| AwardYear: 1998-1999 EnterChapterNo: 2 EnterChapterTitle: Student Eligibility and Financial Need SectionNumber: 3 SectionTitle: Overview of Financial Need PageNumbers: 53-70 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. 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. [[This file contains the Financial need graphic found on page 2-53, in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software]] 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. Discussion of the COA follows; then overawards and financial aid packaging are addressed. 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 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. For more information on how the EFC is calculated, see The EFC Formula Book, 1998-99. You may order a copy by calling the Federal Student Aid Information Center at 1-800-4-FED-AID. [[Maximum EFC: 2500]] 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 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 Pell Grant. For 1997-98, the maximum EFC that a student could have to qualify for a Pell Grant was 2500. (At the time this Handbook went to print, the maximum EFC has not yet been determined for 1998-99.) 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]] Some students will have more than one EFC calculated. The 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. [[EFC for 9-month enrollment]] [[EFC for other than 9-month enrollment]] The EFC found in the upper right hand corner of the first page of the output document is based on a 9-month enrollment period and should always be used for awarding a Pell Grant, even if the student is attending for a longer or shorter period. The second section of the FAA Information area contains headings for the number of months, Primary EFC, and Secondary EFC, as well as a table of 1- to 12- month alternate EFCs. The figures in the table represent alternate EFCs that the financial aid administrator may use to award aid--other than Pell Grants for which the 9-month figure is always used--if the student is attending for less than or greater than the standard 9-month period. For dependent students, the alternate EFCs for periods of attendance other than 9 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 1997 and, thus, the family expected to have a lower income for 1998, 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 and the discussion on "Professional Judgment" that appears later in this section. 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. [[Independent student definition]] For the 1998-99 award year, a student is automatically independent if he or she meets one of the following criteria. Complete definitions of these criteria can be found in the 1998-99 Free Application for Federal Student Aid. 1. The student was born before January 1, 1975. 2. The student is a veteran of the U.S. armed forces. 3. The student will be enrolled in a graduate or professional program (beyond a bachelor's degree). 4. 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. 5. The student is married (this definition may depend on the common law rules in the student's state of legal residence). 6. The student has legal dependents other than a spouse.1 1In addition to the student's dependent children, a legal dependent (as defined on the FAFSA) is any person who 1) lives with the student at the time the application is filed, 2) receives more than half of his or her support from the student at the time of filing, and 3) will continue to receive that support between July 1, 1998 and June 30, 1999. An otherwise dependent student would--if she or he had a legal dependent as defined above--be considered an independent student, regardless of the nature of the relationship between the student and the dependent. Note that the legal dependent would also be included when reporting "Household Size" and "Number in College" (if applicable) on the FAFSA. 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. 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. The Counselor's Handbook provides information on the proper procedures for performing a dependency override. 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. PROFESSIONAL JUDGMENT ------------------------ Although aid administrators have asked the Department to provide guidance on making professional judgment decisions, the Department historically has given only limited advice. Following are guidelines regarding this inherently subjective process. The only areas where the law allows aid administrators to apply professional judgment are: Independent student status, calculation of expected family contribution, calculation of cost of attendance, satisfactory academic progress, and denial or reduction of eligibility for FFELs or Direct Loans. The school cannot modify either the formula or the tables used in the EFC calculation; it can only change the values of specific data items used in the calculation. In addition, an aid administrator cannot adjust data elements or the cost of attendance solely because he or she believes the tables and formula are generally not adequate or appropriate. The aid administrator may not exercise professional judgment to waive general student eligibility requirements or to circumvent the intent of the law or regulations. The Department specifically prohibits the use of professional judgment to change FSEOG selection criteria. Nor can the aid administrator include post- enrollment activity expenses in the student's COA. (For example, professional licensing exam fees are not allowable costs.) Occasionally aid administrators make decisions contrary to the professional judgment provision's intent. These unreasonable judgments have included, for example, the reduction of EFCs based on reoccurring costs such as vacation expenses, tithing expenses, and standard living expenses (related to utilities, credit card expenses, childrens' allowances, and the like). Aid administrators, whom the Department grants significant latitude in exercising professional judgment, are expected and required to make "reasonable" decisions that support the intent of the provision. Note that the school is held accountable for all professional judgment decisions made, and that each decision must be fully documented. [[Income protection allowance]] In making adjustments for unusual expenses, an aid administrator should keep in mind that the income protection allowance is already included in the EFC calculation to account for modest living expenses. The administrator might want to consider whether the expense is already taken into account through the income protection allowance before making an adjustment. In general, a school can assume that 30% of the income protection allowance amount is for food, 22% for housing, 9% for transportation expenses, 16% for clothing and personal care, 11% for medical care, and 12% for other family consumption. The income protection allowance used for a particular student is provided as one of the intermediate values in the FAA Information Section of the output document (labeled as "IPA"). See also The EFC Formula Book, 1998-99 for tables listing income protection allowances. 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, the Direct PLUS, the unsubsidized Federal Stafford, and the Direct Unsubsidized 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); [[This file contains the graphic found on page 2-58,in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] - 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;2 2 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. [[Cooperative education]] - For students placed in a work experience through a cooperative education program, an allowance for reasonable costs associated with such employment; and [[Origination fees and insurance premiums]] - 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 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 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 cannot receive a Pell Grant (see Chapter 4). [[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. (See "Professional Judgment" above.) AWARD CALCULATIONS, RESOURCES, AND ESTIMATED FINANCIAL ASSISTANCE -------------------------------------------------------------------------- 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 [[This file contains the Pell Example found on page 2-61,in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] 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. 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. [[Campus-based: resources]] [[This file contains the Campus-Based Example found on page 2-61,in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] 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. However, note that there are overaward thresholds (discussed later in this section and in Chapter 5, Section 2) for the campus-based programs. Suppose a student has a cost of attendance of $6,000, and an EFC of 1500. The student's resources are a $1,250 Pell Grant and a $1,750 outside scholarship. The school may award the student a $500 FSEOG and a $1,000 Perkins Loan to fully meet the student's financial need. [[Veterans benefits]] For SFA purposes, veterans education benefits are treated as resources, not as income, and therefore are not reported as income on the FAFSA. Note that the income earned from the Veterans Administration Student Work-Study Allowance Program (VASWSAP) is not treated as a veterans education benefit, so it is not considered a resource. It should be reported as untaxed income (not income earned from work) on the FAFSA. [[FFEL and Direct: estimated financial assistance]] 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, and PLUS) does not use the term "resources" as defined for campus- based programs. Instead, a similar measure, called "estimated financial assistance," is used for determining FFEL and Direct Loan eligibility. Despite the different terminology, the two measures include the same sources of assistance. "RESOURCES" (for campus-based aid) and "ESTIMATED FINANCIAL ASSISTANCE" (for FFEL and Direct Loans) include: FEDERAL AID Pell Grant eligibility,* Gross Stafford Loan or Direct Loan funds received** Campus-based aid (FSEOG, Perkins, FWS [less the direct costs of employment])** Veterans education benefits Insurance programs for the student's education, which includes Social Security education benefits * Estimated amount the student would receive, whether or not the student actually receives it ** These are not regarded as a resource in the need equation for the program for which the need is being determined. In other words, if the aid administrator is determining the need for a Stafford loan, the amount of Stafford loan to be awarded is not a resource. SCHOOL & PRIVATE AID School and other scholarship and grant aid, including: - athletic and ROTC scholarships - ROTC subsistence allowance - fellowships and assistantships - waiver of tuition and fees Net earnings from need-based employment School loans (long-term)*** Loans from state and other loan programs*** *** Unless these amounts were used to finance the family contribution. See text for an explanation. The unsubsidized Stafford, PLUS, Direct Unsubsidized, Direct PLUS, and state and private education loans are not considered to be resources or estimated financial assistance to the extent that they 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. The school may certify an application for a subsidized Stafford Loan or Direct Subsidized 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. As noted previously, the student can also borrow unsubsidized loans beyond his or her need as long as the loan does not exceed the EFC. Note that a student may qualify for a combination of subsidized and unsubsidized loans. [[Dependent student]] A dependent student can borrow a combination of subsidized and unsubsidized loans up to the applicable Stafford or Direct Loan limit. The limit for a student depends on the student's grade level and program length. The unsubsidized amount the student can borrow is equal to this limit minus the subsidized amount the student borrows. 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. [[Independent student]] The independent student can also borrow the base amount described above. The mix of subsidized and unsubsidized loans in this base amount depends upon the student's need. The independent student can also borrow an additional unsubsidized loan amount, above the base amount. The maximum additional amount is limited to either the total of the student's EFC and remaining need or the applicable additional unsubsidized loan limit, whichever is less. Note that, as for the base amount, there are different loan limits depending on the student's grade level and program length. See Chapters 10 and 11 for a list of all the applicable limits. A dependent student whose parents are unable to obtain a PLUS or Direct PLUS is also eligible for the additional unsubsidized loan amount that independent students can receive. See Chapters 10 and 11 for more information. Remember that before the school may certify a Stafford Loan or originate a Direct Loan, the school must have determined the student's eligibility for a Federal Pell Grant. A school does not need to have an official EFC from the CPS to determine the Pell eligibility. 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. [[This file contains the Stafford Example 1 found on page 2-64, in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] Suppose an independent student's cost of attendance (COA) is $8,000, EFC is 1500, Pell Grant is $850, veterans benefits is $3,150, and FSEOG is $1,000. 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 Loans are not considered a resource as long as the loan amount does not exceed the EFC, the student would also be eligible for an additional $1,500-- the amount equal to the EFC--from this program. 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. [[This file contains the Stafford Example 2 found on page 2-64, in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] An independent first-year undergraduate student has a cost of attendance of $6,500, an EFC of 950, a 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 student's total Stafford loan is $3,150 ($2,200 in subsidized and $950 in unsubsidized loans). [[This file contains the Stafford Example 3 found on page 2-65, in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] Suppose this student's 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 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 anticipated vocational rehabilitation assistance. In this way, 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 was less than those costs, the amount of SFA funds in the student's package might be increased to cover the remaining costs. When the vocational rehabilitation agency actually disburses funds, it will take that SFA increase into consideration and disburse only the smaller 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 student 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. [[Pell]] Pell Grants are never adjusted to take into account other forms of aid. [[FFEL and Direct]] If a school determines before FFEL or Direct Loan funds (other than PLUS) are delivered to the student that the student will receive an overaward, the school must take certain steps to eliminate the overaward. In general, there is no overaward tolerance for these loans. However, if a student's financial aid package also contains Federal Work-Study (FWS), there is a $300 overaward tolerance for the loan overaward. The school in this case would not have to adjust a Stafford or Direct Loan unless the overaward exceeds $300. - If the package includes a unsubsidized Stafford Loan, Direct Unsubsidized Loan, Direct PLUS Loan, PLUS Loan, or nonfederal loan and the aid package does not already apply these loans to finance the EFC, the aid package may be adjusted so that all or some portion of these loans replaces the EFC, thus reducing or eliminating the overaward. - The second or subsequent disbursement of a Stafford or Direct Loan can be canceled or reduced. The school must inform the lender of the reduced award and request cancellation or reduction of subsequent disbursements. - If these adjustments have been made and an overaward still exists for a Stafford Loan or Direct Loan borrower, the school must withhold and promptly return to the lender or the federal government any funds that have not yet been delivered to the borrower. If the student is determined to be ineligible for the entire loan disbursement and the overaward cannot be reduced or eliminated, the school must return the entire loan proceeds. Note that Stafford and Direct Loan overawards must be repaid before adjusting or canceling campus-based funds. - For a Stafford Loan, if the student is ineligible for only a part of the disbursement, the school may return the entire undelivered amount and request a new check for the correct amount or 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 school 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 school must provide the lender with a written statement describing why the funds were returned, and the lender must credit to the borrower's account the portion of the insurance premium and origination fee attributable to the amount returned. If the school returns the entire amount and asks for a new disbursement, the student will pay only for the reduced insurance premium and origination fee (if applicable) attributable to the reduced loan amount. To return only the amount for which the student is ineligible, the school must have the student endorse the loan check or, in the case of a loan disbursed by electronic funds transfer (EFT), obtain the student's authorization to release loan funds. The school may then credit the student's account for the amount for which the student is eligible and promptly refund to the lender the portion of the disbursement for the which the student is ineligible. - For a Direct Loan borrower, the school 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 school could return just the $800 or return the full disbursement, cancel the loan, and originate a new loan for $200. If the school chooses the latter, a new origination record must be created, and a new promissory note must be generated for the student to sign. - The requirement to return overawards 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. The borrower who received 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. [[Campus-based]] 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 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 5, Section 2.) 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. |