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If your higher education institution participates in any Title IV programs, you can expect to make adjustments in how you administer them. Compliance deadlines are as early as July 1, 2016.

Regulations

Changes Finalized to Title IV Federal Student Aid Cash Management Rules

  • 1/8/2016

Technological advances have impacted the way Title IV federal student aid programs are administered and how students access these funds. To keep up, the Department of Education (DOE) finalized amendments to existing cash management regulations in October 2015. The majority of the changes in the Federal Register affect arrangements with banks and third-party servicers that hold student bank accounts and process Title IV credit balance refunds.

If your higher education institution participates in any Title IV federal student aid programs, you can expect to make adjustments in how you administer them. Compliance is expected as soon as July 1, 2016.

Changes to credit balance disbursements and banking relationships

The most significant change in the final rules involves the arrangements between your school and the banks and third-party servicers that process your Title IV credit balance refunds. The DOE has established two tiers of permissible arrangements: T1 and T2.

  • A T1 arrangement is an agreement between your institution and a third-party servicer that processes Title IV aid, which it then disburses to the contracted account or provides information to the student about the contracted account.
  • A T2 arrangement is a contract your school has with a provider (bank or other financial institution) that is not a third-party servicer, and the provider markets its products directly to students.

Unless otherwise noted, the provisions listed below are effective July 1, 2016.

For all T1 and T2 arrangements, your institution is required to:

  • Establish a student choice menu.
  • Disallow automatically opened or preselected accounts for students.
  • Set privacy restrictions.
  • Disclose the contract on your website no later than 60 days following the most recently completed award year (effective September 1, 2016).

For all T1 arrangements, your institution must:

  • Have convenient access to funds (ATM network).
  • Have fee restrictions in place. Charges or fees for transactions or withdrawals that may exceed the balance are not allowed.
  • Represent the best financial interests of the students when negotiating contract terms, meaning your school must review and document that the arrangement is consistent with or below market rates.
  • Report information on cost disclosures if you institution has 30 or more Title IV credit balance students in the prior award year, such as average costs incurred by the account holder (effective September 1, 2017).

For all T2 arrangements that are more than de minimis, your institution is required to:

  • Disallow ATM fees and charges on all point-of-sale transactions or overdrafts.
  • Represent the best financial interests of the students when negotiating contract terms, meaning your school must review and document that the arrangement is consistent with or below market rates.
  • Report information on cost disclosures if you institution has 30 or more Title IV credit balance students in the prior award year, such as average costs incurred by the account holder (effective September 1, 2017).

Whether provisions apply to T2 arrangements depends upon the number of students who receive Title IV credit balances at your school. All T2 provisions apply to if your three most recently completed award years had either an average of 500 or more students receiving Title IV credit balance refunds, or the average of students who had Title IV credit balances is greater than 5 percent (the de minimis threshold).

If your institutions does not offer accounts under a T1 or T2 arrangement, you are not required to establish a student choice process. Your school may continue to make direct payments to an existing account designated by the student or issue a check/disburse cash to the student.

Additional changes

The DOE has either changed or made further clarifications to several other Title IV federal student aid regulations that will also affect how you administer these programs at your school.

Payment methods

The “just-in-time” payment method has been eliminated. Now funds may be provided only under the advance payment method, reimbursement payment method, or heightened cash monitoring payment method. If your institution operates under the reimbursement or heightened cash monitoring methods, you must pay credit balances to students prior to requesting reimbursement from the DOE.

Institutional depository account

Your school is now required to maintain Title IV funds in federally-insured, interest-bearing accounts. You must also ensure that Title IV funds are not included in nightly cash sweeps. With the exception of the Perkins Loan revolving fund, the amount of interest earnings on Title IV funds that your institution may retain has increased from $250 to $500.

Prior year charges

It is now acceptable to use current year funds to pay for de minimus ($200 or less) prior year charges. This rule change helps provide clarification to the definition of current year and prior year.

Books and supplies

Restrictions are now placed on your school’s ability to consider charges for books and supplies as tuition and fees. If your program does not meet certain specified criteria, a fee may still be charged for books and supplies, but Title IV funds cannot be applied without obtaining written authorization from the student.

Repeated coursework

When determining enrollment status, your institution may now consider courses a student is retaking that he or she previously passed (up to one repetition per course). This includes situations where a student is retaking a previously-passed course due to failing in other coursework.

Clock-to-credit-hour conversions

The DOE has streamlined the requirements governing clock-to-credit-hour conversion by removing the provisions under which a state or federal approval or licensure action could cause a program to be measured in clock hours.

How we can help

We understand how these changes can impact your institution on many different levels, particularly with the added administrative burden of compliance with the amended cash management rules. Our higher education industry professionals can guide you through the multifaceted changes, provide informative training on key issues, help implement internal compliance protocols, and assist in identifying effective solutions for your school’s needs.