| 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. |