(see corrections in red font below)
Should Books and Supplies be Included in Tuition and Fees?
The Program Integrity Regulations issued on October 30, 2015, contain several new changes, most of which became effective on July 1, 2016. This Regulatory Bulletin is only going to cover 668.164 which addresses disbursing funds. Specifically, we will discuss the use of Federal Student Aid funds to pay for books and supplies. You may click on 34 CFR — Part 668, Subpart K – Cash Management for the actual regulations.
668.164 Disbursing funds.
(m) Provisions for books and supplies. (1) An institution must provide a way for a student who is eligible for title IV, HEA program funds to obtain or purchase, by the seventh day of a payment period, the books and supplies applicable to the payment period if, 10 days before the beginning of the payment period—
(i) The institution could disburse the title IV, HEA program funds for which the student is eligible; and
(ii) Presuming the funds were disbursed, the student would have a credit balance under paragraph (h) of this section.
(2) The amount the institution provides to the student to obtain or purchase books and supplies is the lesser of the presumed credit balance under this paragraph or the amount needed by the student, as determined by the institution.
(3) The institution must have a policy under which the student may opt out of the way the institution provides for the student to obtain or purchase books and supplies under this paragraph (m). A student who opts out under this paragraph is considered to also opt out under paragraph (c)(2)(i)(C) of this section;
(4) If a student uses the method provided by the institution to obtain or purchase books and supplies under this paragraph, the student is considered to have authorized the use of title IV, HEA funds and the institution does not need to obtain a written authorization under paragraph (c)(1)(ii) of this section and §668.165(b) for this purpose.
What affect, if any, do these new provisions regarding books and supplies have on your institution?
The first two subparagraphs under this provision have been in effect since July 1, 2011, following the publishing of the original Program Integrity Regulations on October 30, 2010.
If the student is a Pell Grant recipient, and the Pell could be disbursed up to 10 days prior to the start of the class, and the Pell would create a credit balance, the school is required to provide a way for the student to purchase books and supplies by not later than the 7th day of class.
New Guidance: So what has actually changed by adding subparagraphs 3 and 4?
It is our understanding that those subparagraphs only apply if the books and supplies are included as part of the tuition and fees in the enrollment agreement, 668.164(c)(2).
Books and supplies may be included with tuition and fees if:
- the school has an arrangement with a book publisher or other entity that enables the school to make the books and supplies available to the students for a price below competitive market rates,
- the school provides a way for the students to obtain the books and supplies by the 7th day of the payment period, AND
- the school ALSO has a policy provided for students that allows them to OPT OUT of obtaining their books and supplies through the school via the way the school provides for the student to obtain books and supplies by the 7th day of the payment period, and
- the books and supplies are not available or accessible by students from other sources than those provided or authorized by the school, or,
- the school documents that there is a compelling health or safety reason.
The new guidance from ED will have a significant impact on anyone including books, supplies, tools, and kits anywhere in the enrollment agreement that does not meet the requirements included in 1-5 above.
Example 1:
In this example, we made an assumption that a school has an enrollment agreement charging for the whole program of 1200 clock hours up front, with a contract price of $15,000, which includes an estimated cost of $1,500 for the student’s books, kits and supplies. Our understanding is that the information contained in the new subparagraphs 3 and 4 of the Cash Management regulations above would apply. That is, the school is allowed to include books and supplies in the charge for tuition and fees, if they otherwise meet the specified criteria (e.g., below competitive market rates, provide ability to have books and supplies by the 7th day of the payment period, gives an “opt out” opportunity, etc.). In this case, the total would be prorated by the applicable payment periods for R2T4 and to determine if a credit balance exists.
Question: Is our understanding correct?
ED’s answer: CORRECT.
Example 2- New Guidance:
A school charges $13,500 in tuition and fees up front, per the enrollment agreement, for a 1200 clock-hour program. The enrollment agreement lists the books and supplies at $500, and a kit for use in the program at $1,000. The total cost is $15,000. The contract indicates that the cost of the books, supplies, and kit are a first payment period charge.
Question 1: In this scenario, are the books, supplies and kit considered part of tuition and fees?
ED’s Answer 1: New Guidance
Yes, it seems that there may have been a miscommunication when you previously reached out for guidance on the books and supplies. To clarify, simply disaggregating the required costs of books and supplies on an itemized enrollment agreement does not exclude those materials from being considered as included in tuition and fees under the regulations. This is because the act of signing the enrollment agreement obligates the student to pay the amount specified for the program – itemizing the underlying costs does not affect the calculus of whether such charges are required to be paid (and therefore included in the overall tuition and fees).
Question 2: Would the books, supplies, have to be prorated over all the payment periods in the program when determining R2T4 costs and credit balances?
FAME’s Response – (NOTE: This reply replaces the prior answer from when originally posted back on July 11, 2016, as this response is based upon the more recent guidance received from ED regarding the interpretation of the regulations.)
Yes, based on the most recent guidance, if they meet the criteria to be included in the tuition and fees, they would be prorated over the whole program regardless of how the charges were indicated on the enrollment agreement.
A scenario such as is described in the example above is addressed in the following excerpt from the discussion in the preamble to the regulations in the 10/30/15 Federal Register, page 67140:
Under § 668.164(c)(5), an institution is required to prorate charges for books only if those charges are included as part of tuition and fees under § 668.164(c)(2), and the institution charges the student upfront for an amount of tuition and fees that exceeds the amount associated with the payment period.
Operational Considerations:
A potential change to consider if you currently include books, supplies, and kits or tools as part of tuition would be to change your enrollment agreement immediately to include and ensure that the institution can meet the requirements below or remove the items from the enrollment agreement.
In addition, the institution is required to do a detailed breakdown of the cost of items included, not just an aggregate total for books and supplies.
ED has also suggested that the Opt-Out (#3 above) be presented to students other than on the enrollment agreement. A separate document is preferable so students are aware of their rights to opt out and can make an informed decision. If an enrollment agreement is used, there must be a clear process through which to sign the enrollment agreement, but also be able to opt out of purchasing materials provided by school.
Also, since institutions are now required to determine credit balances by payment period, another operational change to consider is to charge by the payment period or be prepared to provide a payment period-by-payment period worksheet, spreadsheet, or subsidiary ledger, that indicates prorated costs by the payment period and delineates any federal aid received by the payment period, and any resulting credit balance by payment period after applying the federal funds to the student’s account.
If your institution chooses to continue to include books, supplies, kits, and tools as part of tuition and fees, it is imperative that you document all of the information in 668.164(c)(2), as highlighted in sub-paragraph points a.- e. above.
______________________________________________________________________
This material is presented for informational and educational purposes only and should not be considered to be giving legal advice.
