The study found that students required to return federal aid after withdrawing mid-semester are 5% less likely to re-enroll in college. For low-income students, that figure jumps to 11%.
"Our results show the rigid structure of the R2T4 policies can derail students' futures over seemingly trivial differences in enrollment timing," wrote researchers Ari Anisfeld of the University of Arkansas, Elizabeth Bell of the University of Texas at Austin, and Oded Gurantz of the University of Colorado-Boulder.
The Return of Title IV Funds (R2T4) policy requires colleges to calculate how much federal aid a student has "earned" if they withdraw before completing 60% of an academic term. The policy creates a sharp cliff: students who leave one day before reaching that threshold must return aid, while those who leave one day after keep it all.
In the 2019-20 academic year alone, hundreds of thousands of students withdrew mid-semester from the 11 million who received federal financial aid, researchers found. The policy's impact stems from a mismatch between federal rules and college refund schedules. Most colleges require students to pay full tuition after just a few weeks, but federal aid isn't fully "earned" until students complete 60% of the term—typically six weeks in a 10-week quarter or nine weeks in a 15-week semester. When students withdraw before that threshold, colleges must return "unearned" aid to the U.S. Department of Education and bill students for the difference. A student who withdraws at 59% of the term could suddenly owe their institution $1,600 or more.
"The somewhat arbitrary 60% federal threshold provides a natural experiment where students, who are in all observable ways identical, face distinct challenges due to when they withdrew during the academic term," the researchers wrote.
Using a first-of-its-kind dataset from the U.S. Department of Education, researchers tracked students who withdrew in 2019-20, before COVID-19 shutdowns. They compared students who withdrew just before the 60% mark to those who withdrew just after it. The findings revealed persistent impacts three years later. Low-income students' enrollment rates declined between 5 to 6 percentage points—a response the researchers called "large relative to the actual amount of aid owed."
