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Guidance Available on Return of Title IV Aid

February 25, 2004

The Department of Education issued a Dear Colleague” letter addressing a number of concerns and questions related to the rules for the return of Title IV aid (R2T4) when a student withdraws from an institution. The 17-page letter (GEN-04-03) answers some key questions about how institutions should handle

  • Title IV credit balances,
  • Title IV aid that could have been disbursed,
  • Incomplete verification at the time of withdrawal,
  • Students who fail to receive a passing grade in any class,
  • Calculation of aid earned for nonterm credit-hour programs,
  • The date of the institution's determination that the student withdrew at institutions that are required to take attendance, and
  • LEAP funds.

For each topic, the letter provides an explanation of existing guidance, clarifications or changes to ED's policy, and answers to questions that might be raised. Highlights are summarized below.

Title IV credit balances. The letter expands on guidance originally provided in the preamble to the 1999 regulations establishing the R2T4 requirement that said that institutions would be expected to use any credit balance on a student's account to pay a grant overpayment owed by the student. The letter explicitly provides that the institution should not proceed with a refund of an existing Title IV credit balance to a student if the student has withdrawn (even though the regulations generally require such refunds within 14 days).

Because R2T4 operates independently from the institution's refund policy, questions have arisen about how institutional refunds figure into the R2T4 calculation. GEN-04-03 provides a sequence of steps for the institution, so that the R2T4 calculation is made first, then the amount of any credit balance is recalculated after the institutional refund policy is applied. Specific guidance on how to allocate the credit balance is provided.

Aid that could have been disbursed. The letter changes how undisbursed Title IV aid for the period is included in the R2T4 calculation. Such aid should now be included in the calculation as “aid that could have been disbursed” even if the institution could not have made the disbursement before the student withdrew as long as certain conditions are met. This change is for the purpose of calculating the amount of aid earned by the student before withdrawal only (and will generally increase the aid earned). It does not, however, affect the ability to the institution to actually disburse funds to the student after withdrawal. GEN-04-03 also addresses treatment of inadvertent overpayments to students and strongly urges institutions to implement systems to ensure that funds are not disbursed to ineligible students.

Withdrawal prior to completion of verification. When students who are subject to verification withdraw before completing the process, institutions are faced with overlapping deadlines stemming from the verification, cash management, and R2T4 rules. GEN-04-03 provides specific deadlines for this situation. Basically, the R2T4 calculation must be completed in time to meet the 30-day R2T4 deadline, but only aid not subject to verification (PLUS and unsubsidized Stafford loans) may be included. If the student provides the necessary documents prior to the verification deadline, but not in time for the institution to meet the R2T4 deadline, the institution needs to recalculate the R2T4 and make adjustments as necessary.

If the institution had already disbursed Title IV aid to the student under the verification interim disbursement rules, and the student fails to meet the verification requirements prior to the R2T4 deadline, the institution must return the funds.

Students with failing grades. Currently, an institution must treat a student who fails all of his or her classes for the period as an unofficial withdrawal unless the institution can document that the student completed the period. GEN-04-03 allows institutions to establish alternative grading policies to determine if a failing student unofficially withdrew or simply did not meet the institution's academic standards. Alternatives could include, for instance, requiring professors to provide the last day of attendance for all students with failing grades, or using different grade designations for failing academically or failing due to lack of completion.

The policy interpretations in GEN-04-04 are effective as of the date of the letter, which was posted to the Office of Student Financial Aid Web site on February 13. Direct questions to OSFA Customer Service Call Center at 202.260.4199 or

The NACUBO contact is Anne Gross, 202.861.2544.