Some Cash Management Changes Apply to All Institutions

While much of the focus on the Department of Education's recent Program Integrity and Improvement rulemaking has been on its impact on relationships between institutions and banks or third-party servicers, several changes to the regulations apply more broadly to all institutions participating in Title IV federal student aid programs.

The final rules, published on October 30:

• Lay out the methods by which ED provides funds to schools.
• Restrict the types of accounts where schools may hold Title IV funds.
• Increase the amount of interest that may be retained.
• Delineate when charges for books may be included in tuition and fees.
• Broaden the application of existing book voucher provision.
• Clarify the definition of prior-year charges.
• Simplify clock-to-credit-hour conversions.
• Relax the prohibition on paying for repeated coursework.

Each of these modifications is discussed in more detail below, with the regulatory citation and page numbers where ED's discussion of the topic in the preamble to the final rules can be found. A separate article speaks to those portions of the rules that address credit balance disbursements and banking relationships in more detail.

Payment Methods  [§668.162]

ED has cleaned up the language about the various ways in which institutions receive Title IV funds, deleting references to the "just-in-time" payment method that is no longer used. The vast majority of schools use the advance payment method under which they may draw down federal funds prior to disbursing them to students. Some colleges and universities choose to disburse Title IV funds before drawing them down but are still considered to operate under the advance payment method. (pp. 67131-33)

ED has also added an explicit requirement that institutions operating under the reimbursement or the heightened cash monitoring (HCM) payment methods must pay credit balances to students directly before requesting reimbursement from ED. ED requires certain schools that have failed to meet administrative or financial standards to use the reimbursement or HCM payment methods.

Institutional Depository Account  [§668.163]

Under existing cash management regulations, institutions could hold Title IV funds in insured bank accounts or an "investment account secured by collateral of value reasonably equivalent to the amount of those funds." An institution's Perkins Loan revolving fund must be maintained in "an interest-bearing bank account or investment account consisting predominately of low-risk, income-producing securities, such as obligations issued or guaranteed by the United States."

The revised rules require institutions to keep all Title IV funds in federally-insured, interest-bearing accounts, including their Perkins Loan revolving fund. Other types of investment accounts are no longer an option, and the institution must ensure that Title IV funds are not included in nightly cash sweeps. 

In response to a question from NACUBO, ED clarified in the preamble to the final regulations that while the account itself must be insured, deposits do not have to be under the applicable insurance limit. Also, in accordance with current guidance from the Office of Management and Budget, the amount of interest earnings on Title IV funds that institutions may keep has been increased from $250 to $500 (excluding earnings on the Perkins Loan revolving fund which are added to the fund).

Non-U.S. institutions may use depository accounts for Title IV deposits that are insured by an equivalent government agency in their country (or federally insured U.S. accounts). If no equivalent agency exists, ED may approve a depository account. Foreign institutions are not required to adhere to the portion of the regulations pertaining to interest-bearing accounts. (pp. 67133-34)

Books and Supplies   [§668.164(c)(2) and §668.164(m)]

Institutions are allowed, under longstanding rules, to pay Title IV funds to a student by crediting the student's account (called the student's ledger account in the new rules) to cover tuition and fees, and room and board. The funds may be used to cover other educationally related charges on the account only with authorization from the student.

The new rules, for the first time, restrict the ability of an institution to include charges for books and supplies in tuition and fees unless certain conditions are met. An arrangement may qualify for inclusion in one of three ways:

1. The arrangement with a book publisher or supplier allows the school to provide the books and supplies below competitive market rates and provides a way for students to obtain them by the seventh day of the payment period. In addition, students must be able to opt out of the arrangement and obtain the materials another way.
2. The institution can document that the books and supplies, including digital materials, are not available elsewhere or accessible through other means.
3. There is a compelling health or safety reason.

If an institution's program does not meet these conditions, the institution may still charge a fee to the student for books and supplies, but may not apply Title IV funds to the charges without first obtaining written authorization from the student. (pp. 67136-39)

In its first Program Integrity rulemaking in 2010, ED was concerned that needy students were sometimes educationally disadvantaged when they did not have their excess aid funds in time to purchase books and supplies in a timely manner. ED added a provision to the cash management rules requiring institutions to provide a way for Pell-eligible students to obtain necessary materials no later than the seventh day of the payment period if certain conditions were met.

Many schools meet the requirement by offering students book vouchers or the ability to charge books at the school store to their student account. In the revised rules, ED has broadened this provision to apply to all Title IV-eligible students, not just Pell-eligible students, while leaving the conditions the same. Note that if a student opts out of the school's arrangement for providing books and supplies included as a component of tuition and fees, the student is also presumed to have opted out of this provision. (pp. 67175-77)

Prior-Year Charges  [§668.164(c)]

ED has clarified the definition of "current year" relating to its rules on paying prior-year charges but maintained the existing $200 limit. For a student with a Direct Loan, the current year is the loan period. For a student with aid other than a Direct Loan, the current year is the award year.

If a student has both a Direct Loan and other Title IV aid, the institution may choose either the current loan period or award year. As before, outstanding charges from earlier payment periods within the current loan period or award year in which the student was eligible for Title IV aid are not subject to the $200 limitation.  (pp. 67139-40)

Clock-to-Credit-Hour Conversions   [§668.8(k)]

ED has simplified its rules on clock-to-credit-hour conversions by eliminating provisions relating to programs that are offered in credit hours but required to be measured in clock hours for the purposes of state or federal licensure requirements. The current rules, added in 2010, have proven confusing to many schools, and ED decided they were unnecessary.  (pp. 67177-78)

Repeated Coursework   [§668.2]

Under the current regulations, courses that a student in a term-based program must retake because he or she failed another class do not count for purposes of determining full-time enrollment for Title IV purposes. ED noted in the preamble to the proposed changes that this rule, also adopted in 2010, has caused particular difficulties for students in medical and dental programs where those who fail one class are typically required to repeat the entire term. The new rules delete the provision referring to "any repetition of a previously passed course due to the student failing other coursework" but keep the rule limiting students to one repetition of a previously passed course. (pg. 67177)

Effective Date

The effective date for these changes is July 1, 2016.