Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Obtaining, Managing, and Returning Title IV Funds

PublicationDate: 7/1/95
ChapterNumber: 4
ChapterTitle: Obtaining, Managing, and Returning Title IV Funds
SectionNumber: 7
SectionTitle: Disbursing Title IV Program Funds
PageNumbers: 105-112


Cash management regulations that became effective July 1, 1995
contain a specific definition of the term "disburse." To disburse Title
IV program funds means to pay Title IV program funds to a student
or to deliver the proceeds of a Federal Family Education Loan
(FFEL) Program loan to a student borrower or parent borrower. A
school may:

((Allowable disbursement methods))
- pay a student or parent directly,

- by check or other means payable to the student and requiring
the student's endorsement or certification (or, in the case of a
parent borrowing under the Direct Loan Program or FFEL
Program, requiring the endorsement or certification of the
student's parent);

- by initiating an electronic funds transfer (EFT) to a bank
account designated by the student (or, in the case of a parent
borrower, an account designated by the parent); or

- by dispensing cash to the student for which the school obtains a
signed receipt from the student; OR

- credit a student's account. In the case of Direct Loans, a school
must credit the student's account, if the school uses student
accounts.

((Notification of disbursement))
Federal regulations require schools to notify a student or a parent
borrower of the amount of Title IV program funds the student can
expect to receive and how and when those funds will be paid.

4.7.1 Crediting a Student's Account

Crediting a student's account is defined as posting a payment of
funds to a student's account. In the context of federal regulations
governing Title IV programs, a student's account may be any
recordkeeping system that a school uses to post institutional charges
and payments of Title IV program funds. The system may be
manual or automated.

((Notification of loan funds credited to account))
When a school credits a student's account with Federal Direct Loan
Program or Federal Family Education Loan (FFEL) Program funds,
it must provide written notice to the student borrower or parent
borrower, as applicable, that these funds have been credited to the
student's account. Such notification must be made in an "expeditious
manner."

((Prior-year charges))
A school may not credit a student's account containing current Title
IV program funds for any charges the school assessed the student in
a prior award year or prior period of enrollment.

If a school credits a student's account with Title IV program funds, it
may apply those funds only to allowable charges. Allowable charges
include:

((Allowable charges))
- tuition and fees,

- board, if the student contracts with the school for board, and

- room, if the student contracts with the school for room.

If a school obtains a student's or parent's written authorization to use
Title IV program funds to pay other costs, allowable charges may
also include:

- costs of attendance allowed by Section 472 of the Higher
Education Act (HEA), as amended, and

- other institutional charges that a student incurs at his or her
discretion.

A school may not require a student or parent to authorize the use of
Title IV funds to pay other costs. Furthermore, if a student or parent
opts to give such authorization to a school, the school must allow the
student or parent to rescind the authorization at any time. (See
section 4.7.6.)

4.7.2 Paying Students or Parents Directly

If a school does not credit a student's account with payments of Title
IV program funds for allowable charges, it must pay the student or
parent directly.

Some schools use more than one payment method, as discussed in
section 4.7 of this book. For example, a school might credit a
student's account for tuition and fees, then pay remaining Title IV
funds directly to the student.

4.7.2.1 Electronic Funds Transfer (EFT)

A school may pay a student or parent by transmitting Title IV
program funds directly to the student's or parent's designated bank
account. The school must obtain written authorization from the
student or parent to pay Title IV funds through electronic funds
transfer (EFT). (See section 4.7.6.)

4.7.2.2 Issuing Checks

A school may pay a student or parent by issuing a check and
charging it directly to its federal program accounts. However, as
discussed in section 4.7, a Direct Loan school must credit the
student's account, if the school uses student accounts.

((FFEL checks))
For loans made under the FFEL Program, the check issued may be
the co-payable check sent to the school by a lender. A school may
endorse a lender's Federal Stafford Loan or Federal PLUS Loan
check and issue that same check to the student borrower or parent
borrower as payment of the loan proceeds. Or the school can have
the borrower sign the check, the school endorses the check and
deposits it, and then the school credits the student's account. The
funds credited are either used to pay allowable charges or, with the
borrower's permission, are held as funds in excess of allowable
charges. (See section 4.7.2.3.)

((Checks drawn on a school bank account))
For all Title IV program funds, a school may issue checks drawn
from the bank account in which the school maintains federal funds or
from the school's own account. In either case, delivery to the student
or parent is considered to have occurred on the date the school makes
the check available.

((Issuing a check properly))
To properly issue a check for Title IV funds, including FFEL funds,
a school must release, distribute, or otherwise make the check
available by:

- mailing the check to the student or parent OR

- notifying the student or parent in an "expeditious manner" that the
check is available, on request, for immediate pickup.

4.7.2.3 Credit Balances

((Prompt payment of credit balance required))
When a school applies Title IV program funds to a student's account
receivable and determines that the amount of the funds exceeds
allowable charges, the school must pay the credit balance directly to
the student or parent borrower as soon as possible. The only
exception is when the school has the student's permission to hold
excess funds. (See sections 4.7.5 and 4.7.6.)

((Time frames for paying credit))
In paying excess Title IV funds to a student, the following time
frames apply:

- For students enrolled at a school any time during the period
July 1, 1995 to June 30, 1996, a school must pay a credit balance
to a student or notify the student that the check is available on
request within 21 days of whichever is the latest of:

- the date the balance occurs,

- the first day of classes of a payment period or enrollment
period, as applicable, OR

- the date the student rescinds authorization given the school to
hold the funds.

- For students enrolled at a school on or after July 1, 1996, a school
must pay a credit balance to a student or notify the student that the
check is available on request within 14 days of whichever is the
latest of:

- the date the balance occurs,

- the first day of classes of a payment period or enrollment
period, as applicable, OR

- the date the student rescinds authorization given the school to
hold the funds.

((Determining amount of credit balances))
A school determines that funds are due to a student if the total
amount of a student's Title IV funds exceeds the total amount of
allowable charges for a specified period (such as an academic term
or a payment period). A school can simplify and expedite handling
credit balances if it determines in advance--before Title IV funds are
applied to the account--the amount of Title IV funds that will exceed
allowable charges. The school can then make arrangements to obtain
authorization to hold the excess funds or pay the student within the
required time frame.

4.7.3 Early Payments

(("Enrolled" status required))
A school may not make a payment to a student or a student's account
until the student is enrolled for classes for the applicable payment
period or enrollment period. Federal regulations define "enrolled" as
the status of a student who:

- has completed registration requirements (except for paying tuition
and fees) at the school the student is attending OR

- has been admitted into an educational program offered
predominantly by correspondence and has submitted one lesson,
completed by the student without the help of a representative of
the school, after acceptance for enrollment.

((Time frames for early payments))
Except for students subject to delayed disbursement (see section
4.7.4), the earliest a school may pay a student directly or credit a
student's account with Title IV funds is ten days before:

- the first day of a semester or other academic term or other
enrollment period, as applicable (see Appendix A for definitions
of these terms) and

- for second and subsequent disbursements of Direct Loans and
FFEL Program loans, the first day of a semester, term, or other
enrollment period for which a disbursement is intended.

4.7.4 Delayed Disbursement

((Required delay for student borrowers))
A student borrowing under the Direct Loan Program or FFEL
Program is subject to delayed disbursement if the student:

- is enrolled in the first year of an undergraduate program of study
AND

- has not previously received a Direct Loan Program or a FFEL
Program loan.

A school may not release the first disbursement of a Direct Loan
Program or FFEL Program loan to a first-year, first-time student
borrower until 30 calendar days after the first day of the student's
program of study for which the loan is intended. The reason: The
student might change his or her program of study, drop out, or take a
leave of absence within the first 30 calendar days of the enrollment
period. Because of this, the student may not receive loan proceeds
until after he or she has been enrolled and attending the new program
of study for 30 calendar days.

This requirement does not apply to a parent who borrows a Direct
PLUS Loan or Federal PLUS Loan on behalf of a student; there is no
delayed disbursement requirement for either type of PLUS Loan.

4.7.5 Holding Excess Funds

((Student authorization required))

A school, as fiduciary for the benefit of a student, may hold amounts
of Title IV funds that exceed allowable charges if the student or
parent borrower authorizes the school to retain the excess funds to
assist the student or parent borrower in managing those funds. (See
section 4.7.6.)

If a student authorizes a school to hold excess funds, and if the
school chooses to hold those funds, the school:

((School requirements))
- must identify the student and the amount of funds the school holds
for that student in a subsidiary ledger account designated for the
purpose of holding funds;

- must maintain, at all times, an amount of cash in its bank account
that is at least equal to the amount of funds the school holds for
students; and

- may retain any interest earned on student funds.

If ED determines that a school has failed to meet the standards of
financial responsibility set forth in 34 CFR 668.15 (see section
2.1.2), a school may not hold excess student funds for any purpose.

4.7.6 Student/Parent Authorizations

In accordance with 34 CFR 668.165(d), a school must obtain written
authorization from a student or parent to:

((EFT))
- disburse Title IV program funds to the student or parent by
electronic funds transfer (EFT) (see section 4.7.2.1);

((Other charges owed))
- use Title IV program funds to pay for charges other than those
specifically allowed by federal regulations (see section 4.7.1); or

((Excess funds))
- hold excess funds (see section 4.7.5).

((Authorization optional))
A school may not require a student or parent to provide an
authorization for any of these activities. If a student or parent opts to
authorize a school to perform any of these activities, the school must
allow the student or parent to rescind the authorization at any time.

((Allowable period of authorization))
An authorization is valid for the award year or period of enrollment
in which the school obtains the authorization. An initial
authorization will continue to be valid for subsequent award years or
enrollment periods if the school provides the student or parent with a
written notice that:

- explains in a "plain and conspicuous manner" the provisions
contained in the student's or parent's original authorization,
including an explanation of any interest the school earns on the
student's funds and whether the school will give the interest to the
student; and

- provides the student or parent the opportunity to cancel or modify
the provisions of the original authorization.

Last Modified: 06/30/1995