996, the financial aid administrator might use professional judgment to adjust the parents' income. The reason for an adjustment must relate to that student's special circumstance and must be documented in the student's file. For more information on the use of professional judgment, see The Counselor's Handbook for Postsecondary Schools, 1996-97. One of the most significant decisions in need analysis concerns whether the student should be treated as a dependent student or as an independent student (in other words, whose ability to contribute should be analyzed?). If the student is considered to be dependent on his or her parents, information on the income (and assets, if applicable) of the parents must be collected on the financial aid application, and a parental contribution will be added to the student's contribution to determine the EFC. Traditionally, need analysis methodologies have assumed that parents have the primary responsibility to pay for their children's education. However, there have always been exceptions to this rule for students who no longer have contact with their parents, for nontraditional students who are too old to be considered their parents' responsibilities, for students whose parents are deceased, and for other reasons. [[Independent student definition]] For the 1996-97 award year, a student is automatically independent if he or she meets one of the following criteria: 1. The student is at least 24 years of age by December 31, 1996. For the 1996-97 award year, the applicant must have been born before January 1, 1973. 2. The student is a veteran of the U.S. armed forces. A student who enrolled in a U.S. military academy (Air Force, Naval, Coast Guard, or West Point) but who withdrew before graduating is considered a veteran and, therefore, an independent student for SFA purposes. 3. The student will be a graduate or professional student. 4. The student is married (which may depend upon the common law rules in the student's state of legal residence). 5. Either the student is a ward of the court (or was a ward of the court until age 18), or both parents are deceased and the student has no adoptive or legal guardian. Note that a student is not considered a ward of the court based only on being incarcerated. 6. The student has legal dependents other than a spouse. Note that a student's living situation (that is, whether the student lives with his or her parents) does not affect the student's dependency status. Complete definitions of these criteria can be found in the 1996-97 Free Application for Federal Student Aid. In unusual circumstances, a student who does not meet any of these criteria may still be considered to be independent on the basis of the financial aid administrator's professional judgment. The financial aid administrator must make this decision on an individual (case-by- case) basis and must document the reason(s) for the decision. Because there is no Correction Application for 1996-97 (except in rare cases, as discussed in Section 1), the SAR may now be used to change the student's dependency status. A dependency override can be performed by using the SCHOOL USE ONLY box of Part 2 on the SAR. The Counselor's Handbook provides information on the proper procedures. Bear in mind that the aid administrator may use professional judgment only to classify as independent a student who would otherwise be considered dependent. An aid administrator cannot require a student who meets one of the criteria for independence to file as a dependent. However, the financial aid administrator may adjust an independent student's assets or income to include a parental contribution if the aid administrator decides that such a contribution is warranted. Again, any such individual determination must be documented in the student's file. COST OF ATTENDANCE (COA) [[SFA Need=COA-EFC-aid from other sources]] The cost of attendance (COA) is an estimate of a student's education expenses for the period of enrollment. A student's financial need for SFA Program funds (other than the Pell Grant) is equal to the student's COA, minus his or her EFC, minus his or her Pell Grant eligibility, minus financial aid from other sources. Another way to express this formula is to say that the total aid the student may receive from the SFA Programs and other sources (when added to the student's EFC) may not exceed the student's COA. (However, note that the Federal PLUS Loan, the Direct PLUS Loan, the unsubsidized Federal Stafford Loan, and the Direct Unsubsidized Stafford Loan may be substituted for the EFC, as described later.) The components of the COA are the same for all SFA Programs. However, in the case of programs of study or enrollment periods that are less than or greater than the school's academic year, the COA for purposes of loans and campus-based aid differs from the COA for the Federal Pell Grant Program. The Pell costs are always prorated to the costs for a full-time student for a full academic year, but the COA for the other programs is based on the student's actual costs for the period for which need is being analyzed. See Chapter 4 for more information on Pell. A student's COA generally is the sum of the following: - The tuition and fees normally assessed for a student carrying the same academic workload, including costs of rental or purchase of equipment, materials, or supplies required of all students in the same course of study. - An allowance for books, supplies, transportation, and miscellaneous personal expenses. - An allowance for room and board (see the following chart). [[The chart on page 2-54 is currently unavailable for viewing. Please reference your paper document for additional information.]] - For a student with dependents, an allowance for costs expected to be incurred for dependent care (during periods that include, but that are not limited to, class time, study time, fieldwork, internships, and commuting time for the student), the amount of which should be based on the number and age of such dependents and should not exceed reasonable cost in the community for the kind of care provided. [[Study abroad]] - For study-abroad programs approved for credit by the student's home institution, reasonable costs associated with such study. [[Costs related to disabilities]] - For a disabled student, an allowance for expenses (including special services, personal assistance, transportation, equipment, and supplies) reasonably incurred, related to the student's disability, and not provided for by other agencies.*1* [[Cooperative education]] - For students placed in a work experience through a cooperative education program, an allowance for reasonable costs associated with such employment. [[Origination fees and insurance premiums]] - And, for students receiving SFA loans, the fees required to receive them (for example, the loan fee for a Direct Loan or the origination fee and insurance premium for a FFEL). Schools may also include the fees required for nonfederal student loans (that is, nonfederal loans that must be considered resources for the student when packaging aid). In all cases, the school can either use the exact loan fees charged to the student or an average of fees charged to borrowers of the same type of loan at that school. Exceptions to the normal cost of attendance (COA) allowances Following are the exceptions to the normal cost of attendance (COA) allowances discussed above: [[Less-than-half-time status]] - For students who are enrolled less than half time, only the costs for tuition and fees and allowances for books and supplies, transportation (but not miscellaneous expenses), and dependent care expenses may be included as part of the COA. [[Correspondence students]] - Generally, the COA for a correspondence study student is restricted to the costs for tuition and fees. However, if the student is fulfilling a required period of residential training, the COA can also include required books and supplies, an allowance for travel, and room-and-board costs specifically incurred. (Note: a student is not eligible to receive aid from the SFA Programs for correspondence courses unless they are a part of an associate-, bachelor's-, or graduate-degree program and unless the school meets the criteria for the percentage of courses taught using this medium. See Chapter 3 for more details.) [[Incarcerated students]] - The COA for incarcerated students is limited to cost of the tuition and fees and required books and supplies. Bear in mind that an incarcerated student is ineligible to receive an SFA loan; if a student is incarcerated in a federal or state penal institution, he or she may not receive a Pell Grant. See "Incarcerated Students" in Section 1 of this chapter for more information. [[Students receiving instruction by telecommunications]] - In determining a student's COA, no distinction is made regarding the mode of instruction, except that the cost to rent or purchase equipment is excluded for students receiving instruction by telecommunications. However, if the aid administrator, using professional judgment, determines that instruction by telecommunication substantially reduces elements of a student's COA, the aid administrator must adjust the COA accordingly and thereby reduce the student's eligibility for grants, loans, or work- study assistance. [[Special circumstances]] - The financial aid administrator has the authority to use professional judgment to adjust the COA for the SFA Programs on a case-by-case basis to allow for special circumstances. Such adjustments must be documented in the student's file. AWARD CALCULATIONS, RESOURCES, AND ESTIMATED FINANCIAL ASSISTANCE We have discussed how to find a student's financial need by subtracting the EFC from the COA. But what if the student is receiving aid from other sources? A basic premise of need-based aid is that the total package of aid must not exceed the student's financial need. Aid in excess of need is referred to as an overaward (see "Overawards" later in this section). Because of differences in the way aid is handled in each of the SFA Programs, there are differences in the way that each program takes into account other sources of aid. Determining Remaining Need [[Pell Grants]] Federal Pell Grants are considered to be one of the first sources of aid to the student. The Department issues Pell Grant payment and disbursement schedules that base the award solely on the student's COA, EFC, and enrollment status. When awarding other sources of need-based aid, the financial aid administrator must take eligibility for the Pell Grant into account. It is always possible, however, that the student will receive a scholarship or other aid that, in combination with the Pell Grant, causes the student's financial aid package to exceed his or her need. Therefore, the school may not award additional need-based FEDERAL aid that would cause the package to exceed the need. If the student's need is exceeded due to the combination of the Pell Grant and other sources of aid, the student is still eligible for the Pell Grant as determined by the payment or disbursement schedule.*2* [[The illustration on page 2-57 is currently unavailable for viewing. Please reference your paper handbook for additional information.]] [[Campus-based]] In contrast to the Pell Grant Program, the regulations for the campus- based programs specifically require the school to take into account all resources available to the student when funds are awarded from these programs. Such resources include the student's Pell Grant eligibility (whether or not the student applies for a Pell Grant), subsidized Stafford Loans, Direct Subsidized Loans, veterans benefits, outside scholarships, and net earnings from NEED-BASED employment that will be received during the award year. If the total of the student's EFC, resources, and campus-based aid exceeds the student's COA, the campus-based aid must be reduced to prevent an overaward. Note that there are overaward thresholds (discussed later in this section and in Chapter 5, Section 2) for the campus-based programs. [[The illustration on page 2-58 is currently unavailable for viewing. Please reference your paper document for additional information.]] Suppose, for example, suppose a student has a cost of attendance of $6,000, and an EFC of 1500 (illustrated in the box above). The student's resources are a $2,000 Pell Grant and a $1,000 outside scholarship. The school may award the student a $500 FSEOG and a $1,000 Federal Perkins Loan to fully meet the student's financial need. [[Veterans Administration Student Work-Study Allowance Program]] Note that the income earned from the Veterans Administration Student Work-Study Allowance Program is treated as a veterans educational benefit (that is, as a resource and not as earned income) and therefore should not be reported on the FAFSA. Note that for SFA purposes, veterans educational benefits are not considered taxable income; therefore, the income earned from this program must not be reported as untaxed income on the FAFSA. Veterans Administration Student Work-Study Allowance Program income should be treated in the same way that FWS and other veterans educational benefits are treated. The statute governing the Federal Family Education Loan (FFEL) Program (subsidized and unsubsidized Stafford, as well as PLUS) and Direct Loan Program (Direct subsidized, Direct unsubsidized Stafford, and PLUS) does not use exactly the same definition for "resources" as that used for campus-based programs. Instead, a similar measure, called "estimated financial assistance," is used for determining FFEL and Direct Loan eligibility. For 1996-97, estimated financial assistance, like resources for the other SFA Programs, includes only the student's Pell Grant eligibility and other aid the student will actually receive. This marks a change in policy. The estimated financial assistance for every student used to include the estimated amount that a student could receive from the following--whether or not the student actually applied for the aid: Federal Pell Grant Program; the federal campus-based programs; and other federal and nonfederal scholarship, grant, loan, and need-based work programs. [[The chart on page 2-59 is currently unavailable for viewing. Please reference your paper document for additional information.]] [[Students may borrow under these programs up to the EFC amount]] The school may certify an application for a subsidized Stafford Loan or Direct Loan only for the amount of need that remains after subtracting both the student's EFC and estimated financial assistance from his or her COA. However, the unsubsidized Stafford, PLUS, Direct Unsubsidized, Direct PLUS, and state and private education loans are not considered to be resources because they can be used to finance (or replace) the EFC. Thus, students may borrow under these programs up to the amount of the EFC without affecting eligibility for campus-based aid, a subsidized Stafford Loan, or Direct Subsidized Loan. For instance, in the campus-based example just shown, the student could receive a $1,500 private education loan, unsubsidized Stafford Loan, or Direct Unsubsidized Loan without being overawarded. None of these loans would be considered a resource as long as it did not exceed the EFC. Note that a student may qualify for a combination of subsidized and unsubsidized loans. A student loan is unsubsidized when the student is responsible for the interest that accumulates while he or she is enrolled in school and during the grace period. These interest payments may be deferred until the student enters repayment. For a dependent student whose parents are able to borrow a PLUS or Direct PLUS, the maximum amount the student may borrow under the unsubsidized Stafford Loan or Direct Unsubsidized Loan programs is the amount that can be borrowed under the Stafford Loan or Direct Loan Program for that grade level and program length, less the amount (if any) that has been borrowed under the subsidized program. For example, if a dependent student whose loan limit is $2,625 qualifies for a $1,600 subsidized Stafford Loan or Direct Subsidized Loan, he or she may borrow an additional $1,025 ($2,625 minus $1,600) unsubsidized Stafford Loan or Direct Unsubsidized Loan, as long as the total of all aid received does not exceed the student's COA. [[Base amount is variable]] The independent student (or the dependent student whose parents are unable to obtain a PLUS or Direct PLUS) is permitted a base amount (as described above). This amount depends on grade level and length of program for combined subsidized and unsubsidized loans (the mix of which depends upon the student's need). However, the independent student (or the dependent student whose parents are unable to obtain a PLUS or Direct PLUS) with combined loans can borrow an additional UNSUBSIDIZED loan amount. The maximum additional amount is limited to either the total of the student's EFC and remaining need or the applicable unsubsidized loan limit minus the subsidized amount already borrowed, whichever is less. Remember that before the school may certify a Stafford Loan or Direct Loan, the school must have determined the student's eligibility for a Federal Pell Grant. The results from the federal processor do not have to be on file at the time the loan is certified. Instead, a determination of the student's Pell eligibility could be made through software available at the school. On the other hand, the school must have evidence proving that the student's data went through the CPS before the loan may be disbursed. [[The illustration "Stafford Example 1" on page 2-60 is currently unavailable for viewing. Please reference your paper document for additional information.]] An independent students cost of attendance (COA) is $8,000, EFC is 1500, Pell Grant is $850, veterans benefits is $3,150, and FSEOG is $1,000. Therefore, the student is eligible for a maximum subsidized Stafford Loan of $1,500. This amount is calculated by subtracting the EFC and the other aid received from the COA ($8,000 - $1,500 - $5,000). Because unsubsidized Stafford and PLUS Loans are not considered resources as long as they do not exceed the EFC, the student would also be eligible for an additional $1,500--the amount equal to the EFC--from one of these programs. In the case of a first-year dependent student, the maximum Stafford Loan that may be borrowed is $2,625. Therefore, a first-year dependent student whose circumstances are the same as our independent student could borrow a $1,125 unsubsidized Stafford Loan, and the parent could borrow the remaining $375 as a PLUS Loan. Or, the parent could borrow the full $1,500 as a PLUS Loan and the student could borrow just a $1,500 subsidized Stafford. [[The illustration "Stafford Example 2" on page 2-61 is currently unavailable for viewing. Please reference your paper document for additional information.]] An independent first-year undergraduate student has a cost of attendance of $6,500, an EFC of 950, a Federal Pell Grant of $1,350, and an FSEOG of $2,000. This student has remaining need for subsidized Stafford of $2,200 ($6,500 - $4,300). Because the amount of the unsubsidized loan, up to the amount of the EFC, is not considered a resource, the student may also borrow a $950 unsubsidized Stafford Loan. This would mean that the students total Stafford loan is $3,150 ($2,200 in subsidized and $950 in unsubsidized loans). [[The illustration "Stafford Example 3" on page 2-61 is currently unavailable for viewing. Please reference your paper document for additional information.]] Suppose this students COA is $8,500 and she has remaining need for a subsidized loan of $4,200. Because the maximum subsidized Stafford Loan for first-year undergraduate students is $2,625, the student would be limited to borrowing that amount under the subsidized program. After borrowing the $2,625, the student still has remaining need for $1,575, AS WELL AS THE ABILITY TO BORROW $950 (the EFC amount). Therefore, the student may borrow a $2,525 unsubsidized Stafford Loan, which increases the total borrowed to $5,150 ($2,625 in subsidized plus $2,525 in unsubsidized loans). PACKAGING AID Packaging is the process of finding the best combination of aid to meet a student's financial need, given limited resources and given institutional constraints that vary from school to school. A student may be able to receive some federal student aid--in the form of a Federal Pell Grant--even if his or her school does not, for example, participate in the campus-based programs and does not have its own sources of aid. Any subsidized loan under the Federal Family Education Loan (FFEL) Program or the Direct Loan Program is limited to whichever amount is less: 1) the amount of the student's remaining financial need after his or her estimated financial assistance is taken into account or 2) the loan limit for the student's level and enrollment status. Of course, as explained earlier, the student may also borrow an unsubsidized Stafford, Direct Unsubsidized Loan, PLUS, Direct PLUS, state-sponsored, or private education loan equal to the amount of the EFC. If a school does have other sources of aid, the financial aid administrator must decide how to allocate scarce funds from different sources to meet students' needs. [[Variables to consider when packaging aid]] The financial aid administrator must evaluate numerous variables when packaging aid and may consider questions such as these: Should priority be given to students who apply for aid first (on a "first-come-first-served" basis)? Should grant assistance be awarded to beginning students and should loans and work-study go to students who have had a chance to adapt to the academic program? If there are not enough funds to meet every student's need, should school policy be to give more assistance to the neediest students? Or should the school meet an equal proportion of each student's need across the board? [[Special considerations]] Special considerations in packaging also arise when a student qualifies for both SFA funds and for vocational rehabilitation assistance funds. In that case, the school should determine the student's package exclusive of both the costs related to the student's disability and exclusive of anticipated vocational rehabilitation assistance. Therefore, the student with disabilities will be offered the same aid package as a student who is in the same financial situation but who does not have disabilities; the student with disabilities will also receive the maximum amount of vocational rehabilitation aid to which he or she is entitled. If, in packaging aid, the school were to consider both the disability- related costs and an anticipated vocational rehabilitation aid amount that actually turned out to be less than expected, the amount of SFA funds in the student's package may be increased to cover the remaining costs. When the vocational rehabilitation agency actually disburses funds, however, it will take that SFA increase into consideration and disburse only the anticipated amount rather than disbursing enough to cover all of the disability-related costs. The school has covered all of the student's need in both cases: But if the increase in SFA funds in the second case is the result of an increased loan amount, the school has unnecessarily added to the student's debt burden. Although the vocational rehabilitation funds should not be considered a resource when the school packages, the school must coordinate funds available from the vocational rehabilitation agency and from institutional, state, and federal student financial assistance programs to prevent an overaward. The amount of assistance from the vocational rehabilitation agency must be documented in the student's file. Each state association of student financial aid administrators has a voluntary agreement with its state vocational rehabilitation agency; this agreement specifies the procedures for coordinating vocational rehabilitation assistance with other forms of financial aid. For information about your state association's agreement, contact that association or a regional office of the U.S. Department of Education. [[Makeup of body may influence packaging policy]] The characteristics of a school's academic programs and the makeup of its student body may influence its packaging procedures. Section 9 of the Self-Instructional Modules (formerly produced through contract by the SFA Programs) discusses some of the basic types and philosophies of packaging. Although the modules have not been updated, financial aid administrators may nonetheless find the general discussion of packaging useful. For ideas on different approaches to packaging, also refer to materials prepared by professional associations representing schools and financial aid administrators or consult with other aid administrators at schools that have similar characteristics. OVERAWARDS While the school must always take care not to overaward the student when packaging aid, circumstances may change after the aid has been awarded and may result in an overaward. For instance, the student may receive an academic scholarship, or the student may want to extend his or her work-study employment. When these circumstances would lead to an overaward, the school may be required to adjust the federal student aid in the package. When doing so, the following principles should be kept in mind: - Pell Grants are never adjusted to take into account other forms of aid, except possibly in the case of recipients of Paul Douglas Scholarship Program and the National Science Scholars Program (NSSP) as noted earlier in this chapter and as discussed at length in Chapter 9. (Note that NSSP was rescinded for the 1996-97 award year and that the Douglas Program was not funded by Congress for 1996-97.) - The maximum Pell Grant for the 1996-97 award year was increased $30 (to $2,470). The Department will not consider any "extra" Federal Stafford or Direct Loan amount (up to $30) to be an overaward if this extra amount is the result of the increase in the maximum award from $2,440 to $2,470. (See Chapter 4, page 4-71, "Overpayments.") - If a student's financial aid package contains both a Stafford Loan (FFEL or Direct) and Federal Work-Study (FWS), there is a $300 overaward tolerance. The school in this case would not have to adjust the loan unless the overaward exceeds $300. If the overaward exceeds $300 or if the aid package does not contain FWS and an overaward exists, the remaining principles apply. - If all or a portion of a student's unsubsidized Stafford Loan, Direct Unsubsidized Loan, or nonfederal loan or the parents' Direct PLUS or PLUS Loan is being used to cover need that was previously unmet, the loan can be adjusted to replace the EFC and, thus, to reduce or eliminate the overaward. - The second or subsequent disbursement of a subsidized or unsubsidized loan can be canceled or reduced to reduce or eliminate the overaward. - If these adjustments have been made and an overaward still exists for a Stafford Loan borrower or Direct Loan borrower, the law requires the financial aid administrator to withhold and promptly return to the lender or the federal government any subsidized or unsubsidized funds that have not yet been delivered to the borrower. Note that Stafford and Direct Loan overawards must be repaid before adjusting or canceling campus-based funds. Instead of returning the entire undelivered aid, a financial aid administrator may choose to return only the amount of aid for which the student becomes ineligible. For example, if a loan disbursement is $1,000 and the amount of the overaward is $800, the aid administrator could return just the $800 or could instead return the entire check and have the lender issue a new check for $200. In either case, the financial aid administrator must provide the lender with a written statement describing why the funds were returned. - For a Direct Loan borrower, the financial aid administrator may choose either to return the amount of loan for which the student becomes ineligible or to cancel the loan, return the full disbursement, and originate a new loan for the lower amount. Consider the Stafford example (with a $1,000 disbursement and an overaward of $800) and apply it to a Direct Loan school. The aid administrator could either return just the $800 or return the full disbursement, cancel the loan, and originate a new loan for $200. If the aid administrator chooses the latter, a new origination record must be created, and a new promissory note must be generated for the student to sign. - Funds returned to the lender or the government must be applied to reduce the student's loan balance. Because a Stafford Loan lender deducts the origination fee and insurance premium before disbursing a loan check to a school, the lender must reduce or cancel these fees accordingly when the school returns funds. If only the amount of the overaward is returned, the lender must reduce the insurance premium and origination fee to reflect the lower loan amount. If the full disbursement is returned, the lender must cancel the insurance premium and origination fee. For a Direct Loan, the federal government will adjust the loan fee accordingly. See Chapter 10, Section 6 for more information on returning overawards. - The requirement to refund overawards to the lender or the government does not apply to Stafford Loans made to cover the COA at foreign schools or to PLUS or Direct PLUS Loans. - Although a school is not required to return Stafford Loan or Direct Loan funds that were delivered to the borrower (either directly or by applying them to the student account) before the overaward situation occurred, the law does not prevent the school from returning funds that were applied to the student account if the school chooses to do so. - A Stafford Loan or Direct Loan borrower who is overawarded and receives funds disbursed directly to him or her is not required to repay funds that were delivered in excess of need unless the overaward was caused by his or her misreporting or withholding of information. - If reducing undisbursed Stafford Loans or Direct Loans is not sufficient to eliminate the overaward, the school may be required to reduce the amount of campus-based aid that has been awarded the student. Campus-based aid need not be reduced if the overaward does not exceed $300, which is the current overaward threshold for all campus-based programs. Note that the $300 threshold is allowed only if an overaward occurs after campus-based aid has been packaged. The threshold does not allow a school to deliberately award campus-based aid that, in combination with other resources, exceeds the student's financial need. See Chapter 7, Section 2, for details on these overaward provisions. If the overaward cannot be eliminated by reducing future payments of campus-based aid, the student must repay the full amount of the campus-based funds that he or she received in excess of need. However, the student cannot be required to repay FWS wages he or she has earned. SUMMARY OF MAJOR CHANGES FOR 1996-97 The major changes for the 1996-97 versions of the Free Application for Federal Student Aid (FAFSA) and the Student Aid Report (SAR) appear below, as do some changes in procedures. FAFSAs For 1996-97, only a few noteworthy changes were made to the FAFSA. All changes made to the FAFSA were made to the Renewal FAFSA as well. Certification Statements now appear on the FAFSA: SARs no longer include these statements unless the SARs are flagged with Reject 16 (see Section 1). SARs The School Use Box has been revised. Schools no longer may report a recalculated EFC when corrections are made to a student's data (in cases when a professional judgment adjustment is requested). Financial aid administrators may use this box only to report professional judgment; to do so, the administrator must check the appropriate box, enter the school code, and sign. Verification Worksheets are no longer mailed with SARs. Schools may use their own worksheets, customize and print EDExpress worksheets, or use the ED worksheet provided in the 1996-97 Action Letter #6. The Federal Pell Grant paper payment voucher (Part 3) has been eliminated from the SAR. To report Pell Grant payment information in 1996-97, all institutions must use the Electronic Data Exchange (EDE), the Recipient Data Exchange, or the Floppy Disk Data Exchange. A student who applies electronically will now receive a SAR Information Acknowledgement that contains the same information as that which would appear on a regular two-part Student Aid Report (SAR). Schools that submit student applications electronically no longer must provide students with ISIRs for review. The SAR Information Acknowledgement cannot be used to make corrections. Only the regular SAR, which may be requested from the FAFSA processor, can be used for making corrections. Other Changes A new citizenship match performed by the Social Security Administration (SSA) is now in place to help confirm citizenship status (see Section 1). The Overpayment Hold File is no longer in use. (Information in these files has been incorporated in the NSLDS.) *1* A student is considered disabled if he or she is deaf, mentally retarded, hard of hearing, speech or language impaired, visually disabled, seriously emotionally disturbed, orthopedically impaired, autistic, has a traumatic brain injury, is otherwise health-impaired, or has specific learning disabilities that require special education and related services. There is no maximum on the allowance for expenses related to a disability. However, the school should be careful not to include costs for services or equipment provided free of charge by other assisting agencies. *2* However, an adjustment may be needed for recipients of Paul Douglas Teacher Scholarship Program and the National Science Scholars Program. (Note that although a Pell Grant could be adjusted if the student received funds under NSSP or Douglas, neither of these programs have been funded for the 1996-97 award year [see Chapter 9]). |