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PublicationDate: 2/20/98
Author: ODAS - Office of the Deputy Assistant Secretary - SFA

Posted February 20, 1998

February 20, 1998


Dear Colleague:

This letter is the second in a series of bulletins regarding the transition from ED's
Payment Management System (PMS) to the new EDCAPS Grant Administration and
Payment System (GAPS). During the transition period, February 26 through March 15,
institutions will not be able to draw down federal funds from the Department. After
today, there are only three business days until the transition period begins.

Institutions may draw down all of the Federal Direct Loan, Federal Pell Grant, and
Campus-based Program funds they reasonably expect to disburse to eligible students
during the transition period, but must draw down the funds or submit necessary
information to receive the funds by the dates specified in Dear Colleague Letter
GEN-98-5 and Direct Loan Bulletin DLB-98-3.

As provided in GEN-98-5, certain provisions of the Cash Management regulations will
not apply to institutions for the transition. Those provisions, and any actions relating to
those provisions that institutions must take following the transition period, are
discussed below.


The regulations that normally govern institutions' requests for funds under the advance
payment method presume that institutions have access to and may draw down Title IV,
HEA program funds to meet their immediate disbursement needs. Under these
regulations, institutions must disburse funds that they draw down as soon as possible
but no later than three business days after they receive those funds. However, because
institutions will not be able to draw down funds during the transition period to meet their
immediate needs, the three-day disbursement requirement under ยง668.162(b)(3) will not
apply to the funds institutions receive for this period to make disbursements to eligible
students and parents.

REMITTING INTEREST, 34 CFR 668.163(c)(4)

Please make note of the following correction: As required under 34 CFR 668.163(c)(4),
and contrary to the guidance provided in GEN-98-5, institutions that currently maintain
Federal Direct Loan, Federal Pell Grant, FWS, and FSEOG Program funds in
interest-bearing accounts must remit to the Department any interest over $250 that they
earn on those funds, including interest on funds they receive for the transition to GAPS.


The regulations require institutions that draw down more than $3 million in Federal
Direct Loan, Federal Pell Grant, Federal Work Study (FWS), and Federal Supplemental
Educational Opportunity Grant (FSEOG) Program funds during an award year to maintain
those funds in interest-bearing accounts. There is one exception to this requirement.
Institutions are not required to maintain those funds in interest-bearing accounts if they
can demonstrate by their cash management practices that they will not earn more than
$250 on the funds if they were maintained in interest-bearing accounts. This exemption
is intended to reduce the administrative burden on institutions that manage their Title IV,
HEA program funds efficiently. Because the temporary draw-down procedures for the
transition to GAPS may result in institutions maintaining more Title IV, HEA program
funds than they normally would maintain, institutions do not have to consider the
interest they would earn on transition funds in determining whether they continue to
qualify for the interest-bearing account exemption.

EXCESS CASH, 34 CFR 668.166

Excess cash is defined as any amount of Federal Direct Loan, Federal Pell Grant, FWS, or
FSEOG Program funds that institutions do not disburse to eligible students by the end
of the third business day following the day they received those funds. Although the
regulations require institutions to return promptly to the Department any amount of
excess cash, institutions may maintain for seven days all or a portion of that excess cash
under the tolerance provisions in 34 CFR 668.166(b). In addition, the regulations provide
that the Department will assess an interest liability on institutions that maintain excess
cash for amounts greater than allowed under the tolerance provisions. These excess
cash provisions do not apply to any Federal Direct Loan, Federal Pell Grant, FWS, or
FSEOG Program funds that institutions receive for the transition to GAPS.


On March 16, the day after the transition period, institutions must consider any funds
that they received for the transition, but did not disburse, to have been received on that
date. For example, an institution received $100,000 for the transition; but as of March 16,
1998, it has not disbursed $8,000. Under the three-day rule, the institution has until the
close of business on March 19, 1998 to disburse the remaining funds before those funds
are considered excess cash.

The Department will issue another bulletin shortly to respond to questions we have
received about the transition to GAPS. If you have technical questions regarding the
transition, please contact your account representative.


Diane E. Rogers
Acting Deputy Assistant Secretary
Student Financial Assistance Programs

Last Modified: 08/16/1999