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When the school discovered their mistake, they should have notified you first before reducing your loan. However, even if they made the mistake by approving you for more loan than you are entitled based on your out-of-state status, they can rescind the loan after discovering their mistake. That sounds very unfair and it is, but it is nonetheless legal. So, there is no legal duty on the part of the school to reinstate your original loan. However, you need to make sure that the Promissory Note is amended to reflect the correct amount of loan actually give to you.
I am sorry that I do not have better news for you.