The Department of Education today published a notice of proposed rulemaking (NPRM) for its long-awaited cash management regulations. The proposed rules, part of the Program Integrity and Improvement negotiations held last year, would set requirements for institutions entering into agreements with banks and third parties issuing Title IV credit balance refunds. Comments are due July 2.
Regardless of whether an institution has an arrangement with a bank, the proposed rules would prohibit institutions from sweeping Title IV funds overnight into savings accounts, money market mutual funds, or other securities. All Title IV funds would have to be kept in insured bank accounts and institutions could keep up to $500 of earned interest per year.
The proposed rules would allow an institution to include the cost of books and supplies as part of tuition and fees, as long as it breaks out those charges and explains how they are in students' best financial interests.
In the NPRM, ED reserves the right to establish a method for directly disbursing credit balance refunds to students, though the agency has no such plans at this time.
Two Types of Banking Arrangements
The NPRM establishes rules for two types of arrangements between financial account providers. Tier One (T1) arrangements are agreements between an institution and a third-party servicer that performs one or more functions associated with processing direct payments of Title IV funds on behalf of an institution and offers one or more financial accounts to students and parents. Tier Two (T2) arrangements are agreements between a school and a financial institution that offers and markets accounts to students. Certain regulations on T2 arrangements would not apply if a school could show that no student/parent received a Title IV credit balance during the previous year.
Under T1 agreements, the rules prohibit fees for point-of-sale transactions, in-network ATM transactions, any charge for at least 30 days following a deposit of Title IV funds, and any transaction that exceeds the balance in the underlying account.
The rules would also require institutions to obtain a student's consent to open an account under a T1 or T2 agreement before the institution shares personal information about a student/parent and before sending them an access device, like a debit card. Institutions would also have to ensure students are not charged for opening an account and have convenient access to ATMs on a surcharge-free network.
ED points out several examples of contracts that are not T1 or T2 arrangements, including:
- General marketing of a financial institution that does not specify the kind of account or how it can be opened.
- Sponsorship of on-campus facilities with financial institution branding that does not promote particular accounts.
- A lease permitting the operation of an on-campus branch or on-campus ATM.
- A list of area financial institutions recommended generally to students for informational purposes rather than being provided pursuant to a contract.
Schools with T1 or T2 arrangements would have to establish a student choice process that:
- Prohibits an institution from requiring students or parents to open an account where credit balances must be deposited.
- Requires an institution to provide a neutral list of account options that a student may choose from where the student's preexisting bank account is listed as the first and default option.
- Ensures electronic payments made to a student's preexisting account are as timely as, and no more onerous than, payments deposited into an account under a T1 or T2 arrangement.
The proposed rules also state that an institution must include checks as an option to receive payments.
A contract governing T1 or T2 agreements must be posted in its entirety on an institution's website and must also be submitted to ED no later than 60 days after the most recently completed award year. Additionally within the same time period, institutions must submit to ED and post on their websites additional information on these agreements, including the total consideration for the most recently completed award year paid or received by the parties under the contract. Institutions must also include the number of students and parents who had financial accounts under the contract at any time during the year and the mean and median of actual costs incurred by the account holders. Both the contracts and additional information will be housed in a publicly accessible database maintained by ED.
Keeping Students Interests First
The proposed rules require institutions to ensure that the terms of these accounts are not inconsistent with the best financial interests of students by:
- Conducting periodic reviews to ascertain whether the fees imposed under the arrangements are not excessive in light of prevailing market rates.
- Ensuring that all contracts allow the institution to terminate the arrangement due to complaints or excessive fees.
- Taking affirmative steps to ensure all requirements are met.
In addition to the cash management provisions, the NPRM also clarifies how previously passed coursework is treated for Title IV eligibility purposes and streamlines the requirements for converting clock hours to credit hours.
NACUBO members are encouraged to submit comments to ED and share thoughts and concerns with NACUBO. Additional analysis of the NPRM will be provided by NACUBO well in advance of the July 2 comment deadline.