Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

AwardYear: 1996-1997
ChapterNumber: 5
ChapterTitle: Overpayments, Referrals, and Suspected Fraud
Section: Overpayments
PageNumber:


This chapter discusses the rules and procedures for recovering funds
from overpayment, the procedure for referring certain overpayment
cases to ED, and the procedure for reporting suspected fraud and
abuse.

[[Overpayment discussion applies to Direct and Stafford Loans only
if verification is not a factor]]
Note that EXCEPT FOR THE DIRECT LOAN AND FEDERAL
STAFFORD LOAN PROGRAMS, the overpayment procedures
apply WHETHER OR NOT an application is being verified. For
Direct Loans and Federal Stafford Loans, the overpayment
procedures apply ONLY for applications NOT being verified. (You
may not disburse Direct Loan funds or deliver Federal Stafford Loan
proceeds to a student who has not completed the verification
process.) The overpayment discussion has been included for these
two programs simply as a convenience.


OVERPAYMENTS

The Federal Pell Grant, FSEOG, and Federal Perkins Loan Programs

If you discover that an applicant received more than the amount for
which he or she was eligible under the Federal Pell Grant,
FSEOG,*12* or Federal Perkins Loan*12* programs, you should
determine whether the overpayment resulted from a student error or
a school error. Then, you should try to eliminate the overpayment by
adjusting subsequent disbursements in the award year. If this is not
possible and if the overpayment is a result of STUDENT error, you
should attempt to have the student repay the overpayment amount.

FEDERAL PELL GRANT, FSEOG, AND FEDERAL PERKINS
OVERPAYMENT BY SCHOOL ERROR. The school is liable
for overpayments that result from school error, as in the following
examples:

- The school made an INTERIM DISBURSEMENT before
verification was complete.

- The school had CONFLICTING DOCUMENTATION when
the award was made, although you did not know it. For
example, the bursar's office could have information of which
you were not aware; nevertheless, your school had conflicting
documentation and is responsible for any resulting
overpayments.

- The school made an INCORRECT HAND CALCULATION of
a student's eligibility for aid.

If the overpayment is the school's responsibility, you may continue
to make Federal Pell Grant, FSEOG, and Federal Perkins Loan
payments to the student if the overpayment can be resolved
through one of the following options:

- The student REPAYS the overpayment in full.

- The student MAKES REPAYMENT ARRANGEMENTS
satisfactory to your school

- You can eliminate the overpayment by ADJUSTING
subsequent disbursements.

[[School must reimburse program account within 60 days if other
recovery methods fail]]
If you cannot recover the overpayment through these methods,
you must reimburse the appropriate program account from your
own funds within 60 days following the applicant's last day of
enrollment OR by the last day of the award year, whichever comes
first.

FEDERAL PELL, FSEOG, AND FEDERAL PERKINS
OVERPAYMENT BY STUDENT ERROR. If the overpayment
occurred as a result of student error, you may continue to make
Federal Pell Grant, FSEOG, or Federal Perkins Loan payments to
the student if you can eliminate the overpayment by adjusting
subsequent disbursements in the award year. If you cannot do
this, you CANNOT make any further Federal Pell Grant, FSEOG, or
Federal Perkins payments to the student until he or she completely
repays the overpayment to your school or makes repayment
arrangements satisfactory to your school. If the student will not
agree to repay, you are not liable, but you must make a reasonable
effort to contact the student and collect the repayment. If your
reasonable effort fails, you may, in certain cases, refer the debt to
ED (see page 63).


The Federal Work Study (FWS) Program

[[$300 tolerance also applies to Stafford or Direct Loans included
with FWS in aid package]]
A student employed under the FWS program may earn (from need-
based employment) up to $300 in excess of his or her financial need
before employment under the FWS program must be discontinued.
Schools are not required to monitor income from non need-based
employment in determining an FWS overaward. Note that if a
Federal or Direct Stafford Loan is INCLUDED WITH FWS in a
student's financial aid package, the $300 tolerance also applies to
either loan. That is, as long as an overaward does not exceed $300,
you do not have to adjust any Federal Stafford Loan or Direct Loan
amounts. (This provision applies whether or not you have disbursed
any portion of either type of loan.) Of course, the $300 tolerance
applies only if the overaward occurs because additional resources
became available after you packaged aid.

[[Cannot require student to repay FWS wages earned, except in case
of proven fraud]]
If the student's FWS earnings have already exceeded his or her
eligibility by more than the applicable limit, as explained above, and
you cannot eliminate the overpayment by adjusting or canceling the
student's other federal aid (other than Pell), you are required to
reimburse the FWS program from the school's funds. (If the student
also received FSEOG funds or other funds under institutional
control, you may attempt to have the student repay the
overpayment.) YOU CANNOT REQUIRE A STUDENT TO
REPAY WAGES EARNED, EXCEPT IN THE CASE OF PROVEN
STUDENT FRAUD.


The Federal Direct Loan and Federal Stafford Loan Programs

[[Procedures apply only if application is not being verified]]
AS EXPLAINED IN CHAPTER 3, YOU MAY NOT DISBURSE
DIRECT LOAN FUNDS OR DELIVER FEDERAL STAFFORD
LOAN PROCEEDS TO A STUDENT WHO HAS NOT
COMPLETED THE VERIFICATION PROCESS. The provisions
discussed here are included ONLY to complete the overpayment
discussion which, as has been mentioned, applies to the Federal Pell
Grant, FSEOG, FWS, and Federal Perkins Loan programs whether or
not an application is being verified.

If you discover that a student's Federal Direct Loan exceeds the
student's need, you must adjust the amount disbursed according to
the procedures described in Chapter 6 of the Direct Loan School
Guide.

If a Federal Stafford Loan application was certified for an amount
that exceeds the student's need, the steps you must take vary
according to the loan's disposition. Remember that if a Direct Loan
or Federal Stafford Loan is included with FWS in a student's
financial aid package, a $300 tolerance applies to either loan.

LOAN HAS BEEN CERTIFIED BUT SCHOOL HAS NOT
RECEIVED FUNDS. You may have the lender cancel or reduce
the loan. You also have the option of reducing or canceling aid
over which your school has control.

FUNDS RECEIVED BUT NONE DISBURSED. You have
several choices in this situation:

- You may attempt to reduce or eliminate the overaward by using
the student's Federal PLUS Loan or unsubsidized Federal
Stafford Loan to replace the family's EFC. However, you must
repay subsidized and unsubsidized Federal Stafford Loan funds
to the lender to eliminate the overaward BEFORE you may adjust
or cancel a student's undisbursed campus-based aid.

- You may deliver the first disbursement to the student if you can
eliminate the overpayment by reducing or canceling subsequent
loan disbursements.

- If the student is ineligible for a portion of the first loan
disbursement, you can return the check to the lender or escrow
agent and request a new check for the correct amount, or you
can disburse the proper amount to the student and refund the
excess to the lender or agent. You must notify the lender or
agent in writing of the reason for any returned funds.

- If the student is ineligible for the ENTIRE loan, you must return
the proceeds to the lender. You must notify the lender or agent
in writing of the reason for any returned funds.

FIRST DISBURSEMENT MADE, BUT ENTIRE LOAN
PROCEEDS NOT RELEASED. If you have made the first
disbursement, you must have the lender or agent reduce the second
disbursement to eliminate the overpayment. (You must withhold
and promptly return any proceeds not yet delivered, notifying the
lender or agent in writing of the reason for the returned funds.) In
rare cases, the first disbursement alone exceeds the student's need;
in that case, you must attempt to eliminate the overpayment by
adjusting student aid other than Federal Pell Grants.

LOAN PROCEEDS DISBURSED IN FULL. If you have
disbursed the ENTIRE loan to the student, the situation is not
considered an overpayment, and no refund to the lender is
required.

Last Modified: 06/09/1998