Maintained for Historical Purposes

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

Overpayments and Overawards

AwardYear: 1998 - 1999
ChapterNumber: 4
ChapterTitle: Overpayments, Overawards, Referrals, and Suspected Fraud
Section: Overpayments and Overawards
PageNumber: 1


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.

Overpayments and overawards


The overpayment and overaward procedures discussed here apply to all students regardless of whether their applications have been selected for verification.

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,15 or Federal Perkins Loan15 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 (regardless of when the conflict was discovered). 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 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.

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. (Once the school satisfies the overpayment, the student regains eligibility.)

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.

The Federal Work-Study (FWS) Program

You may not award or disburse aid from a campus-based program if that aid, when combined with all other resources, would exceed the student’s need. After packaging, you may find out later (through verification, for instance) that the student received additional resources that cause his or her financial aid package to exceed his or her need. In such a case, an adjustment may be required.

An overaward threshold of $300 exists for all campus-based programs. If you learn, after packaging, that a student’s aid package exceeds his or her need by less than $300, you should cease employing the student under need-based FWS funds; no further action is required. (If a Federal or Direct Stafford Loan is included with FWS in a student’s financial aid package, the $300 threshold applies to that loan. That is, you would not have to adjust any loan amounts.) This threshold does not allow you to deliberately award campus-based aid that, in combination with other resources, exceeds the student’s need.

If the student’s FWS earnings have already exceeded his or her eligibility by more than $300, you must try to eliminate the overaward by adjusting or canceling the student’s other federal aid (other than Pell). (For more information, see Chapter 5 of the 1998-99 Federal Student Financial Aid Handbook.) If you cannot eliminate the overaward, you must cease employing the student under need-based FWS funds, and must reimburse the FWS program from the school’s funds. (If the student also receives FSEOG funds or other funds under institutional control, you may attempt to have the student repay through one of those programs.) You cannot require a student to repay wages earned, except in the case of proven student fraud.

The Direct Loan and FFEL Programs

As explained in Chapter 3 of this guide, you may not disburse Direct Subsidized Loan funds or deliver Federal Stafford Loan proceeds to a student who has not completed the verification process.
Therefore, an overpayment cannot occur for a student being verified. However, you may discover through verification that the loan amount for which a student is eligible has decreased. This is an overaward, and you need to adjust the student’s aid package.

If you discover that a student’s Direct Subsidized Loan will exceed need, you must adjust the amount to be disbursed according to the procedures described in Chapter 6 of the Direct Loan School Guide.

If you certify a Federal Stafford Loan application for an amount that exceeds the student’s need, you may need to adjust the student’s aid to eliminate the overaward. (Remember that if a Direct Subsidized Loan or Federal Stafford Loan is included with FWS in a student’s financial aid package, the $300 threshold applies to that 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 overaward by reducing or canceling subsequent loan disbursements.

If the student is ineligible for a portion of the first loan disbursement, you can return the proceeds to the lender or escrow agent and request a new disbursement 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.

Last Modified: 02/03/1999