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Financial aid disbursement
A comprehensive resource portal for Title IV financial aid disbursement processes and regulation
The U.S. federal government regulates the disbursement of financial aid to students through Title IV section of the Higher Education Act of 1965. Funds from federal student aid programs administered by the U.S. Department of Education are thus known as Title IV funds.
Today these include a series of loans types — Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Federal Perkins Loans – as well as grants including Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (SEOG). Other forms of aid are awarded by academic institutions or loaned by financial institutions but do not fall under Title IV oversight.
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Best practices for financial aid credit balance disbursement — Click here to access this resource from Blackbaord Transact.
The Department of Education’s Negotiated Rulemaking (commonly known as “Neg Reg”) has spurred many questions and concerns on the subject of financial aid disbursement and its associated fees. Learn best practices in financial aid credit balance disbursements that will help ensure your institution’s practices steer clear of proposed regulation, all while increasing service levels to students.
Typically, funds are provided to the academic institution for distribution to student recipients. The institution takes out its portion for tuition, room and board. If funds remain after the institution has taken its due, they are disbursed to the student to cover other expenses.
Traditionally, this overage – often called a credit balance – was provided to the student in the form of a paper check. With the advent of electronic payment systems, however, institutions began disbursing credit balances via ACH to bank accounts and more recently to prepaid cards.
Federal regulation defines how these credit balances can be disbursed and what providers of services, accounts and payment cards must do as it relates to Title IV funds. These restrictions guide the marketing of disbursement options, allowable fees that can be charged to recipients, free and clear access to funds and more.
In 2013, the Department of Education began the evaluating the existing regulations to see if new or heightened requirements were necessary. This ongoing process will almost certainly change the way institutions of higher education disburse credit balances, outsource Title IV disbursement to entities known as Third-party Servicers, and partner with financial institutions and payment card providers to offer student accounts.
Key editorial coverage of financial aid disbursement processes and regulatory efforts:
As approved, the new regulations target three primary goals: that students would be able to “freely choose how to receive Federal student aid refunds; be given objective and neutral information about their financial aid disbursement options; and will no longer be forced to pay excessive fees to access their Federal student aid, including Pell Grants.” Read the article
Under pending new rules from the Department of Education, campuses may have to curb the outsourcing of financial aid disbursement, as well as the provision of financial accounts and payment cards to students. For hundreds of campuses and millions of students, this could mean the end of long-established, convenient methods of rapidly and cost-effectively disbursing and receiving financial aid. For others, it could also mean the end of valued partnerships between banks and campus card programs altogether. Read the article
The Consumer Financial Protection Bureau has drafted a checklist that they would like to see all colleges and universities use when soliciting RFP responses from financial services partners related to student banking and campus cards. Some say certain provisions will prove problematic and could drive banks out of the space. The Department of Education is likely to draw from this Scorecard as they develop their actual rules this spring, so concerned institutions are encouraged to provide comments. Read the article
In summer 2014, a US Senate Banking Committee hearing addressed issues surrounding financial aid disbursement and the future of campus card bank partnerships. Though many expected ID cards and aid delivery to be a minor topic in comparison to other Title IV financial aid related issues, it dominated much of the discussion during the hearing titled “Financial Products for Students: Issues and Challenges.” Key testimony included an opposition letter from the seven Kansas state system institutions, a US PIRG representative outlining the consumer advocate position against these accounts, and finally a banking association president’s case for the positives provided by bank and campus partnerships. Read the article
The Department of Education released an initial draft of proposed changes to the Cash Management portion of the regulation governing title IV financial aid funds. The document includes a series of provisions that would dramatically impact the ways campuses could distribute funds to recipients, so much so, that in essence it would effectively outlaw some common card-based solutions. Read the article
Following the Department of Education’s first draft of proposed regulations on financial aid disbursement and campus-issued cards, it is clear that there could be major repercussions should all the demands stand. There is one section in particular that will likely be a point of contention between the Department of Education and the many private sector banking institutions and third-party providers that operate in the campus space. Section (e) of the document, entitled “Sponsored Accounts,” stipulates how the entire process, from card issuance to federal aid disbursement, should transpire. Read the article
In February 2014, the General Accountability Office released a report on debit and prepaid card programs on college campuses, urging the U.S. Congress and Department of Education to take action. The GAO report examines the fees that the programs charge students, ATM accessibility and the programs’ transparency, or lack thereof. Industry experts were not surprised by the recommendations, and most reaction has been largely positive citing the GAO report as a significant improvement over the highly judgmental, and many say flawed, PIRG report. Read the article
As campuses have embraced electronic distribution of financial aid and banking services tied to student ID cards, a question has emerged. Are students forced to pay more for the convenience? The U.S. Public Interest Research Group’s Education Fund says ‘yes,’ suggesting that college students have been unfairly targeted for extra fees to the financial benefit of both banks and universities. Read the article
THis article provides a historic perspective on the movement of a new group of providers into the financial aid disbursement arena. New offerings from campus card providers Blackboard and Heartland as well as the established product from HigherOne are evaluated. A review of 2008 rules around cards and Title IV funds developed by the DoED’s Kerrigan and Flock is presented. Read the article
As the controversy first started over fees charged by account and card issuers related to Title IV funds, this article examined the fees charged by Higher One, Sallie Mae, Blackboard (BlackboardPay) and Heartland Campus Solutions (Acceluraid). Read the article
Resources and documents related to regulation of Title IV aid disbursement:
| Resource | Author | Date |
|---|---|---|
| The Campus Debit Card Trap: Are Bank Partnerships Fair to Students | US PIRG | Feb. 2013 |
| PROPOSED RULEMAKING: Title IV of the HEA — Program Integrity and Improvement | DoED | March 2015 |
| Third-Party Servicer Use of Debit Cards to Deliver 1 Title IV Funds | DoED Office of the Inspector General | March 10, 2014 |
| Dear Colleague Letter: Disbursing or Delivering Title IV Funds Through a Contractor | DoED | April 26, 2012 |
| DoED Press release announcing release of approved, final rules related to cards and financial aid disbursement | DoED | Oct. 2015 |
| Negotiated Rulemaking 2013-2014 Document Archive | DoED | Ongoing |
| Dear Colleague Letter: Disbursing or Delivering Title IV Funds Through a Contractor | DoED | April 26, 2012 |
| Approved, final rules related to cards and financial aid disbursement (MSWord doc) | DoED | Oct. 2015 |