Can We Return To ED a Title IV Credit Balance Caused By Not Returning Unearned Funds From the R2T4 Calculation?

 This AskRegs Knowledgebase Q&A has been updated to provide clarification from the U.S. Department of Education (ED) on guidance published in Return of Title IV Funds (R2T4) Q&A #2 on the COVID-19 Title IV Frequently Asked Questions (FAQ) Website and announced in the October 6, 2020 Electronic Announcement. This new guidance represents a different understanding of a phone conversation between ED and NASFAA earlier this year.

It depends on whether you have the student's or parent's un-coerced written permission to do so within 14 days of when the Title IV balance was created.

The following guidance is from the May 15, 2020 Electronic Announcement:

"The Department’s R2T4 provisions do not affect institutional refund policies. However, some institutions or states may have policies requiring the refund of some or all of a student’s tuition charges if the student withdraws during a certain period of time. If a student who qualifies for CARES Act R2T4 relief withdraws and is granted a tuition refund, the refund may create a Title IV credit balance that must be provided to the student within 14 days.

For example, consider a student who withdraws during the first week of a semester as a result of COVID-19 disruptions. The student was originally charged $10,000 in tuition and received $5,000 in Pell Grant funds and $3,500 in a Subsidized Direct Loan. When the student withdraws, the tuition refund policy will result in a refund of $9,000 in tuition, leaving only $1,000 in charges on the student’s account. Furthermore, because R2T4 requirements will be waived, the student will still have a total of $8,500 in Title IV funds on his or her account, resulting in a Title IV credit balance of $7,500 that must be paid to the student within 14 days of the refund."

R2T4 Q&A #2 adds to this guidance, stating:

"The Department is aware of concerns over the possibility that students who withdraw as the result of circumstances related to the COVID-19 emergency will seek payment of the credit balances that may be left on their accounts since their institutions are not required to return any Title IV funds. As a result of CARES Act relief, these students would also not be required to repay Direct Loan funds disbursed for the payment period or period of enrollment in which they withdrew, nor would their Pell lifetime eligibility or Subsidized Loan usage be affected by their receipt of Title IV aid for the period. This would occur in situations where the student receives a substantial or total reduction of institutional charges due to the withdrawal, in effect creating what may have been an unintended student credit balance from the unreturned Title IV funds.

Accordingly, in these situations we will permit institutions who have written authorization from the student, to apply the remaining amount of a student’s credit balance from these Title IV disbursements (after all charges on the student’s account are paid) to reduce Direct Loan disbursements received for attendance at the institution for periods prior to the payment period in which the student withdrew. The institution must obtain this authorization (which may be electronic) from the student prior to applying his or her credit balance for this purpose. The institution must also notify any affected student of the action and the amount that was repaid, and the institution must return the Direct Loan funds in the COD and G5 systems. An institution may only exercise this authority for Direct Loan award years that are currently open. If the amount of the student’s credit balance resulting from CARES Act R2T4 relief exceeds the amount of Direct Loan disbursements received for prior periods, the institution may, with written authorization, use the credit balance to pay down the prior Direct Loan disbursements, but must provide the remaining credit balance amount directly to the student."

Remember, as a general rule, the school cannot choose to return the Title IV credit balance on the student's or parent's behalf unless it has an un-coerced written authorization from the student or parent to do so. Also, the school cannot dictate how the student or parent spends any Title IV credit balance refund. Otherwise, if the student or parent wants to use those funds to make a loan payment, the student or parent can use the credit balance to make a loan payment. Likewise, if the student wants to reduce a Direct Loan disbursement for a prior payment period under the new guidance, the school may choose to do so only with the student's written authorization.

Once the Coronavirus Indicator is set, ED will apply the following withdrawal benefits under the CARES Act for the payment period or period of enrollment from which the student withdrew due to COVID-19:

• Direct Loan and TEACH Grant disbursements received for the period will be cancelled;
• The period will not count toward the student’s Subsidized Loan usage (SULA) for purposes of the 150% Direct Subsidized Loan Limit; and
• Federal Pell Grant funds received for the period will be excluded from the student’s Lifetime Eligibility Used (LEU).

Remember also, under 34 CFR 668.164(h) a Title IV credit balance only occurs whenever the amount of Title IV funds credited to a student's ledger account for a payment period exceeds the amount assessed the student for allowable charges associated with that payment period. It does not matter how or when non-Title IV funds are credited to the student's ledger account.