Federal Student Aid - IFAP
   
AwardYear: 1997-1998
EnterChapterNo: 3
EnterChapterTitle: Institutional Eligibility and Administrative Requirements
SectionNumber: 4
SectionTitle: Refunds and Repayments
PageNumbers: 79-134

ch3_s4.pdf  PDF  ch3_s4cs.pdf  PDF
This section explains the refund and repayment requirements in
effect since the 1995-96 award year and provides refund and
repayment examples. The requirements discussed here are found in
34 CFR 668.22. THESE REFUND AND REPAYMENT RULES
APPLY TO ALL PARTICIPATING SFA SCHOOLS.

[[When requirements apply]]
The SFA refund and repayment requirements apply when a student
receives SFA funds and 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.

The SFA refund and repayment requirements DO NOT APPLY to a
student who

- withdraws, drops out, or is expelled before his or her first day of
class,*1*

[[Partial withdrawals not affected]]
- withdraws from some classes, but continues to be enrolled in other
classes, or

[[Students who don't receive SFA not affected]]
- does not receive SFA funds for the 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.)

[[NEW]]
A student has "received" SFA Program funds if a disbursement of
SFA Program funds has been made. Final regulations published
November 29, 1996 changed the definition of an SFA disbursement
(see Section 3). Under the new definition, an SFA disbursement
occurs even when a school credits a student's account with
institutional funds labeled as SFA Program funds. If a student ceases
attendance after the account is credited but before the SFA funds are
actually drawn down, the student is an SFA recipient, and the SFA
refund requirements apply. The school must draw down the SFA
funds, perform any required refund calculations, and return any
refund to the proper source. If, however, the entire refund will be
returned to the same program from which the draw down will occur,
the school may draw down the net amount of funds. For example,
institutional funds in the amount of $1000 are credited to a student's
account and labeled as Pell Grant funds, creating a Pell Grant
disbursement. Before the school draws down the Pell Grant funds,
the student withdraws. The Pell Grant is the student's only source of
SFA funds. The refund due to the Pell Grant Program is $500. The
school may modify its draw down request to $500 in Pell Grant
funds.

[[The graphic "Refund Situation" on page 3-80 is currently
unavailable for viewing. Please reference your
paper document for additional information.]]

Some schools may refer to a return of funds to the SFA Programs for
students who do not attend at least one class or who withdraw from
some (but not all) classes as a "refund" or "repayment." Also, many
schools refer to a "refund" as 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.

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, after attending at least one class.

A 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 may retain under the appropriate
refund policy.

[[The two small graphics on page 3-80 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 after attending at least one class) 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 3-81 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. (However, a recipient of Federal Work-Study funds is an
SFA recipient so the SFA refund requirements apply.) Also, FFEL
and Direct Loan funds are excluded in the REPAYMENT process
because the student is already required to repay them to the lender.
This is one reason that 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]]
A school is required to PROVIDE a written statement explaining its
refund policies and procedures to prospective students prior to
enrollment or prior to execution of an enrollment agreement (or other
document that legally binds a student to pay the school), 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.). If the school changes its refund policies or
procedures at any time, it must provide this information to all current
and prospective students. This information may be provided through
a school catalog or included in a schedule of fees if these
publications are distributed to all current students and prospective
students at no charge. A school is not PROVIDING the information
to all students if it is only including the information in a school
newspaper or a flyer that is available on campus.

[[Examples & required procedures]]
The school must make examples of common refund situations
available, although it is not necessary to provide an example of every
possible refund situation. The written statement must inform the
student that these examples are available. Additionally, the school
must provide a detailed explanation of the procedures a student must
follow to receive 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]]
Schools must also publish the student's costs for required supplies
and equipment (including books). 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;

- specific refund requirements established by the school's nationally
recognized accrediting agency, as approved by the Department; 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 period
of enrollment for which the student has been charged. (Pro rata
refunds are discussed later in this section.)

If none of the three options above applies to a particular student, the
school must then calculate a refund according to the Federal Refund
Policy found in the regulations. The school must compare the
Federal Refund Policy refund with the refund amount under its own
institutional refund policy (if any), and issue the larger of the two
refunds. FOR EACH SFA STUDENT WHO DOES NOT
COMPLETE THE ENROLLMENT PERIOD FOR WHICH THEY
WERE CHARGED, THE SCHOOL MUST CALCULATE ALL
APPLICABLE REFUNDS TO SEE WHICH IS THE LARGEST.

[[First-time student]]
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 calculate a statutory
pro rata refund and compare this amount to the refund amount from
the applicable state and accrediting agency policies (if any) to
determine the largest available refund to the student. (For more
details on pro rata requirements, see page 3-94.) If both the state and
the accrediting agency policies do not exist or are not applicable, the
student's refund is the pro rata refund amount.

[[Continuing student]]
If a student is a CONTINUING STUDENT (not a first time student)
who withdrew, or a first time student who withdrew after the 60%
point of the enrollment period for which he or she is charged, the
school must calculate the student's refund amounts using the
applicable state and accrediting agency policies (if any), compare the
resulting refunds, and use the calculation that provides the largest
refund. If the state and accrediting agency policies do not exist or are
not applicable, the school must calculate the refund under the Federal
Refund Policy and the school's policy (if any) and provide the largest
refund.

The flowchart below illustrates the various required refund
calculations and comparisons that may be required.

[[The "Fair and Equitable Refund Requirement" flowchart is
currently unavailable for viewing. Please reference
your paper document for additional information.]]

The Department must specifically approve an accrediting agency's
refund policy before it may be used in the refund comparison. AS
THIS PUBLICATION GOES TO PRINT, NO ACCREDITING
AGENCY REFUND POLICIES HAVE BEEN APPROVED BY
THE DEPARTMENT.

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.

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 Bob attended 30% of the
semester, SMA may keep 30% of the institutional charges. (This
modified pro rata refund is voluntary, not statutory [i.e., it is not
required by federal law]--so it 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 page 3-90.)

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 for which the student has been
charged that remains, rounded down to the nearest 10%. (Notice that
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 for
which the student has been charged that remains is calculated
according to statutory formula (discussed on page 3-96). Using that
formula, SMA calculates that 70% of the enrollment period for
which Bob has been charged 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, it is not safe to automatically assume that the
statutory pro rata calculation provides the largest refund--that is not
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 $1,500.

[[Total amount paid]]
[[850 + 300 + 200 = 1350]]
(2) Bob received an $850 Federal Pell Grant disbursement and a
$300 FSEOG payment; both are credited to cover institutional
charges. Bob also made a $200 cash payment. A total of $1,350 was
paid toward institutional charges ($850 + $300 + $200 = $1,350).

[[Unpaid charges]]
[[1500 - 1350 = 150]]
(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 ($1,500 - $1,350 = $150). (For a details
on unpaid charges and the impact on a refund calculation, see page
3-90.)

[[State refund]]
[[1500 x .30 = 450]]
[[450 - 150 = 300]]
[[1350 - 300 = 1050]]
THE STATE REFUND CALCULATION. The state refund policy
allows SMA to keep 30% of its institutional charges ($1,500 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 ($1,350) to figure the refund ($1350 - $300 =
$1,050). The refund under the state policy is $1050.

[[Pro rata]]
[[1500 x .7 = 1050]]
[[1050 - 150 = 900]]
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 for which the student has been
charged that remains, rounded downward to the nearest 10%. As
explained previously, 70% of the enrollment period for which Bob
has been charged remains, so SMA must refund 70% of the
institutional charges ($1,500 x .70 = $1,050). 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 his initial refund amount
($1,050). Thus, the statutory pro rata refund would actually be $900
($1,050 - $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 $1,050. Of that amount, $850
must be returned to the 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 page 3-100.)

Because SMA earned $450 but received only $300, SMA may bill
the student for the $150 of unpaid charges.

WITHDRAWAL DATE

[[CLARIFICATION]]
A key component needed in order to determine if a refund of
institutional charges is required is the date the student stopped
attending classes and, therefore, was no longer receiving the
instruction for which he or she was charged. This date is generally
referred to as the withdrawal date. The withdrawal date is also
critical in determining the amount of a student's refund. The General
Provisions regulations define the withdrawal date as the earlier of

- the date that the student notifies an institution of the student's
withdrawal, or the date of withdrawal specified by the student,
whichever is later, or

- if the student drops out of the institution without notifying the
institution (does not withdraw officially), the last recorded date of
class attendance by the student, as documented by the institution.

In all cases, whether or not the student notifies the school that he or
she is withdrawing or has withdrawn, this definition is used to
determine a student's withdrawal date by determining the student's
last date of class attendance. In some cases, a school may use the last
date of attendance as specified by the student; in others, the last date
of attendance must be documented by the school. For example:

Scenario 1: For a student who never notifies the school that he or she
has stopped attending classes, the withdrawal date is the student's last
recorded date of attendance, as documented by the school.

Scenario 2: In those instances when the student informs the school
that he or she will stop attending classes at a later date, the last date
of attendance may be determined by using the date supplied by the
student. If, however, the school has conflicting information and can
document that the student attended beyond the date he or she
specified, the last date of attendance is the date which the school
documented was the student's last day of attendance.

Scenario 3: When a student stops attending classes and
SUBSEQUENTLY notifies the school that he or she withdrew, the
withdrawal date is the last recorded date of class attendance by the
student as documented by the school, EXCEPT that the Department
allows a school to use the last date of class attendance as specified by
the student. The regulations address such cases by the use of the
word "earlier" which acknowledges that two situations could exist
for the same student during the same enrollment period. That is, a
student who stopped attending classes without notifying the school
may, at a later date, notify the school that he or she has withdrawn.
The rule requires the school to establish the withdrawal date under
both conditions and use the earlier date.

[[Timely payment of refunds and repayments]]
To aid schools in the determination of the time frames for the return
of funds, the withdrawals described above are characterized here as
official withdrawals or unofficial withdrawals (see "Time Frames For
Return Of Funds" later in this section). For this purpose, a student is
considered to have officially withdrawn if he or she notifies the
school of his or her withdrawal during the period of enrollment for
which the student has been charged. Therefore, Scenario 1 described
above is an unofficial withdrawal, and Scenarios 2 and 3 are official
withdrawals. A school is required to determine the withdrawal date
for an unofficial withdrawal within 30 days of the end of the period
of enrollment for which the student has been charged, the academic
year, or the program, whichever is earliest.

For a student who is expelled from school or a student who fails to
return from an approved leave of absence,*2* the withdrawal date is
the last date of attendance, as documented by the school. If a student
takes an unapproved leave of absence, the withdrawal date is the last
date of attendance prior to the leave of absence, as documented by
the school.

If a school uses the last date of attendance as provided by the student,
and the school has reason to believe that the information provided by
the student is inaccurate, it must resolve any conflicting information
between the student's statement and its records.

[[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.*3*

APPROVED LEAVE OF ABSENCE

A student who takes an approved leave of absence is considered not
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 or the student fails to
return to the school at the end of an approved leave of absence, 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 FOR WHICH THE STUDENT HAS
BEEN CHARGED

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, with the following minimums:

- FOR ALL TERM PROGRAMS use the semester, trimester,
quarter, or other academic term.

- 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.

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.

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 separate them into two different
types: institutional charges (such as tuition) used to calculate any
refund due; and noninstitutional charges (such as off-campus rent,
living expenses, or transportation costs) used to calculate any
repayment due.

[[Allowable charges & institutional charges]]
In general, an INSTITUTIONAL CHARGE is a charge for
educational purposes by a school for which the school requires direct
payment. There is some confusion over the relationship between
"allowable charges" and institutional charges. Allowable charges are
not always institutional charges (see Section 3 for a discussion of
allowable charges) and a charge is not automatically an institutional
charge just because a school has credited a student's account with
SFA funds to cover the charge. For example, a student may give a
school permission to credit her account for the cost of concert tickets.
This would make the cost of the concert tickets an allowable charge.
However, because the ticket charge is not a charge for educational
purposes that is required to be paid to the school, if the student
withdraws, the cost of the concert tickets would not be an
institutional charge. The cost of the tickets would be a
noninstitutional charge and would be included in any repayment
calculation for the student.

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 to obtain the items (such as books) elsewhere and only
CHOOSES to buy them at the school as a matter of convenience, the
cost is a noninstitutional charge.

[[Pro rata & Federal Refund Policy rules for equipment & other
charges]]
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.

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. (Room charges that are collected by the school but
that are "passed-through" to an unaffiliated 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, despite a 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 determine the
student's unpaid charges, according to the regulatory formula given
below. The "Unpaid Charges" amount 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:

Total Institutional Costs for the Enrollment Period
- Total Aid Paid to Institutional Costs
----------------------------------------------------
= STUDENT'S SCHEDULED CASH PAYMENT (SCP)
- Student's Cash Paid
----------------------------------------------------
= UNPAID CHARGES

A school may choose to request 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.
Note that if a school elects to receive a late disbursement, the late
disbursement must be taken into account when determining the total
aid received. The late disbursement amount should be counted in
"Total Aid Paid to Institutional Costs." (For more on late
disbursements, see page 3-92.)

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 on the next page. (However, the
applicability of this requirement to state calculations is currently
under litigation; see below.)

[["Example -- Unpaid Charges" on page 3-91 is currently unavailable
for viewing. Please reference your paper document for additional information.]]

[[Primary responsibility rests with student]]
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 may 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 receive
directly 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. If a school chooses to
implement this policy, it must publicize it as part of its written refund
statement provided to current and prospective students. In addition,
the school must notify a student in writing when any portion of the
refund that was due the student is applied to unpaid institutional
charges.

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 page 3-94. (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.)

"Dear Colleague" letter GEN-95-22 (DCL), published April 1995,
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.

At this time, the guidance issued in DCL GEN-95-22 remains in
effect.


*1* See 34 CFR 668.21, 685.303, and 682.604.

*2* See the discussion on leave of absence on page 3-88.

*3* 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 on time, the
school may restore the student to in-school status. Only one such
restoration can be granted to a particular student.

Section 4: Refunds and Repayments
pages 3-92 to 3-134


LATE DISBURSEMENTS

[[NEW]]
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. A late disbursement may affect the refund calculations. The
November 29, 1996 final regulations consolidated the requirements
for late disbursements of SFA Program funds. (For more information
on late disbursements, see Section 3.)

In the past, schools have sometimes used their institutional refund
policy to determine what institutional costs could reasonably have
been incurred. 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.

For instance, if institutional charges for the enrollment period total
$2,000, and at the time of withdrawal only $1,500 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.)

Once a school determines the student's reasonably incurred costs, it
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. 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 page 3-90.) The repayment calculation should
also consider late disbursements of SFA Program funds 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 disbursements]]
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. Before calculating a student's refund, a school
must resolve any existing credit balance. If a student who withdraws
has a credit balance, the school may determine if the student has
incurred noninstitutional costs that have not been paid by other
sources of aid. If the school does determine that such noninstitutional
costs exist, the school may disburse to the student directly the portion
of the credit balance needed to cover the incurred costs. If such
noninstitutional costs do not exist, or the full amount of the credit
balance is not needed to cover the costs, the school must return the
balance 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.

Obviously, a school will have to determine which SFA Program
funds created a credit balance before it can return funds to the SFA
Programs. At this time, the Department does not specify how a
school must determine which SFA funds create a credit balance.
However, the Department encourages schools to return SFA Program
funds to loan programs first to reduce the likelihood of default. (For
more information on credit balances, see Section 3.)

PRO RATA REFUND CALCULATIONS

The 1992 Amendments' "fair and equitable" refund requirement
(including pro rata) apply to all participating SFA schools. A
statutory pro rata calculation is required if the student received SFA
funds and BOTH of the following conditions apply:

- 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.

- 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 for which the student has been charged.

[[The graphic "60% Point of Enrollment" 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 any first-time
student who withdrew on or before the 60% point in the enrollment
period for which the student has been charged. 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 both first-time
and have withdrawn on or before the 60% point in the enrollment
period for which the student has been charged), the school would
have to calculate a Federal Refund Policy refund and an institutional
refund, compare the two, and issue the largest refund.

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. Therefore, 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
may be EXCLUDED from the institutional charges used to
calculated a pro rata refund:

- A reasonable administrative fee, not to exceed $100 or 5% of the
total institutional charges, whichever is less. This does not have to
be an actual fee; a school may exclude an administrative fee
(within the above limits) without specifically identifying it as a
separate charge.

- 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.

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.

The school must notify the student in writing prior to enrollment that
return of 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.

A school may determine whether equipment may be returned to be
reissued. However, a school is responsible for demonstrating that its
policies for unreturnable equipment are reasonable, consistent, and
fair to the student.

[[Charging for excludable costs]]
[[CLARIFICATION]]
The school is entitled to bill the student for any of the charges
discussed above that were EXCLUDED from the pro rata calculation
and that were left unpaid. The school is entitled 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. A school may also
bill a student for any unpaid noneducational charges, such as an
application fee. These charges are excluded entirely from the refund
calculations because they cannot be paid for with SFA Program
funds.

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 for which the student has been charged that WAS
NOT completed by the student. This "portion that remains"
percentage is calculated using the following formula and may be
rounded down to the nearest 10%.

TO DETERMINE THE PORTION THAT REMAINS
Schools that use credit hours
WEEKS REMAINING
---------------------------------
TOTAL WEEKS IN PERIOD
Schools that use clock hours*

HOURS REMAINING TO BE COMPLETED
---------------------------------------------
TOTAL HOURS IN PERIOD
Correspondence course

LESSONS NOT SUBMITTED
------------------------------------
TOTAL LESSONS IN PERIOD
*Excused absences count as hours completed

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 page 3-90.)

FEDERAL REFUND POLICY CALCULATIONS

As stated previously, 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 page 3-90 for more on unpaid charges.)

[[Refund percentages mandated]]
The Federal Refund Policy mandates the percentage of institutional
charges that must be refunded as follows:

- withdrawal on the first day of class--100% REFUND of
institutional charges (less the permitted administrative fee of the
lesser of $100 or 5% of institutional charges).

- withdrawal after the first day of class through the first 10% of the
enrollment period for which the student has been charged--90%
REFUND of institutional charges.

- withdrawal after the first 10% of the enrollment period for which
the student has been charged through the first 25% of the
enrollment period for which the student has been charged--50%
REFUND of institutional charges.

- withdrawal after the first 25% of the enrollment period for which
the student has been charged through the first 50% of the
enrollment period for which the student has been charged--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, no matter what refund policy a school
uses for that student. A school may bill the student for any costs
incurred within the bounds of any limits set by the state, accrediting
agency, etc.

[[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. 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
page 3-96 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 page
3-94 for more information.)

REPAYMENT CALCULATIONS

A different situation may 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.

Remember, as with refunds, FWS wages are excluded because they
have been earned. FFEL and Direct Loan funds are not counted in
figuring the amount of the repayment (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 repayment.
However, a school is not liable for the owed amount if it 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 or submissions to
the National Student Loan Data System (NSLDS).

[[Referring overpayments]]
A student who fails to repay Pell or FSEOG funds can be referred to
the Department for collection purposes, unless the overpayment is
the result of school error. In addition, the student's failure to repay
the Pell or FSEOG funds must be reported to the NSLDS. 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. For more information on the
NSLDS, see Chapter 2.

REFUNDS OF $25 OR LESS AND REPAYMENTS UNDER $100

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.

Also (unless otherwise provided for in regulations for a specific SFA
Program), if the amount of a repayment is less than $100, a student is
considered not to owe the repayment, and the school is not required
to contact the student or recover the repayment.

ALLOCATING REFUNDS AND REPAYMENTS

Refund and repayment amounts must be distributed according to a
specific order of priority prescribed in the law and regulations. The
school's refund or repayment allocation 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.

Note that a school must allocate a refund or repayment in the order
specified even if all SFA funds were disbursed to the student to cover
noninstitutional costs. For example, the only SFA funds that a
student receives is an $800 Stafford Loan. The school disburses the
$800 Stafford Loan directly to the student to cover some of the
student's noninstitutional costs. The student's institutional costs are
covered by other sources. When the student withdraws, the school
uses the SFA refund requirements to determine that the refund is
$600. This $600 must be returned to the Stafford Loan.

REFUNDS on behalf of SFA recipients must be distributed in the
following order:

1. Unsubsidized Federal Stafford Loans
2. Subsidized Federal Stafford Loans
3. Federal PLUS Loans
4. Unsubsidized Federal Direct Stafford Loans
5. Subsidized Federal Direct Stafford Loans
6. Federal Direct PLUS Loans
7. Federal Perkins Loans
8. Federal Pell Grants
9. FSEOGs
10. Other SFA Programs
11. Other federal, state, private, or institutional sources of aid
12. The student

Repayments from SFA recipients must be distributed as follows:

1. Federal Perkins Loans
2. Federal Pell Grants
3. FSEOGs
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, if the school returns the
required amount of the refund, the entire outstanding balance of the
loan will be eliminated because the holder of the loan will pay off a
portion of the loan balance.

If the amount of a FFEL that is delivered to a student (the net
amount) is returned by the school or the student within 120 days of
the date the lender disbursed the loan, the lender must return any
deducted origination fees and insurance premiums to the student's
account. Similarly, if the amount of a Direct Loan that is disbursed to
a student is returned by the school or the student within 120 days of
the disbursement, the Department must return any deducted loan fees
to the student's account.

In addition, if the amount of a FFEL that is delivered to a student is
returned by the school (not the student) AFTER 120 days of the date
the lender disbursed the loan, the lender must return any deducted
origination fees and insurance premiums to the student's account.
The same is not true for Direct Loans. If a Direct Loan is repaid in
full by either the school or the student after the 120 days, the
deducted loan fees are not returned to the student's account.

After making the refund for FFEL and/or Direct Loan funds, 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.

TIME FRAMES FOR RETURN OF FUNDS

[[CLARIFICATION]]
The regulations establish deadlines for the return of funds to the SFA
Programs and to a student. In addition, schools are required to
determine the withdrawal date for unofficial withdrawals by a certain
time. The chart on the next page lists the time frames for the return
of funds when a refund occurs.

A REPAYMENT must be returned to the appropriate SFA Program
accounts within 30 days of the date the student repays the funds.

[[The chart "Time Frames for Return of Funds" on page 3-103 is
currently unavailable for viewing on the SFA BBS. Please reference
your paper document or the pdf file atached, below, for additional
information.]]

[[The Refund & Repayment Case Studies on pages 3-105 through
3-134 are currently unavailable for viewing. Please reference your
paper document for additional information.]]

* * * * *
Attached are the following files:


- "ch3_s4.pdf" which contains "Section 4: Refunds and Repayments,"
pages 3-1 through 3-103 in a portable document file (.pdf) format


- "ch3_s4.pdf" which contains the "Refund & Repayment Case
Studies" on pages 3-105 through 3-134 in a portable document
file (.pdf) format.