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Obtaining, Managing, and Returning Title IV Funds

PublicationDate: 7/1/95
ChapterNumber: 4
ChapterTitle: Obtaining, Managing, and Returning Title IV Funds
SectionNumber: 8
SectionTitle: Returning Funds
PageNumbers: 112-140


4.8 Returning Funds

A school is responsible for returning funds to ED when:

- the school has excess cash in its account from funds drawn down
and not used in accordance with immediate need (see
sections 4.3.1 and 4.8.1);

- the school has excess cash as a result of a reduction to reported
expenditures on a closed award (see section 6.5.2);

- the school has unused funds and expects no more funding from
ED;

- the school owes ED for disallowed expenditures found during an
audit or program review (see section 6.6.6); OR

- the school earned interest or investment income on federal funds
in excess of the amount it is allowed to retain (see section 4.5.2).

Methods for returning funds are discussed in section 4.8.2.

4.8.1 Excess Cash

((Definition of "excess cash"))
Excess cash is any amount of Title IV program funds (other than
FFEL Program or Federal Perkins Loan Program funds) that a school
does not disburse to students by the end of the third business day
following the date the school received the funds. Except as
described in the next section on tolerances (section 4.8.1.1), a school
must promptly return to ED any amount of excess cash in its bank
account.

4.8.1.1 Tolerances

((Maintaining excess cash))
If a school draws down Title IV program funds in excess of its
immediate cash needs, the school may maintain the excess cash
balance in its bank account only if:

- the amount of the excess cash balance is less than

- 3 percent of the school's total prior year drawdowns, for a
period of peak enrollment during which the drawdown occurs,
OR

- 1 percent of its total prior year drawdowns for any other period;
AND IN EITHER CASE

- within the next seven days, the school eliminates its excess cash
balance by disbursing Title IV funds to students for at least the
amount of the balance.

To determine total prior year drawdowns, a school participating in
the Direct Loan Program may include the total amount of loans
guaranteed under the FFEL Program for students attending the
school during that year.

((Period of peak enrollment))
A period of peak enrollment occurs when at least 25 percent of a
school's students start classes during a given 30-day period. For any
award year, a school calculates the percentage of students who
started classes during a given 30-day period by:

1. determining the number of students who started classes during
that period for the prior award year in which the 30-day period
began;

2. determining the total number of students who started classes
during the entire prior award year in which the 30-day period
began;

3. dividing the number of students in step 1 by the number of
students in step 2; and

4. multiplying the result obtained in step 3 by 100.

4.8.1.2 Liabilities

((Allowable ED actions))
If ED finds that a school maintains excess cash balances in its bank
account that are greater than those described in section 4.8.1.1, ED
may:

- require the school to reimburse the federal government for costs
incurred in making those excess funds available to the school and

- initiate proceedings to fine, limit, suspend, or terminate the
school's participation in one or more Title IV programs.

((Checks issued by school))
In finding that a school has maintained excess cash, ED considers a
school to have issued a check to a student on the date that the check
cleared the bank, unless the school can demonstrate that it issued the
check shortly after writing it. (See section 4.7.2.2.)

((Calculating liability))
If ED finds that a school has maintained excess cash, ED calculates
(or requires the school to calculate) a liability for maintaining excess
cash in accordance with ED-established procedures. Under those
procedures, ED assesses a liability that is equal to the difference
between the earnings that the excess cash balance would have
yielded if it had been invested under the applicable current value of
funds rate and the actual interest earned on the balance.

((Current value of funds rate))
The current value of funds rate is an annual percentage rate,
published in a Treasury Financial Manual (TFM) bulletin, that
reflects the current value of funds to the U. S. Department of
Treasury (Treasury) on the basis of certain investment rates. The
current value of funds rate is computed each year by averaging
investment rates for the 12-month period ending every September.
The TFM bulletin is published annually by Treasury. Each annual
bulletin identifies the current value of funds rate and the date that
rate becomes effective.

4.8.2 Methods for Returning Funds

Procedures for returning funds vary, depending on the circumstances
under which a school is returning funds. If ED notifies a school that
it must return funds, the notification usually contains specific
instructions the school must follow.

4.8.2.1 Returning Excess Funds

ED's Financial Payments Group (FPG) reviews a school's ED/PMS
272 Report for excess funds (also referred to as "cash on hand" or
"excess cash").*17* If FPG finds that a school is holding excess
funds, the school will receive a letter notifying it to:

- return the excess funds; OR

- certify that current disbursements (expenditures) have reduced the
excess funds; OR

- contact an ED account representative if the school finds that the
excess funds resulted from errors the school made when it
reported disbursements.

((School response to FPG notice))
If a school does not respond within ten days of the date of the FPG
letter, the school may be suspended from receiving further funds, or
the school may be placed on the reimbursement payment method. In
addition, FPG may refer the debt for billing and collection.

((NFC billing))
If a school owes excess funds, an account receivable will be
established by ED's Accounts Receivable Management Group
(ARMG), and the National Finance Center (NFC) will send the
school a bill. Any accrued interest, penalties, and administrative fees
will be included in the bill, along with instructions for returning
excess funds.

More information about returning excess funds can be found in
Chapter 6, Appendix T, and Appendix U of the ED/PMS Recipient's
Guide, and in section 6.5.1 of this book.

4.8.2.2 Returning Funds on a Closed Award

((ED/PMS account adjustment))
If a school needs to return funds as a result of reducing expenditures
on a closed award, an adjustment is made to the school's ED/PMS
account that increases the school's cash on hand by the amount of the
expenditure reduction. If this adjustment causes excess cash on
hand, the school must return the excess funds to ED's Financial
Payments Group (FPG) using the procedures given in section 4.8.2.1.

More information about closed awards can be found in section 6.5.2
of this book.

4.8.2.3 Returning Unused Funds

((Inactive ED/PMS accounts))
ED's Financial Payments Group (FPG) regularly identifies ED/PMS
accounts that have had no recent activity (for example, no payment
requests or no ED/PMS 272 Reports submitted for six months). FPG
also receives information from schools, ED's Office of Inspector
General (OIG), and program offices within ED indicating that
schools closed or will be closing. These accounts are classified as
inactive and are reconciled to determine if any unused funds are
being held.

((Notice from FPG ))
If a school has unused funds that should be returned, FPG sends a
letter to the school listing:

- the total dollar amount initially advanced to the school,

- the school's total reported expenditures,

- the final amount due ED, and

- the ACH/EFT numbers to use on the return.

((School response to FPG notice))
A school must return unused funds to FPG within 30 days from the
date the letter is written. If the school needs assistance or has
information that might resolve all or a portion of the amount due, the
school should contact an ED/PMS account representative within the
30-day period.

((NFC billing))
If the amount due is accurate and if a school does not respond within
30 days, the funds owed become a school debt. The debt is
transferred to ED's Accounts Receivable Management Group
(ARMG) for billing and collection by the National Finance Center
(NFC). If a school does not respond to the NFC's notices, the debt
will be forwarded to a commercial collection agency.

More information about returning unused funds can be found in
Chapter 6 of the ED/PMS Recipient's Guide. This information
includes specific instructions for preparing and mailing checks that
return excess funds.

4.8.2.4 Returning Funds from an Audit or Program Review

Procedures for returning funds resulting from audit or program
review finding are given in section 6.6.6.

4.8.2.5 Returning Interest Earned

If a school receives funds through advance payment and retains those
funds in an interest-bearing or investment account, the school is
required to return to ED, at least annually, the amount of interest or
investment earnings that exceeds the amount the school is allowed to
retain. (See section 4.5.2.) However, a school may retain and use all
interest or investment income earned on Federal Perkins Loan funds
for authorized purposes of the program.

If a school does not return required amounts of interest or investment
income, future payments of Title IV program funds may be reduced
(offset) by the amount of that income.

Schools must return excess interest income to ED by check,
indicating on the check that it represents interest earnings. The
check should be sent to:

U.S. Department of Education
600 Independence Avenue, SW
Room 3321
Washington, DC 20202-4331

4.8.3 Deobligating Campus-Based Funds

If a school does not use its total allocation of funds for Title IV
campus-based programs (Federal Supplemental Educational
Opportunity Grant, Federal Work-Study, and Federal Perkins Loan),
the school is required to release unexpended amounts to ED. This
release of unexpended allocated funds is called "deobligation."

((Reporting deobligated amounts))
In June each year, ED sends schools a letter advising them that they
must deobligate funds not spent by June 30 of that year and asking
them to estimate the amount of funds they expect to have used by
that date. Later, a school also must determine the actual amounts
spent as of the end of the award year and report those amounts on the
ED/PMS 272 Report. Funds are deobligated 18 months after the
award-year ending date.

More information about deobligation can be found in section 3.1.2.

4.8.4 Returning Federal Family Education Loan (FFEL) Program
Funds

It is sometimes necessary for a school to return all or a portion of a
loan made under the Federal Family Education Loan (FFEL)
Program to the lender that made the loan. FFEL Program funds must
be returned if:

((Actions requiring return of funds))
- a student fails to enroll for an enrollment period for which the loan
is intended;

- a student fails to meet satisfactory academic progress or other
eligibility requirements at the time the loan is due to be delivered;

- a student withdraws or drops out during an enrollment period for
which the loan is intended;

- a refund is due a lender as a result of a refund calculation; OR

- a student or parent requests a school to return FFEL Program
funds to reduce the borrower's principal loan balance.

Schools have 60 days to make a refund. They may hold a check for
an eligible student for no more than 45 days in any instance. They
must return a check to a lender within 30 days if, for any reason, the
student has lost eligibility for the loan.

((Time frames for returning funds))
If a student fails to enroll or fails to meet other loan eligibility
requirements, a school must return loan proceeds to a lender within
30 days of the school determining that the student is not eligible for
the loan.

If a student withdraws from school, a school must return loan
proceeds to a lender within 60 days of the student's official
withdrawal date.

If a student drops out and does not notify a school, the school must
return loan proceeds to a lender within 60 days of the EARLIEST of:

- the date the school became aware that the student had dropped
out;

- the expiration of the academic term in which the student dropped
out; OR

- the expiration of the enrollment period for which the student was
charged.

If a student is on an approved leave of absence and does not return to
school, a school must return loan proceeds to a lender within 30 days
of the EARLIER of:

- the expiration date of the leave of absence OR

- the date the student notifies the school that he or she will not be
returning from the leave of absence.

If a student is on an unapproved leave of absence, a school must
return loan proceeds to a lender within 60 days of the student's last
recorded date of attendance. Please note that the 60-day deadline
applies to ALL Title IV programs, not just the FFEL Program.

((Written notice to borrower required))
When a school returns FFEL Program loan proceeds to a lender, it
must notify the student or parent borrower, in writing, that the funds
have been returned.

4.8.5 Returning Direct Loan Funds

Schools must return Direct Loan funds in the event of excess cash or
refunds.

4.8.5.1 Excess Cash

((Definition))
Like other Title IV funds, Direct Loan excess cash is any amount of
Direct Loan funds a school does not disburse to borrowers by the end
of the third business day following the date the school receives the
funds. This includes excess funds that result from cancelling an
actual disbursement or adjusting downward the amount of an actual
disbursement.

((Methods used to return excess Direct Loan cash))
There are three methods by which schools may return excess Direct
Loan cash to ED:

- CHECK--A check may be used if the amount of excess cash is
less than $100,000. The check should include all excess funds that
need to be returned at a given time, not just those for an individual
borrower or type of loan. The check and/or accompanying
correspondence should include the school's Direct Loan school
code and indicate that the funds are excess Direct Loan cash. The
check should be mailed to:

Direct Loan Servicing Center
Attn: Excess Cash
P.O. Box 4639
Utica, NY 13504-4639

- ACH (AUTOMATED CLEARINGHOUSE)--This method allows
for an electronic transfer of funds from a school's bank account to
the Direct Loan Servicing Center's bank account. A school must
contact its bank to find out what types of specific information the
bank needs to initiate the transaction. At a minimum, the school's
bank will need the following basic information about the Servicing
Center:

Financial Institution:
Fleet Bank
Genesee Street
Utica, NY

Account Number:
9380602353

Routing Number:
021300019

- FEDWIRE--This method allows for an electronic transfer of funds
from a school's bank account directly to ED. This method must be
used if the amount of excess cash is $100,000 or more. A school
must instruct its bank that the reason for the remittance is Direct
Loan excess cash. FEDWIRE procedures are discussed in detail in
section 4.4.3 of this book and in Chapter 3 of the ED/PMS
Recipient's Guide.

4.8.5.2 Refunds

When a student withdraws, drops out, or leaves school for any
reason, a school must determine if a refund is due the Direct Loan
Program and, if so, the amount of the refund. The school can handle
the refund either by cancelling or adjusting actual disbursements OR
by sending a check to the Direct Loan Servicing Center.

((Methods for returning Direct Loan funds due to a refund))
- CANCELLING OR ADJUSTING ACTUAL
DISBURSEMENTS--If a Direct Loan refund is due within 120
days of a loan's disbursement date, a school may process the
refund by cancelling an actual disbursement (if the refund amount
is equal to or greater than the total amount disbursed) or by
adjusting an actual disbursement (if the refund amount is less than
the total amount disbursed).

((Borrower is not responsible for loan fees))
When the school sends the cancellation or adjustment information
to the Servicing Center, the borrower's account is updated to
reflect the amount of the cancellation or adjustment. This method
of returning refunds benefits borrowers, because they are not
responsible for loan fees or accrued interest on the refunded
amount.

With this method, the amount cancelled or adjusted is returned to
the school's federal bank account, where it must be immediately
disbursed to other eligible borrowers or returned to ED as excess
cash.

- SENDING A CHECK--A school might want to handle a Direct
Loan refund as it handles an FFEL Program loan refund, that is by
sending a check to be applied as a payment to a borrower's
account.

((Borrower is held responsible for loan fees))
Note, however, that it is to a borrower's advantage for a school to
handle refunds by cancelling or adjusting actual disbursements. If
a check is used to return a refund, the borrower is responsible for
loan fees and accrued interest on the amount refunded.

If a school uses the check method, the school must also supply the
information needed to apply the funds to the borrower's account.
If a school is returning refunds for more than one student, it
should send only one check and attach a list of borrowers' names,
loan ID numbers, and refund amounts. The school must indicate
on the check, list, or other accompanying correspondence that the
funds are to be applied to borrowers' accounts as payments. The
check and other information should be mailed to:

((Address for mailing checks))
Direct Loan Servicing Center
Attn: Payment Center
P.O. Box 4610
Utica, NY 13504-4610


[[Federal Register, December 1, 1994, Part V, pp 61716-61731 on pages 123 to 139 is currently unavailable for viewing. Please reference your paper document.]]


*17* This review includes Federal Pell Grant and campus-based
program funds, but not Federal Direct Loan Program funds.

Last Modified: 06/30/1995