The final round of negotiations on Title IV general provisions finished in consensus. Negotiators successfully navigated 19 issues. Not all of the agreed-upon language has been provided by the Department and it is unclear if a final version will be released from the Department prior to the Notice of Proposed Rulemaking that is expected to come out within the next few months.

Following the Notice of Proposed Rulemaking will be a comment period of at least 30 days to allow the financial aid community at-large and the general public to suggest any further changes. Negotiation rules prohibit any negotiators from commenting negatively on the package after consensus.

The Department will then publish a Notice of Final Rules, which will also include a preamble discussing any further changes made by the Department in response to public comment. The Notice of Final Rules will also contain an implementation date for the regulations and must be published by November 1, in order to be implemented the following July 1.

This article builds on what had been agreed on during round two of negotiations, and focuses on the changes that were made in round three. A summary of the second round of negotiations on General Provisions is available in these two articles:

• Part 2 Of NASFAA's Summary: Second Round Of Negotiated Rulemaking On General Provisions
• Second Round Of Negotiated Rulemaking On General Provisions Concludes

This is the second of two articles that analyze these latest draft proposed regulations. The first article was published last week.

Recovery of Funds Not Claimed by Student or Parent

The draft proposed regulations would establish time frames by which a school must return unclaimed Title IV funds, as appropriate, to the Department, the guaranty agency, or the FFEL lender. If a check is not negotiated, the school must return the unclaimed funds no later than 240 days (as opposed to 180 days previously proposed by the Department) after the check was issued.

If a check is returned to the school or an electronic funds transfer (EFT) is rejected, the school would have the option to return the funds or to make additional attempts to disburse them. If the school chooses not make another disbursement attempt, it would be required to return the unclaimed funds within 45 days of the date they were returned to the school. On the other hand, if the school chooses to make an additional disbursement attempt, it would be required do so within 45 days of the date the funds were returned to the school as undeliverable. After making the second attempt within the 45-day period, the school would still be able to make additional disbursement attempts provided each attempt is made within 45 days of the date the unclaimed funds were returned again to the school. If further disbursement attempts are still unsuccessful, the school would be required to cease its attempts to disburse the unclaimed funds and to return them within 240 days of the date it initially attempted to disburse them.

A nonfederal negotiator expressed concern that these proposed regulations might conflict with state law for the return of funds within the proposed time frames. Federal legal counsel pointed out that schools that participate in the Title IV programs are held accountable to federal law, which preempts state law. Even though current regulations contain a provision to that effect, federal negotiators added clarifying language to state, "Notwithstanding any State law (such as a law that allows funds to escheat to the State)..." to underscore that these regulations would supersede any state statutes.

Electronic Disbursements, Use of Stored-Value Cards, and Issuing a Check

During the final round of negotiations, federal negotiators offered revised language that would modify cash management direct disbursement provisions. Under the draft proposed language, if Title IV funds are disbursed by check, the school must notify the borrower that the check is available for immediate pickup and must specify the location at the school where the check is available. If after 21 days the check has not been picked up, the school would be required to immediately mail the check to the borrower, initiate an EFT to the borrower's bank account, or return the funds to the appropriate Title IV program account.

The proposed regulations would define bank account for purposes of direct disbursements as "an FDIC insured account, such as a checking or savings account, or a similar account that underlies a stored-value card or other transaction device." In addition, the Department modified its earlier proposed provisions related to the conditions under which a school may open a bank account on behalf of a student or parent. These changes include clarification that the school may request, but not require the student or parent, to open a bank account. If the student or parent chooses not to open a bank account, the school must have other methods to directly disburse Title IV funds.

The conditions under which the school may open a bank account on behalf of the student or parent would also apply if the school establishes a process for or similarly assists the student or parent in opening a bank account. Those conditions would require the school to:

• Obtain the student's or parent's written consent to open the account;
• Inform the student or parent of the terms and conditions associated with the account before the account is opened;
• Obtain the student's or parent's written permission to make any claims against the account unless the school is correcting an error made in transferring the funds into the account in accordance with bank protocols;
• Ensure that the student or parent does not incur any cost in opening the account or initially receiving any type of debit card, stored-value card, other type of ATM card, or similar transaction device used to access the account's funds;
• Ensure that the student has convenient access to a branch office of the bank, the bank's ATMs, or ATMs of an affiliated bank so that the student does not incur any cost in making cash withdrawals from the branch office or ATMs;
• Ensure that the debit, stored-value, ATM card, other device can be widely used; and
• Not market or portray the account, card, or device as a credit card or instrument, or subsequently convert the account, card, or device to a credit card or instrument.

Late, Late Disbursements

Proposed regulations would eliminate the late, late disbursement provision that currently allows, under certain conditions and with the Department's approval, disbursement of Title IV funds to a student more after the 120-day period for making a late disbursement. The draft proposed regulations would move the 120-day period to 180 days.

The Department had proposed eliminating the time frame altogether, but felt that it could compromise with the nonfederal negotiators - who were opposed to its elimination - by limiting the time frame to 180 days. Nonfederal negotiators were appreciative of the Department's willingness to compromise.

Affirmative Confirmation of a Loan

The Department dropped its earlier proposal that would have required written, affirmative confirmation from all student borrowers of a Title IV loan prior to the disbursement of the loan proceeds. Instead negotiators agreed upon a proposal that would give institutions the option of obtaining affirmative confirmation prior to crediting Title IV loan proceeds to the student's institutional account.

The proposed regulations would define affirmative confirmation as "a process under which an institution obtains written confirmation of the types and amounts of Title IV, HEA program loans that a student wants for an award year before the institution credits the student's account." Institutions would be able to choose whether to employ affirmative confirmation for all student borrowers or on a student-by-student basis.

If an institution chooses to obtain affirmative confirmation, the institution would be required to provide the student with a notice informing him or her of the actual or anticipated date and amount of disbursement, the student ‘s right to cancel all or a portion of the loan or loan disbursement, and the procedures and deadline to request cancellation. The time frame for providing this notice would be no earlier than 30 days before, but no later than 30 days after the institution credits the loan proceeds to the student's account. The deadline for requesting cancellation would be the later of the first day of the payment period or 14 days after the institution notified the student. If the student requests cancellation within this time frame, the institution would be required to comply with the student's request and return the loan proceeds in accordance with applicable loan program regulations.

On the other hand, if the institution chooses not to use an affirmative confirmation process, it would be required to provide the notice no earlier than 30 days before, and no later than 7 days after crediting the student's account. The deadline for the student to request cancellation would be within 30 days of the date of the institution's notification. If the student requests cancellation within this time frame, the institution would be required to comply and return the loan proceeds in accordance with applicable loan program regulations.

Definition of Excess Cash and Excess Cash Allowances

After opposition by nonfederal negotiators in previous rounds to the Department's suggestion to eliminate excess cash allowances, negotiators compromised on a modification to the definition of excess cash and existing tolerances. Under the proposed provisions, excess cash would include not only any Title IV funds drawn down, but also previously disbursed Title IV funds that an institution deposits or transfers into its federal account. Institutions would be permitted to maintain an excess cash balance for up to seven days provided the amount does not exceed one percent of the total amount of funds drawn down in the prior award year. Any excess cash over and above that one percent must be returned immediately to the Department. The institution would also be required to return any amount remaining in its account after a seven-day tolerance period.

If an institution is found to have failed to meet excess cash requirements, the regulations would allow the Department to take action against the institution. Such actions would include, but are not limited to, requiring the institution to reimburse the Department for the excess cash amounts and any cost the Department incurred in providing the excess cash to the institution, and placing the institution on the reimbursement or cash monitoring payment method.

Treatment of FFEL and Direct Loan Funds When a Student Withdraws Before Beginning Class

Federal negotiators modified their earlier proposed treatment of delivered FFEL or disbursed Direct Loan proceeds when the student withdraws before beginning attendance in the payment period. Instead of making the institution responsible for any loan proceeds it directly disbursed to the student, the institution would be responsible for returning those loan proceeds only if knew, before it disbursed the funds, that the student would not begin attendance.

Should the institution be unaware that the student would not begin attendance when it disbursed the loan proceeds, it would be required to return all loan proceeds credited to the student's account and the amount of payments made directly by or on behalf of the student to the institution, up to the amount of loan funds disbursed. Should these amounts not cover the entire loan installment, the institution would be required to notify the lender or the Direct Loan Servicer immediately so that a final demand letter could be sent to the borrower.

Post-withdrawal Disbursements

During the prior meeting, negotiators reached tentative agreement to eliminate current provisions that require a student's confirmation before making a direct post-withdrawal disbursement of any grant funds earned during the period in which the student withdrew. In the final round of negotiations, additional modifications of the post-withdrawal provisions were made to clarify that institutions would be required to not only make direct post-withdrawal disbursements of grant funds as soon as possible, but also any post-withdrawal disbursement of loan funds which the borrower confirmed, within the response deadline, that he or she wants.

Proration for Pell Grant Payments for Programs Using Clock Hours or Credit Hours Without Terms

In the previous meeting, federal negotiators offered draft proposed language that would revise the formula for calculating the payment for the payment period for clock-hour and nonterm credit-hour programs by eliminating the double proration of the payment amount. However, federal negotiators also cautioned that further modifications to the formula might be made to address concerns related to programs without full-time students and self-paced programs. During the final round of negotiations, federal negotiators provided a revised formula. Under this revised formula, the payment for a payment period would be calculated by multiplying the student's Scheduled Award by the lesser of the following two fractions:

Number of credit or clock hours in a payment period / number of credit or clock hours in the program's academic year

Or

Number of weeks of instructional time in the payment period / Number of weeks of instructional time in the academic year

Minor Prior-Year Expenses

The proposed regulations would modify the cash management regulations regarding the use of current year Title IV funds to pay prior award year charges by establishing a cap on the amount of current-year funds that may be used. Under the proposed changes, an institution would be able to use a maximum of $200 of current-year Title IV funds to pay a student's:

• Prior-year institutional charges for tuition, fees, room, or board without the student's (and the parent's in the case of a parent PLUS loan) authorization; and
• Other prior-year educationally-related institutional charges with the appropriate authorization.

Single Disbursement Provision for Perkins and FSEOG

The draft proposed regulations would allow a single disbursement of Federal Perkins Loan and FSEOG funds awarded for an academic year. The Department again assured negotiators that this would not interfere with their ability to "front-load" disbursements from these two programs when a borrower has uneven costs or resources for a single payment period. Negotiators came to a quick tentative agreement on this issue.

Calculate Pell grant Payments for Programs with Standard Terms, but Monthly Starts

Currently, eligible programs offered in semesters, trimesters, or quarters, but which do not meet certain other criteria to qualify for Pell Grant Formula 1, must use Formula 3. Formula 3 calculates payments based, at least in part, on the weeks of instructional time in each term. Other criteria that allow use of Formula 1 include offering the terms over a fall through spring academic year calendar and without overlap.

Some schools offer programs in semesters, trimesters, or quarters, but with multiple start dates, such as monthly where students are starting a term each month throughout the year. While these programs still award credits and operate on a standard term schedule, they may also have new groups of students starting classes beginning in January, February, March, etc.

During the first round of negreg, negotiators discussed whether schools could use Formula 1 to award Federal Pell Grants to students enrolled in programs that use an academic calendar consisting of semesters, trimesters, or quarters that do not overlap but have multiple start dates for different cohorts of students. The Department provided draft proposed regulatory language that would permit the use of Formula 1 for students enrolled in these types of programs provided the students remain with the same cohort in which they start the program. A student would be allowed to change cohorts only if the student withdrew or skipped a term, and later re-enrolled in a subsequent term.

By Eileen Welsh
NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance

Justin Draeger, assistant director for communications, also contributed to this article.

Posted 05/04/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.