Revisions to Cash Management Regulations Take Effect July 1

Changes to the Student Assistance General Provisions, including regulations addressing disbursement of Title IV funds, will become effective July 1, 2008. The rules were issued last November, and institutions were free to implement provisions earlier if they wished. Auditors and reviewers are likely to pay attention to these new requirements, so institutions should ensure that their practices are in compliance.

The following discussion addresses each of the changes to Subpart K, Cash Management, 34 CFR 668.164--166.

§668.164  Disbursing funds.

(b) Disbursements by payment period.

The Department of Education has worked to better align the disbursements for all Title IV programs, including the loan programs. Generally, institutions will be required to disburse Title IV aid once each payment period. There are a few exceptions, primarily for nonstandard terms. Corresponding changes were also made in the definitions of payment period under §668.4. A detailed discussion of these changes, including charts illustrating payment periods under the old and new definitions, was provided in the preamble in the notice of proposed rulemaking.

(c) Direct payments.

This section, which addresses how the institution pays Title IV funds (generally credit balances left after institutional charges have been satisfied) to students, has been considerably revised to codify earlier guidance on using electronic fund transfers (EFT) and smart or stored-value cards. Note that the 14-day time frame for paying credit balances to students (or parents in the case of PLUS loans) has not changed.
There are four ways for an institution to pay Title IV funds to a student or parent: (1) by releasing a check provided by a lender under the Federal Family Education Loan (FFEL) program; (2) issuing a check; (3) initiating an EFT to a bank account; or (4) dispensing cash. The revised regulations establish some new parameters for (2) and (3).

Issuing a check.  An institution issues a check when it either mails the check to the student or parent, or notifies the student that the check is available for immediate pickup at a specific location. Although most institutions have moved away from having students pick up their checks, Department of Education (ED) representatives expressed concern during the negotiated rulemaking sessions on these rules that institutions sometimes held checks for too long when students failed to pick them up. To address this problem and ensure that students receive the checks in a timely manner, a new provision only allows the institution to hold a check for pickup for 21 days after the date that it notifies the student that the check is available. If the student has not picked up the check within 21 days, the institution must either:

• Mail the check to the student or parent. 
• Initiate an EFT to the student’s or parent’s bank account. 
• Return the funds to the appropriate Title IV program. If the student later shows up and requests the funds, the institution can reissue a check.

Bank accounts.  ED is using a broad definition of a "bank account" in these regulations, encompassing not only checking and savings accounts but also accounts underlying newer types of transaction devices such as stored-value or debit cards. Over the last decade, colleges and universities have found that their tech-savvy students appreciate the convenience of having the balance of their student aid funds available to them electronically. Electronic disbursements are generally more efficient and less expensive for the institution as well.

For the first time, ED has included a provision allowing an institution to have a policy requiring its students to provide bank account information or open an account at a bank of their choice.* This change was not in the proposed regulations, but was added in response to comments received. So now a college may establish a policy that it makes all Title IV credit balance refunds by EFT. However, under the rules, a student’s disbursement cannot be delayed if he or she fails to comply with such a policy--the institution must still pay a credit balance within the 14-day timeframe using one of the other delivery methods.

Note:  Unfortunately, conforming changes were not made to the Federal Work-Study (FWS) program rules, which stipulate that a student’s authorization for direct deposit of FWS wages not be "required or coerced" (see §675.16(a)(5)). Many employers, including colleges and universities, have mandated direct deposit of paychecks for all employees, but have been hampered by this provision from extending the policy to FWS wages.

An institution that simply requests bank account information from students and initiates payments by EFT to their accounts has no additional responsibility concerning the bank accounts. If, however, the institution is involved by direct action (it opens the account for the student or parent), setting up a process to follow, or assisting the student in opening an account, then the regulations include a list of actions the institution must take and criteria for the account itself. Remember that a "bank account" includes debit or stored-value card accounts. Most of these strictures are not new but were included in earlier, so-called subregulatory guidance from ED.

With respect to bank accounts, the institution must:

(i) Obtain in writing affirmative consent from the student or parent to open that account.
(ii) Before the account is opened, inform the student or parent of the terms and conditions associated with accepting and using the account.
(iii) Not make any claims against the funds in the account without the written permission of the student or parent, except for correcting an error in transferring the funds in accordance with banking protocols.
(iv) Ensure that the student or parent does not incur any cost in opening the account or initially receiving any type of debit card, stored-value card, other type of automated teller machine (ATM) card, or similar transaction device that is used to access the funds in that account.
(v) Ensure that the student has convenient access to a branch office of the bank or an ATM of the bank in which the account was opened (or an ATM of another bank), so that the student does not incur any cost in making cash withdrawals from that office or these ATMs. This branch office or these ATMs must be located on the institution's campus, in institutionally-owned or operated facilities, or, consistent with the meaning of the term "Public Property" as defined in Sec. 668.46(a), immediately adjacent to and accessible from the campus.*
(vi) Ensure that the debit, stored-value or ATM card, or other device can be widely used, e.g., the institution may not limit the use of the card or device to particular vendors.  
(vii) Not market or portray the account, card, or device as a credit card or credit instrument, or subsequently convert the account, card, or device to a credit card or credit instrument.

* The reference is to the definition of public property used in the campus crime reporting regulations: All public property, including thoroughfares, streets, sidewalks, and parking facilities, that is within the campus, or immediately adjacent to and accessible from the campus.

(d) Crediting a student’s account at the institution.

Prior-year charges.  The new rules change how an institution treats prior-year charges. As always, the institution may also disburse Title IV funds by crediting the student’s account at the institution. These funds may be used to cover current-year charges for tuition and fees, and for room and board if contracted with the institution, without specific authorization from the student or parent. As in the past, with specific authorization, the Title IV funds may also be used to cover other educationally related charges incurred by the student.

Under the old rules, with authorization of the student or parent, Title IV funds could be used to cover minor prior-year charges "if these charges are less than $100 or if the payment of these charges does not, and will not, prevent the student from paying his or her current educational costs." Under the new rules, authorization will no longer be needed to apply up to $200 of Title IV funds to prior-year charges for tuition, fees, room and board. With authorization, other educationally related charges may be included in the $200.

Thus, institutions have gained the flexibility to cover up to $200 of prior-year costs even without the student’s or parent’s specific authorization, making it less likely that students’ registrations for fall semester will get held up due to left-over charges from the previous year. But institutions have lost some flexibility in their ability to apply more than $200 to prior-year charges when crediting students’ accounts. (The old rule still referred to minor prior-year charges, so institutions were at risk that an auditor or reviewer would challenge their interpretation of minor if they were too generous.)

Two points to remember:

• In this context, "current year" or "prior year" refer to the award year (July -June), not a calendar year, so these strictures do not apply to charges remaining from a prior term in the same award year. 
• This rule addresses what the institution may do when crediting Title IV funds to students’ accounts; it does not constrain what a student does with a Title IV credit balance that is paid to her. The student can turn around and write a check to the institution to cover additional prior-year charges if she wishes.

(g) Late disbursements.

ED changed the provision in ss668.164(g)(4)(i) that allowed institutions to make late disbursements to students up to 120 days after they became ineligible, and with approval of the secretary, more than 120 days. The exception process by which institutions could petition ED for approval to make what were known as "late, late disbursements" has been eliminated, but the 120-day period has been extended to 180 days. Institutions may no longer make any disbursement of Title IV funds more than 180 days after the student has become ineligible. A student becomes ineligible when he ceases to be enrolled at least half-time in a period of enrollment for FFEL or Direct loans, or is no longer enrolled for the award year for other Title IV programs.

(h) Returning funds.

ED added a new paragraph (h) h to address what institutions should do if students or parents fail to cash checks containing Title IV funds or if the institution is otherwise unable to deliver the funds to them. ED has had a policy for several years that Title IV funds can never escheat to a state, but must be returned to the appropriate Title IV program if they cannot be paid to the student (or parent for PLUS loans). This policy was not codified in regulation, however, and did not provide specific timeframes for action. Colleges and universities, particularly public ones, have often found themselves at odds with state auditors over undeliverable credit balance payments or refunds to withdrawn students that include Title IV funds.

Uncashed checks.  Under the new regulations, an institution has 240 days to return to ED, a lender, or a guaranty agency, as appropriate, any Title IV funds that it attempts to deliver to a student or parent if the intended recipient does not receive or negotiate the funds. For FWS wages, only the Title IV portion needs to be returned.

Returned checks or rejected EFTs.  If a check that the institution mailed is returned, or an EFT is rejected, the institution must make additional attempts to disburse the funds or return them to the appropriate party within 45 days. The institution may continue making attempts to deliver the funds, but must adhere to the 240-day limit if it is unsuccessful.

§668.165 Notices and authorizations.

Loan disbursements.  Under the old rules, institutions have been required to provide notices to students (or parents for PLUS loans) when the institution credits the student’s account with FFEL, Direct, or Perkins loan funds. This notice provides the anticipated date and amount of the disbursement and informs students of their right to cancel all or a portion of the loan. Under the new rules, the substance of these notices is unchanged, but the time frames for some institutions are modified.

The new rules introduce the concept of "affirmative confirmation" of loans. Affirmative confirmation is "a process under which an institution obtains written confirmation of the types and amounts of Title IV, HEA program loans that a student wants for an award year before the institution credits the student's account with those loan funds." So, while institutions are not required to have students sign and return a copy of their award letters, a college that does has received affirmative confirmation. Alternatively, an institution might have a process whereby students must reaffirm that they still want the loans they were offered six weeks before the start of the fall semester by so indicating on a form through their student account portal--that also is considered affirmative confirmation. As with other Title IV regulations, "written" does not require paper and pen, but includes electronic means. The timing for loan disbursement notices does not change under the new rules for institutions that obtain affirmative confirmation of loans. Institutions that don’t get affirmative confirmation, however, have a shorter period in which to provide the notice, and must give the borrower a longer window to cancel the loan.

With affirmative confirmation:

• The disbursement notice must be provided no earlier than 30 days before, and no later than 30 days after, the institution credits the student’s account. 
• The student or parent has until the later of the first day of the payment period or 14 days after the date of the notice to request cancellation of a loan.

Without affirmative confirmation:

• The disbursement notice must be provided no earlier than 30 days before, and no later than 7 days after, the institution credits the student’s account.
• The student or parent has 30 days from the date of the notice to cancel the loan.

If the borrower asks to cancel all or a portion of the loan, the institution must do so, return the loan proceeds, and inform the borrower in writing of its actions.

Note that institutions are not required to obtain affirmative confirmation, although this regulation clearly attempts to encourage them to do so. ED is concerned about the number of students who seem to be confused about whether they are receiving grants or loans, and is looking to provide one more opportunity to clarify the information for borrowers.

Authorizations.  Changes have been made to the discussion of student authorizations to conform to the alterations made relating to crediting a student’s account for prior-year charges. An authorization is no longer needed to cover up to $200 in such charges for tuition, fees, room and board, as discussed above, but one is needed to cover charges for other educational expenses.

§668.166  Excess cash.

The excess cash rules have been simplified by eliminating the provision that allowed a tolerance during periods of peak enrollment of three percent of the institution’s total prior-year drawdowns of Title IV funds. Under the new rules, institutions may hold on to excess cash for a maximum of seven days if the amount held does not exceed one percent of the institution’s prior-year drawdowns. Given today’s "just-in-time" processes, ED no longer feels that institutions need greater leeway, even during active enrollment periods. Excess funds (those that are not disbursed within 3 days, or resulting from award adjustments or cancellations) are not difficult to return, and are easily re-drawn when needed. Small colleges with low Title IV funds overall may be more easily affected by this change and should be vigilant in policing the amount of Title IV funds on hand.

ED has updated the Student Financial Aid Handbook to include discussion of these new rules in Volume 4, Chapter 2. The discussion of the reasons for the changes in the regulations provided as part of the notice of proposed rulemaking may also be useful in understanding the revision.

NACUBO Contact:  Anne C. Gross, vice president, regulatory affairs, 202.861.2544