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Professional Judgment
Loss or Damage to Primary Residence

Sometimes financial aid administrators will be asked to make an adjustment for loss or damage to the family's primary residence. Such damage may have been inflicted by fire, hurricane, tornado, flood, or other natural disaster. Is it appropriate to make an adjustment for loss or damage to the family's primary residence, given that the net worth of the primary residence is excluded from consideration by the Federal need analysis methodology?

When families are faced with the aftermath of a natural disaster, they will have significant out of pocket expenses, no matter how good their insurance policy. For example, when the house is completely destroyed, the family will have to continue making mortgage payments until the insurance company settles with the lender, in addition to paying rent. (Amounts provided by the Red Cross usually cover only one month rent plus security deposit, and often only defray the costs.) In addition, the insurance may be insufficient to rebuild the structure and replace the family's belongings.

When a family is a victim of a natural disaster, their losses are not just limited to the physical structure of the house, but may include:

  • contents of the house
  • insurance deductibles
  • underinsurance (lenders only require enough insurance to cover their financial interest, falling short of the cost of rebuilding and replacing belongings)
  • temporary housing costs
  • contents beyond the insurance allowances or contents that are difficult to document such as clothing, utensils, furnishings, etc.
  • property taxes (they don't go down just because there's no house any more)
  • delays in insurance reimbursement

Don't forget that the emotional toll can be severe, especially if there was loss of life. It is not unusual for one or more of the parents to lose their jobs because of the stress.

Financial aid administrators should review the financial impact of the loss on the family, and make a decision after reviewing the family's situation. The extent of the insurance settlement should be taken into account. Possible actions can include making an adjustment to assets and/or an adjustment to income.

The US Department of Education has indicated after previous natural disasters, such as various hurricanes (DCL GEN-99-27, DCL 96-L-190, DCL GEN-95-49), floods (DCL 95-L-175, DCL GEN-96-10) and other natural disasters (DCL GEN-04-04) that any special aid received by disaster victims from the government is excluded from income. The Department also relaxed deadlines and SAP standards, waived verification requirements during the award year for families whose records were lost or destroyed because of the disaster, and allowed a special three-month administrative forbearance for education loans. The Department also encouraged financial aid administrators to "use professional judgment in order to reflect more accurately the financial need of students and families affected by disaster". These waivers and modifications of statutory and regulatory provisions were formalized after the passage of the Higher Education Relief Opportunities for Students Act of 2003 (Public Law 108-76), as published in the Federal Register, 68(239):69312-69318, December 12, 2003.


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