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Question of the week

Q.: After a school has fully disbursed a student's Stafford loan, it learns that the student received a scholarship for that period of enrollment. The student is now overawarded, but since the loan was fully disbursed, the school is not required to return any loan funds to the lender. However, can the school elect to do so to reduce the student's indebtedness?

A.: Yes. According to the 2008-09 Federal Student Aid Handbook, page 5-7:

"Although a school isn't required to return Stafford Loan funds that were disbursed to the borrower — either directly or by applying them to the student account — before the overaward situation occurred, the law doesn't prevent your school from returning funds that were applied to the student account if you choose to do so. A borrower who receives a direct payment of loan funds is not required to repay an overawarded amount, unless the overaward was caused by his or her misreporting or withholding information."

If your school exercises this option to return funds to the lender, and the return of funds creates a deficit on the student's account at the school, then the school will have to settle that deficit with the student. In other words, this is not a Title IV overaward to be reported to the National Student Loan Data System (NSLDS) or to ED Collections; this is a debt between the school and the student.

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