As far as the student is concerned, you should document everything you receive from the school, from the government, and from your loan servicer (or bank if applicable). This is important so you can keep track of everything you may need for future reference. While you're in school, you may receive a 1098-T which you may be able to use when you figure your taxes, which could help you out. In addition to that, if you end up with discrepancies, you will have your information from before that you can use to help resolve the issue. It's also good to have items so you have contact information, account numbers/information, and a running balance total.
As far as the financial aid officer is concerned, there are many reasons they need to document (everything from government regulations, accrediting agency requirements, campus policies, etc.), but one of the biggest reasons is justification. If the Dept of Ed or the accrediting agency walk in the door one day and ask to see a file, then it has to tell the story without any explanation from the financial aid officer. This means that all the paperwork has to be present and explain why that student deserved the financial aid they received.
An example of this is if a student has an unusual circumstance, then they have to provide documentation of that unusual circumstance. Let's say there is a student who is considered to be a dependent student who applies for financial aid, this means they need their parent's information. Unfortunately, this student had been living with friends and family their senior year of high school because of a domestic issue in that student's home. In order to help that student, the financial aid officer needs to document this situation so that if questioned, the questioning party would agree with the conclusion. All too often, the student will get family members and friend's parents to contribute letters of explanation and these letters are lacking in information. Many times, these letters will say things like "The student has been staying with us off and on", "She's a good person", "She deserves a chance", etc. The problem is usually, they don't contain any information to make a decision. They play on emotions and don't actually say the cause of why the school should do anything out of the ordinary.
On one hand, it's fortunate that schools are left on their own to decide what is good enough documentation. Unfortunately, sometimes what the school decides is enough might not actually be enough. Every one of these situations is different, and the Dept of Ed understands that, which is why they leave it open to the school. But if they check your file, and they do not agree that what you've provided is enough, then they will force the school to return your financial aid that you've received down to amount that you were eligible for to begin with. This means that you will most likely then owe the school a balance.
So, when in doubt, document everything. It's much better to have too much than not enough. And always, when in doubt, ask questions.
This has been another helpful posting from your friends at Metro Business College.