Final Cash Management Rules Impose New Requirements

By Joan Berkes, Policy & Federal Relations Staff

The regulations finalize rules surrounding the direct disbursement of Title IV funds to students and to parent borrowers, introducing new terminology and new structures to relationships with third party servicers and financial institutions. Most of the new rules become effective July 1, 2016, but a few pieces of the new rule are delayed a few months to a year from that date.

As is currently the case, direct payments of Title IV funds (which generally occurs when a student has a Title IV credit balance after payment of institutional charges) under the new regulations may be made by EFT, check, or cash. Checks may be mailed or held for no longer than 21 days for pickup at a designated location, after which they must be mailed or the funds paid by some other means or returned to the Title IV programs: no change there.

Current regulations allow an institution that disburses by EFT to require a student or parent to provide bank account information or open an account as long as disbursement is not delayed. If the student or parent does not do so, the institution must disburse in some other way. If the institution opens a bank account on behalf of the student or parent, or assists the student or parent to open an account, certain rules apply. Bank accounts must be insured and may be a checking, savings, or similar account that underlies a stored-value card or other transaction device. The new rules completely replace current regulations.

Under the new regulations, schools that disburse directly to students by EFT under certain arrangements with financial institutions must establish a selection process that gives students a choice of several options and meets certain conditions. Additional requirements apply depending on the type of arrangement that the institution has. The final rule characterizes relationships between schools and financial institutions as either Tier 1 or Tier 2. Tier 2 has two variants, depending on whether the number of students who have Title IV credit balances (and, thus, would receive direct disbursements) exceeds regulatory thresholds. The requirements for each tier and for the two variants of Tier 2 differ in some respects, depending on the perceived level of risk to the Title IV programs.

In a Tier 1 (T1) arrangement, an institution contracts with a third-party servicer for functions associated with processing direct payments of Title IV funds, and either the institution or its third party servicer makes payments to:

  • One or more financial accounts that are offered to students under the contract; 
  • A financial account where information about the account is communicated directly to students by the third-party servicer, or the institution on behalf of or in conjunction with the third-party servicer; or 
  • A financial account where information about the account is communicated directly to students by an entity contracting with or affiliated with the third-party servicer.

In a Tier 2 (T2) arrangement, an institution contracts with a financial institution, or entity that offers financial accounts through a financial institution, under which financial accounts are offered and marketed directly to students (whether or not they are Title IV recipients) enrolled at the institution. However, if no students had Title IV credit balances in one or more of the most recently completed three years, the institution is not subject to the T2 regulatory requirements. If, for those three years, either an average of at least 500 students had a Title IV credit balance, or an average of at least 5 percent of enrolled students had a Title IV credit balance, the institution is subject to all T2 requirements. An institution that had at least one student in each of the most recently completed three years with a Title IV credit balance, but less than the 500 students/5 percent thresholds, is excused from certain requirements.

This easily printable chart describes the requirements applicable to schools that are subject to the student choice provision, and the additional conditions for those schools depending on whether their arrangements are characterized as T1 or T2, as we understand the regulations. Some questions have been raised with the Department of Education regarding the new requirements, and the answers may change that understanding. NASFAA will report on any additional information as it is received.Cash management is largely the purview of the bursar, student accounts, or business office.

The National Association of College and University Business Officers has also published information about the new rules on its website, and will offer a webcast, "Understanding ED's New Cash Management Rules," on Wednesday, November 18, 2015, at 1:00 pm ET.

This is the fourth and final article in a series describing the provisions of the final rule. See the firstsecond, and third.


Publication Date: 11/13/2015

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