The July 2023 restoration of Pell grants for incarcerated students was a watershed moment for increasing access to higher education in prison. But with this change came a complex set of administrative and regulatory issues confronting both prison education programs and students.

Return to Title IV (R2T4) rules create risks for all Title IV Federal Student Aid recipients, not just incarcerated learners. If a student receives Title IV funding and withdraws during the semester, the college or university may have to refund the government a share of any dispersed grant aid, and under some circumstances the student may have to immediately pay back the loan funds they received. If the student has completed 60 percent of the semester, they are deemed to have earned the aid. Despite not having earned any credits, they have used up their Title IV eligibility and owe any repayment of loans. But if the student has completed less than 60 percent of the semester, depending on how much of the aid was allocated to the student’s account and when the student withdrew, the institution may be required to refund dispersed grant aid to the Department of Education.

In most cases, the institution assigns the refunded amount as a balance to the student, and seeks collection. The student ends up with a liability to the institution, which if they are unable to pay, can keep the student from re-enrolling. Until recent revisions to the regulations, the college or university could even withhold the student’s transcript, keeping them from transferring to another institution. Currently, the institution can still withhold the transcript for the semester or term in which the student incurred the debt. Since this is difficult for institutions to implement, however, many have stopped withholding transcripts altogether, and some states have also passed laws making transcript withholding illegal. Of course, the student still has incurred a debt that is owed to the original institution, which is often enough to keep them from re-enrolling there or elsewhere.

Solutions to these problems have been proposed, including refund policies on the part of colleges and universities to students that would match the refund policies of R2T4 regulations. For example, if a student withdraws halfway through the semester, R2T4 calculations will determine what share of any Title IV grant aid used by the student to pay for the semester will have to be refunded by the college to the Department of Education. If the college gives the student a refund of an equal amount for having withdrawn, the student would end up with no liability to the college or university. This way, rather than attempting to recoup the money they had to refund the Department of Education from the student, institutions will forgo the revenue from the student dropping out. This new practice would benefit the student while costing little to the institution, since only about 11 cents on the dollars are currently collected on those debts.

The Department of Education put R2T4 on its 2023 negotiated rule-making session. The new, final rules were published on January 3, 2025 in the Federal Register by the Department of Education. They address several issues facing all Title IV recipients but leave others unchanged. The new rules also address an important risk of R2T4 for incarcerated students, which was not addressed by the Department of Education in the July 1, 2023 final regulations that detailed Pell eligibility for incarcerated students attending prison education programs. While the new regulations are effective July 1, 2026, institutions can implement the regulations affecting students who are incarcerated in 30 days.

The new rules stipulate conditions under which a student can be treated as never having attended during a payment period, which means they don’t have to be treated as withdrawn and therefore the institution doesn’t have to do a R2T4 calculation. In this situation, the proposed rules would have allowed students to repay any dispersed loan funds under the terms of their loan agreement, rather than immediately, allowing more time for repayment. Unfortunately, this provision was not included in the final rules. The first rule change applies to all students, including those who are incarcerated, while the proposed change in the loan repayment rule would not have affected incarcerated students since they are not eligible for Federal Title IV loans.

A special additional situation exists for incarcerated students, in that they can be unexpectedly transferred to a new facility, or may in fact be released before previously expected. Or, the facility may be locked down for security reasons, and any prison education programs (PEPs) put on hold. This may make it impossible for students to complete a course that they started in their original facility. If a student used a Pell grant to pay for the course, but can’t complete the course and has not completed 60 percent of the semester, the PEP under existing R2T4 rules would have to refund the government an amount determined by the R2T4 calculation, and in turn the institutions can ask the student to repay that amount to the PEP. In this situation, however, the student was unable to finish the course for reasons beyond their control and has little ability in many cases to repay a debt, unless their family is in a position to assist. This would then prevent them from further accessing Pell grants to continue their education, either in the original institution, one to which they are transferred, or after release on the outside.

The final regulations address the problem for incarcerated students in the following way. A student on an approved leave of absence is not considered to have withdrawn and therefore not subject to R2T4. However, the existing regulations require that a leave is only an approved leave of absence if the student is permitted by the higher education institution to complete the course by picking up where he or she left off prior to the leave of absence. This could be impossible in many cases for incarcerated students who experience an involuntary disruption, so the new rules exempt incarcerated students from this requirement for their leave of absence to be considered an approved leave of absence. This would allow PEPs to have greater flexibility in offering approved leaves and in figuring out ways for students to finish their coursework for an interrupted semester.

This leaves unaddressed exactly how the student can complete any course that they started, but gives PEPs more flexibility in coming up with solutions and prevents students who are incarcerated from incurring institutional debts as a result of R2T4 and circumstances outside their control. The new regulation also does not address larger issues around the transfer of credits among higher education programs, such that incarcerated students do not use Pell eligibility to earn credits that do not contribute to earning a degree. Nonetheless, these incremental changes to the regulations will benefit students, both those incarcerated and on the outside.