Student choice and the definition of sponsored accounts dominated yesterday’s discussion during the Department of Education’s (ED) 2013-14 Program Integrity and Improvement negotiated rulemaking, as negotiators grappled with draft changes to cash management regulations.
Overall, ED’s draft proposals were well received by negotiators representing consumer advocacy and student groups who applauded the increased protections for students receiving Title IV credit balances.
However, negotiators representing banks and credit unions and those representing third-party servicers expressed some reservations about ED’s provisions regarding accessibility to ATMs, restrictions on permissible fees, and what constitutes a sponsored account.
Such accounts are defined in the draft regulations as occurring when an institution “enters into a contract or arrangement with any entity … under which a student or parent opens, or is referred to open, a financial account offered by the entity, or has the option of using a card or device issued for institutional purposes” to access Title IV funds.
Negotiators spent several hours debating whether certain types of common arrangements would be considered sponsored accounts or not under ED’s proposed definition. The definition of sponsored accounts is a key point, since only sponsored accounts would trigger the proposed requirements concerning terms and conditions, student protections, and disclosures. Several negotiators said they were confused by the proposed definition and worried that it would encompass relationships between higher education institutions and their financial counterparts designed to benefit students, such as co-branded checking accounts or outsourced electronic fund transfer (EFT) services provided by a third party.
In response to ED’s draft proposal, negotiators representing financial servicers and third-party servicers offered the committee a counter proposal that included a more narrow definition of sponsored accounts. The definition specifies that the account is sponsored if the contract is “for the primary purpose” of assisting a student or parent in opening a financial account or providing the option of using a device issued for institutional purposes (such as a student ID card) to access a financial account opened with the assistance of the school into which Title IV funds are deposited.
Paul Kundert, president and CEO of the University of Wisconsin Credit Union, said the counter-proposal was “designed in consideration of the unique aspects of the different components” of the interests represented by the committee and is meant to be a compromise between his constituency – lenders, community banks, and credit unions – and the consumer and student advocates.
After a brief caucus between the two groups, the consumer and student advocate negotiators said they were pleased with the language but believed it needed further work. Many of the negotiators representing schools agreed that the definition of sponsored accounts needed more work, saying they would need more information on what kinds of relationships would be considered sponsored accounts.
Chuck Knepfle, director of financial aid at Clemson University, said that he and his colleagues would need to know which scenarios would fall under the provision before the end of this week’s session “because that’s where we’ll get a lot of questions about this.”
Some negotiators expressed concerns with language in the counter proposal regarding ATM fees and availability, including a provision stating that, unless provided with reasonable access to a national network of fee-free ATMs, the school shall ensure that the student is reimbursed for up to $10 per month in ATM owner surcharges. Negotiators grappled with what would constitute reasonable ATM access and what the industry standards are in regards to fees.
Kundert said the intention of the language is that schools negotiating contracts with ATM providers would be able to determine what reasonable access entailed and that the $10 part of the provision would be a “big stick” to ensure that the best offer for students would be negotiated.
The counter proposal also included modified language on student choice, which Kundert said would “preserve the neutrality” while still providing students choices on how to receive their disbursements. ED’s proposal presents EFT as the default method to pay a Title IV credit balance, whereby schools would only present additional payment methods to students if the student does not have or provide information about a financial account for EFT purposes. The counter proposal from the negotiators representing financial services and third-party servicers instead would require that schools present all offered payment methods upfront to students. ED is considering the proposal.
With only one day left in this session of negotiated rulemaking, negotiators have many topics left to cover today, including the remaining cash management provisions, revised language on state authorization of distance education programs and foreign locations of domestic campuses, and draft language on revisions to the definition of adverse credit under the PLUS loan program. Stay tuned to Today’s News for further coverage of the session.
Publication Date: 4/25/2014