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As expected, the Department of Education's first draft of proposed changes to its cash management regulations, offered at the second round of meetings of the Program Integrity and Improvement (PII) negotiated rulemaking panel, focused largely on credit balance disbursements.

A few surprises, however, appeared as well. They would require separate bank accounts and prohibit the use of sweep accounts for Title IV funds, not allow books and supplies to be included in allowable charges as part of tuition and fees, and expand the requirement to provide vouchers—or some other way for students to purchase books early in the term—to all students receiving Title IV aid (rather than just Pell-eligible students). In addition, the draft omitted a provision in the current regulations that allows institutions to have a policy mandating use of electronic funds transfer for credit balance refunds.

At the March 26-28 meeting in Washington, the PII committee spent hours discussing the draft changes to the cash management rules (34 CFR §668.161 to .166). Under the negotiated rulemaking process, the negotiators, who represent a wide variety of interest groups, discuss the draft section by section and explain their concerns. Negotiators may also submit suggested alternative language. ED representatives explain their reasoning, ask questions, listen, and take notes, but they seldom indicate what changes they are willing to make. Only when a new draft is provided in advance of the next meeting do negotiators learn whether their arguments proved persuasive.

Cash Management

Here are key points in the draft cash management regulations, all of which may be changed in future drafts.

Bank Accounts

ED proposed requiring institutions to keep Title IV funds segregated in a separate insured bank account, specifically stipulating that such funds could not be transferred or maintained in "a sweep account, or otherwise engage in any practice that risks the loss of those funds." ED negotiators did not point to any past losses attributable to use of sweep accounts. And, while the rules would require keeping Title IV funds in an insured account, ED representatives did not express concern about the funds exceeding the insured limits.

Books and Supplies

Institutions are allowed to apply Title IV funds to allowable charges (tuition, fees, room, and board) without additional authorization. ED proposed to stipulate that institutions could not include charges attributable to books or supplies in tuition and fees. The institution could charge for these separately but would need authorization from the student to use Title IV funds to pay those charges.

In 2010, the cash management regulations were amended to require institutions to provide a way for Pell-eligible students to get their books and supplies within the first week of classes, if they were due a credit balance refund but had not received it. In the new draft, ED proposes extending this requirement to all students receiving any Title IV assistance, not just Pell grants.

Credit Balance Disbursements

The negotiations have often focused on the manner in which institutions pay Title IV credit balances to students, especially when financial institutions or other third-party servicers are used. The draft regulations would set strict standards requiring an institution to:

  • Convey information about options to students in a neutral manner.
  • Ask first for the student's bank account information to use for electronic funds transfer (EFT), ensuring that such payments are as timely and "no more onerous" than payments to a sponsored account.
  • Ensure that students do not incur charges to open or maintain a sponsored account, which must provide free access to any ATM in the country.
  • Provide a debit card or other access device only after the student has requested it.
  • Post contracts with banks or third-party servicers on its website.

The draft rules would prohibit co-branded ID or debit cards. The proposed language does not clarify whether the term "sponsored accounts" refers only to accounts set up as part of a process for delivering Title IV proceeds to students or also encompasses affinity agreements between financial institutions and colleges and universities.

Other Issues

The PII negotiated rulemaking team has several other issues on its agenda. Two address aspects of state authorization for distance education and foreign locations. ED's first draft on those issues would impose significant additional burdens on institutions and states.

ED's earlier rule on state authorization for distance education, which was thrown out in court on procedural issues, required institutions to obtain state authorization only in states having such a requirement. The draft rule would insist that an institution obtain state authorization for distance education from any state in which its students reside; otherwise, the distance education program would be ineligible for Title IV funds. States that currently have no such requirement (the majority today) would be forced to impose new requirements or find their residents' access to distance education curtailed. The rules would specifically allow for reciprocity agreements between states for this purpose.

At the March meeting, ED did not provide a first draft of rules for one other issue: eligibility standards for parent PLUS loans. Instead, ED gave negotiators data on PLUS loan default rates, credit check results, and reasons for denials. The group discussed possible alterations to ED's credit criteria for these loans.

Next Steps

ED negotiators received lots of feedback on their first draft at the March meeting, from school and industry representatives as well as student and consumer groups. They will now redraft proposed regulations for the committee to consider at its next meeting in late April. Because ED is behind in drafting the parent PLUS loan regulations, a fourth meeting was added to the PII panel's schedule. The final meeting will now take place May 19-20.

ED posts documents provided to the negotiated rulemaking panel on its website. ED's next draft should be available shortly before or during the April 23-25 meeting. 


Liz Clark

Vice President, Policy and Research


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