Financial Aid Return of Federal Funds

If you receive financial aid and you drop a class after receiving aid, you may be required to pay back some of your financial aid. Keep reading to make sure you’re in good standing and can continue to receive aid.

When the federal Higher Education Act (HEA) of 1965 was amended in 1998, a new concept was established with regard to HEA Title IV student financial aid programs. The new concept is that students earn their Title IV federal financial aid. If they do not stay enrolled long enough to earn all of their aid, then some of the aid has to be returned to HEA Title IV programs as unearned Title IV aid. Colleges were required to implement the return of unearned Title IV funds policy beginning Oct. 7, 2000. Refunds to all Title IV recipients who withdraw during an enrollment period for which they have been charged will be identified and processed to comply with federal regulations.

Title IV financial aid programs include Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work Study (FWS) and Federal Stafford Loans.

Title IV law and regulations concerning the return of unearned federal financial aid does NOT affect Federal Work Study earnings. Only grants and loans are affected by the new policy.

Students who want to withdraw from a course(s) should officially withdraw from the course(s) by using the appropriate form that is submitted to the Admissions/Registration office. The Admissions/Registration office is the department designated for students to officially withdraw from their classes. Pursuant to federal requirements, St. Louis Community College accepts oral as well as written withdrawals. The return of unearned Title IV funds policy will impact students who withdraw from all of their courses before 60 percent of the semester is completed. The policy will also affect those students who do not officially withdraw from their course(s), but simply cease to attend classes. Pursuant to federal guidelines, STLCC will determine a last date of attendance for those students.

Unearned Higher Education Act Title IV funds are returned to the Title IV programs based on a federally mandated formula. Under this formula, colleges are obligated to return unearned funds used for institutional charges to the U.S. Department of Education (USDE), and students are obligated to return unearned funds beyond the institutional charges to USDE.

When colleges have to return unearned Title IV funds from institutional charges, the money is returned to programs in the following order: Unsubsidized Federal Stafford Loans, Subsidized Federal Stafford Loans, Federal Plus Loans, Federal Pell Grant, Federal SEOG other Title IV assistance.

The Charles Gallagher Student Financial Assistance program (Missouri State Grant) potentially falls in the category of other Title IV assistance, since state grant programs may receive some of their funds through HEA Title IV.

When a student has to return unearned Title IV funds that he/she received beyond the institutional charges, the money is returned to programs in the following order: Unsubsidized Federal Stafford Loans, Subsidized Federal Stafford Loans, Federal PLUS Loans, Federal Pell Grant (times 50 percent), Federal SEOG (times 50 percent) other Title IV assistance (times 50 percent for grants).

Note that the student's responsibility for repayment of unearned Title IV grant money is reduced by one-half.

If a student owes unearned Title IV funds from a federal loan, the money is returned (repaid) in accordance with the terms and conditions of the promissory note.

If a student owes unearned Title IV funds from a federal grant, the college must notify the student within 30 days of determining the student's withdrawal. The student retains eligibility for Title IV funds for a 45-day period, during which time the student either should repay to USDE the unearned Title IV funds or make satisfactory arrangements with USDE to repay the funds. The student also needs to repay the college the money that the college pays to USDE for the unearned institutional charges.

The institutional charges (tuition and fees) incurred by the student are considered to be paid by HEA Title IV funds for the purpose of the formula, even if the institutional charges were directly paid by a source other than Title IV funds.

USDE gives colleges the option of billing students for the unearned HEA Title IV funds that the school has to repay as part of institutional charges.

The following is an example of the HEA Title IV return of unearned Title IV funds formula supplied by USDE:

A student withdrew from all courses with 40 percent of the days in the semester completed. The student paid $1,000 in institutional charges (tuition and fees). This student received $3,000 in HEA Title IV aid -- $1,000 in a loan and $2,000 in grants. The student earned $1,200 of the Title IV aid (40 percent times $3,000). The unearned Title IV aid is $1,800 ($3,000 minus $1,200).

Because only 40 percent of the HEA Title IV aid is earned, STLCC has to return $600 of the $1,000 paid in institutional charges to Title IV programs ($1,000 minus $400). Since loans are prioritized for return of unearned funds, the $600 is paid to the student's federal loan.

The student now owes $1,200 in unearned Title IV funds, the difference between the $1,800 total of unearned Title IV funds and the $600 that the school has paid back from institutional charges. Because loans are prioritized for the return of funds, $400 is paid to the federal loan, the difference between the $1,000 loan total and the $600 paid to the loan by the school for unearned institutional charges.

The remaining $800 in unearned Title IV aid (the $1,800 minus the $600 in unearned institutional charges paid to the loan and the $400 in unearned aid to the student paid to the loan) is owed to the federal grants. Because the student's liability for return of unearned Title IV aid to grants is reduced by 50 percent, the student owes $400 to the federal grant programs.

For additional information regarding the return of unearned Title IV funds, please contact the Financial Aid office.

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