New Proposed Rules Would Revise Cash Management Regulations

By Joan Berkes, Policy & Federal Relations Staff 

The Department of Education today published a Notice of Proposed Rulemaking (NPRM) that would: 

• revise cash management rules, 
• clarify how previously passed coursework is treated for title IV eligibility purposes, and 
• streamline the requirements for converting clock hours to credit hours.

The proposed rules allow a 45-day comment period.

Retaking coursework

The definition of “full-time student” in current regulation at 668.2 does not allow an institution to include either more than one repetition of a previously passed course or any repetition of previously passed coursework due to a student's failure of other coursework. 

The proposed rule would eliminate the provision that prohibits an institution from counting for enrollment purposes any courses that a student previously passed if the student retakes those courses in the same term in which the student repeats a failed course. An institution would thus be allowed to count all of the coursework for a student who is enrolled in a program using an integrated curriculum that requires a student who failed one course to retake both the failed course and all previously passed coursework to academically progress in the program.  The current prohibition against counting more than one repetition of a previously passed course would remain.

The proposed regulation would apply to undergraduate, graduate, and professional students.

Clock-to-credit hour conversion

ED proposes to eliminate the requirement under 668.8(k) that a program be treated as clock hour for Title IV purposes if a State or Federal approval or licensure action could cause the program to be measured in clock hours. ED states in the preamble its belief that the conversion formula alone is sufficient to ensure that clock hours are appropriately converted to credit hours without regard to any State requirement or role in approving or licensing a program.

Cash Management

The stated purpose of the proposed cash management regulations is to ensure that students:  

• have convenient access to their Title IV funds, 
• do not incur unreasonable and uncommon financial account fees on Title IV funds, and 
• are not led to believe they must open a particular financial account to receive their Federal student aid.

Among the objectionable practices cited in the preamble to the NPRM, gleaned from a number of reports from government and consumer groups, that prompted the proposed rules are:

• Providers prioritizing disbursements to their own affiliated accounts over aid recipients’ preexisting bank accounts;
• Providers and schools strongly implying to students that signing up for the college card account was required to receive Federal student aid;
• Private student information unrelated to the financial aid process being given to providers before aid recipients consented to opening accounts;
• Access to the funds on the college card was not always convenient; and
• Aid recipients being charged onerous, confusing, or unavoidable fees in order to access their student aid funds or to otherwise use the account.

Among other things, the proposed rules would establish definitions for the terms  “access device,” “depository account,” “electronic funds transfer,” “financial account,” “financial institution,” and "student ledger account.” The proposed definition for access device is intended to capture all types of access devices to all types of accounts into which a student or parent may wish to deposit his or her title IV credit balance, and means both prepaid cards and

debit cards. New technologies, such as digital wallets and other technological advances that may emerge, should be captured by the proposed definition without the need for further future amendment.

The proposed regulations would tighten fiduciary responsibility to preclude risky management practices: Institutions are expected to ensure, as a trustee of federal funds, that all Title IV funds remain unencumbered and are delivered timely to recipients. The rules governing types of accounts institutions may use to maintain TIV funds would also be affected, as would the payment methods by which ED provides TIV funds to institutions.

The NPRM seeks to clarify and emphasize rules requiring disbursement on a payment period basis only after confirming a student's eligibility to receive the funds, especially as this requirement applies to third-party servicers. This action is based on findings that in some cases, neither the servicer nor the institution performed any confirmation of student eligibility before disbursement.

The NPRM would modify rules regarding the charges for which an institution may credit a student's account, including prior year charges, and the determination of credit balances when an institution charges for more than a single payment period up front. It would clarify when books and supplies may be charged as part of tuition and fees, and related disclosures that must be made to students in such cases. The proposed rule also lays a basis for ED to pay credit balance funds directly to aid recipients, although that would not be implemented currently.

The NPRM would characterize institutional arrangements with financial account providers as one of two tiers, to tailor the proposed rules based on the circumstances in which troubling practices have occurred. The proposed regulatory requirements are based on the level of risk to students and taxpayers represented by the type of arrangement between an institution and a third-party servicer or financial institution. The proposed rules are intended to address numerous problems with the existing account selection process and provide students the opportunity to choose their account, while still allowing institutions the opportunity to offer students a variety of options.

A tier 1 (T1) arrangement is between an institution and a third-party servicer that performs one or more of the functions associated with processing direct payments of title IV funds on behalf of the institution and that offers one or more financial accounts to students and parents. A tier 2 (T2) arrangement is between an institution and a financial institution or entity that offers financial accounts through a financial institution under which financial accounts are offered and marketed directly to students or their parents. The regulatory consequences of T2 status would not apply if the institution documents that students or parents do not have credit balances at the institution.

The proposed rules would require institutions that have T1 or T2 arrangements to: 

• establish a student choice process that meets certain requirements;
• obtain consent from the student or parent to open an account under a T1 or T2 arrangement (1) before the institution shares personal information about that student or parent with the financial account provider, and (2) before the institution or account provider sends an access device to the student or parent or links the student’s ID card with a financial account;
• mitigate fees incurred by student aid recipients by requiring reasonable access to surcharge-free ATMs, and, for accounts offered under a T1 arrangement, both prohibiting point-of-sale fees and overdraft fees charged to student and parent account holders, and providing students and parents with 30 days following a disbursement of title IV funds to access those funds without any fees;
• require that contracts governing T1 or T2 arrangements and cost information related to those contracts are publicly disclosed; and
• require that institutions that have T1 or T2 arrangements establish and evaluate the contracts governing those arrangements in light of the best financial interests of students.

Please share any concerns or comments you have with the proposed rules with NASFAA by emailing policy@nasfaa.org. Indicate "cash management NPRM" in your subject line.

Publication Date: 5/18/2015

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