Breaking down the OBBBA: Return of Title IV Funds process

The One Big Beautiful Bill Act (OBBBA), enacted in 2025, made significant changes to federal student aid programs under Title IV of the Higher Education Act, including the Return of Title IV Funds (R2T4) process.

R2T4 determines how much Title IV aid a student has earned when the student withdraws or otherwise ceases attendance before completing a payment period or period of enrollment. The new R2T4 regulations apply to students who withdraw, cease attendance, or begin an approved leave of absence on or after July 1, 2026.

For institutions administering Title IV aid, several changes require a review of existing policies and procedures.

What changed

Institutions required to take attendance

For institutions required to take attendance, the regulations formally codify longstanding federal guidance. This guidance requires the institution to document the date it determines that a student has withdrawn no later than 14 days after the student’s last date of attendance, as determined from attendance records.

The 14-day requirement is not the deadline for completing the R2T4 calculation. The institution has:

• 30 days from the date of determination to complete the R2T4 calculation, and
• 45 days from the date of determination to return any funds that must be returned to the Department of Education.

Institutions should ensure their procedures distinguish among these deadlines.

Clock hour programs

The new regulations establish a single method for determining scheduled clock hours when calculating the percentage of a payment period completed.

Scheduled hours in a second or subsequent payment period do not begin accruing until the student successfully completes the preceding payment period. This is intended to create a more consistent calculation and prevent institutions from counting scheduled hours from a subsequent payment period before the student successfully completed the prior period.

Institutions with clock-hour programs should review their R2T4 procedures to ensure they reflect this methodology.

Modular programs

The rules for programs offered in modules have also been simplified. A module is included in the denominator of the R2T4 calculation only when the student actually begins attendance in that module. Institutions no longer need to determine which modules the student was scheduled to attend at the time of withdrawal for purposes of the R2T4 calculation. As a result, R2T4 Freeze Dates are no longer applicable under the new methodology.

The existing module withdrawal exemptions remain important. A student may avoid being considered a withdrawal if the student successfully completes a module or combination of modules containing at least 49% of the applicable payment period, or successfully completes coursework equal to or greater than the institution’s definition of half-time enrollment.

Successful completion generally means receiving a passing grade under the institution’s academic grading policy. Withdrawals, incompletes and failing grades do not count as successful completion for this purpose.

Full refund withdrawal exemption

The regulations also establish an optional Full Refund Withdrawal Exemption. If specific conditions are satisfied, an institution may treat a student who actually began attendance as if the student never attended for R2T4 purposes.

The institution must:

• Return all Title IV aid disbursed for the period
• Refund all institutional charges, and
• Write off or cancel any balance owed by the student that resulted from the return of Title IV funds

Because all these conditions must be satisfied, the exemption is optional and may be applied according to the school’s established policy.

What institutions should do now

Institutions should review and update their R2T4 policies and procedures before processing withdrawals under the new rules. This review should include attendance, clock-hour and modular-program procedures, as well as the institution’s approach to the optional Full Refund Withdrawal Exemption. Staff responsible for administering R2T4 should also be familiar with the new requirements and applicable deadlines.

Finally, institutions should continue monitoring Department of Education guidance. Some of the more nuanced areas of the new requirements may receive additional clarification.

If you’d like to discuss how these changes may affect your institution’s R2T4 policies and procedures, please get in touch with our Title IV audit team.