PublicationDate: 7/1/95 ChapterNumber: 2 ChapterTitle: General Institutional Responsibilities SectionNumber: 7 SectionTitle: Refunds, Repayments, and Overpayments PageNumbers: 45-51 2.7 Refunds, Repayments, and Overpayments ((Fair and equitable refund policy)) When students withdraw, drop out, or are expelled, the school may owe them a refund of payments they made for institutional charges. For these institutional refunds, the Higher Education Amendments of 1992 established that all schools participating in Title IV programs are REQUIRED to have fair and equitable refund policies. The flowchart on page 68 shows the refund process and how the law defines a "fair and equitable" refund policy. The term "fair and equitable" was clarified in a regulation published in the Federal Register on April 29, 1994, that became effective July 1, 1994. (See Section 668.22 of the Student Assistance General Provisions.) The purpose of this section is to provide a comprehensive overview of the federally mandated refund policy. Chapter 3, Section 5, of The 1995-96 Federal Student Financial Aid Handbook (the Handbook) covers the refund process in greater detail and provides calculations, examples, and worksheets. Fiscal officers are strongly advised to obtain a copy of this section of the Handbook and to familiarize themselves with its contents. NOTE: Refunds discussed in sections 2.7 through 2.7.2.4 of this chapter are separate from refunds sent to ED for interest on excess cash from ED/PMS drawdowns (as discussed in Chapter 4) and refunds of audit or program review liabilities (as discussed in Chapter 4 and Chapter 6). 2.7.1 General Principles and Definitions Under federal law, schools must provide refunds of unearned tuition, fees, room and board, and other charges assessed to students who received Title IV assistance or to parents who received Federal PLUS Loans or Federal Direct PLUS Loans on a student's behalf. Such refunds must be provided for students who fail to register, withdraw, drop out, are expelled from the school, fail to return from an approved leave of absence, or fail to complete the period of enrollment for which they were charged. ((Methods used to determine required refund)) The school must provide Title IV recipients a refund of at least as much as the largest refund under the following three methods: 1. the requirements of applicable state law or refund regulations promulgated by a state agency that were established through a legally enforceable regulatory process; OR 2. the specific refund requirements established by the school's nationally recognized accrediting agency and approved by the U.S. Secretary of Education;*9* OR 3. if applicable, a statutory pro rata refund calculation as defined by the Higher Education Amendments (HEA) of 1992. (This applies primarily to first-time FFEL and Direct Loan student borowers who withdraw on or before the 60 percent point of the enrollment period for which they were charged.) To calculate a refund that is at least as much as the largest refund produced by the three methods just outlined, a school must: ((Determining the largest refund)) 1. calculate the results of each refund method separately, 2. compare the resulting amounts, and 3. use the calculation that provides the largest refund. In cases where the pro rata calculation does not apply, a refund must be the larger of the results of the other two methods, as determined by state law or the school's accrediting agency. ((Federal refund calculation)) In cases where no state or accrediting agency standards exist and pro rata does not apply (see item 3 on page 46), the school must calculate a refund using the federal refund calculation outlined in Section 668.22(d) of the Student Assistance General Provisions and the school's own refund policy. The school must use the calculation that produces the larger refund. In the April 29, 1994 Federal Register notice, the federal refund calculation was contained in Appendix A of Section 668.22. It was moved to the body of the regulations in the November 29, 1994 Federal Register notice and became effective July 1, 1995. Title IV refunds and repayments are calculated on the basis of the period of enrollment for which the student was charged. When a student terminates enrollment, the school must determine: - whether the student is entitled to a refund of institutional charges paid to the school for the period of enrollment, - whether any portion of such refund must be returned to a Title IV program, and - whether disbursements of aid made directly to the student may be retained by the student or whether the student was overpaid and owes a repayment. ((Definition of refund)) The term "refund" means returning amounts paid and reporting the reduced amount a student owes for institutional charges to: - Title IV programs (if the student has received Title IV aid other than Federal Work-Study*10*) and to other sources of aid OR - students who have officially withdrawn, if they are entitled to receive refunds of amounts paid for institutional charges. ((Repayment and over-payment)) The term "repayment" is used when Title IV recipients have received cash disbursements that must be returned to Title IV program funds. If the student owes a repayment, he or she is considered to have received an "overpayment." If Title IV cash disbursements to the student--other than Federal Work-Study wages, FFEL Program loans, and Federal Direct Loans-- were greater than the student's living expenses incurred before the student withdrew from school, the difference is considered an overpayment.*11* The overpayment must be collected from the student and any repayment owed to Title IV programs must be returned to these programs before any remaining overpayment is returned to other sources of aid. To calculate the amount of a refund or repayment, the school must know when the student stopped attending school. The student only "earns" Title IV aid, and the school only "earns" its charges, while the student actually attends school. The point at which the student stopped attending school is called the "withdrawal date"; this term is defined in section 2.7.2.2. 2.7.2 Factors Affecting Refunds and Repayments Before schools can effectively develop or implement their refund policies, they must understand a number of factors that underlie those policies and that relate to applicable laws and regulations. 2.7.2.1 Applying and Disbursing Aid ((Applying aid to charges owed the school)) ED recommends that schools apply financial aid first to cover institutional charges. (See section 2.7.2.3.) This practice ensures that federal funds are used first to pay direct costs, such as tuition, before funds are released to students for indirect costs, such as books and transportation. ED also recommends that schools develop written policies for applying financial aid to charges owed the school. Schools may wish to design a priority system that specifies the sources and types of aid that should first be applied to certain charges*12*. - For example, a school might determine that grant funds (gift aid) from all sources would be used first to pay tuition, fees, and room and board owed the school. After all grant funds had been used, loans (self-help aid) would be credited to remaining charges for tuition, fees, room and board. Any unused loan funds would be disbursed to the student as cash for other educationally related expenses. ((Disbursing excess funds)) If financial aid credited to charges owed to the school is not sufficient to cover the charges, the student will still owe the school money. If the aid credited exceeds charges owed, the student (or parent, in the case of a PLUS Loan) will be due a cash disbursement in the form of cash or a check. Funds may be held in a student's account only with the student's written permission and only under certain circumstances. (See section 4.7.5.) An institution must record which types of aid have been applied to institutional charges and which types were included in any cash disbursement. Such recordkeeping is essential for calculating Title IV refunds and repayments. 2.7.2.2 Withdrawal Date Schools must determine a student's withdrawal date no later than 30 days after the expiration of the earliest of: - the academic year in which the student withdrew, - the period of enrollment for which the student has been charged, OR - the educational program from which the student withdrew. ((Determining withdrawal date)) The student's withdrawal date is: - for official withdrawal--either the date that the student officially notifies the school that he or she is withdrawing or the date of the withdrawal, whichever is later, OR - for unofficial withdrawal--the last date of class attendance that the school can document. ((Correspondence courses)) For correspondence courses, the date of withdrawal is the date of the last lesson submitted by the student. If the student establishes, in writing, the desire to continue in the program within 60 days of the date of the last submitted lesson, the school may restore "in-school" status on a one-time- only basis. ((Leaves of absence)) An approved leave of absence (LOA) is not considered a withdrawal. An LOA may be approved by the school if: - the student requests the LOA in writing, - the LOA does not exceed 60 days, - the LOA does not involve additional charges to the student, and - there is no more than one approved LOA for the student in any 12-month period. Any LOA that does not meet the above criteria is considered a standard withdrawal, and a refund calculation must be performed. If a student does not return after an approved LOA, the student is considered as having withdrawn. A refund calculation must be performed, using a withdrawal date that is the student's last recorded date of attendance prior to the beginning of the LOA. Any required refund must be paid within 30 days after the LOA expires. 2.7.2.3 Institutional and Non-Institutional Charges ((Charges owed the school)) Institutional charges are charges owed directly to the school for tuition, fees, and room and board contracted with the school. Other charges may be considered institutional charges if they are required for all students in a given program of study and if they are disclosed as such in the school's published consumer information. (See section 4.7.1.) ((Other institutional charges)) Books, supplies, and equipment are also considered institutional charges if the charges are specified in the student's enrollment agreement or if there is no option to buy the books, supplies, or equipment from a source other than the institution. ((Non-institutional charges)) Non-institutional charges are those that are not owed directly to the school but that are related to a student's education. Examples are books, supplies, equipment, transportation, dependent-care expenses, loan fees, and room and board not contracted with the institution. 2.7.2.4 Unpaid Charges ((Calculating unpaid charges)) When calculating a refund, schools must first determine the student's unpaid charges. Total Institutional Charges - Total Aid Paid to Institutional Charges - Student's Cash Paid ------------------------ = Unpaid Charges ((Late disbursements)) In calculating unpaid charges, schools must take into account any late Title IV funds for which the student is still eligible, such as an approved late disbursement of an FFEL Program loan or Federal Direct Loan. Any such late disbursements should be counted toward aid paid to institutional charges. *9* However, please note that at the time this edition of The Blue Book was published, ED had not approved any accrediting-agency- established refund polices. Therefore, at present, the school would provide a refund of at least as much as the larger refund under either the requirements of applicable state law or, if applicable, a statutory pro rata refund calculation as defined by the 1992 reauthorization of the HEA. *10* Federal Work-Study (FWS) wages are not considered when calculating refunds or repayments because students cannot be required to repay earned wages. *11* FFEL Program loans and Federal Direct Loans are excluded from repayments because students or parents already are required to repay all cash disbursements received from these programs under their legal obligation to repay the loans. *12* In accordance with federal cash management regulations effective July 1, 1995, schools must obtain students' written permission to credit their accounts for anything other than tuition, fees, and room and board contracted with the school. |