Withdrawals and the Return of Federal Financial Aid

In the case of student withdrawal or leave of absence during a semester of federal financial aid disbursement, the student may have to return federal financial aid (return to Title IV). The amount of federal aid to be returned is based upon a formula provided by the Department of Education and is independent of the school’s tuition and related fees refund policy. The return of unearned funds are allocated in the following order: (1) Unsubsidized Stafford Loans, (2) Subsidized Stafford Loans, and (3) Grad Plus loans.

The school’s Financial Aid Office is required by federal statute to determine how much financial aid was earned by a student who withdraws, drops out, is dismissed, takes a leave of absence, or drops below half-time prior to completing 60 percent of a payment period or term. For a student who withdraws after the 60 percent point-in-time, there are no unearned funds (no return of funds is necessary). All schools complete a return calculation in order to determine whether the student is eligible for a post-withdrawal disbursement.

The calculation is based on the percentage of earned aid using the following Federal Return of Title IV funds formula: Percentage of payment period or term completed = the number of days completed up to the withdrawal date, divided by the total days in the payment period or term. (Any break of five days or more is not counted as part of the days in the term.) This percentage is also the percentage of earned aid.

Funds are returned to the appropriate federal program based on the percentage of unearned aid using the following formula: Aid to be returned = (100% of the aid that could be disbursed minus the percentage of earned aid) multiplied by the total amount of aid that could have been disbursed during the payment period or term.

If a student earned less aid than was disbursed (see above), both the institution and the student are required to return a portion of the student’s funds to the Department of Education. Keep in mind that when Title IV funds are returned, the student borrower may owe a debit balance to the institution.

If a student earned more aid than was disbursed to him or her, the institution owes the student a post-withdrawal disbursement to be paid within 120 days of the student’s withdrawal. The institution must return the amount of Title IV funds for which it is responsible no later than 45 days after the date of the determination of the date of the student’s withdrawal.