New Rules for Schools Under Reimbursement and Heightened Cash Monitoring Payment Methods

By Mandy Sponholtz, Policy & Federal Relations Staff

How certain schools treat Title IV credit balances will change on July 1, 2016, due to final rules published by the Department of Education (ED) on October 30, 2015. These rules finalize a Notice of Proposed Rulemaking (NPRM) published on May 18, 2015. In short, schools that are not eligible for the advance payment system to draw down Title IV funds must pay applicable credit balances before requesting funds from ED, and cannot hold credit balances, even with a student or parent’s written authorization. 

Requesting Funds (668.162)

The final rules require schools that receive funds under the reimbursement or heightened cash monitoring (HCM1 or HCM2) payment methods to pay all required credit balances to students or parents before requesting funds from the Department for the applicable students. This provision did not change from the proposed rule, despite numerous comments. The Department reminds schools in the final rule that none of the cash management changes affect the requirement for schools to pay Title IV credit balances within the appropriate 14-day timeframe outlined in current regulations. ED explained in the proposed rules that the current provisions “do not specify that an institution must submit documentation showing that it paid the credit balances that are due to students and parents,” and further clarified in the final rule that in order to make a reimbursement request, the school must make the credit balance payment, even if additional time remains within the 14-day window to make the payment. 

Schools commented that reimbursements can be delayed for up to 45 to 60 days, coupled with institutions only being allowed to submit reimbursement requests every 30 days. ED responds to this comment by saying, “With regard to comments about processing reimbursement requests timely, the Department takes care to assign adequate staff, but minor delays will occur from time to time. We note that the vast majority of delays in approving reimbursement requests occur because institutions do not provide the requested documentation or acceptable documentation.” Schools also cited cash flow concerns because schools would “…shoulder the costs of students’ decisions about how much to borrow…,” which ED counters are exactly the characteristics of the reimbursement and HCM payment methods.

ED reminds schools that a “credit memo” is not a disbursement, but acts as a placeholder for funds yet to be disbursed. A school on the reimbursement or one of the HCM payment methods cannot request funds from the Department based on a credit memo, but must first make the disbursement and any applicable credit balance payment before requesting money from ED.

The school retains flexibility to determine when to request funds from the Department under the reimbursement or HCM payment methods in the case of students whose aid might be partially delayed, providing an example of a student who is eligible for a Pell Grant, but not yet for Direct Loans (e.g. no MPN signed). The school may request funds from ED once the school makes the disbursement and pays any Title IV credit balance from the Pell Grant, or it may wait and submit the fund request once the student receives both the Pell Grant and DL disbursements and credit balance payments. However, ED asserts that in most cases, “the institution will have determined before submitting a reimbursement or cash request that the student was eligible to receive all of his or her awards for a payment period and therefore the amount of all of those awards will have to be credited, in full, to the student’s ledger account and the institution will have to pay any resulting credit balance before including the student on a reimbursement or cash request.”

Finally, the final rule removes outdated references to just-in-time method and FFEL program loans.

Notices and Authorizations (668.165)

Under Student or Parent Authorizations (subsection b), the final rule stipulates that schools using the reimbursement or one of the HCM payment methods may not hold credit balances, even if the student or parent provides written authorization to do so. Current rules stipulate that ED may prohibit such a school from holding credit balances, but this rule prohibits holding credit balances for all such schools. Once the new rules go into effect, schools using the reimbursement payment method or one of the HCM payment methods must pay credit balances before requesting funds from the Department (as outlined above), so this additional prohibition prevents schools from circumventing the credit balance requirement.

Holding credit balances allows students and parents to manage and budget their financial aid funds throughout the year. Commenters argued, however, that removing this flexibility from institutions “would remove an important choice from responsible borrowers, thus restricting an institution from helping students and parents borrow responsibly to reduce indebtedness.” ED counters this argument by explaining that schools under the reimbursement or HCM payment methods typically have cash management compliance issues, and this change prevents a school from being able to “handle or maintain title IV program funds any longer than needed and for no purpose other than making timely disbursements to students and parents.”

This is the second in a series of articles on the final rules. See the first.


Publication Date: 11/4/2015

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