Recent regulatory changes have prompted numerous requests for clarification from ECG clients. One of the most frequent requests we have received concerns the changes made regarding the use of Title IV funds to pay a balance from a prior year. Below please find a helpful summary of the changes and how they affect your processes.

Effective July 1, 2008, Title IV funds may be used to pay minor prior year charges up to a maximum of $200. The regulations have two effects: 1) they change the maximum amount from $100 to $200; AND 2) they remove the exception that previously allowed schools to use funds in excess of the allowable amount as long as doing so would not prevent the student's current year charges from being paid. The regulations narrow the use of prior year funds by setting an absolute maximum dollar amount of $200.

Schools must still obtain written authorization from students (or parents, in the case of PLUS) to apply the funds to the prior year (applying the $200 limit discussed above); and a separate authorization must still be obtained to use the funds to pay current year allowable charges other than tuition, mandatory fees, contracted room, and board.

The $200 maximum is part of the final regulations published on October 29 and November 1, 2007, and may be found in 34 CFR 668.164(d)(2).

In addition, DCL GEN-09-11 (issued September 4, 2009) makes a distinction between students who receive a Federal Family Education Loan (FFEL) or Direct Loan (DL), and students who do not:

• If a student’s financial aid package includes FFEL or DL funds, the Title IV aid may be used only to cover charges that occur during the loan period.
• If a student’s financial aid package does not include FFEL or DL funds, the Title IV aid may be used to pay charges that occur during the award year.

This means that if a student applies for a spring-only loan, the loan funds may not pay off charges that occurred prior to the loan period for that loan, even if the charges occurred during the same aid year. The only exception to this would be if the student (or parent for PLUS) had submitted a written authorization granting permission to apply Title IV funds to a prior year (or loan period). The $200 limit discussed above would also still apply.