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Business and Policy Areas
Business and Policy Areas

NACUBO Summarizes Regulations on Banking, Processing Relationships

November 16, 2015

While some of the revisions to the Department of Education's cash management rules apply to all institutions, a number of the regulations focus on arrangements between institutions and banks and third-party servicers processing Title IV credit balance refunds.

There are two types of arrangements in the final rules. The department defines Tier One (T1) arrangements as those between an institution and a third-party servicer where the servicer "performs one or more of the functions associated with processing direct payments of Title IV funds on behalf of the institution" and offers one or more financial accounts under the arrangement, or markets an account to students itself or through another entity.

Tier Two (T2) arrangements are defined as those between an institution and a bank under which accounts are offered and marketed directly to students. ED has added new thresholds for determining which parts of the regulations apply, depending on the number of students at the institution who receive Title IV credit balance refunds. 

If a school had at least one student with a Title IV credit balance refund in each of the three most recently completed award years, only certain provisions of the T2 regulations will apply. Because of this lower threshold, NACUBO is informally labelling these arrangements "Tier Two, Lower Threshold" or "T2-L."

However, if an institution-for the three most recently completed award years-had an average of 500 or more students receiving a credit balance refund, or had an average of 5 percent or more of its students receiving a credit balance refund, all of the T2 provisions will apply for that institution. NACUBO simply refers to these arrangements as "T2."

Institutions falling below these two thresholds are encouraged by ED to comply voluntarily with the T2 provisions but are not subject to the requirements.

Changes Impacting T1 and T2 Arrangements

In the final regulations, the Department made several overarching changes from the proposed rules for the T1 and T2 provisions.

ED agreed with commenters that the requirements for T1 and T2 arrangements were impractical for many foreign institutions. In the final rules, the agency clarifies that the T1 and T2 provisions only apply to domestic institutions.

ED also recognized that very few parents have accounts offered under a T1 or T2 arrangement and clarified and removed references to parents in the T1 and T2 provisions.

Finally, many business officers were concerned with the proposed provision that would have required institutions to list "check" as an option for students to receive their credit balance refunds. That language was removed in the final rules. However, institutions will still need to be able to issue a check if a student has not identified a preferred method of receiving his or her credit balance refund.

Summaries of T1 and T2 Rules

NACUBO has prepared summaries of the regulatory requirements for:

To assist institutions in determining which arrangements they may have, NACUBO has developed a flowchart.

Podcast Available

Gain insights into how the new cash management rules were developed and their impact on campus and financial institutions. Tune in to the latest podcast from NACUBO In Brief.

Additional Resources

More tools and information on the cash management regulations are available in the Debit Cards and Campus Banking Products resource center.


Anne Gross
Vice President, Regulatory Affairs

Bryan Dickson
Senior Policy Analyst