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AwardYear: 1995-1996 EnterChapterNo: 3 EnterChapterTitle: Institutional Eligibility and Administrative Requirements SectionNumber: 5 SectionTitle: Refunds and Repayments PageNumbers: 73-132 The policies and procedures of refunds and repayments have been significantly changed over the last few years. This section will explain the requirements in effect for the 1995-96 award year, discuss related issues, including litigation on unpaid charges, and provide refund and repayment examples. The rules discussed here are stipulated in the Higher Education Amendments of 1992 (commonly known as "Reauthorization"), the April 29,1994 final regulations, the November 29, 1994 final regulations, and Dear Colleague Letter GEN-95-22. THESE REFUND AND REPAYMENT RULES APPLY TO ALL PARTICIPATING SFA SCHOOLS. [[Partial withdrawals not affected]] The SFA refund and repayment requirements DO NOT APPLY to a student who withdraws from some classes, but continues to be enrolled in other classes; they only apply when the student -- - fails to register for the period of enrollment for which he or she was charged, or - withdraws, drops out, takes an unapproved leave of absence, fails to return from an approved leave of absence, is expelled, or otherwise fails to complete the period of enrollment for which he or she was charged. [[Final Rule 11-29-94]] Effective July 1, 1995, when a student takes an approved leave of absence, it does not constitute a withdrawal and does not require the calculation of a refund or repayment for the student.*1* See page 3-83 for a detailed discussion of approved leaves of absence. [[Students who don't receive SFA not affected]] Further, the rules do not apply to students who have not received SFA funds for the enrollment period in question. (Students whose parents received a PLUS loan are considered to have received SFA funds, and so are covered by the SFA refund and repayment requirements.) [[The graphic "Refund Situation" on page 3-74 is currently unavailable for viewing. Please reference your paper document for additional information.]] The most frequent source of confusion with regard to refunds and repayments is a misunderstanding as to how these terms are used for SFA purposes. For instance, some say that a school "refunds" or "repays" financial aid to the SFA program fund if a student fails to enroll at the school. Also, at many schools, a "refund" is the direct disbursement to a student (after the school has credited the student's account for institutional charges). But the terms "refunds" and "repayments," as discussed in this Section, have specific meanings. In this Section, a "refund" is the UNEARNED amount of institutional charges that must be returned to the SFA programs, other sources of aid, and the student, for a student who received SFA funds and who has ceased attending school. The refund is defined as the difference between the amount paid towards institutional charges (including financial aid and/or cash paid) and the amount the school can retain under the appropriate refund policy. [[The graphics on page 3-74 are currently unavailable for viewing. Please reference your paper document for additional information.]] A "repayment" is the UNEARNED amount of a direct disbursement to a student that the student (who received SFA funds and who has ceased attendance) must pay back. (Usually, the school will use incoming aid to pay institutional charges and will disburse any remaining aid directly to the student.) If the school determines that the student received a direct disbursement in excess of the living expenses he or she could have reasonably incurred while still enrolled, then a portion of the disbursement was not earned, and must be repaid by the student to the SFA programs. [[The graphic "Repayment Situation" on page 3-75 is currently unavailable for viewing. Please reference your paper document for additional information.]] [[FWS never included; FFEL and Direct Loan excluded from repayments]] Two other important points: because wages under work-study programs are earned by the student and cannot be recovered, work-study funds are NEVER considered in the refund and repayment process. Also, FFEL and Direct Loan funds are excluded in the REPAYMENT process, because the student is already required to repay them to the lender. Therefore, the school must have a way of knowing which program funds were used to credit the student's account and which were paid to the student for living costs. REQUIRED POLICIES AND PROCEDURES [[Written policies required; students must be informed]] [[Examples]] [[Required procedures]] Schools are required to provide a written statement explaining their refund policies and procedures to prospective students, prior to enrollment or prior to execution of an enrollment agreement, whichever is earlier. This information must also be provided in writing to currently enrolled students, and must include details on how refunds will be calculated and distributed, including an explanation of the various factors that will impact a student's refund (whether the student is a first-time student, what the State policy is, the concept of unpaid charges, etc.). The school must make examples of common refund examples available, although it is not necessary to provide an example of every possible refund situation. Additionally, the school must provide a detailed explanation of the procedures a student must follow to get a refund. Note, however, that an SFA school is required to comply with all SFA refund rules and regulations, regardless of whether students follow the school's required refund procedures or not. [[Schools must publish costs]] If the school changes its refund policies or procedures at any time, it must ensure that all current and prospective students are made aware of the changes. Schools must also publish the student's costs for required books, supplies, and equipment. In addition, schools must substantiate to the Department, upon request, that those costs are reasonably related to the school's cost for those supplies. FAIR AND EQUITABLE REFUND REQUIREMENT Every participating SFA school must have a fair and equitable refund policy. [[Three possible refund policies]] The Higher Education Amendments of 1992 define a "fair and equitable refund policy" as one that provides for a refund of at least the largest amount under -- - Applicable State law,*2* - Specific refund requirements established by the school's nationally recognized accrediting agency, as approved by the Secretary;*2* or - The pro rata refund calculation defined in the Higher Education Amendments of 1992 (IF the student is attending the school for the first time, and withdrew on or before the 60% point of the enrollment period). pro rata refunds are discussed later in this Section. [[Calculate and compare State vs. accrediting agency]] Therefore, for each SFA student who does not complete the enrollment period for which they were charged, the school must calculate all possible refunds to see which is the largest. If a student is not a first time student who withdrew on or before the 60% point of the enrollment period, this means the school must calculate the student's refund amounts using the applicable State and accrediting agency policies (if any), compare the two resulting refunds, and use the calculation that provides the largest refund. In accordance with the June 8, 1993, April 29, 1994, and November 29, 1994 regulations, WHEN CALCULATING A NONPRO RATA REFUND, THE SCHOOL MUST SUBTRACT ANY UNPAID CHARGES FROM THE AMOUNT RETAINED BY THE SCHOOL. (See pg. 3-86 for a detailed discussion of unpaid charges.) [[Pro rata requirement]] For those SFA students who are first-time students and who withdraw on or before the 60% point in time of the enrollment period for which they were charged, the school must also calculate a statutory pro rata refund and compare this amount to the refund amount from the State and accrediting agency policies (if any) to determine the largest available refund to the student. (For more details on pro rata , see pg. 3-93.) AFTER CALCULATING ALL POSSIBLE REFUND AMOUNTS (STATE, ACCREDITING AGENCY, AND STATUTORY PRO RATA), THE SCHOOL MUST COMPARE AND USE THE CALCULATION THAT PROVIDES THE LARGEST REFUND. [[Federal Refund Policy vs. the school's policy]] If none of the three options above apply to a particular student, the school must then calculate a refund according to the Federal Refund Policy of the November 29, 1994 regulations.*3* The school must compare the Federal Refund Policy refund with the refund amount under its own institutional refund policy (the policy it uses for non SFA students), and issue the larger of the two refunds. (These two refunds are nonpro rata refunds, so the school must subtract any UNPAID CHARGES from the amount that can be retained by the school. See pg 3-86 in the Handbook for a detailed discussion of unpaid charges.) The flowchart below illustrates the various required refund calculations and comparisons that may be required. [[The chart "Fair and Equitable Refund Requirement" on page 3-77 is currently unavailable for viewing. Please reference your paper document for additional information.]] DEAR COLLEAGUE LETTER (DCL) [[DCL GEN-95-22]] The April 1995 DCL (GEN-95-22) provided updated guidance on accrediting agency and State refund policies. Previously, the Department stated that if an accrediting agency was recognized by the Department, its refund policy could be considered to be "approved." The Department has since reversed its policy on this issue. The Department must specifically approve the accrediting agency's refund policy before it may be used in the refund comparison. The DCL also clarifies that a State refund policy refers not only to laws enacted by the State's legislature, but also to refund regulations of a State agency, if the regulations were established through a legally enforceable regulatory process and carry the force and effect of law. If a school is using a policy as a State refund policy, the school must be able to refer to a State law or State regulation that establishes those refund requirements. Schools that followed prior guidance on accrediting agency policies, or assumed that only refund policies included in State statute could be used, will be exempted from any repayment liabilities resulting from these courses of action for refunds calculated prior to May 1, 1995, or the receipt of the DCL. Schools must still comply with all other provisions of the refund requirements. The DCL also provided information on litigation of the "unpaid charges" rule as it relates to the calculation of State refunds. The DCL stated that the courts have imposed a preliminary injunction against the Department prohibiting it from enforcing certain provisions of the regulations until the lawsuits are resolved. The DCL stated that the Department will limit the scope of program reviews and audits (provided the school was and is in compliance with all other aspects of the refund regulations) as follows: For refunds calculated prior to November 28, 1994 (the date of the first preliminary injunction): Program reviews and audits will determine and report on whether STATE refund calculations incorporate the treatment of unpaid charges; however, no monetary liabilities will be assessed while the injunctions are in effect. For refunds calculated on or after November 28, 1994 (until further notice): The Department will not assess any liabilities against schools that calculate refunds under the STATE policy and do not include the treatment of unpaid charges. Finally, the DCL provided information on a policy change regarding the treatment of an administrative fee for pro rata refund calculations. (See pg. 3-94.) REFUNDS UNDER $25 [[Final Rule 11-29-94]] Effective July 1, 1995, a school does not have to pay a refund of $25 or less. However, because a refund returned to an SFA loan program would reduce the amount of the loan that a student would have to repay, a school may not keep any portion of a refund that would be distributed to an SFA loan program unless the school has written authorization from the student in the enrollment agreement to do so. The enrollment agreement must explain clearly that the student is permitting the school to keep the funds, rather than having the funds used to reduce the student's debt, should the student withdraw. A school is not required to actually calculate the refund to prove that it is $25 or less if it can demonstrate that the institutional charges are so low that no refund would exceed $25. COMPARING TO DETERMINE THE LARGEST REFUND Let's look at a sample refund situation. St. Mark's Academy (SMA) charges by the 10-week semester. Bob is a first-time student at SMA and received Federal SFA funds. He withdraws in the third week [3 10 = 30%], so the statutory pro rata refund requirements apply. SMA must calculate the student's refund according to its State guidelines (if any), its accrediting agency guidelines (if approved by the Department), and the statutory pro rata requirements. [[Voluntary pro rata]] STATE GUIDELINES. SMA's State guidelines allow it to retain institutional charges proportional to the portion of the enrollment period completed by the student. Because Bobattended 30% of the semester, SMA may keep 30% of the institutional charges. (This modified pro rata refund is voluntary, not statutory [i.e., not required by Federal law --] is nonpro rata and must be calculated according to the unpaid charges requirements. The refund regulations require that unpaid charges must be subtracted from the amount retained by SMA, but this issue is currently in litigation. For details on this topic, see pg. 3-78.) ACCREDITING AGENCY GUIDELINES. SMA's accrediting agency refund policy is not approved by the Department. Therefore, calculation and comparison of the accrediting agency refund is not applicable. STATUTORY PRO RATA REQUIREMENTS. The statutory pro rata rules require SMA to refund institutional charges proportional to the portion of the enrollment period that remains, rounded down to the nearest 10%. (Notice the State policy dictated how much SMA is allowed to RETAIN, but statutory pro rata requirements are written in terms of how much the school must RETURN.) The portion of the enrollment period that remains is calculated according to statutory formula (discussed on pg. 3-94). Using that formula, SMA calculates that 70% of Bob's enrollment period remains. Accordingly, SMA must refund 70% of institutional charges under the statutory pro rata refund calculation, and retains 30%. [[Compare After calculating the refund]] CALCULATING AND COMPARING THE REFUNDS In determining which calculation provides the largest refund, it is not enough to simply compare the refund percentages dictated by each policy. The school must completely calculate each refund separately, and then compare the resulting amounts. (Even though the State and pro rata refund policies provide for the same percentage refund, the school must perform both calculations and compare, because requirements specific to each policy may affect an individual's refund amount.) Also, do not automatically the statutory pro rata calculation provides the largest refund - always the case. In addition to the amounts the school is allowed to retain under each policy, SMA needs the following figures to calculate both refunds: (1) total institutional charges, (2) total amount paid to those charges, and (3) Bob's total unpaid charges. (1) Bob's institutional charges for the semester total $1500. (2) Bob received an $850 Federal Pell Grant disbursement and a $300 FSEOG payment; both credited to pay institutional charges. Bob also made a $200 cash payment. A total of $1350 was paid toward institutional charges [$850 + $300 + $200 = $1350]. (3) Unpaid charges are calculated by subtracting the total amount paid to institutional charges from the total institutional charges. Bob's unpaid charges equal $150 [$1500 - $1350 = $150]. (For a details on unpaid charges and the impact on a refund calculation, see pg. 3-86.) THE STATE REFUND CALCULATION. The State refund policy allows SMA to keep 30% of its institutional charges [$1500 x .30 = $450]. The unpaid charges [$150] must be subtracted from the amount SMA could otherwise retain [$450]. Thus, SMA is actually entitled to retain only $300 [$450 - $150 = $300]. SMA then subtracts the amount retained [$300] from the amount paid to institutional charges [$1350] to figure the refund [$1350 - $300 = $1050]. The State refund is $1050. THE STATUTORY PRO RATA REFUND CALCULATION. The statutory pro rata policy dictates that SMA's refund be proportional to the portion of the enrollment period that remains. As explained previously, 70% of Bob's enrollment period remains, so SMA must refund 70% of the institutional charges [$1500 x .70 = $1050]. The regulatory requirements regarding unpaid charges do not apply to a statutory pro rata calculation; rather, the statutory pro rata allows SMA to subtract Bob's unpaid charges [$150] from this initial refund amount [$1050]. Thus, the statutory pro rata refund would actually be $900 [$1050 - $150 = $900]. After calculating all the applicable refunds, the school must use the calculation that provides the largest refund - in this case, it is the State calculation resulting in a refund of $1050. Of that amount, $850 must be returned to the Federal Pell Grant program, and the remaining $200 goes to the FSEOG account, in accordance with the law and regulations. (For more on the required distribution of refunds and repayments, see pg. 3-99.) WITHDRAWAL DATE Regardless of whether it's a pro rata, State, accrediting agency, Federal Refund Policy, or institutional refund, the refund amount (and the repayment amount, to) is always determined in part by the student's WITHDRAWAL DATE withdrawal date. Some refund and repayment deadlines are also determined according to this date. (See "Timeframes For Return Of Funds" later in this Section.) [[Official withdrawals]] In the case of an official withdrawal, the student's withdrawal date is either the date the student notifies the school of his or her intent to withdraw or the date of withdrawal specified by the student, whichever is later. [[Unofficial withdrawals]] In the case of an unofficial withdrawal or an unapproved leave of absence (or a student's failure to return at the end of an approved leave of absence),*4* the withdrawal date is the last record date of class attendance (as documented by the school). Further, the school is required to determine the withdrawal date for an unofficial withdrawal within 30 days of the end of the period of enrollment, the academic year, or the program, whichever is earliest. [[Schools must document student attendance]] Participating SFA schools are expected to monitor student attendance for the purpose of determining a withdrawal date in cases of unofficial withdrawal. The school must demonstrate that the student has remained in academic attendance through a specified point in time. The school's determination of the student's last day of attendance must be based on an event that the school routinely monitors and must be confirmed by an employee of the school. If these conditions are met, the following are acceptable forms of such documentation: exams, records of attendance, tutorials, computer- assisted instruction, counseling, academic advisement, or study groups. [[Correspondence]] For a correspondence program, the withdrawal date is normally the date of the last lesson submitted, if the student failed to submit the subsequent lesson on schedule.*5* APPROVED LEAVE OF ABSENCE [[Final Rule 11-29-94]] Beginning July 1, 1995, a student who takes an approved leave of absence is not considered to have withdrawn from the school. A leave of absence is approved if -- - the student has made a written request for the leave of absence, - the leave of absence does not exceed 60 days, - the school has granted only one leave of absence to the student in any 12-month period, and - the school does not charge the student for the leave of absence. If a student's leave of absence is NOT approved, the student is considered to have withdrawn from the school, and the refund requirements apply. These leave of absence requirements also affect a student's in-school status for the purposes of deferring SFA loans. A student on an approved leave of absence is considered to be enrolled at the school and would be eligible for an in-school deferment for his or her SFA loans. A student who takes an UNAPPROVED leave of absence or fails to return to the school at the end of an approved leave of absence is no longer enrolled at the school and is NOT eligible for an in-school deferment of his or her loans. PERIOD OF ENROLLMENT [[Final Rule 11-29-94]] The refund and repayment amounts are also determined in part by the period of enrollment used in the calculation. The regulations require that a school use the actual period for which the student was charged,*6* with the following minimums -- - FOR ALL TERM PROGRAMS -- use the semester, trimester, quarter, or other academic term. Effective July 1, 1995, clock-hour term programs have the same minimum as credit-hour term programs. For the 1994-95 award year, the minimum period for all clock-hour programs (term and nonterm) was the lesser of the program length or the academic year. - FOR ALL NONTERM PROGRAMS --for programs that are longer than or equal to the academic year, use the payment period or one-half of the academic year, whichever is greater; for programs that are shorter than the academic year, use the program length. (These new minimums are also effective July 1, 1995.) (If a school charges by different periods for different costs, all charged amounts should be converted to represent the longest period.) DETERMINING INSTITUTIONAL AND NONINSTITUTIONAL CHARGES To calculate either a refund or a repayment, the school must first determine the student's costs and differentiate them into two different types: institutional charges (such as tuition) for refund purposes; and noninstitutional charges (such as off-campus rent, living expenses, or transportation costs) for the purposes of the repayment calculation. [[Is it an allowable COA component?]] Many of the questions about what charges can be included in the refund or repayment calculation can be answered by determining whether the charge is an allowable component of the student's Cost of Attendance (COA) under SFA program rules. For instance, an Application fee is not an allowable (COA) component of the student's Cost of Attendance (COA) under the SFA rules, because it is charged to any student who applies, regardless of whether they actually enroll, register, or attend classes. Therefore, the application fee could not be included as a cost to the student, in either the refund or repayment calculation.(Allowable COA components generally include only those costs that are required for a student's educational study and are required for all students in a certain program or class. For more information of COA and related issues, see Chapter Two of this Handbook.) Even if the cost is an allowable COA component, it is often unclear whether it's an institutional charge or a noninstitutional charge. Tuition charges are always institutional charges, but everything else (fees, room and board charges, books and supply costs, etc.) is subject to Departmental guidance and State or accrediting agency refund rules. Usually, if the student purchases books or supplies from the school, it's an institutional cost. However, the Department has determined that if the student has a REAL AND REASONABLE opportunity of obtaining the items (such as books) elsewhere, and only chooses to get them at the school as a matter of convenience, the cost is an noninstitutional charge.*7* The pro rata refund and the Federal Refund Policy regulations are very specific in defining institutional and noninstitutional charges, and even though these definitions aren't requirements for nonpro rata refund calculations, schools can use them as a guide when differentiating between institutional and noninstitutional charges, provided they are not in conflict with applicable State or accrediting agency rules. [[Pro rata and Federal Refund Policy rules for equipment and other charges]] Under pro rata and Federal Refund Policy rules, if the cost is listed in the student's enrollment agreement as a separate and required charge, or if the school refers the student to a school vendor or affiliated entity to purchase the required item, then it is considered an institutional cost. (Also, room charges that are collected by the school but are "passed-through" to an unaffiliated Enmity entity are not considered institutional costs so long as that entity is not controlled, affiliated with, or otherwise related to the school’s owners or management.) Lastly, pro rata and Federal Refund Policy rules don't count group health insurance fees as an institutional charge, so long as the insurance is required for all students and the purchased coverage remains in effect for the entire period for which the student was charged, in spite of the student's withdrawal. (Such a cost would be included as noninstitutional in the student's living allowance or miscellaneous expenses.) UNPAID CHARGES Before calculating a refund, schools must first figure the student's unpaid charges, according to the regulatory formula given below. The "Unpaid Charges" FIGURE is used differently in nonpro rata refunds than it is in pro rata refunds, but the unpaid charges CALCULATION is exactly the same, no matter what type of refund is involved: [[The calculation graphic on page 3-86 is currently unavailable for viewing. Please reference your paper document for additional information.]] In calculating unpaid charges, the school must take into account any late SFA disbursements or permissible late disbursements of State student aid for which the student is still eligible and will receive in spite of having withdrawn. The late disbursement amount should be counted in "Total Aid Paid to Institutional Costs." (For more on late disbursements, see pg. 3-88.) For all refunds other than a statutory pro rata refund required by law, any unpaid charges must be subtracted from the amount the school could otherwise retain, as shown below. (However, the applicability of this requirement to State calculations is currently under litigation; for more details, see pg. 3-78.) [[The graphic "Example - Unpaid Charges" on page 3-86 is currently unavailable for viewing. Please reference your paper document for additional information.]] [[Primary responsibility rests with student]] In the past, SFA funds would have paid the charges owed by the student, contradictory to the basic assumption that a student's own resources should be expended before SFA funds are used. This treatment of unpaid charges reaffirms the principle that the student is primarily responsible for financing his or her own education. In a nonpro rata refund situation, if the student's unpaid charges are equal to or greater than the amount that can be retained by the school, then the school must return all of the SFA funds (other than FWS) that were used to pay institutional charges. Also, if the school is not able to retain the full amount allowed under the applicable refund policy, it may collect the remaining balance from the student (the unpaid charges amount). If there are no unpaid charges, the school can retain the full amount allowed and cannot charge the student for any additional amount. (The underlying assumption is that the school is entitled to get only the money it EARNED during the student's enrollment, as determined by the applicable refund policy.) After the refund is calculated, if a student who is due to directly receive a portion of a refund owes unpaid charges to the school, the school may automatically credit the refund amount to the student's account up to the amount owed by the student. As stated previously, the "Unpaid Charges" total is used differently in the statutory pro rata refund calculation. For details, see "Pro Rata Refund Calculations" on pg. 3-93. (Note the if the school voluntarily elects to calculate a pro rata refund in situations where it is not required by Federal law -- such as if the school's State guidelines require it -- it is a nonpro rata refund. As explained above, the unpaid charges must be subtracted from the amount the school could otherwise retain.) LATE DISBURSEMENTS A student who withdraws or otherwise ceases attendance has lost SFA eligibility and generally may not be paid further funds for the enrollment period. However, in some cases, a late disbursement may be made. (See the discussion below for the specific late disbursement rules of each Federal SFA program.) A late disbursement may affect the refund calculations, as explained on pg. 3-91. THE FFEL PROGRAMS.*8* Generally, if a school receives a student's loan proceeds from the lender after the student has lost eligibility, those proceeds must be returned to the lender within 30 days. However, unless the guaranty agency prohibits late disbursements, the school may make a late disbursement if all of the following conditions apply -- - The loan proceeds are DISBURSED BY THE LENDER WITHIN 60 DAYS after the student has ceased to be enrolled on at least a half-time basis (or after the end of the enrollment period for which the loan was made, whichever is earlier), - The loan proceeds comprise THE STUDENT’S FIRST DISBURSEMENT for the enrollment period for which the loan was made (second or subsequent disbursements may not be made late if the student failed to complete the enrollment period for which the loan was made; these funds must be returned to the lender), and - The disbursement amount DOES NOT EXCEED THE DOCUMENTED EDUCATIONAL CHARGES--charges for the enrollment period for which the loan was made--that were incurred by the student while still enrolled and that have not been paid by the student or other sources of aid. ( If the disbursement amount does exceed documented costs incurred, the school must return the disbursement to the lender and request another disbursement in the correct amount.) IF DOCUMENTED EXCEPTIONAL CIRCUMSTANCES EXIST, a school may make (with the approval of the guaranty agency) a late disbursement if the loan proceeds are disbursed by the lender within 90 DAYS after the student has ceased to be enrolled on at least a half-time basis (or after the end of the enrollment period for which the loan was made, whichever is earlier). THE FEDERAL PERKINS LOAN AND FSEOG PROGRAMS. As of July 1, 1995, under certain conditions, a student who drops out before receiving his or her funds from the Perkins Loan or FSEOG programs can receive a payment. The school may disburse funds only if the student is awarded while he or she is still an eligible student and only if the funds are used to cover documented educational costs that were for a payment period for which the award was intended and the student was actually enrolled. The school must document in the student's file the reason for the late disbursement (see Chapter Five Section One). THE DIRECT LOAN PROGRAM. Generally, a school may make a late disbursement if the loan proceeds are DISBURSED WITHIN 60 DAYS after the student has ceased to be enrolled on at least a half-time basis (or after the end of the enrollment period for which the loan was made, whichever is earlier). IF DOCUMENTED EXCEPTIONAL CIRCUMSTANCES EXIST, a school may make a late disbursement within 90 DAYS after the student has ceased to be enrolled on at least a half-time basis (or after the end of the enrollment period for which the loan was made, whichever is earlier). The loan proceeds must comprise THE STUDENT'S FIRST DISBURSEMENT for the enrollment period for which the loan was made. Subsequent disbursements may not be made late if the student failed to complete the enrollment period for which the loan was made unless the borrower has graduated or successfully completed the period of enrollment for which the loan was intended; these funds must be returned. THE FEDERAL PELL GRANT PROGRAM.. If the school receives a valid output record (such as an SAR from a student or an ISIR from the central processor before the student loses eligibility, the student may receive a late Pell Grant disbursement, limited to the educational costs that could reasonably have been incurred prior to withdrawal and that have not been paid by the student or other sources of aid. (A late Pell disbursement may not result in a return of funds to the student or other sources of aid. In other words, you may not use a late Pell disbursement to pay institutional charges that have already been paid by the student or other aid, and then return an equal amount back to the student or aid source.) Late Pell Grant disbursements are discussed in detail below. [[Two ways to make a late Pell disbursement]] As with other financial aid programs, late Pell disbursement may be made in TWO WAYS: credited to the student's account to cover institutional charges, or paid directly to the student (in cash or by check) for noninstitutional costs. It is important to differentiate between these two methods of late Pell disbursement, because the rules governing late Pell disbursements differ depending on whether the funds are credited to institutional charges or disbursed for living expenses. Also, the refund process deals specifically with funds paid to institutional charges, while the repayment calculation deals only with disbursements of funds directly to the student. [[Late Pell disbursements credited to school costs]] In the past, schools have sometimes used their institutional refund policy to determine what institutional costs could reasonably have been incurred, but because the late disbursement amount is a factor in the refund calculation, this method doesn't work well. Therefore, the Department recommends that schools simply determine, PRIOR TO CALCULATING ANY REFUND AMOUNTS, what educational costs exist (for the period charged) that have not been satisfied by the student or by other sources of aid. A late Pell disbursement up to that amount may then be credited to institutional charges. (Refer to the example below.) For instance, if institutional charges for the enrollment period total $2000, and the time of withdrawal only $1500 had been paid, then institutional charges of $500 exist. Assuming the student is otherwise eligible, a late Pell disbursement of $500 could be credited to the student's account. (Even if the student was eligible for a larger Pell Grant, only $500 could be credited to institutional charges. Any remaining Pell funds for which he was eligible could be disbursed to the student, but only for noninstitutional costs incurred, as discussed below.) [[Late Pell disbursements paid in cash]] To make a late Pell disbursement directly to the student, the school must still determine on a case-by-case basis what noninstitutional expenses could reasonably have been incurred by the student prior to his or her withdrawal and have not been paid by other sources of aid. A late Pell disbursement in that amount may be paid to the student, subject to the provisions of 34 CFR 690.78(d). (See the example below.) [[The graphic "Example - Pell Late Disbursements" on page 3-90 is currently unavailable for viewing. Please reference your paper document for additional information.]] For instance, the student's noninstitutional expenses for the full enrollment period could be prorated for the period of time the student actually attended, taking into account any set policies and procedures that may apply. (If a student's rent is paid monthly and is not refundable under the landlord's policy, you may reasonably determine that a month's rent was incurred even if the student did not attend school for a full month. Similarly, if the campus bookstore's policy refunds only 50% of the purchase price of required books or supplies, you may justifiably determine that a student who actually began class incurred 50% of the cost of books and supplies regardless of when he withdrew.) THE EFFECT OF LATE DISBURSEMENTS ON REFUNDS AND REPAYMENTS. Once you've determined the student's reasonably incurred costs, you can calculate how much if any late SFA funds may reasonably be disbursed to the student. (Some States also allow late disbursements of State aid in certain circumstances.) Schools should determine late disbursement amounts PRIOR TO ANY REFUND OR REPAYMENT CALCULATIONS, and such determinations should be based on real expenditures and stable, predictable factors. Schools should develop a policy for such determinations and must ensure that the policy is consistently applied to all withdrawal situations that involve a late disbursement of SFA and State funds. When calculating a refund, any SFA late disbursement amount that WILL be credited to institutional charges must be counted as ALREADY PAID toward institutional charges, thereby reducing the student's scheduled cash payment and unpaid charges. (For more on unpaid charges, see pg. 3-86.) The repayment calculation should also consider late disbursements of SFA that will be paid directly to the student for living expenses (in the case of a student's institutional charges being paid in full). [[Late State disbursments]] Late disbursements of State aid may also be counted as ALREADY PAID toward institutional charges, thereby reducing the student's scheduled cash payment and unpaid charges, under the following circumstances -- - The late disbursement is made according to the State's written late disbursement policies, and the student is eligible for the disbursement in spite of having withdrawn, and - The disbursement is made within 60 days of the student's withdrawal. (If the late disbursement of State aid does not come in within 60 days, the school must recalculate the SFA refund and return any additional amounts to the appropriate SFA accounts or the lender as required.) [[Other late disbursements not considered]] LATE DISBURSEMENTS OF AID FROM SOURCES OTHER THAN THE FEDERAL SFA PROGRAMS OR APPLICABLE STATE AID MAY NOT BE COUNTED AS ALREADY PAID for purposes of the SFA refund and repayment calculations. Generally, all earned aid disbursements will have been received by the time a student's SFA refund and repayment amounts are calculated. In the rare case that a student aid payment from another source is received after the SFA refund and repayment have been calculated and processed, the funds should be handled according to the policies of the agency or entity providing the aid. In many cases, the student will still have unpaid charges or unmet living expenses for which the aid may be used. CREDIT BALANCES Credit balances are handled separately from the refund and repayment process. EXCEPT FOR FWS FUNDS (which must always be paid to a student who worked), a credit balance of SFA funds must either be given to the student or returned to the SFA programs. SFA funds can be paid to the student only for noninstitutional educational costs incurred*10* prior to withdrawal; otherwise, these funds must be returned to the SFA programs. FFEL funds would be returned to the lender; Pell and Direct Loan funds would be returned to the appropriate school accounts (with corresponding adjustments to disbursement records sent to the Department); and FSEOG and Perkins Loan funds would be returned to the appropriate accounts at the school, for possible awarding to other students. PRO RATA REFUND CALCULATIONS Previously, only schools with high FFEL program default rates were required to issue pro rata refunds, calculated in accordance with FFEL regulatory requirements. However, the 1992 Amendments' "fair and equitable" refund requirement (including pro rata) apply to all participating SFA schools, REGARDLESS OF THEIR DEFAULT RATES.. A statutory pro rata calculation is required if the student received SFA funds and BOTH of the following conditions apply -- 1. THE STUDENT IS A FIRST TIME STUDENT. The student is a first-time student. "First-time student" is defined in the regulations as any student who has not attended at least one class at your school, or who received a full refund (less any allowable administrative fees) for previous attendance at your school. Prior attendance at another postsecondary school does not preclude a student from being a first-time student at your school. A student remains a first-time student until he or she either ceases attendance after attending at least one class, or completes the period of enrollment for which he or she has been charged. 2. THE STUDENT WITHDREW ON OR BEFORE THE 60% POINT IN TIME OF THE ENROLLMENT PERIOD FOR WHICH HE OR SHE WAS CHARGED. For credit-hour programs, this is the point in calendar time when 60% of the enrollment period has elapsed. For clock-hour programs, it is the point when the student completes 60% of the hours scheduled for the enrollment period. [[The graphic "60% Point of Enrollment" on page 3-93 is currently unavailable for viewing. Please reference your paper document for additional information.]] If BOTH of the above conditions apply to the student in question, then a statutory pro rata refund must be calculated and compared to other applicable refunds (State and/or accrediting agency). However, if the school has no applicable State or accrediting agency policies, no refund comparisons are required for the first-time students who withdrew on or before the 60% point in the enrollment period. The only applicable option for these students is pro rata, so no other calculation is necessary. For all other SFA students at a school with no applicable State or accrediting agency policies (those who are NOT policy refund first-time and have NOT withdrawn on or before the 60% point in the enrollment period), the school would have to calculate an Federal Refund policy and an institutional refund, compare the two, and issue the largest. Some different rules apply when calculating a pro rata refund. Some institutional charges can be excluded from the proration that results in the refund amount. So, the amount of institutional charges that is used in a nonpro rata refund calculation may be different than the amount used for a pro rata calculation. The following amounts can be EXCLUDED from the institutional charges used to calculated a pro rata refund -- [[DCL GEN-95-22]] - A reasonable administrative fee, not to exceed $100 or 5% of the total institutional charges, whichever is less. Previously, this had to be an actual fee, charged up front and across-the- board to like groups of students. Effective July 1, 1995, a school may exclude an administrative fee (within the above limits) without specifically identifying it as a separate charge.*10* - The DOCUMENTED COST TO THE SCHOOL (in other words, what the school paid for the items) of any unreturnable equipment issued to the student or any returnable equipment that was not returned in good condition within 20 days after withdrawal.*11* Another step unique to the pro rata refund calculation is the determination of the "portion that remains." Under a pro rata refund, the school must refund an amount proportional to the portion of the enrollment period that WAS NOT completed by the student. This "portion that remains" percentage is calculated based on the following formula and may be rounded down to the nearest 10%. [[The graphic on page 3-94 is currently unavailable for viewing. Please reference your paper document for additional information.]] IT IS IMPORTANT TO NOTE THAT, BECAUSE OF THE REQUIRED ROUNDING, THIS "PORTION THAT REMAINS" FIGURE WILL NOT NECESSARILY CORRESPOND TO THE "PERCENTAGE POINT IN TIME" USED TO DETERMINE IF A STUDENT WITHDREW ON OR BEFORE THE 60% POINT. For instance, if a student withdraws at the 35% point in time, the portion that remains -- 65% -- would be rounded down to 60%. [[Unpaid charges treated differently]] Finally, the pro rata refund calculation differs from all nonpro rata calculations in that the "Unpaid Charges" total is treated differently. Instead of being subtracted from the amount the school may retain, the unpaid charges are subtracted from the refund amount. Thus, a portion of the refund goes to pay the student's unpaid charges, instead of being returned to the SFA programs. [[If unpaid charges exceed the refund]] If the initial SFA refund is equal to or greater than the student's unpaid charges, the school will be able to retain the full amount allowed and cannot bill the student for any additional funds. However, in the rare case that the statutory pro rata refund due is less than a student's unpaid charges, the school may bill the student for the remaining amount. For instance, assume a student's statutory pro rata refund was calculated at $800, but his unpaid charges totaled $900. Assuming the pro rata calculation was the only applicable refund for the student, the school could keep the entire refund and bill the student for the remaining $100. (For more information on unpaid charges, see pg 3-86.) [[Excludable costs]] Similarly, the school is entitled to bill the student for any of the charges that were EXCLUDED from the pro rata calculation that were left unpaid. (The school is entitled by law to retain 100% of those costs, and if they were not paid in full by the student or other sources, the school is entitled to bill the student.) FEDERAL REFUND POLICY CALCULATIONS [[Final Rule 11-29-94]] Effective July 1, 1995, the Appendix A refund policy is replaced by the Federal Refund Policy. The percentage calculation under the Federal Refund Policy has not changed from the calculation required under Appendix A. The other requirements of the Federal Refund Policy will be the same as certain requirements of the pro rata refund policy. As stated on pg. 3-76, a school must calculate for any SFA student a maximum of three refunds and compare those to determine the largest applicable refund for the student. Those three refunds are (1) a statutory pro rata refund, if applicable, (2) a State refund, if State standards exist, and (3) an accrediting agency refund, if the agency's policy is approved by the Department. IF NONE OF THE THREE OPTIONS ABOVE APPLY TO A PARTICULAR STUDENT, the school must then calculate a Federal Refund Policy refund, compare it with the refund calculated under the school's own institutional refund policy, if any, and issue the larger of the two refunds. Because a Federal Refund Policy refund is a nonpro rata refund, the school must subtract any UNPAID CHARGES from the amount that it could otherwise retain. (See pg. 3-86 for more on unpaid charges.) [[Applies to all withdrawals]] [[Refund percentages mandated]] Unlike Appendix A, the Federal Refund Policy requires schools to use the policy for all students who withdraw, not just for students who provide written notice of withdrawal. The Federal Refund Policy mandates the percentage of institutional charges*13* that must be refunded as follows -- - Withdrawal up to one week before or on the first day of class -- 100% REFUND of institutional charges (less an administrative fee of the lesser of $100 or 5% of institutional charges--see pg. 3-94 for more information.)*13* - Withdrawal from after the first day of class through the first 10% of the enrollment period -- 90% REFUND of institutional charges. - Withdrawal from after the first 10% of the enrollment period through the first 25% of the enrollment period -- 50% REFUND of institutional charges. - Withdrawal from after the first 25% of the enrollment period through the first 50% of the enrollment period--25% REFUND of institutional charges. Schools should note that if a student withdraws before his or her first day of class, SFA funds may not be used to pay any portion of a student's educational costs. So, although the Federal Refund Policy permits a school to retain an administrative fee if the student withdraws up to one week before the first day of class, the school may not use SFA funds to cover this amount. [[Equipment costs]] As with the pro rata refund policy, a school may EXCLUDE from the institutional charges used to calculated the Federal Refund Policy refund a reasonable administrative fee, not to exceed $100 or 5% of the total institutional charges, whichever is less (See pg. 3-94 for more information). A school may also exclude the documented cost TO THE SCHOOL of any unreturnable equipment issued to the student or any returnable equipment that was not returned in good condition within 20 days after withdrawal. (See pg. 3-94 for more details.) [[Institutional charges]] The Federal Refund Policy also follows the same requirements as the pro rata refund policy in the following areas: (1) determination of institutional charges, (2) treatment of "passed-through" room charges, and (3)treatment of group health insurance fees. (See pg. 3-85 for more information.) For the sake of consistency, the Department recommends that schools use the requirements for pro rata refunds for determining the point in time of a student's withdrawal; however, schools are not required to do so. (See pg. 3-93.) REPAYMENT CALCULATIONS A different situation can occur--repayment --when a student received SFA funds as a disbursement to cover living expenses. Living expenses are defined as education costs above and beyond the tuition and fee charges, including items such as room and board (if the student does not contract with the school), books, supplies, transportation, and child care expenses. [[Living expenses incurred]] When a student who received directly an SFA disbursement ceases attendance, the school must determine whether the student must repay a portion of the disbursement. If the school finds that the student's living expenses incurred up to the time of withdrawal exceed the amount of funds disbursed, the student does not owe a repayment. However, if the disbursement was greater than the student's living expenses up to the withdrawal date, the student must repay the excess amount. (If the repayment owed is $100 or less, the student is not required to repay it.) Remember, as with refunds, FWS wages are excluded because they have been earned. And FFEL and Direct Loan funds are not counted in figuring the amount of the overpayment (because the student is already obligated to repay these funds to the lender). The school is responsible for notifying the student of the amount owed, for billing the student, and for collecting the overpayment. However, a school is not liable for the owed amount if it is cannot collect the repayment from the student. In such a case, the student is ineligible for further SFA funds, and must be reported as being in overpayment status on the financial aid transcript. [[Referring overpayments]] A student who fails to repay Pell or FSEOG funds can be referred to the Department for collection, unless the overpayment is the result of school error. The Department will refer the account to its collection agent, and the student's record will be placed in a subsystem database match of the Central Processing System (CPS). Until the overpayment is resolved, the CPS will flag any future FAFSA filed by that student; on the resulting output record, comments will explain the overpayment owed and will instruct the school and student in resolving the matter. See The Verification Guide for information on referring overpayment cases to the Department. DISTRIBUTING REFUNDS AND REPAYMENTS Refund and repayment amounts must be distributed according to a specific order of priority prescribed in the law and regulations. (Previously, schools determined their own SFA refund and repayment distribution policies.) The school's refund or repayment distribution may not deviate from the prescribed order, even if the school's agreement with a State or private agency requires the school to return a specific percentage of the aid provided by that agency. FEDERAL LAWS AND REGULATIONS SUPERSEDE ALL OTHER REQUIREMENTS AND MUST BE FOLLOWED. REFUNDS on behalf of SFA recipients must be distributed in the following order -- 1. Federal SLS Loan 2. Unsubsidized Federal Stafford Loan 3. Subsidized Federal Stafford Loan 4. Federal PLUS Loan 5. Unsubsidized Federal Direct Stafford Loan 6. Subsidized Federal Direct Stafford Loan 7. Federal Direct PLUS Loan 8. Federal Perkins Loan 9. Federal Pell Grant 10. FSEOG 11. Other SFA Programs 12. Other Federal, State, private, or institutional sources of aid 13. The student*14* [[Final Rule 11-29-94]] Note: Effective July 1, 1995, schools are required to return refunds to a student's unsubsidized Federal Direct Stafford Loan balances before returning funds to a Subsidized Federal Direct Stafford Loan balance. REPAYMENTS from SFA recipients must be distributed as follows-- 1. Federal Perkins Loan 2. Federal Pell Grant 3. FSEOG 4. Other SFA Programs 5. Other Federal, State, private, or institutional sources of aid Funds returned to any SFA program may not exceed those received from that program. However, in some cases, the holder of the loan will pay off a portion of the loan balance. If the amount of an FFEL loan that is delivered to a student (the net amount) is repaid in full within 120 days of the date the lender disbursed the loan, the holder of the loan must return any deducted origination fees and insurance premiums to the student's account. Schools should refer to the following chart to determine the portion of a loan that must be repaid with a borrower's refund. [[The graphic on page 3-100 is currently unavailable for viewing. Please reference your paper document for additional information.]] In both cases, if the school returns the required amount of the refund, the entire outstanding balance of the loan will be eliminated. After making the refund to the lender, any additional refund amounts should be distributed to other sources of aid in the required order. A school may use its own funds to eliminate remaining FFEL balances for a period of enrollment if a refund results in the school returning less than the amount needed to eliminate the loan balance. A school may contribute its own funds at the time of the distribution of the refund only. A school may not use its own funds to eliminate any portion of a loan balance after the refund has been made, or if no refund is required. For unsubsidized loans where interest has already accrued when the student withdraws, a school may pay off the accrued interest only if the school determines the exact amount of the accrued interest for the period of enrollment. Remember that a school may only return funds to repay a loan up to the amount listed above. TIMEFRAMES FOR RETURN OF FUNDS REFUNDS TO SFA PROGRAM ACCOUNTS must be returned within 30 days of the date the student officially withdraws, is expelled, takes an unapproved leave of absence, fails to return from an approved leave of absence, or in the case of an unofficial withdrawal, within 30 days of the date the school determines that the student has unofficially withdrawn.*14* REFUNDS TO A LENDER (under the Stafford, SLS, or PLUS programs) must be returned in accordance with the FFEL regulations (34 CFR part 682). A REPAYMENT must be returned to the appropriate SFA program accounts within 30 days of the date the student repays the funds. [[Final Rule 11-29-94]] The school is also required to pay any refund owed to the student (if any funds remain after distribution to all higher priority sources) within the following timeframes. - Official withdrawal or expulsion -- within 30 days after the withdrawal date. - Unofficial withdrawal -- within 30 days of (1) the date of determination, (2) the end of the term, or (3) the end of the period of enrollment, whichever is earlier. - Does not return after approved leave of absence -- within 30 days of either (1) the end of the leave of absence, or (2) the date the student notifies the school that he or she will not be returning, whichever is earlier. - Unapproved leave of absence -- within 30 days after the last recorded date of attendance. [[The "Refund and Repayment Case Studies" and the "Case Study and Refund Calculation Worksheets" on pages 3-105 to 3-132 are currently unavailable for viewing. Please reference your paper document for additional information.]] *1* For the 1994-95 award year, a student taking an approved leave of absence was considered to have withdrawn for the purposes of refund and repayment requirements. *2* See the discussion of the April 1995 Dear Colleague Letter on page 3-78. *3* The November 29, 1994 regulations replaced Appendix A with the Federal Refund Policy. For more information, see pg. 3-95 in the Handbook. *4* See the discussion on leave of absence on page 3-83. *5* If within 60 days of the last lesson submission, the student states in writing that he or she wishes to continue in the program and understands that subsequent lessons must be submitted in time, the school may restore the student to in-school status. Only one such restoration can be granted to a particular student. *6* How the student is billed, such as on an installment or monthly payment plan, does not automatically determine how much the student was "charged." The "period of enrollment for which the student was charged" is the period for which the student is contractually liable by having signed an enrollment agreement or similarly binding document. *7* Some schools have adopted the practice of issuing a student's SFA cash disbursement in the form of a voucher, good as cash in the school's bookstore. The school ostensibly gives the student the option of purchasing books from other stores as well, but without the benefit of a voucher. Such a student DOES NOT have a reasonable opportunity to purchase his or her books elsewhere, because to do so would mean forfeiting the cash value of the voucher. Therefore, book charges under such a system must be considered institutional charges for the purposes of a refund or repayment calculation. *8* In addition to the above rules, the school may not, under any circumstance, make a late FFEL disbursement to a first-year undergraduate borrower who failed to complete the first 30 days of the enrollment period for which the loan was made. *9* In determining the educational costs incurred prior to withdrawal, the school may include documented, noninstitutional costs incurred by the student. *10* However, the school must indicate clearly (as part of the written statement explaining its refund policies to students) that a withdrawing student's refund will be reduced by the exclusion of an administrative fee from the refund calculation. *11* The school must notify the student in writing prior to enrollment that return of the equipment will be required within 20 days of withdrawal. Also, the school must disclose in the enrollment agreement any restrictions on the return of equipment, including the identification of unreturnable items. The school cannot delay the payment of a refund by reason of the equipment return process. *12* When used in the Federal Refund Policy, the term "tuition charges" refers to ALL institutional charges. *13* Remember that a portion of the refund can be paid to the student ONLY IF FUNDS REMAIN AFTER the refund has been returned to the SFA programs and other sources in order. *14* Remember, the school is also required to determine that the student has unofficially withdrawn within a certain amount of time. See pg. 3-82.

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