Ask Mr. Ethics: Is It OK to Hold a Student's Credit Balance Until After the Final Financial Aid Disbursement?

Question

Dear Mr. Ethics,

We have a policy that a student becomes eligible for their overage check/remaining credit balance 10 weeks after their final disbursement for the academic year, roughly 10 months after their start date. My question is, if a student insists on getting their check before the allotted time frame, should we give it to them? I understand that the excess funds are for expenses that allow them to stay in school, but we do this to prevent fraud and deter "school jumpers" from coming to our school to just get a check and leave.

Sincerely,
Obligated to Offer the Overage Earlier?

Answer

Dear OTOTOE:

Really, you have answered your own question: The student needs those funds to stay in school. He or she should not have to find temporary resources or struggle to make do while his money is withheld by the school. Ten months after the start date is way too long, even for the student who has only unsubsidized loans and no Pell Grant.

The Department of Education (ED) is concerned for students who do not get funds awarded for non-institutional educational expenses on a timely basis. ED has even proposed that schools must apply aid to institutional charges proportionately in each payment period, so that students with sufficient aid can have cash disbursements in each period rather than waiting until the final payment period, after all institutional charges have been covered.

So, what can you do to guard against fraud and also adhere to NASFAA’s Statement of Ethical Principles, in which we commit to removing financial barriers for those who want to pursue postsecondary learning and support each student admitted to the institution?

  1. Check your attendance records (or periodically check attendance if you don’t regularly take attendance), and find out when students are likely to take the money and run. You’ll probably find that few who intend to show up just for the money would attend classes for nearly as long as you require. 
  2. Increasing the number of disbursements within the payment period increases your control over fraud, but ensures that a legitimate student receives his or her aid funds as soon as possible. Some schools with modules disburse funds as students begin attendance at the next enrollment status level (less than half-time, half-time, etc.). Read the preamble to the May 18, 2015, Notice of Proposed Rulemaking beginning on page 28495 and apprise your administration of ED’s concerns regarding schools who do not disburse to students timely.

Are you working through a common ethical question and want some help? Email Mr. Ethics at ethics@nasfaa.org with your inquiry and check out prior Mr. Ethics columns for answers to other tricky questions.

 

Publication Date: 9/22/2015


Keena F | 1/24/2017 4:57:56 PM

That seems like a lot of work on the school's behalf to differentiate between awards, disbursements for institutional charges only and then drawing down funds for non institutional charges. And my gosh what would an R2T4 process look like should the student withdraw!

Erin T | 11/30/2015 1:0:31 PM

Yes, credit balances need to be paid as a direct disbursement to the student (or parent in the case of a PLUS loan, unless the parent has authorized payment to the student) within 14 days, per cash management regulations at 668.164(e) [redesignated 668.164(h) effective July 1, 2016]. Remember, however, that a credit balance does not occur until the institution has drawn down and credited to the student’s institutional account Title IV funds in excess of the total amount of authorized institutional charges [see 668.165(b)]. An institution may disburse Title IV funds for a payment period incrementally. Some institutions draw down funds to cover institutional charges, but delay drawing down the remaining funds that would create a credit balance until later in the payment period. At that point, an “overage” check (using the questioner’s phrasing—i.e., a Title IV credit balance check), would have to be generated. The issue is whether it is ethical to delay drawing down the funds that create the credit balance until so late in the semester that the student has difficulty paying for the non-institutional educational expenses that the credit balance should have been available to cover.

-NASFAA Staff

Keena F | 10/16/2015 2:15:43 PM

I don't understand the credit balance "overage" check. Are we discussing the disbursement that would generate the credit balance or the actual credit balance on the account. Unless a student has authorized the institution to hold the credit balance. Doesn't the credit balance need to be delivered to the student by the required 14 day time frame?

David L | 9/22/2015 3:1:10 PM

Don't the Regs in 34 CFR 668.164(e) indicate that credit balance funds need to be paid within 14 days?
David Levy

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