New Title IV Cash Management Rules

1. New Title IV Cash Management Rules Michigan Student Financial Aid Association June 28, 2016 Kevin Campbell, Training Officer, U.S. Department of Education

2. Need for Regulatory Action

3. Proliferation of Campus Cards • Passage of the CARD Act restricting credit card marketing, preferred lender lists, declining State funding • Widespread increase of debit and prepaid card agreements • Marketed as a way for students to receive credit balance refunds • Typically on student IDs or cobranded cards 3

4. Government and Consumer Investigations • 2012 USPIRG report identified several troubling practices in this market • Later confirmed by Government Accountability Office, ED Inspector General, Consumers Union • Enforcement actions by FDIC, Federal Reserve • Troubling practices included unfair fees, misrepresentation, and transmission of private student information without consent 4

5. Cash Management Regulations • Notice of Proposed Rulemaking (NPRM) • Federal Register – May 18, 2015 • Final Federal Register - October 30, 2015 • General effective date - July 1, 2016 • Contract disclosure – September 1, 2016 • T1/T2 major feature and fee disclosures – July 1, 2017 • Summary account cost disclosures – September 1, 2017 • Federal Register Notice – April 7, 2016 • Schools MAY early implement the following – • Repeat coursework • Depository accounts and interest-bearing depository accounts

6. Cash Management Q & As • Electronic announcement published May 12, 2016 • Contains a series of Q & As related to the new cash management regulations • Topics include: • Definitions • T1/T2 examples • Student choice menu • Fee limitations • Disclosure requirements • Books and supplies

7. Overview of RegulationsOctober 30, 2015: Final regulations published Two other topics: Repeat coursework, Clock hour program definition

8. Debit Card Provisions: Who is covered? *Third party servicers defined in GEN-15-01

9. Cash Management Q & A TA Q7: The athletics department has an agreement with a bank to offer bank accounts that can be linked to the student ID card, but the arrangement has nothing to do with Title IV credit balance disbursements. Does this still count as a T2 arrangement? TA A7: Yes. Any account that can be linked to a student ID will be considered, at minimum, to be an account under a T2 arrangement. 9

10. Account Arrangements • If a third-party servicer that contracts with an institution is offering or marketing multiple accounts to Title IV recipients at that institution, all of those accounts would be required to comply with the requirements for T1 arrangements • Even if some accounts would normally be a Tier 2 account • Account requirements end when student no longer enrolled and no pending Title IV disbursements, except certain reporting requirements • Apply to student TIV credit balances, not parent TIV credit balances (optional)

11. Overview of new requirements

12. Student Choice – Menu Student can change option in writing at anytime Initiating direct payments by EFT to a student’s existing financial account is as timely and as initiating an EFT to an account provided under a T1 or T2 account

13. Cash Management Q & A SCM Q1: The regulations state that institutions must ensure that “initiating” direct payments by electronic funds transfer (EFT) to an existing account is as timely as it is to send money to an account under a T1 or T2 arrangement. What does this mean? SCM A1: This means that institutions and financial institutions with T1 and T2 arrangements cannot create any unnecessary delay by processing a student’s existing banking and payment information more slowly than accounts made available under T1 and T2 arrangements…we also have stated that there can be no difference in the time between initiating a payment to a student’s bank account and initiating a payment to an account opened under a T1 or T2 arrangement. 13

14. Student Choice - Menu Ensure that a student who does not make an affirmative selection is paid the full amount of the Title IV credit balance within the 14-day required timeframe

15. Student choice – menu contents

16. Student choice – menu format

17. Student Consent

18. Fees

19. Cash Management Q & A FL Q2: How should institutions with T1 relationships comply with the requirement of fee-free withdrawal throughout enrollment? FL A2: Institutions may use whatever method they wish (check, cash, EFT, etc.) to comply with the requirement that a student have a convenient way to withdraw his or her Title IV funds in whole or in part, as long as the student does not incur a fee when exercising this option. 19

20. Disclosures

21. T1 & T2 arrangements (with sufficient credit balance recipients)

22. T2 De Minimis Threshold Some regulatory provisions limited to T2 arrangements with a sufficient number of credit balance recipients. The school must comply with the additional requirements if during the school’s prior three award years, either: OR T1 arrangements do not have a de minimis threshold 22

23. Summary Cost Disclosures • Required for accounts offered under T1 arrangements or T2 arrangements with more than a de minimis number of credit balance recipients • Effective by September 1, 2017 • Then 60 days following most recently completed award year thereafter • If the institution had 30 or more credit balance recipients in the prior award year, it must publish the following on the same website as contract disclosure: 23

24. Best Interest of Students • Required for accounts offered under T1 arrangements or T2 arrangements with more than a de minimis number of credit balance recipients • Future contracts, fees, and technological changes must occur without harming students • Ensure no cost to open account or receive or validate an access device • Institution documents that it conducts reasonable due diligence reviews at least every two yearsto ascertain whether the fees imposed under the T1 or T2 arrangement are, considered as a whole, consistent with or below prevailing market rates

25. Best Interest of Students

26. Convenient ATM Access • Required for accounts offered under T1 arrangements or T2 arrangements with more than a de minimis number of credit balance recipients • Surcharge-free ATMs must be present in sufficient number and must be housed and serviced such that Title IV funds are reasonably available to students 26

27. Convenient ATM Access • Examples • At a large campus with thousands of title IV recipients, it is likely that several ATMs would be required • If an institution has a location with only a few credit balance recipients, or a location where students are only taking one class, an ATM that is part of a larger regional network at a store several blocks away may be sufficient • A location of an institution providing students with 100 percent of an educational program in a small town in a rural region would need to provide ATM access on campus if students would otherwise have no free access to their funds through an in network ATM or branch office of the account provider located in the town 27

28. Convenient ATM Access • Signs of potential ATM access problems • ‘‘runs’’ on fee-free ATMs • Students are forced to incur an abnormally high number of out-of-network ATM fees • Institution receives complaints about the number and location of its ATMs 28

29. Other Cash Management Provisions 29

30. Direct Disbursements to Students 30

31. Risk of Loss

32. Reimbursement and HCM Must include all Title IV funds student is eligible for when determining Title IV credit balances

33. Maintaining & Accounting for Funds • Must maintain Title IV funds in a depository account insured by FDIC or NUCA • Eliminates use of investment accounts for Title IV funds

34. Maintaining & Accounting for Funds • Require interest-bearing depository accounts to the extent practicable under OMB guidance in 2 CFR 200.305(b)(8). OMB does not require an interest-bearing account if: • School receives less than $120,000 annually • Best available account not expected to earn more than $500 on Federal cash balances • Bank would require an average or minimum balance so high it is not feasible in light of Federal/non-Federal cash resources

35. Maintaining & Accounting for Funds • Consistent with OMB guidance, any interest earned over $500 must be remitted to Dept. HHS no later 30 days after award year • Department of HHS • Payment Management System • Rockville, MD 20852

36. Disbursing Funds • School must disburse Title IV funds a student is eligible to receive for current payment during that payment period • Exceptions • late disbursements • retroactive payments • payments for prior-year charges

37. Disbursing Funds • School may credit student’s account with TIV funds to pay only for charges associated with the current payment period • School that charges upfront for entire cost of a program (or charges for more than a payment period) must prorate the charges

38. Proration of Payment Period Charges: if charge for more than PP For programs with substantially equal PPs: Total Institutional Charges for Program Number of PP in Program = Institutional Charges for PP For all other programs: ) ( Credit or Clock hours in PP Credit or Clock hours in Program X Total Institutional Charges = Institutional Charges for PP

39. Prior-Year Charges - A prior year is any loan period or award year prior to the current loan period or award year

40. Books/Supplies in Tuition & Fees *opting out also opts out of book and supply disbursements under 668.164(m)

41. Books/Supplies in Tuition & Fees

42. Cash Management Q & A BAS Q1: Are the books and supplies provisions in the regulations tied to T1 and T2 arrangements, or must all institutions comply with these provisions? BAS A1: All institutions must comply with the books and supplies provisions. 42

43. Cash Management Q & A BAS Q2: The regulations state that an institution may include the costs of books and supplies as part of tuition and fees if the institution has an arrangement that enables it to make those books or supplies available to students below competitive market rates. What does “below competitive market rates” mean? BAS A2: The phrase “below competitive market rates” means that the price charged to students is below the price generally available to the public. It does not refer to the list or “sticker” price of the book. Institutions are expected to demonstrate that they have researched available prices of books and supplies before including the cost in tuition and fees. 43

44. Cash Management Q & A BAS Q3: Do institutions that arrange for bulk rental or purchase of textbooks for all students in a program and include the cost of those materials in tuition and fees…have to provide a mechanism for students to opt out of such an arrangement? BAS A3: Institutions must have a process that allows students to opt out…and notify students of the option to opt out of the arrangement, unless the books or supplies are not available elsewhere or there is a compelling health or safety reason to use certain books and supplies. For any student who opts out, the institution must reduce the tuition by the cost of any books and supplies included in tuition and fees. The reduction for students who opt out must reflect the institution’s per-student cost of the books. 44

45. Provisions for Books And Supplies • Requirement to provide books and supplies by the 7th day of a payment period if: • TIV aid could have been given to the student 10 days prior to the beginning of the payment period and; • A TIV credit balance would have been created • Effective July 1, 2016 - applies to any Title IV recipient • Previously applied only to Pell Grant recipients 34 CFR 668.164(m)

46. Confirm Eligibility & Disbursement “Jointly responsible and liable”

47. Additional Changes to General Provisions: 10/30/15 Federal RegisterFinal Rule

48. Repeat Coursework §668.2, Full-time student Retaking coursework, term-based programs Still allows for one repetition of a passed class Eliminates the provision prohibiting any repetition of previously passes coursework because the student failed other coursework Applies to all undergraduate, graduate, and professional students

49. Clock Hour Program Definition Removed §668.8(k) Clock/credit hour conversion • Eliminates the provisions in (k)(2) that otherwise requires a program to be measured in clock hours: • Receives Federal or State approval or licensure to offer the program • Completing clock hours is required for graduates to apply for licensure or practice the occupation • The credit hours awarded do not comply with the definition of a credit hour • Eliminates the provision in (k)(3) relating to a component of a program includes a minimum number of clock hours Schools can still offer programs in clock hours

50. Clock Hour Program Definition Removed • Effective July 1, 2016 the US Dept. of Education will no longer define an academic program as having to be a clock hour program for Title IV purposes • Even if a school reports clock hours to a state entity, as long as the state does not require the program to be offered in clock hours, the school can offer the program in clock OR credit hours