Transfer Students and Return to Title IV Funds

By Rick Cox, Executive Director of Regulatory Affairs and Compliance, Global Financial Aid Services

The 2016-2017 Federal Student Aid (FSA) Handbook provided new information on the Return to Title IV (R2T4) calculations.¹ This new information applies to students who enter a new program that uses Formula 4 (credit hour non-term or clock hour programs), and the student is in the middle of an academic year from a prior program.

This is applicable to transfer students coming from another school during an open academic year as well as students who complete a program at your school and then begin a new Formula 4 program at your school during that academic year.

The process for students who transfer to a new program at the same school has not changed.

Transfer to a new program at the same school (Reminder only – this is not new guidance)

If a student transfers to a new program at the same school, you must determine whether or not the student has to be considered as a withdrawal from the initial program. You do not have to treat the student as a withdrawal if all of the following criteria are met:²

• The student is continuously enrolled at the school;
• The coursework in the payment period the student is transferring out of is substantially similar to the coursework the student will be taking when he or she first transfers to the new program;
• The payment periods are substantially equal in length in weeks of instructional time and credit/clock hours;
• There are little or no changes in school charges associated with the payment period to the student; and
• The credit/clock hours from the payment period the student is transferring out of are accepted toward the new program.

If the student meets all of the above criteria, you do not have to treat them as a withdrawal, and the student remains in the same payment period. The existing loan period and academic year should remain the same (you may need to make a minor adjustment). However, if the student does not meet all of the above criteria, you must withdraw the student from the initial program. This requires an R2T4 calculation for the initial program. The student may then be awarded a loan for the new program for the full academic year (new program’s academic year).

If the new program is at least an academic year in length, the student is eligible for the annual loan limit minus what was received during that open loan period from the initial program. Once the student has completed a full academic year in the new program, the student can be awarded a new loan for the subsequent academic year. If the new program is less than an academic year, the student is eligible for the lesser of the annual loan limit minus what was received during the open loan period from the initial program OR the pro-rated annual loan limit based on hours to be completed in the new program.

Under either method for awarding students who transfer to a new program at the same school, the payment periods follow the regulatory definition of payment periods that is found in 668.4. If this type of student withdraws from school, the R2T4 calculation will follow the same process as all other students and will use the same payment period. As such, there will not be a special process for calculating the R2T4.

Transfer to a new program at a new school or completes a program and begins a new program at the same school within the same academic year

Again, this guidance only applies to students transferring into a Formula 4 Program or students who complete a program and then begin a new Formula 4 program at the same school.

A transfer student’s loan award may be affected if the student transfers to a new school or completes a program and begins a new program at the same school in the middle of an academic year. In these cases, the school may choose to award loans for an abbreviated period. The abbreviated loan period begins with the start date of the new program and ends on the same ending date as the academic year from the original program.

Once the previous program’s academic year ends, the student advances to a new academic year and loan period. Please keep in mind that the student might remain at the same grade level as the abbreviated loan period.

When an abbreviated loan period is used to award a loan for the initial period in the new program, the loan payment periods usually will not align with your normal Title IV payment periods. Additionally, the abbreviated loan usually will not contain payment periods that meet the regulatory definition of a payment period found in 668.4. For R2T4 purposes, you must use a payment period that meets the definition found in 668.4.³ For simplification, you would use the payment period that would apply to Pell Grants for these students. The normal Pell Grant payment period is used whether or not the student receives Pell Grants. These payment periods, that follow the Pell Grant payment periods, are referred to as Title IV payment periods.

Because the Title IV payment period overlaps the abbreviated loan period and loan periods for subsequent academic years, you must apportion the loan funds for R2T4 purposes. The R2T4 calculation will use the Title IV payment period and will attribute the loan funds by multiplying the loan amount by the days in the loan period that fall within the Title IV payment period divided by the total days in the loan period. This same process is followed throughout the student’s enrollment in the new program. Please keep in mind that the institutional charges used in the R2T4 calculation are those charges that are applicable to the Title IV payment period.

Example: A student transfers to your school and is scheduled to begin on 01/15/18. The program length is 60 credit hours and 75 weeks. For this example, the student is not transferring in any transfer credits from the previous school. The academic year for the student’s program at your school is 24 credit hours and 30 weeks of instructional time. The Title IV payment periods for this program are as follows:

01/15/18 – 04/27/18
04/30/18 – 08/10/18
08/13/18 – 11/21/18
11/26/18 – 03/22/19
03/25/19 – 07/03/19

*For this example, it is assumed that the student remains on schedule and completes each payment period according to the dates above.

The student is transferring in the middle of an academic year. The previous school’s academic year is 07/31/17 to 03/09/18. This student received $2,327.00 in a subsidized loan for this academic year at the previous school.

The new school awards a loan for the abbreviated loan period 01/15/18 – 03/09/18. The student is eligible for the annual loan limit minus what was received at the previous school for this academic year. In this case, the student would be eligible to borrow $1,173 in a subsidized loan for this abbreviated loan period. The student would begin a new loan period on 03/12/18 for a full academic year of 24 credit hours and 30 weeks of instructional time. The following provides all subsidized loans that have been or will be awarded to the student for this program.

01/15/18 – 03/09/18 $1,173

03/12/18 – 10/05/18 $3,500
(The loan following an abbreviated loan period begins the day after the abbreviated loan ends. 03/10/18 is a Saturday, and the school does not have weekend classes. Therefore, the loan begins the following Monday which is the 1st day of instruction after the abbreviated loan period ends.)

10/08/18 – 05/17/19 $4,500

05/20/19 – 07/03/19 Pro-rated amount based on credits remaining in the program

When performing the R2T4 calculation for students with overlapping loan periods, we must apportion the loans that overlap our Title IV payment periods. To do this, we would use the gross amount of the loan multiplied by the overlapping days divided by the total days in our loan period. This gross amount is then reduced by the calculated loan origination fee (1.066 for loans with 1st disbursements on or after 10/01/17 but prior to 10/01/18). This calculated net amount is then used in our R2T4 calculation.

Case #1:

When the student begins the new program, the school awards and originates a subsidized Direct Loan for the abbreviated loan period in the amount of $1,173 and the subsequent academic year in the amount of $3,500. The student withdraws from school with a withdrawal date of 02/02/18.

All of the abbreviated loan period falls within the 1st Title IV payment period. However, the student did not reach the calendar midpoint of the abbreviated loan, and therefore, the student only received the 1st disbursement of the abbreviated loan. Since the loan for the subsequent academic year was originated on or before the withdrawal date, we need to consider the $3,500 loan award when determining the amount that should be used for “could have been disbursed” in our R2T4 calculation.

As indicated above, our Title IV payment period, during which this student withdrew, is 01/15/18 – 04/27/18. The subsequent academic year’s loan period overlaps our Title IV payment period by 47 days (20 in March and 27 in April). There are 208 days in the loan period for the subsequent academic year. The proportional amount to be used as “could have been disbursed” is $3,500 (gross amount) X 47/208 = $790.87, rounded to $791. $791 X 1.066% (origination fee) = $8.43 truncated to $8. $791 – $8 = $783 to be used as “could have been disbursed.”

A student can never receive a subsequent loan disbursement as a post-withdrawal disbursement unless the student completed the loan period.

Therefore, even if the R2T4 calculation reflects the student is due a post-withdrawal disbursement of loan funds, you cannot disburse the 2nd disbursement of the abbreviated loan period. For the subsequent academic year’s loan, the 1st disbursement was scheduled to be made during the first Title IV payment period. However, since the student did not complete the abbreviated loan period and begin the subsequent academic year, you cannot make a post-withdrawal of loan funds from the 1st disbursement of the subsequent academic year’s loan.

The amounts to be used in the R2T4 calculation for this student’s Direct Subsidized Loan would be:

Disbursed = $581
(1st disbursement of abbreviated loan)

Could have been disbursed = $1,363
($580 from 2nd disbursement of abbreviated loan plus $783 apportioned amount from subsequent loan period that overlaps the Title IV payment period)

Case #2:

The student withdraws from school with a withdrawal date of 09/07/18. This is during the Title IV payment period that begins on 08/13/18 and ends on 11/21/18. Our loan for the period 03/12/18 – 10/05/18 overlaps this payment period by 54 days (19 in Aug. 30 in September, and 5 in October) and both disbursements of this loan have been made. The loan period is 208 days in length.

Our next scheduled loan for the period 10/08/18 – 05/17/19 overlap this Title IV payment period by 45 days (24 in October and 21 in November) and is 222 days in length. In order to include any amounts from this loan, the loan must have been originated on or before the withdrawal date. If the loan was not originated on or before the withdrawal date, you would not include any amount from this loan in the “could have been disbursed” amount.

To determine the amounts to be included in the R2T4 calculation, we must calculate each loan separately by the gross loan amount times the number of overlapping days divided by the days in the loan period. We would then reduce this amount by the calculated loan origination fee.

03/12/18 – 10/05/18: $3,500 X 54/208 = $908.65 rounded to $909. $909 X 1.066% = $9.69 truncated to $9. $909 – $9 = $900 (use this amount as “disbursed” in the R2T4 calculation).

10/08/18 – 05/17/19: $4,500 X 45/222 = $912.16 rounded to $912. $912 X 1.066% = $9.72 truncated to $9. $912 – $9 = $903 (only use this amount in the calculation as “could have been disbursed” if the loan was originated on or before the withdrawal date).

If the calculation reflects a post-withdrawal of loan funds, you cannot make that disbursement since the student never began the loan period that begins on 10/08/18.

With this method, the amount of the loan that is not used in the appropriated amounts for the Return to Title IV will not equal the total amount disbursed during that loan period. The school is not required to return the amounts that exceed the appropriated amount. For example, the student received the 1st disbursement of a $3,500 loan (net amount of $1,732) and only $821 was used for the appropriated amount for the Return to Title IV calculation. The school is not required to return the remaining $911 back to the loan. If the disbursement had not been made and the calculation reflected a PWD for the full amount of the appropriated loan of $821, the school can only disburse the $821. You would not be permitted to disburse the entire first disbursement of $1,732.

The U.S. Department of Education (ED) provided additional information on this new process in their presentations at the 2017 FSA Conference. This was covered in two different sessions: Session 12, Administering Title IV Aid for Transfer Students and Session 23, R2T4 Advanced Concepts. Both of these presentations are available for download in the 2017 FSA Conference site which can be accessed on IFAP.

Resources

1. U.S. Department of Education, 2016-2017 Federal Student Aid Handbook, Volume 5, Pages 5-84 and 5-85.
2. U.S. Department of Education, 2017-2018 Federal Student Aid Handbook, Volume 5, Page 5-38.
3. 34 CFR 668.4(c).

RICK COX, Executive Director of Compliance and Regulatory Affairs at Global Financial Aid Services, has 24 years of financial aid experience. He has held past positions as a Financial Aid Director at the campus level and several corporate level positions for a proprietary school chain. At his current position, he monitors regulatory and legislative changes as well as guidance from DOE. He is responsible for notifying clients and Global employees of changes and how they will impact processes, including updates to our systems, standardized forms, procedures, etc.