Title IV Common Findings Corner: Credit Balances and Timing

Dating all the way back to July 2016, the cash management updates that coincided with the release of the Audit Guide created changes as to how schools would charge tuition and track financial aid payments. Title IV aid in most cases not only provides students a way to pay for tuition and other institutional costs but can help with everyday living expenses. However, the amount of aid a student receives can produce a credit balance on their account. Audit findings related to credit balances are nothing new, but it is always beneficial to refresh yourself on the rules and make sure your systems are running properly to ensure compliance in this area.

Guidelines for Credit Balances

According to the Federal Student Aid (FSA) Handbook, a Title IV credit balance occurs whenever the amount of Title IV funds credited to a student’s account for a payment period exceeds the amount assessed the student for allowable charges associated with that payment period.

Most credit balance findings we come across are timing related. The payment rules have been in place for years, but it is easy to overlook if your students are offered options. A lot of schools have implemented student (or parent) authorization forms that allow a school to hold excess funds from the current payment period through the end of the loan period. However, general timing for returning Title IV credit balances are as follows, per the National Association of Student Financial Aid Administrators (NASFAA) and FSA:

A school must pay the credit balance directly to the student or parent as soon as possible but no later than 14 days after:

  • The first day of class of a payment period if the credit balance occurred on or before that day;
  • The balance occurred if that was after the first day of class;
  • Notwithstanding any authorization obtained by the school, the school must provide the student with any remaining Title IV credit balance resulting from FSA loan funds by the end of the loan period and any other Title IV program credit balances by the end of the last payment period in the award year for which the funds were awarded.

Paying Credit Balances

Paying the credit balance within 14 days of its creation seems simple enough. Yet, when authorization is received from the student or parent to hold these excess funds, it is probably easiest to remember to review a student’s account and make sure their credit balance is returned before applying those third payment period or subsequent award year charges to their account. The FSA states that funds may not be held in anticipation of charges that might be posted to a student’s account after the end of the loan period.

It is quite possible a student could have incurred other unallowable charges that may have been applied to their account and possibly chipping away at their credit balance. When in the process of returning credit balances to a student or parent, you should review the student’s account ledger and make sure to factor in these unallowable charges to confirm the proper amount is returned to the student. Applying unallowable charges, like overtime, to a Title IV credit balance is not permitted.

When a Student Withdraws

Another common timing issue with credit balances is for students that have withdrawn from their program. If a credit balance remains on a student’s account after the proper drop adjustments and Return to Title IV (R2T4) calculation is done, a school has 14 days from the date the R2T4 was performed to return the credit balance. This has become more relevant in recent months due to the pandemic and the CARES Act R2T4 waiver (CFC 080620). For those withdrawn students that qualify for the R2T4 relief, after the institutional refund policy is put into effect, schools are still required to perform the R2T4 calculation and document what was not returned to the Department of Education. This may leave an unexpected or fairly large credit balance on the student’s account that is still required to be returned to the student within 14 days from when the R2T4 was performed.

Your school should already have the proper policies and procedures in place to keep track of and administer Title IV credit balances, as remaining balances directly impact both the school and the student. Nonetheless, not all schools are the same, and specific situations pop up constantly, so make sure to consult with a Title IV expert as needed.


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