Maintaining Compliance with the Return to Title IV Process

When a student that received Title IV funding leaves school before the payment or enrollment period has commenced, the Return to Title IV (R2T4) process kicks in. Students that are awarded Title IV funds are expected to complete the full enrollment period for which the funds are awarded; however, that isn’t always the case. Individuals that cease attendance prior to completing the period for which the funds were awarded trigger an institution to conduct an R2T4. This is because the student may no longer be eligible for all the funds the institution disbursed on the student’s behalf. 

The R2T4 process, in theory, seems relatively straight-forward. But, because these calculations are often more complex than they seem, R2T4 findings are frequently noted during the compliance examination/audit process and have consistently ranked on the Department of Education’s Top 10 compliance findings listings for many years now. Here’s what you can do as a financial leader of your higher education institution to make sure you’re compliant with the R2T4 process.

What to Know About Return to Title IV (R2T4)

Institutions are required to determine the earned and unearned portions of Title IV aid as of the date a student ceased attendance. To properly calculate these portions, you need information on the length of the payment period/period of enrollment, the student’s Last Day of Attendance (LDA), amounts disbursed and amounts that could have been disbursed to the student, any necessary break days, and the appropriate institutional charges associated with this period. This information is required to properly fill out the 10 steps on the R2T4 form.

In determining the amount of Title IV funds a student has earned up through the date they cease attendance (with a max of 60% of the funds), the R2T4 uses a pro-rata schedule. Any periods that earn over 60% allow a student to earn 100% of the Title IV funds received/scheduled to receive. 

Proposed Updates to the Process

The R2T4 process and associated worksheets have remained relatively unchanged for a period of time. However, the Department of Education proposed changes in July this year that favor students. If the proposal is finalized and published by November 1, 2024, the changes would become effective July 1, 2025. Through these proposed updates, the Department intends to accomplish the following:

1. Help withdrawn students repay outstanding Direct Loan credit balances:

• The current process states that students who directly received any portion of loan disbursements but never actually began attending the school will receive a final demand letter from the servicer for any funds not credited to the school, as the amounts must be paid immediately. Failure to repay the loans causes them to go into default.
• The proposed rules state that the Department will not issue a final demand letter to the borrower. Instead, it will initiate borrower repayment under the terms of the promissory note. This would provide a borrower with a formal grace period and allow students to repay overtime.

2. Increase the accuracy and simplicity of performing R2T4 calculations:

• To make performing these calculations easier, a number of regulation changes were proposed; some of which include:
  • Requiring attendance taking for all classes offered entirely through distance education for the purpose of determining the student’s last day of attendance
  • Limiting scheduled hours in a payment period for clock-hour programs to only include scheduled hours that have elapsed since a student began attending in that payment period (not cumulatively across multiple payment periods)
  • Require institutions that must take attendance to document a withdrawal date within 14 days of a student’s last date of attendance

3. Address unique circumstances for what constitutes a withdrawal:

• Current regulations state that if a student begins attendance in the payment period/period or enrollment, even if only for one day, an institution must determine the Title IV earned as of the student’s withdrawal date, and the unearned portion must be returned to the Department.
• Under the proposed changes, the Department would not consider a student to have withdrawn if the institution’s records treat the student as having never attended, and the institution returned all Title IV aid disbursed, refunded all institutional charges associated with the payment period/period of enrollment, and wrote off or canceled any balance owed by the student to the institution.

4. Codify longstanding policies into regulation.

As with any potential upcoming regulations, it’s always a good idea to watch for updates from the Department of Education. If you haven’t visited the Department’s Knowledge Center, check it out, as it offers current regulatory changes, past and present Student Handbooks, and even links to the code of federal regulations. Refunds are already a complicated area, so it’s best to familiarize yourself with the R2T4 calculation regulations now. 

If you’d like to talk through these possible changes with a Title IV examination expert, please get in touch with our team.