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General Institutional Responsibilities

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.

Last Modified: 06/30/1995