There are two sets of regulatory changes coming this summer, Return to Title IV (R2T4) and Proration. If you haven’t considered how the changes will impact your institution, now is a good time to do so!

R2T4 regulations were implemented in 1998 to enable the Department of Education (ED) to recover Title IV funds when a student withdrew during the enrollment period. It was common for institutions to charge full tuition and fees after a certain point and then retain all the financial aid awarded to the student to pay the bill. Under R2T4, students ‘earn’ their financial aid dollars based on how much of the enrollment period they complete before withdrawing. The R2T4 calculation does not consider the institution’s withdrawal policy at all. Today, the calculation is programmed into our financial aid management systems (FAMS) and we don’t even have to think about it. Over time, the rules were tweaked to define terms or modernize FAMS programming guidance that didn’t exist when the rules were initially written. January 2025 rule changes going into effect this summer introduce a new option for institutions to pursue and codify some items that were previously just recommended.

The new option is the Full Refund Withdrawal Exemption, which waives the R2T4 calculation. The following conditions must be met for exemption:

  • The student is treated as never having attended.
  • The institution must return all Title IV funds for that payment period or period of enrollment including any credit balances refunded to the student or parent.
  • The institution must refund all institutional charges to the student for that payment period or period of enrollment.
  • The institution must write off or cancel any remaining balance resulting from the return of Title IV funds for the payment period or period of enrollment.
  • Utilization of the exemption is optional and can be used on a student-by-student basis.
  • Although the student is being treated like they never attended, all documentation used to originate the Title IV aid received must be retained as the institution must be able to demonstrate the student was eligible for the exemption.
  • Despite being treated as if they never attended, these students did attend and as such are not subject to the requirements under 34 CFR 668.21 (treatment of Title IV and failure to begin attendance).
  • Students that cease to be eligibly enrolled for Title IV financial aid but continue to attend classes are not eligible for the exemption because they are still attending.
  • There is no exception to the requirement to refund in full all institutional charges including books, supplies, and housing charges if they are considered institutional charges for other purposes.

When reporting withdrawals in NSLDS for cases where the exemption is applied, use the existing codes of ‘X’ for students who were not previously enrolled and ‘W’ for students who completed a prior period of enrollment.

The former guidance that was codified includes the following:

  • An institution that is required to take attendance must document the date of the institution’s determination that the student withdrew no later than 14 days after the student’s last date of attendance as determined by the institution from its attendance records. This does not mean the institution must immediately withdraw the student. The institution still has 30 days from the date of determination to complete the R2T4 calculation and 45 days to return unearned funds, if any.
  • Institutions that use scheduled clock hours to calculate the percentage of the payment period completed for a clock hour program must use a single method to complete the calculation which mandates that the scheduled hours in a subsequent period of enrollment do not begin to accrue until the student has successfully completed the prior period. There’s a good example of how the calculation must be done in GENERAL-26-20.
  • The calculation has been simplified for modular programs such that a module is only considered part of the payment period used in the calculation if the student started the module. Administrators no longer need to consider which modules a student was scheduled to attend and ‘freeze dates’ are no longer applicable.

All in all, we think these changes will be helpful as they simplify and/or provide clarity and/or lend flexibility to one of the more complicated processes we administer. If you rely on your FAMS system to do these calculations, we recommend testing the system results to make sure there are no glitches once the new rules go into effect.

Speaking of complicated things, we also expect there to be changes to federal loan proration rules. Up until now, students eligibly enrolled but taking less than a full-time class load, were eligible for federal loans based on their cost of attendance alone. Proration only applied when the student was enrolled for only a portion of the academic year, or in a remaining period of study. The new rules, known as the Schedule of Reduction (SOR) are based on the ‘intensity’ of enrollment rather than just the length of enrollment. We’re still awaiting the final rules, but this is what we know so far.

  • All federal loans are impacted except for Parent PLUS.
  • The existing proration rules remain in place and a new calculation added based on what percentage of full-time enrollment the students enrollment comprises.
  • The new rules apply to all borrowers.

The SOR process introduces new terminology with which you should become familiar:

Initial maximum annual loan limit: Annual loan limit for the borrower based on loan type, grade level, and dependency status.

SOR percentage: Total enrolled credits divided by the total full-time credits. Round to the nearest whole percentage point. If the result is 100% or higher, no reduction applies and disburse per standard rules.

SOR annual loan limit: Initial maximum annual loan limit multiplied by the SOR percentage. This becomes the new annual loan limit.

Revised SOR annual loan limit: Recalculated SOR annual loan limit based on change in enrollment status.

Total amount disbursed to the borrower: Sum of all disbursements already made to the borrower for this loan period.

Remaining loan eligibility: Revised SOR loan limit minus the total amount disbursed to the borrower; the remainder is available to be distributed across future terms.

Equal disbursements: Divide annual loan limit (initial, SOR, or revised SOR) by the number of terms in the loan period; each term receives an equal share.

Proportional distribution: Multiply the proportion of enrolled credits for the term over the total enrolled credits for the academic year by the annual loan limit (initial, SOR or revised SOR). Do not round proportion or convert to a percentage. Ensure sum of distributions equal annual amount, exactly.

For eligible part-time students attending a full academic year, the SOR would be the number of credits enrolled for the academic year divided by the number of credits that make up a full-time load for their program times 100. The result is the percentage of the annual maximum Direct Loan amount for the student’s grade level for which the student remains eligible. This calculation must be done for each disbursement and any time the student changes enrollment. The result could very well be unequal disbursements over the period of enrollment.

In their recent webinar, Federal Student Aid (FSA) provided some additional details:

  • A student may not receive more than the SOR annual loan limit during the loan period regardless of how the disbursements are distributed across terms/semesters.
  • If the result is zero or negative when deducting the total amount already disbursed from the revised SOR, the student is ineligible for additional disbursements during that loan period.
  • FSA recommends being consistent, but there is no requirement for institutions to use the same method (equal or proportional disbursements) when recalculating the SOR.
  • Substantially equal disbursements are waived when the student is subject to SOR.
  • Summer terms need to be part of the student’s defined academic year to be included.

If you missed this webinar, we encourage you to watch the recording to get the full picture. We’ll repeat that the final rules have not yet been published, but this is the guidance FSA is offering in the meantime since most institutions have already started processing for the 2026/2027 academic year.

So many regulatory changes, so little time! Wouldn’t it be nice to have an expert at your fingertips? We’re there when you need us! Email the Higher Education Assistance Group at info@heag.us for more information.

Sources: