The Department of Education held the first three-day session of negotiating rulemaking on Title IV general provisions last week. This round of negotiated rulemaking brought together representatives of the various stakeholders in the Title IV programs to offer advice and feedback on the current regulations. The Department will then incorporate that input into draft proposed regulatory language for negotiators to consider during the next round of negotiations in March, 2007. Negotiators in this round considered 20 regulatory items. This article focuses only on the cash management issues that were discussed.

A previously published Today's News article summarizes the discussions and implications of all other items discussed during the rulemaking session.

Timeframe for Recovery of Funds Not Claimed by Student or Parent

When students and parents receive a check from the school resulting from a credit balance due to the disbursement of Title IV funds, institutions are obliged to ensure that those funds do not escheat to the state if the student does not cash the check. That is, unclaimed Title IV funds must be returned to the federal programs from which they came; the state cannot claim them. The Department has provided guidance on this issue in the Federal Student Aid Handbook, but the issue has not been addressed through regulations. As a fiduciary of federal student aid funds, the Department believes the school is ultimately responsible for those outstanding checks and that regulations should be amended to provide for the timely return of unclaimed funds.

The Department stated that it was aware of cases where schools have retained funds that have never been cashed for lengthy periods of time, when those funds should have been returned to the Department.

Negotiators questioned whether state or federal laws have already addressed this issue and asked the Department to investigate whether additional federal regulations on this issue would further complicate the process.

Electronic Disbursements

Current federal regulations require schools to obtain a student's permission prior to making any electronic disbursements into his or her bank account. The Department asked for input on whether the time had come to allow schools to disburse funds directly into a student's bank account without the student's permission.

Negotiators felt that current technologies allow for more security than in previous years and that most students probably expect electronic deposits. However some negotiators expressed concern about funds being transmitted electronically without the student's permission, especially if students were "led" to use a certain lender to open a checking account to comply with the school's choice of disbursement processes.

The Department responded that eliminating the provision that requires a student's permission would allow a school to change their default method of delivering funds to students from paper check to electronic disbursement. The Department also stated that students would always be able to opt out of electronic disbursement due to federal e-sign laws.. Some concern was expressed that without some reference in the regulations to e-sign requirements, that law could be overlooked by schools, or changed with adverse effects on student aid rules. The Department said that it would consider all of the comments before deciding on drafting new regulations on the matter.

The Department also asked if regulatory language should be drafted to include "stored value cards" as an acceptable form of disbursement to students. Some believed that it would be preferable to disburse funds onto a "stored value card" that could be used at ATMs or at stores that accept credit cards. One negotiator likened the stored value card to disbursing a check, which does not require any permission from the student and questioned why any mention of stored valued cards needed to be made in the regulations. Others saw stored value cards as different from checks and questioned how a student would, for example, use a stored value card to pay off-campus rent. Others pointed out that, because of purchase authorizations built into the stored value card process, it is extremely unlikely (although still possible) that a student could overdraft that account. A number of negotiators referred to guidance in GEN-05-18 concerning stored value cards.

In the end, many negotiators felt that the use of stored value cards was already covered in the regulations and that there was no need to specifically include "stored value cards" as an acceptable form of disbursement to students. Some negotiators also recommended that, if stored value cards continue to be permitted, the regulations require additional counseling by the school related to personal budgeting.

Affirmative Confirmation of a Loan

The Department asked negotiators if "passive confirmation" of awarded loan amounts should be eliminated. Currently schools are able to send out an award letter telling students that they will receive a certain amount unless they contact the financial aid office asking for additional or fewer loan amounts. Currently, Grad PLUS borrowers are required to give active confirmation of their PLUS loan amount due to the potentially large amounts of the loan. Requiring active Stafford and Perkins loan confirmation would also bring those loan programs into alignment with the PLUS loan.

Many negotiators felt that an active confirmation of loan amounts by a student helps to reaffirm to students that they are receiving a future liability. However, some negotiators expressed concern that students would have to fill out and return another document to the financial aid office. The timing of active confirmation during the awarding and disbursement processes was also discussed.

Definition of Issuing a Check When a Check is Made Available for Pickup

The school "issues" a check on the date it is mailed or on the date the school notifies a student that the check is available for immediate pickup. Credit balances must be issued within 14 days of when the credit balance occurred; the date the check is issued determines compliance with this requirement. However, the Department has found instances where schools sometimes tell students that the check is available for immediate pickup, but in reality the check is not printed until a later date. The Department asked whether the regulation should be amended to clarify the term "immediate pickup," to ensure that students are receiving their funds in a timely manner.

Most negotiators questioned how widespread the issue was and whether instead of new regulations the Department could address these issues through regular school program reviews and audits.

Excess Cash Tolerances

Current regulations allow schools to hold excess cash for up to seven days to make disbursements to eligible students before requiring the funds be returned to the Department. However, if a school cannot disburse funds within three days, the school may maintain one to three percent of the school's prior year draw downs, depending on whether the funds were drawn down during the "peak period of enrollment."

The Department explained that most schools are managing to meet the three-day deadline, and those who do not tend go well past the seven-day allowance. The Department asked negotiators if amendments should be made to simplify current regulations. Some negotiators expressed their approval of any simplification of regulations. However, others objected to losing a safety net for unforeseen circumstances.

Late, Late Disbursements

Under certain conditions, a school has 120 days from the date that a student ceases to be enrolled (or drops below half-time status in the FFEL and Direct Loan programs) to make a late disbursement to the student. After 120 days a school must obtain approval from the Department to make a "late, late" disbursement.

The Department noted that over the last three years there has been a significant increase in the number of late, late disbursement requests. They asked negotiators if the time had come to eliminate the late, late disbursement altogether or make some other change to the provision.

Recent statistics provided by the Department show that the majority of late, late disbursements come from the Pell Grant (43 percent) and the FFEL (40 percent) programs, although these numbers were atypical. Normally, the Department said, two-thirds to three-quarters of requests are FFEL, and in any given month FFEL requests outnumber Pell requests. Almost half of all of the late, late disbursements resulted from errors at the school, 24 percent resulted from student error, with the rest due to errors by lenders and/or other issues. The Department speculated that many requests result when schools reconcile accounts late and find that open balances are due to undisbursed aid.

One negotiator asked the Department to consider a cap on the amount of time schools have to clean up their records and request a late, late disbursement. The negotiator argued that if the Department continues to allow schools to disburse funds after 120 days, schools may never take the provision seriously, putting off the time it takes to get their records in order.

Given that the Department approves about 95 percent of late, late disbursement requests, negotiators questioned why the Department felt the need to retain this decision-making power instead of allowing the decision to be made by the school. Other negotiators wondered if a problem even exists given that only 1,600 late, late requests have been filed in the last two years out of the millions of disbursements that have been made.

One negotiator pointed out that at some schools, student populations tend to file for aid very late, and if a late application is selected for verification, 90 of the 120 days can be lost to that process.

Another beseeched the Department not to allow students to be hurt because of a school error.

Prior-year Charges

A school may use a student's current Title IV funds to pay for "minor" (less than $100) prior-year charges as long as the school obtains the student's permission. If the charges equal or exceed $100, the school must also determine whether the payment of these charges will prevent the student from paying for current year educational costs.

One negotiator suggested that for minor charges, the school be given permission to simply take the funds on behalf of the student to take care of the balance at the school.

Some negotiators wanted to make sure that prior-year charges refer only to tuition, not other fees that may be assessed to the student. Others felt that if the minor prior-year charges were due to non-tuition items (e.g., parking charges, library fees, etc.) students should have to authorize their payment with current aid to ensure that the student is being charged correctly.

Next Round

The next round of negotiated rulemaking for general provisions in Title IV programs is set to be held in March. At that time the Department will provide draft regulations for negotiators to consider.

By Justin Draeger
NASFAA Assistant Director for Communications

By Joan Berkes
NASFAA Senior Associate Director for Regulatory Assistance

Posted 02/15/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.