It goes without saying that most institutions of higher education in the United States today rely significantly on the ability of their students to receive funding through the U.S. Department of Education’s (ED) Federal Student Aid programs. These Federal Student Aid (FSA) programs are authorized through the section of law commonly referred to as Title IV of the Higher Education Act (HEA), as amended. But, these institutions are not granted, via their students’ eligibility, such resources carte blanche. As the old saying goes, “He who has the gold makes the rules.” Not surprisingly, ED requires institutions to exercise care in their fiduciary responsibilities of the more than $128 billion dollars being dispensed to almost 12 million students. In view of this, there are several new specifications made in the recently released October 30, 2015, final regulations with which schools should become familiar. Additionally, there are other aspects of cash management that schools are noted to need clarification and reminders based upon ED’s recent comments and announcements.
Recent Title IV Cash Management Regulations
The October 30, 2015, final regulations provide clarity regarding several areas of cash management of Title IV funds. The general effective date of these regulations is July 1, 2016. The following is only a highlight of the regulations and therefore, schools should diligently review the Federal Register for a greater understanding of the impact of the specific provisions.
- Schools that receive Title IV funds under either the reimbursement or heightened cash monitoring (HCM1 or HCM2) payment methods must now pay all credit balances to which a student is entitled prior to submitting its reimbursement request to ED for the eligible students. Utilizing a “credit memo” on a student’s ledger account as a placeholder for anticipated funds is not considered a disbursement and therefore may not be used as the basis upon which to request funds for students.
- Schools that charge a student for more than one payment period at a time (e.g., charging for the entire program up front) must now prorate the charges by payment period so that a student may potentially receive a credit balance refund (known by some schools as a stipend check) each payment period to use for non-institutional components of a student’s cost of attendance. Note that schools not on HCM or reimbursement payment methods may still hold credit balances with appropriate authorization.
- Schools must now receive specific authorization from the student (and, parent PLUS borrower, if applicable) to use Title IV funds to pay for the purchase of books, supplies, and other educationally related goods and services. Previously, a general authorization from the student to use FSA funds to pay for educationally related expenses was sufficient for crediting financial aid to pay for books and supplies. The authorization must now specify books and supplies if the institution is going to credit Title IV funds to the student’s account to pay for these items.
- Prior regulations require schools to provide a way for Pell Grant-eligible students to obtain their necessary books and supplies by the seventh day of a payment period, taking into consideration certain specific regulatory conditions. The new regulations broaden that requirement to include students who receive any Title IV funds, not just Pell Grant recipients.
- Third-party servicers contracted by institutions to assist in activities or transactions that lead to or support the disbursement of aid to students must confirm students’ eligibility at the time of disbursement.
- The definition of “current year” in the provision that allows institutions to use $200 of a student’s FSA funds from a current year to cover outstanding charges from a prior year is more clearly addressed, depending upon whether a student received a Direct Loan and other Title IV funds, or only one of the fund types.
- Some schools disburse aid directly to students by electronic funds transfer (EFT) into a bank account through specific contractual arrangements with the financial institution (including the use of stored-value cards, debit cards, etc., to access the funds). This scenario is most often seen when a student has a credit balance. Such schools must now allow students the choice to select between several options of how to receive those payments.
Other Recent Guidance and Reminders
ED has also distributed important reminders via an Electronic Announcement dated November 17, 2015. These are items that schools should be aware of and already doing, but ED has noted them as areas of concern with which schools are not readily complying. The specific topics ED speaks to are listed in the following points.
- Disbursement reporting requirements are vital to institutions’ compliance. Schools are reminded that disbursement records must be submitted within 15 days of when a disbursement is made or when there is an adjustment to a disbursement.
- Excess cash requirements stipulate that schools must disburse Title IV funds within 3 business days of drawing down the funds. In specific limited cases the funds may be held for an additional 7 calendar days. An example of this is when you have received funds to disburse to a student, but the student has not yet completed her online entrance counseling. You have contacted the student to remind her of the need to complete entrance counseling and anticipate her fulfilling that requirement within the next day. In such a case, you may retain the funds until she completes that disbursement requirement. But, in no case may the funds be retained longer than the 7 additional calendar days.
- Reconciliation of Title IV funds with a school’s internal accounts and the COD System/G5 must occur regularly as required. Specifically, schools must reconcile their Direct Loan, TEACH Grant, and Campus-Based funds on a monthly basis. Pell Grant does not currently require monthly reconciliation by regulation, but it is strongly suggested to do so for this program just as it is required for the other Title IV programs. Documentation of all reconciliations must be retained.
With the fact that ED has re-emphasized these areas as points of concern, it is quite probable that ED will focus on these items in its analysis of schools’ annual audit findings, as well as in upcoming program reviews. Therefore, wisdom would indicate schools should enhance their attention to these areas.
Updating Perkins Loan Program Cash on Hand
Schools are reminded in the November 4, 2015, Electronic Announcement that institutions that participate in the Federal Perkins Loan Program must update their amount of cash on hand and in depository as of October 31, 2015. This update is required to be accomplished via updating and submitting (not just saving) Part III, section A, Line 1.2 on the Fiscal Operations Report for 2014-2015 (FISAP). This must be completed, successfully submitted, and received by ED by midnight, December 15, 2015.
Perkins Loan Program – Excess Liquid Capital
Interestingly, although the Perkins Loan Program is “currently” on a slow path to extinction, there are still crucial requirements for those schools that participate in the program. One of those necessities is the determination of how much Excess Liquid Capital (ELC) you have in the program. In other words, how much extra “Cash on Hand” beyond your immediate needs do you have sitting in your institution’s Federal Perkins Loan Revolving Fund (Fund)? The Higher Education Act, as amended, requires institutions to return the Federal share of ELC in your Fund. ED has set the deadline of December 31, 2015, for institutions to comply with this requirement. While there has been a bit of news and discussion about the impending demise of the Perkins Loan Program, this requirement is not specifically tied to the shutdown of the program. It is a requirement stipulated in the program’s authorizing law itself that must be complied with, regardless of the future prospects of the program.
ED provided interactive worksheets as attachments to its September 29, 2015, Dear Colleague Letter GEN-15-19, which addresses this topic. These worksheets will assist schools in the determination of whether they do have ELC that needs to be returned. The process is one that simply takes your Estimated Need for Funds and subtracts that from your Estimated Available Funds to determine if you have ELC for the 2016-2017 award year. The worksheets require input of data from your school’s two most recently submitted Fiscal Operations Report/Application to Participate (FISAP).
Schools should not delay in their calculations to determine the ELC, if any, for their institution. If your final calculations do not indicate any ELC, then there is no further action required. But, each school must retain its documentation and calculations for audit and program review purposes. If a school has questions about this process, they may contact ED’s Campus-Based Call Center by phone at 877-801-7168, or by e-mail at CBFOB@ed.gov. For Financial Aid Processing clients that also utilize our Student Loan Servicing, FAME is performing the calculations for the ELC and will notify you of the results.
The Key to Accessing Accounts
An annual occurrence that schools must not be negligent of is the active review and confirmation of your institution’s Student Aid Internet Gateway (SAIG) account and the associated TG numbers (which are in actuality your SAIG mailboxes). Failure to be appropriately signed up with SAIG for the applicable electronic services and functions will limit your ability to operate your Title IV programs. And, just as critically, if you do not proactively confirm your assigned TG numbers and Electronic Services user accounts by December 11, 2015, you will lose access to all FSA data systems. This goes beyond just the COD System and Financial Management System to include all other necessary sites for operating the FSA programs, e.g., FAA Access to CPS Online, NSLDS Professional Access Web site, and e-Campus-Based Web site, etc. It is imperative that you review and confirm your SAIG accounts and TG numbers by December 11, 2015. More information is available in ED’s November 13, 2015, Electronic Announcement and the earlier October 26, 2015, Electronic Announcement.
Appeasing the Holder of the Gold
As we have seen in the above brief overview, there are ongoing responsibilities to be fulfilled to ensure that an institution maintains a relationship where the “holder of the gold” is appeased. But, as we all know, if we want to enjoy the benefits of the “gold” held by ED, we want to make sure we follow the rules. May your ongoing compliance with the stipulated requirements keep you in good stead for the many years to come!
(Note: FAME clients may submit any questions regarding these items through the Client Solution Center.)
Federal Student Aid Annual Report FY 2015, “Letter From the Chief Operating Officer of Federal Student Aid.” The report may be accessed at https://www2.ed.gov/about/reports/annual/2015report/fsa-report.pdf. The date of most recent access was 12/03/2015.
An abbreviated version of a portion of this Regulatory Bulletin is scheduled to appear in the American Association of Cosmetology Schools’ (AACS) January 2016 edition of their “Beauty Link” magazine.
The material in this Regulatory Bulletin is presented for informational and educational purposes only and should not be considered to be giving legal advice.