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As expected, the Department of Education published the final version of its Program Integrity and Improvement regulations on October 30. The package revises ED’s cash management rules and will particularly impact colleges and universities that offer bank accounts to students through agreements with financial institutions as well as those that use third-party servicers to process Title IV credit balance refunds. Several other changes to the regulations will impact all colleges and universities. The rules, with a few exceptions, are effective July 1, 2016.

The new rules also include provisions that apply broadly to all institutions, including:

  • Allowing students to use Title IV aid when retaking coursework in some circumstances.
  • Prohibiting cash sweeps of Title IV funds and requiring them to be maintained in insured accounts.
  • Restricting an institution’s ability to include charges for books and supplies in tuition and fees.
  • Requiring institutions on the heightened cash monitoring payment method to pay credit balances to students before requesting reimbursement of Title IV funds.
  • Clarifying the use of Title IV funds to pay for minor prior-year charges.
  • Streamlining clock-to-credit-hour conversions.

This article highlights major changes the agency made from the rules proposed earlier this year related to student bank accounts and paying Title IV credit balances to students. NACUBO will provide a more complete summary of the regulations, including the provisions above, later in the month.

Changes from the Notice of Proposed Rulemaking

T2 Threshold

ED continues to base its regulatory scheme on two categories of arrangements between schools and third-party servicers processing credit balance refunds and/or financial institutions.

Tier one (T1) arrangements are 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. The T1 definition did not change from the proposed rules, except to clarify the status of accounts that are offered to the general public versus those that are designed for students.

ED’s definition of tier two (T2) arrangements was modified, though, in the final rules. While these arrangements are still defined as those between an institution and a bank under which accounts are offered and marketed directly to students, the agency 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. However, if that 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.

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

NACUBO has prepared a matrix to illustrate which provisions apply to institutions with T1 arrangements and which apply to institutions within the two thresholds for T2 arrangements. It should be noted that the matrix only includes T1 and T2 provisions, and the other cash management rules outside that discussion will still apply.

Checks as a Required Option

Institutions will still be required to list options for receiving a credit balance refund in a clear, fact-based, and neutral manner. ED has removed language in the proposed rules that would have required colleges and universities to list a “check” as one of those options. Institutions will still need to be able to issue a check if a student has not identified his or her preferred method of receiving a credit balance refund.

30-Days Fee Free

The proposed rules initially called for a 30-day period following payment of a Title IV credit balance when students could not incur any account fees under a T1 arrangement. NACUBO was concerned that this broad language could allow for free wire transfers, bounced checks, replacement cards, and other transactions that are not typically provided free of charge. Further, it would be difficult for students and financial institutions to track the 30-day window, especially in situations involving multiple disbursements.

In the final regulations, ED acknowledged the operational challenges of the 30-day proposal and changed the provision to specify that students must have convenient access to their credit balance refund funds “in part and in full up to the account balance via domestic withdrawals and transfers without charge” during the student’s entire period of enrollment.  Providers will have to determine at least one method that aid recipients will be able to use to access their funds, so that one bank might allow free teller transactions while another might allow free ATM withdrawals. ED notes, however, that no daily or monthly limits on ATM withdrawals could be imposed, which may be challenging for many banks.

Information Sharing

In response to comments submitted by NACUBO and others arguing that ED’s proposed rules did not allow institutions to share sufficient information about students with third-party servicers to allow authentication and prevent fraud, the final rules allow institutions to share more student information in T1 arrangements.

Initially, the proposed rules only allowed institutions to share certain directory information. Now, in addition to that information, colleges and universities will be able to share:

  • Directory information
  • A student ID (as long as it doesn’t not include – in part or whole – a Social Security number or date of birth)
  • A password, PIN, or other shared secret information provided by the institution
  • Any additional items specified by ED in a future Federal Register notice

ED believes this should be enough for institutions and third-party servicers to authenticate the identities of students. To further safeguard student information, a provision was also added requiring the institution to ensure that the information is used solely to support paying Title IV funds to students and not shared with affiliates or other entities for other purposes.

Cost Disclosures

The cash management regulations require institutions to disclose on their websites, and report to ED, the number of accountholders during the preceding year and the mean and median costs associated with accounts offered under T1 and some T2 arrangements. NACUBO and others noted in response to the proposed rules that this would require institutions to share information on student enrollment status with banks so they would know which accountholders were still students.

In the final rule, ED conceded that colleges and universities would need to share enrollment information but will only allow them to provide a list of currently enrolled students and directory information – including mailing addresses – to banks with T2 arrangements. The agency feels that this information alone will “provide a financial institution with enough information to calculate contract data for enrolled students.”

Items with Delayed Implementation Dates

For various reasons, these three sections of the cash management rules will go into effect after July 1, 2016.

Feature and Fee Disclosures

If an institution offers accounts under T1 or T2 arrangements, it must, when listing the various ways a student may receive his or her credit balance refund, identify the major features and commonly assessed fees association with the T1 or T2 account using a disclosure template provided by ED. The Consumer Financial Protection Bureau is working on developing a similar template.

To ensure that the student choice disclosures for T1 and T2 accounts dovetail with the CFPB’s requirements, ED is delaying implementation of this requirement to July 1, 2017. ED will publish the disclosure formats in the Federal Register and provide an opportunity for public comment before they are finalized.

Full Disclosure of Contract

The department is delaying until September 1, 2016, the requirement for institutions to post the entire contract establishing a T1 or T2 arrangement on their websites, except “for portions that, if disclosed, would compromise personal privacy, proprietary information technology, or the security of information technology or of physical facilities.” Institutions will also have to provide ED with a URL for the contract for publication in a database accessible to the public.

Contract Data

As mentioned above, institutions with T1 or T2 arrangements will have to disclose on their websites, in a format established by ED:

  • The total consideration for the most recently completed award year, monetary and non-monetary, paid or received by the parties under the terms of the contract; and
  • For any year in which the institution’s enrolled students open 30 or more financial accounts marketed under a T1 arrangement or aT2 arrangement above the 500-plus student/5 percent threshold discussed earlier, the number of students who had financial accounts under the contract at any time during the most recently completed award year, and the mean and median of the actual costs incurred by those account holders.

The department acknowledged that “standardizing the format of the contract data will not only improve the consistency and clarity of the disclosures, as suggested by commenters, but it will also enable third parties to more easily preform analyses on contract data.” Because it will take some time for ED to create a disclosure template, this requirement will not go into effect until September 1, 2017.

Additional Information

In addition to future articles detailing the specifics of the cash management rules, NACUBO will host a webcast on November 18 further explaining the rules. Webcast attendees will have the opportunity to ask the presenters questions about the regulations.


Liz Clark

Vice President, Policy and Research



Bryan Dickson

Director, Student Financial Services and Educational Programs


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