[Federal Register Volume 80, Number 95 (Monday, May 18, 2015)]
[Proposed Rules]
[Pages 28484-28536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11917]
[[Page 28483]]
Vol. 80
Monday,
No. 95
May 18, 2015
Part III
Department of Education
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34 CFR Part 668
Program Integrity and Improvement; Proposed Rule
Federal Register / Vol. 80 , No. 95 / Monday, May 18, 2015 / Proposed
Rules
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DEPARTMENT OF EDUCATION
34 CFR Part 668
[Docket ID ED-2015-OPE-0020]
RIN 1840-AD14
Program Integrity and Improvement
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the cash management
regulations under subpart K and other sections of the Student
Assistance General Provisions regulations issued under the Higher
Education Act of 1965, as amended (HEA). These proposed regulations are
intended to ensure that students have convenient access to their title
IV, HEA program funds, do not incur unreasonable and uncommon financial
account fees on their title IV funds, and are not led to believe they
must open a particular financial account to receive their Federal
student aid. In addition, these proposed regulations update other
provisions in the cash management regulations under subpart K and
otherwise amend the Student Assistance General Provisions. We also
propose to clarify how previously passed coursework is treated for
title IV eligibility purposes and streamline the requirements for
converting clock hours to credit hours.
DATES: We must receive your comments on or before July 2, 2015.
ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via postal mail, commercial delivery, or hand delivery. We will not
accept comments submitted by fax or by email or those submitted after
the comment period. To ensure that we do not receive duplicate copies,
please submit your comments only once. In addition, please include the
Docket ID at the top of your comments.
If you are submitting comments electronically, we strongly
encourage you to submit any comments or attachments in Microsoft Word
format. If you must submit a comment in Adobe Portable Document Format
(PDF), we strongly encourage you to convert the PDF to print-to-PDF
format or to use some other commonly used searchable text format.
Please do not submit the PDF in a scanned format. Using a print-to-PDF
format allows the Department to electronically search and copy certain
portions of your submissions.
Federal eRulemaking Portal: Go to www.regulations.gov to
submit your comments electronically. Information on using
Regulations.gov, including instructions for accessing agency documents,
submitting comments, and viewing the docket, is available on the site
under ``Are you new to the site?''
Postal Mail, Commercial Delivery, or Hand Delivery: The
Department strongly encourages commenters to submit their comments
electronically. However, if you mail or deliver your comments about the
proposed regulations, address them to Jean-Didier Gaina, U.S.
Department of Education, 1990 K Street NW., Room 8055, Washington, DC
20006.
Privacy Note: The Department's policy is to make all comments
received from members of the public available for public viewing in
their entirety on the Federal eRulemaking Portal at
www.regulations.gov. Therefore, commenters should be careful to include
in their comments only information that they wish to make publicly
available.
FOR FURTHER INFORMATION CONTACT: For clock-to-credit-hour conversion:
Amy Wilson, U.S. Department of Education, 1990 K Street NW., Room 8027,
Washington, DC 20006-8502. Telephone: (202) 502-7689 or by email at:
[email protected].
For repeat coursework: Vanessa Freeman, U.S. Department of
Education, 1990 K Street NW., Room 8040, Washington, DC 20006-8502.
Telephone: (202) 502-7523 or by email at: [email protected] or
Aaron Washington, U.S. Department of Education, 1990 K Street NW., Room
8033, Washington, DC 20006-8502. Telephone: (202) 502-7478 or by email
at: [email protected].
For cash management: Ashley Higgins, U.S. Department of Education,
1990 K Street NW., Room 8037, Washington, DC 20006-8502. Telephone:
(202) 219-7061 or by email at: [email protected] or Tony Gargano,
U.S. Department of Education, 1990 K Street NW., Room 8020, Washington,
DC 20006-8502. Telephone: (202) 502-7519 or by email at:
[email protected].
If you use a telecommunications device for the deaf (TDD) or a text
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.
SUPPLEMENTARY INFORMATION: Throughout this preamble, we refer to title
IV, HEA program funds using naming conventions common to the student
aid community, including ``title IV student aid'' and similar phrasing.
Executive Summary
Purpose of This Regulatory Action:
Over the past decade, the student financial products marketplace
has shifted and the budgets of postsecondary institutions have become
increasingly strained, in part due to declining State funding. These
changes have coincided with a proliferation of agreements between
postsecondary institutions and financial account providers. Cards
offered pursuant to these arrangements, usually in the form of debit or
prepaid cards and sometimes cobranded with the institution's logo or
combined with student IDs, are marketed as a way for students to
receive their title IV credit balances via a more convenient electronic
means. However, as we describe in more detail elsewhere in this
preamble, a number of reports from government and consumer groups
document troubling practices employed by some financial account
providers. Legal actions, especially those initiated by the Federal
Reserve and Federal Deposit Insurance Corporation (FDIC), against the
sector's largest provider reinforce some of these concerns.
According to these reports, many of the following practices were
found:
Providers prioritizing disbursements to their own
affiliated accounts over aid recipients' preexisting bank accounts;
Providers and schools strongly implying to students that
signing up for the college card account was required to receive Federal
student aid;
Private student information unrelated to the financial aid
process being given to providers before aid recipients consented to
opening accounts;
Access to the funds on the college card was not always
convenient; and
Aid recipients being charged onerous, confusing, or
unavoidable fees in order to access their student aid funds or to
otherwise use the account.
As discussed in further detail under the heading ``Fee provisions
for T1 accounts,'' these practices indicate that many institutions have
shifted costs of administering the title IV, student aid programs from
institutions to students. Given that approximately nine million
students attend schools with these agreements, that approximately $25
billion dollars in Pell Grant and Direct Loan program funds are
disbursed to undergraduates at these institutions, that students are a
captive audience subject to marketing from their institution, that the
college card market is expanding, and given the concerns raised by
existing practices, we believe regulatory action governing the
disbursement of title IV, student aid is warranted.
In addition, we include in the proposed regulations a number of
minor
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changes that reflect updated Office of Management and Budget (OMB)
guidance for Federal awards, clarify some provisions to further
safeguard title IV funds, and remove references to programs that are no
longer authorized.
Finally, we address in the proposed regulations two issues
unrelated to cash management--repeat coursework and clock-to-credit-
hour conversion--that were identified by the higher education community
as requiring review. We believe these proposed regulatory changes would
result in more equitable treatment of student aid recipients.
Summary of the Major Provisions of This Regulatory Action:
The proposed regulations would--
Explicitly reserve the right for the Secretary to
establish a method for directly paying credit balances to student aid
recipients;
Establish two different types of arrangements between
institutions and financial account providers, ``tier one (T1)
arrangement'' and ``tier two (T2) arrangement,'' respectively;
Define a ``T1 arrangement'' as an arrangement between an
institution and a third-party servicer that performs one or more of the
functions associated with processing direct payments of title IV funds
on behalf of the institution and that offers one or more financial
accounts to students and parents;
Define a ``T2 arrangement'' as an arrangement between an
institution and a financial institution or entity that offers financial
accounts through a financial institution under which financial accounts
are offered and marketed directly to students or their parents, with
the regulatory consequences of T2 status to apply absent documentation
from the institution that students or parents do not have credit
balances at the institution;
Require institutions that have T1 or T2 arrangements to
establish a student choice process that: Prohibits an institution from
requiring students or parents to open an account into which their
credit balances must be deposited; requires an institution to provide a
list of account options that a student may choose from to receive
credit balance funds, where each option is presented in a neutral
manner and the student's preexisting bank account is listed as the
first, most prominent, and default option; and ensures electronic
payments made to a student's preexisting account are as timely as, and
no more onerous, as payments deposited to an account made available
pursuant to a T1 or T2 arrangement;
Require that the institution obtain consent from the
student or parent to open an account under a T1 or T2 arrangement (1)
before the institution shares personal information about that student
or parent with the financial account provider, and (2) before the
institution or account provider sends an access device to the student
or parent or links the student's ID card with a financial account;
Mitigate fees incurred by student aid recipients by
requiring reasonable access to surcharge-free automated teller machines
(ATMs), and, for accounts offered under a T1 arrangement, both
prohibiting point-of-sale fees and overdraft fees charged to student
and parent account holders, and providing students and parents with 30
days following a disbursement of title IV funds to access those funds
without any fees;
Require that contracts governing T1 or T2 arrangements and
cost information related to those contracts are publicly disclosed; and
Require that institutions that have T1 or T2 arrangements
establish and evaluate the contracts governing those arrangements in
light of the best financial interests of students.
The proposed regulations would also--
Allow an institution offering term-based programs to
count, for enrollment purposes, courses a student is retaking that the
student previously passed, up to one repetition per course, including
when a student is retaking a previously passed course due to the
student failing other coursework; and
Streamline the requirements governing clock-to-credit-hour
conversion by removing the provisions under which a State or Federal
approval or licensure action could cause a program to be measured in
clock hours.
Please refer to the Significant Proposed Regulations section of
this preamble for a detailed discussion of the major provisions
contained in the proposed regulations.
Costs and Benefits: The benefits of these proposed regulations
include providing information that will allow students and parents to
make informed and beneficial decisions regarding the handling and
distribution of their title IV funds. These disclosures will also help
prevent students from being misled into believing that they are
required to use a financial account or access device that has the
apparent endorsement of their school.
These proposed regulations would also benefit students by
guaranteeing the right to receive their title IV credit balances at a
financial institution and through an access device of their choice.
Students who decide to choose accounts with lower fees, and who would
have otherwise been steered toward a higher-cost account, will save
money and be able to use more of their title IV aid for educational
expenses. Students who open accounts covered by these regulations would
benefit from having more surcharge-free ATMs from which to access their
title IV credit balances. The proposed regulations also would help
protect both students and parents from deceptive marketing practices
aimed at encouraging them to do business with a particular financial
institution in order to access title IV funds.
There would be costs incurred by postsecondary and financial
institutions under these proposed regulations. Some postsecondary
institutions and financial institutions that do not choose to price
their products competitively or that do not justify higher prices
(with, for example, superior customer service, better account features,
free banking services, the elimination of certain fees) could lose
future customers as students or parents decide to use lower-cost
accounts as a result of fee disclosures. The T1 arrangement fee
provisions will also have cost implications for affected financial
institutions and for institutions that currently receive free- or
reduced-price title IV administrative services (or other remuneration),
and will likely lower the revenue for schools when financial account
providers' ability to pass costs on to title IV recipients is limited
under these regulations. Some of these costs will include performing
due diligence reviews to ensure that contracts are made in the best
interests of students, the costs of providing surcharge-free ATM
network access, and the costs of presenting credit balance recipients
with a list of neutral account options. Other costs would depend upon
aid recipient behavior, and the Department expects that many financial
account providers may earn less from their student accounts under the
proposed regulations. The provisions regarding convenient access
benefit students and could also have cost implications for some
financial account providers and institutions. Financial account
providers could have to deploy additional ATMs or pay fees to ATM
network providers to comply with these proposed requirements.
Some institutions with T1 or T2 arrangements could incur costs when
establishing a student choice process that would allow students to
select among a list of available accounts into which title IV credit
balances would be disbursed. Institutions would also likely incur some
paperwork burden related to
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making fee disclosures, and students would incur an additional
paperwork burden when selecting an option for how to receive their
credit balance from a list of options.
Invitation to Comment: We invite you to submit comments regarding
the proposed regulations. In particular, we request comment on:
Whether proposed methods for prorating institutional
charges under Sec. 668.164(c)(5) are appropriate;
How an institution should disclose the costs of books and
supplies that are included as part of tuition and fees under Sec.
668.164(c)(2) and frequency of those disclosures;
Whether the option to receive a check should continue to
be affirmatively offered to students as provided under proposed Sec.
668.164(d)(4)(i)(B)(4);
Whether there is a need to establish a minimum number of
credit balance recipients at an institution before the institution must
comply with the provisions of proposed Sec. 668.164(f)(4);
Whether the personal information that an institution may
provide before a student or parent consents to open a financial
account, as provided under Sec. 668.164(e)(2)(i)(A) and (f)(4)(i)(A),
is sufficient to meet the needs of a servicer or financial institution;
Whether the Department should take more proscriptive
action than the one proposed in this NPRM to prevent abusive marketing
practices with respect to institutional devices such as student IDs and
associated financial accounts;
Whether 30 days following a disbursement is an appropriate
timeframe to allow a title IV aid recipient an opportunity to
reasonably access aid dollars free of charge as provided under proposed
Sec. 668.164(e)(2)(iii)(B)(4);
Whether, as proposed in Sec. 668.164(e)(2)(vii) and
(f)(4)(vii), it would be in the best financial interests of students to
require institutions that have a T1 or T2 arrangement to periodically
conduct reasonable due diligence reviews to ascertain whether the fees
imposed under the arrangement are excessive; and
Whether the proposed regulations would require
transmission of information that any other agency or authority of the
United States gathers or makes available.
Please refer to the relevant portions of the Significant Proposed
Regulations section of this preamble for more detail on each of the
issues for which we specifically request comment.
To ensure that your comments have maximum effect in developing the
final regulations, we urge you to identify clearly the specific section
or sections of the proposed regulations that each of your comments
addresses, and provide relevant information and data, as well as other
supporting materials in the request for comment, even when there is no
specific solicitation of data. We also urge you to arrange your
comments in the same order as the proposed regulations. Please do not
submit comments outside the scope of the specific proposals and
proposed regulations in this notice of proposed rulemaking, as we are
not required to respond to comments that are outside of the scope of
the proposed rule. See ADDRESSES for instructions on how to submit
comments.
We invite you to assist us in complying with the specific
requirements of Executive Orders 12866 and 13563 and their overall
requirement of reducing regulatory burden that might result from the
proposed regulations. Please let us know of any further ways we could
reduce potential costs or increase potential benefits while preserving
the effective and efficient administration of the Department's programs
and activities.
During and after the comment period, you may inspect all public
comments about the proposed regulations by accessing Regulations.gov.
You may also inspect the comments in person in room 8055, 1990 K Street
NW., Washington, DC, between 8:30 a.m. and 4 p.m., Washington, DC time,
Monday through Friday of each week except Federal holidays. If you want
to schedule time to inspect comments, please contact the person listed
under FOR FURTHER INFORMATION CONTACT.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for the proposed regulations. If you want to
schedule an appointment for this type of accommodation or auxiliary
aid, please contact the person listed under FOR FURTHER INFORMATION
CONTACT.
Public Participation
On May 1, 2012, we published a notice in the Federal Register (77
FR 25658) announcing our intent to establish a negotiated rulemaking
committee under section 492 of the HEA to develop proposed regulations
designed to prevent fraud and otherwise ensure proper use of title IV
Federal Student Aid program funds, especially within the context of
current technologies. In particular, we announced our intent to propose
regulations to address the use of debit cards and other banking
products for disbursing title IV Federal Student Aid program funds, and
to improve and streamline the campus-based Federal Student Aid
programs. On April 16, 2013, we published a notice in the Federal
Register (78 FR 2247), which we corrected on April 30, 2013 (78 FR
25235), announcing additional topics for consideration for action by a
negotiated rulemaking committee. The following topics for consideration
were identified: Cash management of funds provided under the title IV
Federal Student Aid programs; State authorization for programs offered
through distance education or correspondence education; State
authorization for foreign locations of institutions located in a State;
clock-to-credit-hour conversion; gainful employment; changes to the
campus safety and security reporting requirements in the Clery Act made
by the Violence Against Women Act; and the definition of ``adverse
credit'' for borrowers in the Federal Direct PLUS Loan program.
In that notice, we announced three public hearings at which
interested parties could comment on the topics suggested by the
Department and could suggest additional topics for consideration for
action by a negotiated rulemaking committee. We also invited parties
unable to attend a public hearing to submit written comments on the
additional topics and to submit other topics for consideration. On May
13, 2013, we announced in the Federal Register (78 FR 27880) the
addition of a fourth hearing. The hearings were held on May 21, 2013,
in Washington, DC; May 23, 2013, in Minneapolis, Minnesota; May 30,
2013, in San Francisco, California; and June 4, 2013, in Atlanta,
Georgia. Transcripts from the public hearings are available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/index.html. Written
comments submitted in response to the April 16, 2013, notice may be
viewed through the Federal eRulemaking Portal at www.regulations.gov,
within docket ID ED-2012-OPE-0008. You can link to the ED-2012-OPE-0008
docket as a related docket inside the ED-2013-OPE-0124 docket
associated with this notice of proposed rulemaking. Alternatively,
individuals can enter docket ID ED-2012-OPE-0008 in the search box to
locate the appropriate docket. Instructions for finding
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comments are also available on the site under ``How to Use
Regulations.gov'' in the Help section.
Negotiated Rulemaking
Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to
obtain public involvement in the development of proposed regulations
affecting programs authorized by title IV of the HEA. After obtaining
advice and recommendations from the public, including individuals and
representatives of groups involved in the title IV, HEA programs, in
most cases the Secretary must subject the proposed regulations to a
negotiated rulemaking process. If negotiators reach consensus on the
proposed regulations, the Department agrees to publish without
alteration a defined group of regulations on which the negotiators
reached consensus unless the Secretary reopens the process or provides
a written explanation to the participants stating why the Secretary has
decided to depart from the agreement reached during negotiations.
Further information on the negotiated rulemaking process can be found
at: http://www2.ed.gov/policy/highered/reg/hearulemaking/hea08/neg-reg-faq.html.
On November 20, 2013, we published a notice in the Federal Register
(78 FR 69612) announcing our intent to establish a negotiated
rulemaking committee to prepare proposed regulations to address program
integrity and improvement issues for the Federal Student Aid programs
authorized under title IV of the HEA. That notice set forth a schedule
for the committee meetings and requested nominations for individual
negotiators to serve on the negotiating committee.
The Department sought negotiators to represent the following
groups: Students; legal assistance organizations that represent
students; consumer advocacy organizations; State higher education
executive officers; State attorneys general and other appropriate State
officials; business and industry; institutions of higher education
eligible to receive Federal assistance under title III, parts A, B, and
F and title V of the HEA, which include Historically Black Colleges and
Universities (HBCUs), Hispanic-Serving Institutions, American Indian
Tribally Controlled Colleges and Universities, Alaska Native and Native
Hawaiian-Serving Institutions, Predominantly Black Institutions, and
other institutions with a substantial enrollment of needy students as
defined in title III of the HEA; two-year public institutions of higher
education; four-year public institutions of higher education; private,
non-profit institutions of higher education; private, for-profit
institutions of higher education; regional accrediting agencies;
national accrediting agencies; specialized accrediting agencies;
financial aid administrators at postsecondary institutions; business
officers and bursars at postsecondary institutions; admissions officers
at postsecondary institutions; institutional third-party servicers who
perform functions related to the title IV Federal Student Aid programs
(including collection agencies); State approval agencies; and lenders,
community banks, and credit unions. The Department considered the
nominations submitted by the public and chose negotiators who would
represent the various constituencies.
The negotiating committee included the following members:
Chris Lindstrom, U.S. Public Interest Research Group, and
Maxwell John Love (alternate), United States Student Association,
representing students.
Whitney Barkley, Mississippi Center for Justice, and Toby
Merrill (alternate), Project on Predatory Student Lending, The Legal
Services Center, Harvard Law School, representing legal assistance
organizations that represent students.
Suzanne Martindale, Consumers Union, representing consumer
advocacy organizations.
Carolyn Fast, Consumer Frauds and Protection Bureau, New York
Attorney General's Office, and Jenny Wojewoda (alternate),
Massachusetts Attorney General's Office, representing State
attorneys general and other appropriate State officials.
David Sheridan, School of International & Public Affairs,
Columbia University in the City of New York, and Paula Luff
(alternate), DePaul University, representing financial aid
administrators.
Gloria Kobus, Youngstown State University, and Joan Piscitello
(alternate), Iowa State University, representing business officers
and bursars at postsecondary institutions.
David Swinton, Benedict College, and George French (alternate),
Miles College, representing minority serving institutions.
Brad Hardison, Santa Barbara City College, and Melissa Gregory
(alternate), Montgomery College, representing two-year public
institutions.
Chuck Knepfle, Clemson University, and J. Goodlett McDaniel
(alternate), George Mason University, representing four-year public
institutions.
Elizabeth Hicks, Massachusetts Institute of Technology, and Joe
Weglarz (alternate), Marist College, representing private, non-
profit institutions.
Deborah Bushway, Capella University, and Valerie Mendelsohn
(alternate), American Career College, representing private, for-
profit institutions.
Casey McGuane, Higher One, and Bill Norwood (alternate),
Heartland Payment Systems, representing institutional third-party
servicers.
Russ Poulin, WICHE Cooperative for Educational Technologies, and
Marshall Hill (alternate), National Council for State Authorization
Reciprocity Agreements, representing distance education providers.
Dan Toughey, TouchNet, and Michael Gradisher (alternate),
Pearson Embanet, representing business and industry.
Paul Kundert, University of Wisconsin Credit Union, and Tom
Levandowski (alternate), Wells Fargo Bank Law Department, Consumer
Lending & Corporate Regulatory Division, representing lenders,
community banks, and credit unions.
Leah Matthews, Distance Education and Training Council, and
Elizabeth Sibolski (alternate), Middle States Commission on Higher
Education, representing accrediting agencies.
Carney McCullough, U.S. Department of Education, representing
the Department.
Pamela Moran, U.S. Department of Education, representing the
Department.
The negotiated rulemaking committee met to develop proposed
regulations on February 19-21, 2014, March 26-28, 2014, and April 23-
25, 2014. During the March session, the Department proposed adding a
negotiated rulemaking session to the schedule to give the negotiators
more time to consider the issues and reach consensus on proposed
regulatory language. The negotiators agreed to add a fourth and final
session. On April 11, 2014, we published in the Federal Register (79 FR
20139) a notice announcing the addition of a fourth session. That final
session was held on May 19-20, 2014.
At its first meeting, the negotiating committee reached agreement
on its protocols and proposed agenda. These protocols provided, among
other things, that the committee would operate by consensus. Consensus
means that there must be no dissent by any member in order for the
committee to have reached agreement. Under the protocols, if the
committee reached a final consensus on all issues, the Department would
use the consensus-based language in its proposed regulations.
Furthermore, the Department would not alter the consensus-based
language of its proposed regulations unless the Department reopened the
negotiated rulemaking process or provided a written explanation to the
committee members regarding why it decided to depart from that
language.
During the first meeting, the negotiating committee agreed to
negotiate an agenda of six issues related to student financial aid.
These six issues were: Clock-to-credit-hour conversion; State
authorization of distance education; State authorization of foreign
locations of domestic institutions; cash management; retaking
coursework; and PLUS loan adverse credit history. Under the protocols,
a final consensus would
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have to include consensus on all six issues.
During the meeting, the Department explained that it planned to
include the proposed regulations that would be published after
completion of the negotiated rulemaking process in two separate notices
of proposed rulemaking (NPRMs). One NPRM would contain the proposed
regulations regarding the definition of adverse credit history for PLUS
loans. The second NPRM would contain the remaining topics. The
Department has already published an NPRM and final regulations
regarding the PLUS loan issues. This NPRM addresses the remaining
issues, except for State authorization of distance education and State
authorization of foreign locations of domestic institutions. While the
Department continues to examine these two issues and work with the
higher education community to explore how to address these important
topics, we do not want those deliberations to delay the publication of
regulations necessary to address cash management, clock-to-credit-hour
conversion, and retaking coursework. For more information on the
negotiated rulemaking sessions, please visit: http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#info.
Summary of Proposed Changes
The proposed regulations would--
Establish and modify the definitions of key terms
applicable to subpart K;
Remove outdated references to programs no longer
authorized, especially with respect to the Federal Family Education
Loan (FFEL) program;
Require that an institution exercise the level of care and
diligence required of a fiduciary with regard to managing title IV, HEA
program funds;
Remove the reference to the just-in-time payment method,
and rename the ``cash monitoring payment method'' as the ``heightened
cash monitoring payment method'';
Require institutions placed on the reimbursement or
heightened cash monitoring payment methods to credit a student ledger
account for the amount of title IV funds the student is eligible to
receive, and pay any credit balance due to that student before seeking
reimbursement from the Department;
Require institutions to maintain title IV funds in an
insured depository account consistent with guidance issued by OMB on
December 26, 2013, codified at 2 CFR chapter I, 200, et al., Uniform
Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards;
Provide that, with limited exceptions, an institution must
disburse during a payment period the amount of title IV funds that a
student or parent is eligible to receive for that payment period;
Provide that an institution may credit a student's ledger
account to pay for allowable charges associated with a payment period;
Provide that an institution may include the cost of books
and supplies as part of tuition and fees;
Reserve the Secretary's right to establish a method for
directly paying credit balances to student aid recipients;
Establish two different types of arrangements between
institutions and financial account providers, ``tier one (T1)
arrangements'' and ``tier two (T2) arrangements,'' respectively;
Define a ``T1 arrangement'' as an arrangement between an
institution and a third-party servicer that performs one or more of the
functions associated with processing direct payments of title IV funds
on behalf of the institution and that offers one or more financial
accounts to students and parents;
Define a ``T2 arrangement'' as an arrangement between an
institution and a financial institution or entity that offers financial
accounts through a financial institution, under which financial
accounts are offered and marketed directly to students or their
parents, with the regulatory consequences of T2 status to apply absent
documentation from the institution that students or parents do not have
credit balances at the institution;
Require institutions that have T1 or T2 arrangements to
establish a student choice process that: Prohibits an institution from
requiring students or parents to open a certain account into which
their credit balances are deposited; requires an institution to provide
a list of account options that a student may choose from to receive
credit balance funds, where each option is presented in a neutral
manner and the student's preexisting bank account is listed as the
first, most prominent, and default option; and ensures electronic
payments made to a student's preexisting account are as timely as, and
no more onerous to the student than, payments deposited to an account
made available pursuant to a T1 or T2 arrangement;
Require that the institution obtain consent from the
student or parent to open an account under a T1 or T2 arrangement (1)
before the institution shares personal information about that student
or parent with the financial account provider, and (2) before the
institution or provider sends an access device to the student or parent
or links the student's ID card with a financial account;
Mitigate fees incurred by student aid recipients by
requiring reasonable access to surcharge-free ATMs, and, for accounts
offered under a T1 arrangement, both prohibiting point-of-sale fees and
overdraft fees charged to students and parents, and providing students
and parents with 30 days following a disbursement of title IV funds to
access those funds without any fees;
Require that contracts governing T1 or T2 arrangements and
cost information related to those contracts are publicly disclosed;
Require that institutions that have T1 or T2 arrangements
establish and evaluate the contracts governing those arrangements in
light of the best financial interests of students; and
Prohibit an institution under the reimbursement or
heightened cash monitoring payment methods from holding credit balance
funds on behalf of a student or parent. The proposed regulations would
also--
Allow an institution offering term-based programs to
count, for enrollment purposes, courses a student is retaking that the
student previously passed, up to one repetition per course; and
Streamline the requirements governing clock-to-credit-hour
conversion by removing the provisions under which a State or Federal
approval or licensure action could cause a program to be measured in
clock hours.
Significant Proposed Regulations
Background
Over the past several years, a confluence of factors has
significantly altered the landscape of financial products offered to
students on college campuses.
In 2009, due largely to concerns raised by consumer advocates and
students related to the marketing practices and financial incentives
contained in contractual relationships between institutions and credit
card providers,\1\ Congress passed, and the President signed, the
Credit Card Accountability Responsibility and Disclosure Act of 2009
(CARD Act).\2\ The CARD Act made a number of significant changes to the
consumer protections available to college students
[[Page 28489]]
by authorizing new rules to curtail overzealous credit card marketing
practices on campus, impose transparency requirements (the contract
must be annually sent to the Consumer Financial Protection Bureau
(CFPB)), ban ``free'' gifts for signing up for an account, and require
consumers under the age of 21 to show ability to pay or get a co-signer
in order to get a credit card.\3\
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\1\ USPIRG. ``The Campus Debit Card Trap.'' [Pages 4-5] (2012),
available at www.uspirg.org/sites/pirg/files/reports/thecampusdebitcardtrap_may2012_uspef.pdf. With subsequent references
``USPIRG at [page number].''
\2\ Public Law 111-24.
\3\ United States Government Accountability Office. ``College
Debit Cards: Actions Needed to Address ATM Access, Student Choice,
and Transparency.'' [Page 32] (2014), available at www.gao.gov/assets/670/660919.pdf. With subsequent references ``GAO at [page
number].''
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A second product widely offered to students was a recommended or
``preferred'' student loan. In 2007, then-Attorney General for New York
Andrew Cuomo led an investigation into financial incentives provided to
colleges for steering students into certain types of student loans. As
a result, Congress, as a part of the Higher Education Opportunity Act
of 2008, banned gifts and revenue sharing as part of the so-called
``preferred lender list'' reforms. In 2010, Congress passed the
President's student loan reform, moving to a 100 percent Direct Loan
program for Federal student loans.
Finally, over the past several years, States have made significant
cuts to higher education funding, resulting in budget shortfalls that
have fostered an environment of tuition increases and other measures
shifting costs to students which has coincided with the proliferation
of college debit and prepaid card agreements between institutions and
financial account providers.\4\
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\4\ Center on Budget and Policy Priorities. ``Recent Deep State
Higher Education Cuts May Harm Students and the Economy for Years to
Come.'' [Page 13](2013), available at: www.cbpp.org/files/3-19-13sfp.pdf.
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The combination of funding cuts and limitations on cost-shifting to
students through the CARD Act and preferred lender list reforms has
created an environment where some colleges are increasingly searching
for revenue-increasing strategies, especially those that can be borne
by students. This has led to what the United States Public Interest
Research Group (USPIRG) referred to as ``the next financial frontier
for banks and financial firms'' that affects students, especially those
receiving aid--the proliferation of marketing of campus debit and
prepaid cards to students in exchange for monetary benefits to schools,
often in the form of significant remuneration or the low- or no-cost
administration of financial aid disbursement services.\5\ Consumers
Union stated ``as regulations around the marketing of private student
loans and school-branded credit cards have tightened in recent years,
financial firms have increasingly marketed campus banking products to
colleges, universities, and their students.'' \6\ CFPB has recognized
this market transformation as well, stating that, ``financial product
marketing partnerships have shifted from credit cards and student loans
to student checking, debit, and prepaid card products.'' \7\ Schools
officials have admitted that ``outsourcing eliminated a school process
that consumed significant resources, which has been especially
important in recent years as schools have faced difficult fiscal
conditions and staffing reductions.'' \8\
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\5\ USPIRG at 5.
\6\ Consumers Union. ``Campus Banking Products: College Students
Face Hurdles to Accessing Clear Information and Accounts that Meet
Their Needs.'' [Page 1](2014), available at: consumersunion.org/wp-content/uploads/2014/08/Campus_banking_products_report.pdf. With
subsequent references ``Consumers Union at [page number].''
\7\ Consumer Financial Protection Bureau presentation.
``Perspectives on Financial Products Marketed to College Students.''
[Page 5] (2014), available at: www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii2-cfpb-presentation.pdf. With subsequent
references ``CFPB Presentation at [Page number].''
\8\ Office of the Inspector General. ``Third-Party Servicer Use
of Debit Cards to Deliver Title IV Funds.'' [Page 3] (2014),
available at www2.ed.gov/about/offices/list/oig/auditreports/fy2014/x09n0003.pdf. With subsequent references ``OIG at [Page number].''
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Credit Balances
As the House report on the Higher Education Opportunity Act of 2008
stated, ``[t]he nation's financial aid system exists for a single
purpose: To serve students and their families.'' \9\ The title IV, HEA
programs, most prominently Pell Grants and Direct Loans, are designed
to help students pay for the costs of attending college.
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\9\ Committee on Education and Labor. ``House Report
Accompanying HR 4137, the College Opportunity and Affordability Act
of 2007.'' [Page 240] (2007), available at https://www.congress.gov/110/crpt/hrpt500/CRPT-110hrpt500.pdf.
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The amount of Federal financial aid awarded to students and parents
is determined, in part, on the basis of an enrolled student's cost of
attendance. This includes charges typically paid directly to the school
(such as tuition, fees, and on-campus room and board), as well as other
costs such as books and supplies, housing, transportation, and
dependent care. Typically, an institution applies the total amount of a
student's aid against institutional charges, then releases a ``credit
balance'' to the student in cases where the amount of aid exceeds the
amount of charges.
When we refer to a credit balance in this document, we are
referring to the remaining amount of title IV aid after all allowable
charges, including tuition and fees, have been paid to the institution.
At lower cost institutions, like community colleges, that enroll lower-
income and historically underrepresented students, a higher percentage
of students receive credit balances.\10\
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\10\ GAO at 12.
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The College Banking Market
In the past several years, especially in light of tightening
budgets and fewer revenue-generating credit card partnerships and
student loans, ``a growing number of schools have begun offering
banking products to their students in the form of debit and prepaid
cards issued through agreements with financial services providers.''
\11\ The Government Accountability Office (GAO) found that about 11
percent of colleges and universities participating in the Federal
Student Aid programs had agreements with financial account
providers.\12\ While this percentage is relatively low, the size of the
institutions that have such agreements are generally large;
specifically, about 40 percent of all postsecondary students are
enrolled in institutions with these agreements, although not all
students at such institutions use the cards.13 14
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\11\ GAO at 1.
\12\ Ibid. at 8.
\13\ Ibid.
\14\ USPIRG at 11.
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The agreements are more typical at public institutions--29 percent
of public schools had such agreements, compared to 6.5 percent of
nonprofit not-for-profit schools and 3.5 percent of for-profit
schools.\15\ Almost half of all schools that use college-affiliated
debit or prepaid cards to disburse financial aid and other payments to
students are community colleges.\16\ According to a USPIRG analysis,
``32 of the 50 largest public 4-year universities and 26 of the
[largest] 50 community colleges'' had a campus debit or prepaid card
contract with a bank or financial firm.\17\
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\15\ GAO at 10.
\16\ GAO at 12.
\17\ USPIRG at 6.
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As these agreements have begun to proliferate, one provider in
particular has become the predominant actor in the market. ``As of July
2013, one provider, Higher One Holdings, Inc., held about a 57 percent
share of the college card market, as measured by number of agreements
between schools and card providers, as well as number of students at
schools with agreements,''
[[Page 28490]]
according to a GAO analysis.\18\ This represents more than 800 campuses
that use its services to disburse aid dollars.\19\ The balance of the
market is comprised mainly of seven other bank and nonbank providers,
including U.S. Bank, Citibank, PNC, and Wells Fargo.20 21
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\18\ GAO at 13.
\19\ Consumers Union at 4.
\20\ GAO at 13.
\21\ Consumers Union at 10.
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According to a National Association of College and University
Business Officers (NACUBO) survey polling roughly 400 institutional
respondents, ``19 [percent] of surveyed institutions offer a credit
balance on a stored value or debit card, 58 [percent] offer an
[electronic funds transfer (EFT)] to a student's preexisting bank
account, and 10 [percent] offer an EFT to a bank account at a school-
selected bank or vendor.'' \22\ The survey found that ``26 [percent]
[of institutions] reported that they contract with a third-party vendor
to process credit balance refunds; a third of those that do not are
considering doing so in the future.'' \23\
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\22\ National Association of College and University Business
Officers. ``Student Refunds and Personal Banking at Colleges and
Universities.'' [Page 1] (2014), available at www.nacubo.org/Documents/BusinessPolicyAreas/NACUBOSURVEY.pdf. With subsequent
references ``NACUBO at [Page number].''
\23\ NACUBO at 2.
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Troubling Practices
The proliferation of these agreements has coincided with a number
of troubling practices that were first reported by USPIRG and
reiterated and expanded upon in reports from GAO, the Department's
Office of Inspector General (OIG), Consumers Union, and in inquiries
from members of Congress. These practices have also resulted in adverse
legal actions, especially against the largest financial account
provider, Higher One. Each practice is discussed in detail in the
relevant section of the preamble.
These reports made several recommendations, which include: Ensuring
timely delivery of credit balances to students regardless of account
sponsorship; providing a meaningful choice of how to receive title IV
dollars, especially when a student has a preexisting bank or prepaid
account; clarifying the nature of implied institutional endorsement of
certain accounts; ensuring that private student information is not
released prior to receiving students' consent to do so; providing
neutral account disclosures to enable students to make informed choices
about account selection; and giving aid recipients the ability to
access their student aid balances conveniently and without onerous,
confusing, or unavoidable fees.
In view of the reports from consumer groups and government
organizations, the feedback we received from the public through
hearings and negotiated rulemaking, and after meeting with staff from
the FDIC, Office of the Comptroller of the Currency and Bureau of the
Fiscal Service at the U.S. Department of the Treasury (Treasury), and
CFPB, we believe it is critical to address the troubling practices
arising from college card agreements. Moreover, given the number of
students affected by these agreements, the amount of taxpayer-funded
title IV aid at stake, and the expanding breadth of the college card
market, we believe this regulatory action is necessary. The provisions
in this NPRM regulate institutions and third-party servicers that
administer the title IV, HEA programs, and do not regulate banking
entities. To the extent that these regulations have a material impact
on financial account providers, they do so indirectly and only for
those providers that choose to engage with institutions that disburse
title IV credit balances electronically.
Other Provisions
We are proposing a number of more minor changes in subpart K
related to the management of title IV, HEA program funds generally. In
addition, we have also removed outdated cross references and references
to programs that are no longer authorized, the most prominent of which
is the FFEL program.
There are two additional issues that were raised as part of the
program integrity and improvement negotiated rulemaking that are
addressed in the proposed regulations: (1) Retaking coursework and (2)
clock-to-credit-hour conversion rules. These issues, which are distinct
from the cash management topics that comprise the majority of the
proposed regulations, are discussed in the final portion of this
preamble.
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address regulatory
provisions that are technical or otherwise minor in effect.
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
Statutory Authority \24\
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\24\ The statutory authority cited in the following paragraphs
is relevant to all of the current regulations and proposed
regulations described in this preamble except where otherwise noted.
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Section 401(e) of the HEA, regarding Pell Grants, provides that
``[p]ayments under this section shall be made in accordance with
regulations promulgated by the Secretary for such purpose, in such
manner as will best accomplish the purpose of this section.'' It adds
that ``[a]ny disbursement allowed to be made by crediting the student's
account shall be limited to tuition and fees and, in the case of
institutionally owned housing, room and board. . . .''
Section 401(a)(1) of the HEA provides that the Secretary shall pay
``to each institution such sums as may be necessary to pay each
eligible student . . . a Pell Grant.'' It also provides for the
Department to pay institutions the necessary sums prior to the start of
each payment period; but, in addition, authorizes the Secretary to
``determine[ ] and publish in the Federal Register with an opportunity
for comment, an alternative payment system that provides payments to
institutions in an accurate and timely manner, except that this
sentence shall not be construed to limit the authority of the Secretary
to place an institution on a reimbursement system of payment.''
Section 452(c) of the HEA, regarding Direct Loans, states that loan
funds ``shall be paid and delivered to an institution by the Secretary
prior to the beginning of the payment period established by the
Secretary in a manner that is consistent with payment and delivery of
Federal Pell Grants. . . .''
Section 487 of the HEA requires, as a prerequisite to title IV
participation, that an otherwise eligible institution enter into a
program participation agreement with the Secretary conditioning its
initial and continuing participation upon compliance with requirements
that, among other things, the institution ``use funds received by it
for any program under this title and any interest or other earnings
thereon solely for the purpose specified in and in accordance with the
provision of that program,'' and it ``not charge any student a fee for
processing or handing any application, form, or data required to
determine the student's eligibility for assistance under this title or
the amount of such assistance.''
The HEA also contains numerous provisions to ensure that students
receive the title IV awards for which they are eligible for under the
statute. For example, section 401(f)(1) of the HEA provides that ``Each
student financial aid administrator [at each institution] shall . . .
(C) make the award to the student in the correct amount.'' Under
section 454(j) of the HEA, ``proceeds of loans to students under [the
Direct Loan program] shall be applied to the student's account for
[[Page 28491]]
tuition and fees, and, in the case of institutionally owned housing, to
room and board. Loan proceeds that remain after the application of the
previous sentence shall be delivered to the borrower by check or other
means that is payable to and requires the endorsement or other
certification by such borrower.'' Section 454(a)(3) of the HEA requires
Direct Loan program participation agreements to provide that the
institution ``accepts responsibility and financial liability stemming
from its failure to perform its functions pursuant to the agreement.''
Section 454(a)(5) of the HEA provides that the Direct Loan program
participation agreement shall ``provide that the institution will not
charge fees of any kind, however described, to student or parent
borrowers for origination activities or the provision of any
information necessary for a student or parent to receive a loan under
this part, or any benefits associated with such loan.''
Under section 455(a)(1) of the HEA, the Secretary may prescribe
such regulations as may be necessary to carry out the purposes of the
Direct Loan program, including regulations applicable to third-party
servicers and for the assessment against such servicers of liabilities
for program violations of the program regulations against such
servicers, to establish minimum standards with respect to sound
management and accountability of those the Direct Loan programs.
More broadly, section 487(c)(1)(B) of the HEA provides that the
Secretary ``shall prescribe such regulations as may be necessary to
provide for'' reasonable standards of financial responsibility, and
appropriate institutional administrative capability to administer the
title IV programs, in matters not governed by specific program
provisions, ``including any matter the Secretary deems necessary to the
sound administration of the financial aid programs.'' Third-party
servicers are likewise by statute subject to the Department's
oversight, including under HEA sections 481(c) and 487(c)(1)(C), (H),
and (I) of the HEA.
The Department has consistently interpreted the HEA as authorizing
regulation of the matters addressed in the proposed regulations,\25\
including the 2007 cash management regulations \26\ prohibiting account
opening fees, requiring reasonable free ATM access, and requiring prior
consent from a student before opening a financial account, and the 1994
regulations relating to third-party servicers.\27\
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\25\ 61 FR 60603 (November 29, 1996).
\26\ 72 FR 62028 (November 1, 2007).
\27\ 59 FR 22441 (April 29, 1994).
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Definitions (Sec. 668.161(a))
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
Definitions (Sec. 668.161(a))
Current Regulations: Section 668.161(a) provides definitions for
key terms used in subpart K of the General Provisions Regulations. It
does not currently include definitions for the terms ``access device,''
``depository account,'' ``electronic funds transfer,'' ``financial
account,'' ``financial institution,'' ``or a ``student ledger
account.''
Access Device
Proposed Regulations: We propose to add the term ``access device''
to Sec. 668.161(a) and define an access device as ``a card, code, or
other means of access to a financial account, or any combination
thereof, that may be used by the student or parent to initiate
electronic fund transfers.''
Reasons: The proposed definition of ``access device'' borrows from
the definition of the term in Consumer Financial Protection Bureau
regulations at 12 CFR 1005.2(a)(1), except that we propose to
substitute ``financial account'' for ``consumer account,'' and
``student or parent'' for ``consumer.'' The inclusion of ``financial
account,'' which would be a defined term under these proposed
regulations, not only tailors the definition of ``access device'' to
the current context, but, like the definition of ``financial account,''
is inclusive, and therefore, unlike current CFPB rules, includes all
prepaid card accounts.\28\ Our intent is to capture all types of access
devices to all types of accounts into which a student or parent may
wish to deposit his or her title IV credit balance.
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\28\ As discussed elsewhere, the CFPB has proposed amending its
definition of ``access device'' at 12 CFR 1005.2 to include prepaid
accounts, but a final rule has not yet been issued.
---------------------------------------------------------------------------
Furthermore, the proposed definition of ``access device'' has the
advantage of providing a concise way of referring to the different
types of current and future tools students could use to access their
financial accounts. During negotiated rulemaking, negotiators expressed
concerns that our current terminology might not include new
technologies students could use to access their funds. Since technology
in this field is advancing rapidly, we were also concerned that the
terminology could become outdated unless it referred to financial tools
broadly. To address these concerns, the proposals that we circulated
during negotiated rulemaking referred to ``access devices'' in
conjunction with a prepaid card or debit card. However, to simplify the
regulations, we simply define and use the term access device to mean
both prepaid cards and debit cards. It is our intent to include new
technologies in this definition, such as digital wallets and other
technological advances that may emerge, so that we do not need to amend
the regulations by listing the specific types of tools students may use
to access their accounts.
Depository Account
Proposed Regulations: We propose to add the term ``depository
account'' and to define it as ``an account at a depository institution
described in 12 U.S.C. 461(b)(1)(A),\29\ or an account maintained by a
foreign institution at a comparable depository institution that meets
the requirements of Sec. 668.163(a)(1).''
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\29\ Section 19(b)(1)(A) of the Federal Reserve Act.
---------------------------------------------------------------------------
Reasons: If used alone in these proposed regulations, the term
``account'' could refer to a student's or parent's account at a
financial institution, a student's account at an institution of higher
education, or an institutional bank account into which the Secretary
transfers title IV funds. For clarity, we qualify the term to
differentiate these uses. The term ``depository account'' refers to an
account maintained by the institution into which the Secretary deposits
title IV funds requested by the school. During the second session of
negotiations, some of the non-Federal negotiators suggested including
the term ``depository account'' to clarify that an account does not
need to be held at an institution organized as a ``bank.'' \30\ We
agreed with these negotiators, and added this definition to clarify
that we are referring accounts held at banks, credit unions, and other
institutions that meet the statutory definition of a ``depository
institution.'' The proposal in these regulations contains the same
definition that was presented during the fourth session of
negotiations.
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\30\ Kundert and Levandowski. Memo to Negotiated Rulemaking
Committee. [Page 2] (2014), available at www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii2-kl4-draftlanguagechgs.pdf.
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EFT (Electronic Funds Transfer (EFT))
Proposed Regulations: We propose to add the term ``EFT'' and to
define it as ``a transaction initiated electronically instructing the
crediting or debiting of a financial account, or an institution's
depository account. For purposes of
[[Page 28492]]
transactions initiated by the Secretary, the term ``EFT'' includes all
transactions covered by 31 CFR 208.2(f). For purposes of transactions
initiated by or on behalf of an institution, the term ``EFT'' includes,
from among the transactions covered by 31 CFR 208.2(f), only Automated
Clearinghouse transactions.''
Reasons: In general, the Department is required to make payments by
EFT. See 31 CFR 208.1. For purposes of that requirement, the definition
of EFT is ``any transfer of funds, other than a transaction originated
by cash, check, or similar paper instrument, that is initiated through
an electronic terminal, telephone, computer, or magnetic tape, for the
purpose of ordering, instructing, or authorizing a financial
institution to debit or credit an account,'' and it provides a non-
exhaustive list of the types of transactions covered, including, but
not limited to, Automated Clearing House transactions. See 31 CFR
208.2(f). The proposed definition adopts 31 CFR 208.2(f) for purposes
of transactions initiated by the Secretary, but in order to facilitate
compliance with other applicable Treasury regulations, including 31 CFR
210.5,\31\ authorizes only Automated Clearing House transactions for
payments initiated by or on behalf of institutions.
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\31\ 31 CFR 210.5 includes requirements for accounts into which
Federal payments are made and includes provisions relating to
account insurance and compliance with the Electronic Funds Transfer
Act, among other requirements.
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Financial Account
Proposed Regulations: We propose to add the term ``financial
account'' and to define a financial account as ``a student's or
parent's checking or savings account, prepaid card account, or other
consumer asset account held directly or indirectly by a financial
institution.''
Reasons: Instead of delineating all of the different account types
of accounts that a student or parent may open to receive title IV, HEA
program funds, we believe that using a single term simplifies the
regulations.
Financial Institution
Proposed Regulations: We propose to add the term ``financial
institution'' and to define it as ``a bank, savings association, credit
union, or any other person or entity that directly or indirectly holds
a financial account belonging to a student or parent that issues an
access device associated with a financial account and agrees with a
student or parent to provide EFT services.''
Reasons: By defining this term, we will clarify that when we refer
to a ``financial institution,'' we mean the entity or entities that
directly or indirectly hold, offer or manage the student's or parent's
Title IV funds. The term is used in proposed Sec. 668.164(d), (e) and
(f) to refer to the entity or entities that enter into card agreements
with postsecondary institutions and hold the title IV funds of students
and parents who open accounts offered under T1 or T2 arrangements.
Student Ledger Account
Proposed Regulations: We propose to add the term ``student ledger
account'' and to define a student ledger account as ``a bookkeeping
account maintained by an institution to record the financial
transactions pertaining to a student's enrollment at the institution.''
Reasons: As discussed previously, we qualify the term ``account''
to refer to its intended use. For this definition we refer to student
accounts maintained on the institution's books reflecting the
institution's charges and the students' payments. We note that
crediting the student's ledger account marks the date on which a
disbursement is made and in cases where the ledger account is credited
on or after the first day of class, marks the beginning of the 14-day
period for paying credit balances specified in Sec. 668.164(h)(2).
Federal Interest in Title IV, HEA Program Funds and Standard of Conduct
(Sec. 668.161(b)-(c))
Current Regulations: Current Sec. 668.161(b) provides that title
IV, HEA program funds received by an institution are held in trust for
the intended student beneficiaries, the Secretary, or lender or
guaranty agency under the FFEL programs. The institution, as a trustee
of Federal funds, may not use or hypothecate title IV, HEA program
funds for any other purpose.
Under current Sec. 668.163(e), an institution must exercise the
level of care and diligence required of a fiduciary with regard to
maintaining and investing title IV, HEA program funds.
Proposed Regulations: Proposed Sec. 668.161(b) removes the
reference to a lender or guaranty agency under the FFEL programs and
provides that an institution may not engage in any practice that risks
the loss of title IV, HEA program funds.
We relocate the current standard of conduct provisions in Sec.
668.163(e) to proposed Sec. 668.161(c), and revise Sec. 668.161(b) of
these regulations to specify that an institution must exercise the
level of care and diligence required of a fiduciary with regard to
managing title IV, HEA program funds.
Reasons: Currently, institutions that seek to maximize the earnings
on funds that would otherwise remain idle in one or more of their
operating or depository accounts enter into arrangements where all or
part of the funds in those accounts are swept overnight into savings
accounts, money market mutual funds, or other securities. While it is
outside of the scope of these regulations to limit how an institution
chooses to invest or manage its own funds, we do not believe that an
institution should sweep title IV, HEA program funds.\32\ So, to the
extent that an institution's operating or depository accounts contain
title IV, HEA program funds, the institution must ensure that those
funds are not swept or otherwise placed at risk of financial loss. By
removing the provision for investing title IV funds, and prohibiting
practices that risk loss of those funds, the Department intends to
preclude risky management practices, including sweeps containing title
IV funds.
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\32\ The term ``sweep'' as customarily used in the financial
services sector refers to the practice of automatically transferring
funds in excess of a preset amount into an account or other
investment vehicle with the potential to earn a higher rate of
return. This practice is designed to earn higher returns on
otherwise idle funds, but may subject those funds to a higher risk
of investment loss.
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We acknowledge that some sweep accounts are relatively risk free;
however, other sweep accounts or investment vehicles may subject funds
to losses, liens, or other attachments. Although we could attempt to
differentiate between the two or define a safe investment account, we
see no reason to do so. Under the current Sec. 668.163(c)(4) that
governs interest-bearing accounts, an institution must return to the
Secretary any interest earnings over $250. Under proposed Sec.
668.163(c), an institution must return any interest earnings over $500.
Therefore, unlike the situation where an institution invests its own
funds, there is no incentive to maximize earnings because the amount of
earnings that an institution may retain is insignificant. As a trustee
of Federal funds, the institution must ensure that all of the title IV,
HEA program funds it receives from the Secretary remain unencumbered
and delivered timely to students and parents that qualify for those
funds.
We believe that relocating the standard of conduct provisions to
the scope and institutional responsibility section of the proposed
regulations is appropriate because an institution must exercise the
level of care and diligence
[[Page 28493]]
required of a fiduciary in managing title IV, HEA program funds under
these proposed regulations.
Payment Methods Generally (Sec. 668.162)
Current Regulations: Current Sec. 668.162(a) specifies that the
Secretary may provide title IV, HEA program funds to an institution
under one of the following payment methods: Advance, reimbursement,
just-in-time, or cash monitoring. Section 668.162(c) describes the
just-in-time payment method.
Under Sec. 668.166(a)(2), the provisions governing excess cash do
not apply to an institution that receives title IV, HEA program funds
under the just-in-time payment method.
Proposed Regulations: Proposed Sec. 668.162(a) removes the
reference to the just-in-time payment method, and changes the name of
the cash monitoring payment method to the ``heightened cash monitoring
payment method.'' We are also proposing to remove current Sec.
668.162(c), which describes the just-in-time payment method. In
addition, we propose to make a corresponding change to the excess cash
regulations in Sec. 668.166(a) by removing the reference to the just-
in-time payment method.
Reasons: Other than a few institutions that last piloted the just-
in-time payment method in 2010, the Department does not use this
payment method, and does not intend to do so because the advance
payment method, as currently implemented, is sufficient to meet
institutional and Department needs.
Reimbursement and Cash Monitoring Payment Methods (Sec. 668.162(c)-
(d))
Current Regulations: Current Sec. 668.162(d)(1) specifies that
under the reimbursement payment method an institution must first make
disbursements to students and parents for the amount those students and
parents are eligible to receive under the Federal Pell Grant, TEACH
Grant, Direct Loan, and campus-based programs before the institution
may seek reimbursement from the Secretary for those disbursements. The
Secretary considers an institution to have made a disbursement once it
has credited the student's account or paid the student or parent
directly with its own funds. Paragraphs (d)(2) through (d)(4) of this
section describe the procedures an institution must follow and the
documentation the institution must provide in submitting a
reimbursement request, as well as the conditions the documentation must
satisfy to support the request.
Similarly, the current provisions governing the cash monitoring
payment method under Sec. 668.162(e) specify that an institution must
first make disbursements to students and parents for the amount of
title IV, HEA program funds those students and parents are eligible to
receive before the institution seeks reimbursement from the Secretary
for those funds. Under paragraph (e)(2) of this section, an institution
seeks reimbursement by following the procedures under the reimbursement
payment method, except that the Secretary may modify the documentation
requirements and review procedures used to approve the reimbursement
request.
Current Sec. 668.164(e) requires that whenever the amount of title
IV, HEA program funds credited to a student's account exceeds the
amount of tuition and fees, room and board, and other authorized
charges assessed the student, the institution must pay the resulting
credit balance directly to the student or parent within a 14-day
timeframe.
Proposed Regulations: Proposed Sec. 668.162(c) specifies that an
institution must first credit a student's ledger account for the amount
of title IV, HEA program funds the student or parent is eligible to
receive, and pay the amount of any credit balance due under proposed
Sec. 668.164(h), before the institution seeks reimbursement from the
Secretary for those funds. In addition, proposed Sec. 668.164(c)(3)
requires an institution to submit, with its request for reimbursement,
documentation that the institution paid directly to students or parents
any credit balances that were due under proposed Sec. 668.164(h).
Similarly, under the heightened cash monitoring payment method in
proposed Sec. 668.162(d), an institution must first credit a student's
ledger account for the amount of title IV, HEA program funds the
student or parent is eligible to receive, and pay any credit balance
due under proposed Sec. 668.164(h), before the institution seeks
reimbursement from the Secretary for those funds.
Reasons: The credit balance provisions in the current regulations
and these proposed regulations specify a 14-day timeframe within which
an institution must pay a credit balance directly to a student or
parent. The 14-day timeframe applies regardless of the payment method
under which the Secretary provides title IV, HEA program funds to an
institution. However, under the reimbursement and heightened cash
monitoring payment methods, an institution must first pay title IV, HEA
program funds for the amount that a student or parent is eligible to
receive before the institution seeks reimbursement from the Department
for those funds. Therefore, the institution may not include in its
reimbursement request any student or parent for whom a credit balance
was due but not yet paid. In the context of a program review, audit, or
other enforcement action, the issue of whether the institution complied
with the 14-day timeframe depends on the date the institution credits
the student's ledger account with title IV, HEA program funds and the
date it pays the credit balance; however, for seeking reimbursement, it
does not matter when the credit balance was paid, only that it was
paid.
The current provisions under which the Department determines
whether to approve a reimbursement request do not specify that an
institution must submit documentation showing that it paid the credit
balances that are due to students and parents. These proposed
regulations make explicit that an institution placed on the
reimbursement payment method or heightened cash monitoring payment
method under Sec. 668.162(d)(2) must demonstrate in accordance with
procedures established by the Secretary that it paid directly to
students and parents the credit balances that are included in its
request for reimbursement before the Department will consider that
request. For an institution placed on the heightened cash monitoring
payment method under Sec. 668.162(b)(1), the institution must maintain
documentation showing that it paid any required credit balances
directly to students and parents before it initiates a request for
funds that includes those students and parents.
Maintaining Title IV, HEA Program Funds in an Institutional Depository
Account (Sec. 668.163(a))
Current Regulations: Current Sec. 668.163(a)(1) specifies that an
institution must maintain title IV, HEA program funds in a bank or
investment account that is Federally insured or secured by collateral
of value reasonably equivalent to the amount of those funds.
Proposed Regulations: Proposed Sec. 668.163(a)(1) requires an
institution to maintain title IV, HEA program funds in a depository
account. For an institution located in a State, the depository account
must be insured by the FDIC or National Credit Union Administration
(NCUA). For a foreign institution, the depository account may be
insured by the FDIC or NCUA, or by an equivalent agency of the
government of the country in which the institution is located. If there
is no equivalent agency, the
[[Page 28494]]
Secretary may approve a depository account designated by the foreign
institution.
Reasons: We do not see any value in continuing to allow
institutions located in a State to maintain title IV, HEA program funds
in non-insured accounts. As discussed more fully under the heading
``Interest-bearing accounts'' this proposal is consistent with OMB
guidance in 2 CFR 200.305(b)(7)(ii), which provides that ``advance
payments of Federal funds must be deposited and maintained in insured
accounts whenever possible.'' In view of the rigorous regulatory
requirements that financial institutions must satisfy before their
depository accounts are insured by the FDIC or NCUA, and the FDIC and
NCUA oversight over those financial institutions, we believe this
requirement will help ensure that Federal funds are not put at undue
risk of loss.
In addition, because the current regulations do not address the
accounts into which foreign institutions must maintain Direct Loan
program funds, we propose to apply the same requirements, to the extent
possible, to those institutions--a depository account that is insured
by the FDIC, NCUA, or by an equivalent agency of the government where
the institution is located. We recognize, however, that there may be
instances where there is no equivalent agency, so these proposed
regulations would permit the Secretary to approve a bank account
designated by the foreign institution.
Interest-Bearing Bank Account (Sec. 668.163(c))
Current Regulations: Current Sec. 668.163(c)(1) requires an
institution to maintain the fund described in Sec. 674.8(a) of the
Federal Perkins Loan program regulations (the Fund) in an interest-
bearing bank account or investment account consisting predominately of
low-risk, income-producing securities, such as obligations issued or
guaranteed by the United States.\33\ Any interest or income earned on
Federal Perkins Loan funds are retained by the institution as part of
the Fund. Under paragraph (c)(3) of this section, an institution does
not have to maintain other title IV, HEA program funds in an interest-
bearing account if (1) the institution drew down less than $3 million
in the prior award year and anticipates that it will not draw down more
than that amount in the current award year, (2) the institution
demonstrates by its cash management practices that it will not earn
over $250 on those funds during the award year, or (3) the institution
requests funds under the just-in-time payment method. In addition,
except for interest earned on Federal Perkins Loan funds and retained
in the Fund, an institution may keep up to $250 in interest earnings,
but must remit to the Secretary by June 30 of the award year any
interest earnings over $250.
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\33\ We note that under section 461(b)(1) of the HEA, the
authority for schools to make a Federal Perkins Loan ended on
September 30, 2014, with an automatic one-year extension pursuant to
section 422(a) of the General Education Provisions Act. Absent
congressional action, the program will be wound down, and the
Department will provide instructions to institutions currently
participating in the program as to, for example, the disposition of
Perkins Loan Program revolving funds.
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Proposed Regulations: Proposed Sec. 668.163(c) adopts by reference
the guidance in 2 CFR part 200, issued by OMB on December 26, 2013,
entitled Uniform Administrative Requirements, Cost Principles, and
Audit Requirements for Federal Awards. Section 200.305(b)(8) states:
(8) The non-Federal entity must maintain advance payments of
Federal awards in interest-bearing accounts, unless the following
apply.
(i) The non-Federal entity receives less than $120,000 in Federal
awards per year.
(ii) The best reasonably available interest-bearing account would
not be expected to earn interest in excess of $500 per year on Federal
cash balances.
(iii) The depository would require an average or minimum balance so
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
(iv) A foreign government or banking system prohibits or precludes
interest-bearing accounts.
Section 200.305(b)(9) states:
(9) Interest earned on Federal advance payments deposited in
interest-bearing accounts must be remitted annually to the Department
of Health and Human Services, Payment Management System, Rockville, MD
20852. Interest amounts up to $500 per year may be retained by the non-
Federal entity for administrative expenses.
Reasons: The current interest-bearing account provisions were
largely based on OMB guidance in effect at the time we published the
initial cash management regulations in November 1996. These proposed
regulations are consistent with updated OMB guidance.
Disbursements by Payment Period (Sec. 668.164(b))
Current Regulations: In general, current Sec. 668.164(b)(1) and
(2) provide that, except for paying a student under the Federal Work
Study (FWS) program, an institution must disburse title IV, HEA program
funds on a payment-period basis. More specifically, unless any of the
disbursement provisions governing the Direct Loan program now found
under 34 CFR 685.303(d) apply, or the institution chooses to make more
than one disbursement in a payment period for Federal Perkins Loan,
Federal Pell Grant, the institution must disburse the title IV, HEA
program funds that a student or parent is eligible to receive at least
once each payment period.
Current Sec. 668.164(b)(3) provides that except for late
disbursements, an institution may disburse title IV, HEA program funds
to a student or parent for a payment period only if the student is
enrolled for classes for that payment period and is eligible to receive
those funds.
Under Sec. 668.2, a third-party servicer is defined as an
organization, person, or State that enters into a contract with an
eligible institution to administer any aspect of the institution's
participation in any title IV, HEA program. This includes performing
any function required by statute or regulation, or any arrangement,
agreement, or limitation entered into under the authority of statutes
applicable to title IV of the HEA, such as, but not limited to, e.g.,
receiving, disbursing, or delivering title IV, HEA program funds,
preparing and certifying requests for funds under the advance or
reimbursement payment methods, determining student eligibility and
related activities, preparing applications, and other functions noted
in paragraph (i) of the definition.
Current Sec. 668.25 provides, in part, that in a contract with an
institution, a third-party servicer must (1) comply with all statutory
provisions of or applicable to title IV of the HEA, and all regulatory
provisions prescribed under that statutory authority; (2) report to the
OIG for investigation any information indicating there is a reasonable
cause to believe that the institution may have engaged in fraud or
other criminal misconduct in connection with administering the title
IV, HEA programs, (3) be jointly and severally liable with the
institution to the Secretary for any violation by the servicer of any
statutory or regulatory provision of or applicable to title IV of the
HEA, and (4) if the servicer disburses title IV, HEA program funds to a
student, confirm the eligibility of the student before making that
disbursement, where the confirmation must include but is not limited to
any applicable information contained in the records required under
Sec. 668.24.
Proposed Regulations: Proposed Sec. 668.164(b)(1) and (2) specify
that, except for paying a student under the FWS program, for making
prior-year,
[[Page 28495]]
late, or retroactive disbursements, or unless any of the disbursement
provisions governing the Direct Loan program now found under 34 CFR
685.303(d) apply, an institution must disburse during a payment period
the amount of title IV, HEA program funds that an enrolled student, or
the student's parent, is eligible to receive for that payment period.
Proposed Sec. 668.164(b)(3) provides that at the time that a
disbursement is made for a payment period, the institution, along with
the third-party servicer engaged by the institution to draw down title
IV, HEA program funds or otherwise perform activities leading to or
supporting that disbursement, must confirm that the student is enrolled
at the institution, and that the student, or the student's parent, is
eligible for that disbursement.
Reasons: We wish to clarify the current requirement that, except
for the cited circumstances, an institution must disburse title IV, HEA
program funds on a payment-period basis by specifying that the
institution must disburse during a payment period all of the funds that
a student or parent is eligible to receive for that payment period.
This requirement, along with the proposed provisions under Sec.
668.164(c) and (h) that require an institution to credit a student's
ledger account to pay only for charges associated with a payment
period, helps ensure that students and parents receive their credit
balance funds on a timely basis.
In program reviews of several institutions and third-party
servicers, the Department found that neither the institution nor the
servicer confirmed that students were eligible to receive title IV, HEA
program funds before disbursements were made to those students. Under
the contracts between these institutions and servicers, the servicers
would perform a wide range of activities on behalf of the institutions
including packaging aid awards, drawing down or requesting title IV
funds, accounting for funds, and submitting data or reports to the
Department. However, the contracts used the phrases ``make arrangements
for disbursements,'' ``intercept disbursement requests,'' and ``process
awards including [the] preparation of disbursement journals'' to
apparently refer to a process where the servicer would provide the
institution a list of the students and the amounts of their aid awards,
and the institution would then credit the students' ledger accounts for
those amounts, presumably after confirming the eligibility of those
students. But those confirmations were either not performed or not
performed adequately, in part, because the procedures under which the
institution was expected to confirm the eligibility of its students
were lacking or not documented. Nevertheless, the servicers accepted at
face value that the institution confirmed eligibility when it disbursed
title IV, HEA program funds by crediting the students' ledger accounts,
and reported those disbursements to the Department as valid payments
made to those students.
The Department finds it incongruous that a servicer who essentially
controls the entire process for making awards to students would carve
out in its contract with an institution the most fundamental aspect of
the administering the title IV aid programs--that disbursements are
made only to eligible students. Nevertheless, because the third-party
servicer is bound by the same provisions that apply to an institution,
the servicer must carry out its contracted activities in a manner
keeping with a fiduciary under the title IV, HEA programs. In this
regard, the servicer cannot feign ignorance over what the institution
did or did not do in confirming eligibility. To the extent that the
servicer relies on information provided by the institution that leads
to or supports a disbursement, is used in determining the amount of
funds to draw down for eligible students, or subsequently used for
reporting valid disbursements to the Department, the servicer, along
with the institution, is responsible for the veracity of that
information. In the program reviews, the findings could have been
ameliorated if the parties established and agreed to a documented
process under which the institution would confirm eligibility and the
servicer would verify periodically that the confirmations were made in
accordance with that process.
We wish to emphasize that our proposed language holding an
institution and its third-party servicer responsible for confirming a
student's eligibility is not new policy or a change in policy--it
merely emphasizes current requirements and reiterates institutional and
servicer responsibilities.
Crediting a Student's Ledger Account (Sec. 668.164(c), (h))
Current Regulations: Under current Sec. 668.164(d), an institution
may, without obtaining the student's or parent's authorization, use
title IV, HEA program funds to credit a student's account at the
institution to satisfy (1) current year charges for tuition and fees
and, if the student contracts with the institution for those services,
for room and board, and (2) prior year charges for tuition, fees, room,
or board. In addition, if the institution obtains the student's or
parent's authorization, it may credit the student's account with title
IV, HEA program funds to satisfy other current year and prior-year
educational charges incurred by the student at the institution.
However, Sec. 668.164(d)(2) limits the amount of current year title
IV, HEA program funds that may be used to satisfy prior-year charges to
$200.
Current Sec. 668.164(e) provides that whenever an institution
disburses title IV, HEA program funds by crediting a student's account
and the total amount of those funds exceeds the amount of tuition and
fees, room and board, and other authorized charges the institution
assessed the student, the institution must pay the resulting credit
balance directly to the student or parent as soon as possible but no
later than (1) 14 days after the balance occurred, if the credit
balance occurred after the first day of class of a payment period, or
(2) 14 days after the first day of class of a payment period, if the
credit balance occurred on or before the first day of class of that
payment period.
Proposed Regulations: Proposed Sec. 668.164(c)(1) specifies that
an institution may credit a student's ledger account with title IV, HEA
program funds to pay for allowable charges associated with the current
payment period. Allowable charges are (1) the amount of tuition, fees,
and institutionally-provided room and board charges assessed the
student for the payment period, or the prorated amount of those charges
if the institution debits the student's ledger account for more than
charges associated with the payment period, and (2) the costs incurred
by the student for the payment period for purchasing book, supplies,
and other educationally-related goods and services provided by the
institution for which the institution obtains the student's or parent's
authorization.
Proposed Sec. 668.164(c)(2) provides that, if an institution
includes the cost of books and supplies as part of the amount it
charges for tuition and fees, the institution must disclose those costs
separately and explain why including them is in the student's best
financial interests.
Proposed Sec. 668.164(c)(3) specifies that an institution may
include, in a payment period for the current year, prior-year charges
of not more than $200 for (1) tuition, fees, and institutionally-
provided room and board without obtaining a student's or parent's
authorization, and (2) educationally related goods and services
provided by the institution for which the institution obtains the
student's or parent's
[[Page 28496]]
authorization. The ``current year'' is defined as the current loan
period for a student or parent who receives a Direct Loan, or the
current award year for a student who does not receive a Direct Loan. A
``prior year'' is defined as any loan period or award year prior to the
current loan period or award year, as applicable.
Under proposed Sec. 668.164(c)(4), an institution may include in
the current payment period allowable charges stemming from any previous
payment period in the current year for which the student is eligible,
if the student was not already paid for that previous payment period.
If an institution debits a student's ledger account for the entire
cost of a program or otherwise debits the ledger account for more than
the charges associated with the payment period, proposed Sec.
668.164(c)(5) requires the institution to determine the prorated amount
of charges for the payment period by (1) for a program that has
substantially equal payment periods, dividing the total amount of
institutional charges for the program by the number of payment periods
in the program, or (2) for any other program, dividing the number of
credit or clock hours the student enrolls in or is expected to complete
in the current payment period by the total number of credit or clock
hours in the program and multiplying that result by the total
institutional charges for the program.
Under proposed Sec. 668.164(h)(1), a title IV, HEA program credit
balance occurs whenever the amount of title IV, HEA program funds
credited to a student's ledger account for a payment period exceeds the
amount of allowable charges associated with that payment period.
Proposed Sec. 668.164(h)(2) maintains the same 14-day credit balance
payment timeframes as the current regulations.
Reasons: By prorating institutional charges to the amount
associated with a payment period, and specifying that a credit balance
occurs whenever the amount of title IV, HEA program funds exceeds the
prorated amount of charges, the Department aims to correct a situation
where credit balance funds that would be used to pay for living
expenses and other education-related costs are not paid to the student
or parent until after the first payment period. For example, a student
who attends an institution that charges $8,000 for a year-long program
(which includes two payment periods) receives $5,000 of title IV, HEA
program funds per payment period, or $10,000 per year. Currently the
institution may debit the student's ledger account for $8,000 in the
first payment period, the full cost of the program, and then credit the
account for only $5,000, the amount of title IV, HEA program funds the
student is eligible to receive for the first payment period. The
student would not receive a credit balance until several months later
when the institution credits the student's ledger account during the
second payment period with another $5,000, because only at that point
the total amount of title IV, HEA program funds exceed institutional
charges (by $2,000). Under this proposal, the institution would only be
able to charge a prorated amount of $4,000 during each payment period,
so the student or parent would receive a credit balance of $1,000
during the first payment period and another $1,000 during the second
payment period. In this example, the prorated amount of institutional
charges associated with a payment period is $4,000 (the total amount of
institutional charges of $8,000 is divided by two, the number of
payment periods in the program). We note that the vast majority of
institutions, particularly those that are term-based, already charge on
a term or payment period basis, so this proposed change in the
regulations will have no impact on those institutions. The Department
seeks comment on whether the proposed methods for prorating
institutional charges under Sec. 668.164(c)(5) are appropriate.
With regard to the definitions in proposed Sec. 668.164(c)(3), we
seek to codify in regulations the meaning of the terms ``current year''
and ``prior year'' that were previously used in guidance issued on
September 8, 2009, in Dear Colleague Letter GEN-09-11.
In cases where institutions include the costs of required books and
supplies as part of the total amount of tuition and fee charges,
relevant information about those materials and the cost charged by
institutions for those materials is not frequently provided to
students. This practice effectively prevents students from purchasing
required materials elsewhere for a lower price. For this reason, and
based on findings by State attorneys general that some institutions
required students to purchase books and supplies directly from them at
grossly inflated prices, we proposed during negotiated rulemaking to
prohibit institutions from including books and supplies as part of
tuition and fees. However, some of the non-Federal negotiators noted
that institutions are increasingly developing course-specific or
course-embedded materials for pedagogical or safety reasons.\34\ The
negotiators argued that because these materials are part and parcel of
the course, they would typically not be available as separate items in
the public domain. For this reason, the non-Federal negotiators
believed the Department's proposal would dampen innovative or safety-
related efforts by institutions.
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\34\ During negotiations, non-Federal negotiators cited various
examples of these types of materials, especially in cases where
uniformity was required for learning or safety and health reasons,
such as the type of instruments used in a cosmetology or culinary
program.
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The Department is persuaded there are valid reasons for including
some books and supplies as part of tuition and fees. While we
acknowledge that course-embedded materials blur the distinction between
tuition and fees and books and supplies, we continue to believe that
where required books and supplies are separate items available for
purchase in the marketplace, those books and supplies should generally
not be included as part of tuition and fees. Indeed, section 472 of the
HEA, regarding ``costs of attendance,'' treats books and supplies as
separate from tuition and fees; and under other provisions (e.g.,
section 401(e) of the HEA), payments made by crediting the student's
account are limited to tuition and fees and room and board, absent
student consent. However, under the proposed regulations, an
institution may include the costs of books and supplies as part of
tuition and fees only if it separately discloses the costs of those
items and explains why including them is in the student's best
financial interest; that is, the institution is providing the books and
supplies at or below market costs, or providing materials not otherwise
generally available for purchase by the public. To the extent that an
institution includes course-embedded materials as part of tuition and
fees, the institution must separately disclose the cost of accessing
those materials and explain why it is in the student's best financial
interest to do so. For example, an institution may disclose that it
charges students a $100 fee for accessing course material that replaces
a book that typically sells for $400. We specifically invite comment on
how and when an institution should make these disclosures.
Payments by the Secretary (Sec. 668.164(d)(3))
Current Regulations: Under current Sec. 668.164(a)(1), an
institution is responsible for disbursing title IV, HEA program funds
to a student or parent,
[[Page 28497]]
including paying a credit balance directly to the student or parent.
Proposed Regulations: Proposed Sec. 668.164(d)(3) specifies that
the Secretary may pay directly to students and parents any credit
balances due under Sec. 668.164(h), and the disbursement of title IV
funds (up to the credit balance amount) for books and supplies under
Sec. 668.164(m), using an alternative method established or authorized
by the Secretary and published in the Federal Register. Alternative
methods include making direct payments to prepaid or debit cards
sponsored by the Department or another Federal agency.
Reasons: We recognize the growing popularity of electronic banking
as evidenced by the increasing numbers of students and their parents
who receive their title IV, HEA credit balances via direct deposit to
their financial accounts. We are also aware that a number of government
benefits are distributed to recipients via prepaid government debit
cards. For example, Treasury's Direct Express[supreg] prepaid debit
card program is used to distribute Social Security and other Federal
benefits to over 5 million beneficiaries. At this time, the Department
is not establishing a debit or prepaid card for direct payments of
title IV, HEA funds; however, we will continue to explore whether such
a card would be beneficial to students and parents. If the use of a
government-issued debit or prepaid card shows the potential of savings
in costs and other efficiencies for students, their parents, and the
government, the Secretary may wish to establish such a card and make it
available for the direct payments of title IV, HEA credit balances.
Designation as a Tier One (T1) Arrangement or a Tier Two (T2)
Arrangement (Sec. 668.164(e)(1) and Sec. 668.164(f)(1)-(3)) \35\
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\35\ These sections appear in the proposed regulations after
Sec. 668.164(d)(4), which primarily discusses direct payments made
pursuant to a student choice process established for institutions
with T1 or T2 arrangements. We have elected to discuss Sec.
668.164(e)(1) and Sec. 668.164(f)(1)-(3) first, to detail what T1
and T2 arrangements are and our reasons for designating them as
such. We believe ordering the preamble in this way will make the
discussion of Sec. 668.164(d)(4) easier to understand.
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Current Regulations: Current Sec. 668.164(c)(3) states that an
institution may establish a policy requiring its students to provide
bank account information or open an account at a bank of their choosing
as long as this policy does not delay disbursement of title IV, HEA
program funds to students. If the institution opens a bank account on
behalf of a student or parent, establishes a process the student or
parent follows to open a bank account, or similarly assists the student
or parent in opening a bank account, the institution must comply with
the bank account provisions specified in Sec. 668.164(c)(2)(i) through
(vii).
Proposed Regulations: The provisions of Sec. 668.164(d)(4), (e),
and (f) apply to arrangements between an institution and a third-party
servicer, and between an institution and a financial institution.
Proposed Sec. 668.164(e)(1) specifies that in a T1 arrangement, an
institution has a contract with a third-party servicer under which the
servicer performs one or more of the functions associated with
processing direct payments of title IV, HEA program funds on behalf of
the institution to one or more financial accounts that are offered
under the contract or by the third-party servicer, or by an entity
contracting with or affiliated with the third party servicer to
students and their parents.
Proposed Sec. 668.164(f)(1) specifies that in a T2 arrangement, an
institution has a contract with a financial institution or entity that
offers financial accounts through a financial institution, under which
financial accounts are offered and marketed directly to students or
their parents.
Proposed Sec. 668.164(f)(2) provides that the Secretary presumes
that title IV, HEA program funds are deposited or transferred into the
financial accounts offered and marketed under Sec. 668.164(f)(1).
However, the institution does not have to comply with the requirements
described in Sec. 668.164(f)(4) if it documents that, for the most
recently completed award year, no student or parent received a credit
balance.
Proposed Sec. 668.164(f)(3) explains that a financial account is
``directly marketed to students and their parents'' in three
situations: (1) The institution communicates information directly to
its students or their parents about the financial account and how it
may be opened; (2) the financial account or access device is co-branded
with the institution's name, logo, mascot, or other affiliation; and
(3) a card or tool that is provided to the student or parent for
institutional purposes, such as a student ID card, is linked with the
financial account or access device.
Reasons: Over the past several years, institutions of higher
education have entered into arrangements with financial institutions
and nonbank entities to offer students a variety of debit and prepaid
cards to receive title IV credit balance disbursements. Institutions
have also begun to rely on third-party servicers to handle the
administrative operations of their aid disbursement processes. In many
cases, these third-party servicers provide both student financial and
institutional administrative services. The institution benefits from
these arrangements, either in the form of remuneration, receiving
reduced-price or free administrative services, or in reduced
institutional costs.
As the incidence of these types of agreements has increased, so too
has the scrutiny of the practices associated with them. In the past few
years, USPIRG, Consumers Union, GAO, and OIG have conducted reviews
into the college card marketplace and released reports detailing their
findings and recommendations. A number of the findings in these reports
are troubling, and the reports lay out recommendations for Department
action that are explained in more fully in each of the relevant
sections of this preamble, along with explanations of the provisions
designed to address these findings. This section discusses a threshold
issue--the types of arrangements that are subject to the proposed
regulations.
During negotiated rulemaking, the committee spent a significant
amount of time trying to identify which financial accounts would be
considered ``sponsored,'' or endorsed by the institution. After
multiple negotiating sessions, the Department's final proposal in the
negotiations included the term ``sponsored account,'' which was defined
as an account, access device, card (including student ID), or other
tool that:
(1) Is specified or included in a contract between the institution
and an entity,
(2) Is offered to a student (or parent) enrolled at the
institution, and
(3) May be used by the student (or parent) to receive title IV
funds.
This definition encompasses a variety of possible accounts. While
the student advocates supported this definition, banking sector
representatives opposed the definition, arguing that it was (1) overly
broad and applicable to accounts that are outside the scope of the
Department's interest in regulating the delivery of title IV aid, and
(2) too vague as to what which accounts would fall under the
definition. We acknowledge the concerns raised by banking industry
representatives, so have tailored the proposed rules based on the
circumstances in which the troubling practices have occurred.
In describing the questionable practices of the college card
market, a consensus emerged from the consumer
[[Page 28498]]
and government reports: Not all arrangements resulted in equivalent
levels of troubling behavior, largely because the financial entities
and third-party servicers with which institutions contract face
divergent monetary incentives.
Banks and credit unions have an incentive to create long-term
relationships with college students--a potentially lucrative future
cohort--at the time when those students have not yet established a
relationship with a bank.\36\ Banks may not necessarily rely on short-
term fee income when providing products to students, because banks may
be seeking to establish a customer base that will be profitable over
the long term when those students secure mortgages, auto loans, or
other types of consumer credit.
---------------------------------------------------------------------------
\36\ Consumers Union at 5.
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Other financial institutions, including, but not necessarily
limited to, non-bank firms (such as third-party servicers), ``may have
different incentives for pursuing relationships with students.'' \37\
These entities have a different type of business model, and are more
likely to ``seek to partner with schools to provide fee-based services
to both the institution and the student.'' \38\ This is primarily a
relationship with the student that ends once the student is no longer
enrolled, and ``the nature of this short-term interaction creates an
incentive to increase fee revenue over what traditional banks might
charge.'' \39\ As a result, there has been a proliferation of uncommon,
difficult to understand, and oftentimes unreasonable fees assessed by
such providers against accounts with credit balances. Moreover, by
their nature as servicers handling the duties of the institutions, they
``can take over all aspects of the disbursement process from schools.''
\40\ As a result, these third-party servicers can determine the way
that the college card is portrayed to students, establish different
timeframes for electronic delivery of credit balances based on how the
student electronically receives funds, and access personal student
information for targeted marketing purposes.
---------------------------------------------------------------------------
\37\ Ibid.
\38\ USPIRG at 13.
\39\ Ibid.
\40\ USPIRG at 13.
---------------------------------------------------------------------------
Ordinarily, an institution's incentive to agree to assessing high
fees against students might be offset by its interest in protecting its
students from the loss of significant financial assistance. However,
colleges also have strong incentives to establish arrangements that
provide for fee revenue (which ultimately benefits the institution in
the form of remuneration or reduced-cost services from the third-party
servicer). ``Schools are searching for ways to make their services more
cost effective and increase revenues,'' and one increasingly common way
of reducing costs is by hiring a third-party servicer to handle the
administration of the student aid disbursement process.\41\
Institutions have stated that employing a third-party servicer provides
a more efficient credit balance delivery method than delivering checks;
they have also acknowledged that, ``during difficult budget times, this
option was cost effective.'' \42\ By valuing agreements that are more
likely to prioritize short-term fee-based revenue, many institutions
have created a situation where the best financial interests of students
may not be the primary consideration.
---------------------------------------------------------------------------
\41\ Ibid.
\42\ NACUBO at 2.
---------------------------------------------------------------------------
These incentive structures have led to a number of troubling
practices. OIG found that schools relinquished ``significant control''
over the title IV aid disbursement process and relied on servicer
compliance to meet title IV regulations. ``However, the schools did not
appear to routinely monitor all servicer activities related to this
contracted function, including compliance with all title IV regulations
and student complaints.'' \43\ OIG also determined that, after student
identifiers and credit balance disbursement figures were provided to
servicers, ``the schools did not adequately oversee the servicers'
activities to ensure that policies were followed, continued to be in
the best interests of students, and complied with program
requirements.'' \44\ OIG determined that ``the Department should take
action to better ensure that student interests are served when schools
use servicers to deliver credit balances.'' \45\
---------------------------------------------------------------------------
\43\ OIG at 5.
\44\ Ibid. at 7.
\45\ Ibid. at 5.
---------------------------------------------------------------------------
Third-party servicers' practices have also led to legal action. In
August 2012, FDIC announced settlements with Higher One and one of its
former bank partners, Bancorp Bank, after alleging ``unfair and
deceptive practices'' relating to the manner in which it charged fees
and other practices. Specifically, the FDIC alleged that the two firms
violated the Federal Trade Commission Act by ``charging student account
holders multiple insufficient funds fees from a single transaction;
allowing accounts to remain in overdrawn status for long periods and
allowing these insufficient funds fees to continue accruing; and
collecting the fees from subsequent deposits to the students' accounts,
typically funds for tuition and other college expenses.''
46 47 Furthermore, in November 2013, Higher One announced it
had agreed in principle to settle a class action lawsuit for $15
million. In that action, student plaintiffs claimed that Higher One
misled them ``by marketing its debit card as schools' preferred method
for making financial aid and other payments, improperly steered them
into depositing funds into Higher One accounts, and charged excessive
and inadequately disclosed ATM and PIN fees.'' Higher One and its
banking partners (Bancorp Bank and Wright Express Financial Services
Corporation) that were named as co-defendants disclaimed
wrongdoing.\48\
---------------------------------------------------------------------------
\46\ GAO at 24.
\47\ FDIC. ``FDIC Announces Settlements With Higher One, Inc.,
New Haven, Connecticut, and the Bancorp Bank, Wilmington, Delaware
for Unfair and Deceptive Practices.'' [Page 1] (2012), available at
www.fdic.gov/news/news/press/2012/pr12092.html. With subsequent
references ``FDIC at [page number].''
\48\ GAO at 25.
---------------------------------------------------------------------------
We believe that absent targeted provisions addressing specific
concerns, and especially because students are a captive audience to
institutional marketing, students will continue to be subject to the
troubling practices identified by government agencies and consumer
groups. For these reasons, we propose to designate as ``tier 1'' those
arrangements between an institution and a third-party servicer under
which the servicer performs one or more of the functions associated
with processing direct payments of title IV, HEA program funds for the
institution, and offers accounts to students and parents. Institutions
entering into such arrangements would be responsible for ensuring that
accounts offered by third-party servicers comply with both the fee
requirements and disclosure requirements of the regulations.
As explained above, in contrast to third-party servicers,
traditional financial institutions and entities that offer financial
accounts through a financial institution that do not engage in third-
party servicing functions have stronger incentives to provide student-
friendly accounts and convince students to become long-term
customers.\49\ Many such providers of student bank accounts or campus
cards do not charge fees ``higher than those associated with other
banking products available to students.'' \50\ While financial
institutions not employed in a third-
[[Page 28499]]
party servicer role were cited in some instances, practices by those
firms are generally not as troubling, the agreements generally impose
fewer fees on students, and, in some cases, students actually receive
better-than-market rates on such accounts. Based on these findings, in
the proposed regulations, the fee-related provisions for T1
arrangements do not extend to arrangements not involving a third-party
servicer.
---------------------------------------------------------------------------
\49\ Consumers Union at 5.
\50\ GAO at 15.
---------------------------------------------------------------------------
However, arrangements between institutions and financial
institutions that are not third-party servicers are not without the
potential for harm to students. The biggest concern involving these
accounts is that the apparent institutional endorsement of a particular
financial account has the potential to lead aid recipients to believe
that the account in question is required for aid receipt, has been
competitively bid and negotiated by the school, or, at a minimum,
represents a good deal because it has been endorsed by the institution.
There are multiple ways institutions convey this impression to
students.
The most obvious way this occurs is with student IDs. In one-third
of schools surveyed by GAO, student IDs, which are distributed to all
students, have the capacity to be activated as either a debit or
prepaid card.\51\ While activating the financial functions of the card
is not required, the card itself typically is. In the most troubling
circumstances, students are led to believe that activating the
financial functions is required.\52\ Even in cases where this does not
occur, students still must carry a student ID that is effectively an
institutionally-sponsored advertisement for the financial provider and
may misunderstand which functions are required.\53\
---------------------------------------------------------------------------
\51\ GAO at 9.
\52\ OIG at 11.
\53\ USPIRG at 21.
---------------------------------------------------------------------------
More general co-branding can cause similar confusion. ``Schools can
appear to implicitly or explicitly endorse their college cards, by
virtue of the relationship with the provider and co-branding of the
card. Many students trust their schools and, as a result, may view co-
branding as an endorsement and an indication their school has
negotiated the best terms for them.'' \54\ USPIRG echoed this concern,
stating that, ``Many students trust their schools and often think of
co-branding as an endorsement. This causes many students to drop their
guard, expecting their school has negotiated the best deal for them.''
\55\
---------------------------------------------------------------------------
\54\ GAO at 26.
\55\ USPIRG at 21.
---------------------------------------------------------------------------
Finally, when schools convey the information about a contracted-for
financial account directly to students, students listen. ``Card
providers and schools market college cards directly to students through
various methods, including mailings, on-campus presentations, and co-
branded Web sites. Some card providers offer marketing assistance or
materials to schools. For example, one provider told us it prefers
assisting the school in developing messages, because students pay more
attention to the information if it comes from the schools.'' \56\
---------------------------------------------------------------------------
\56\ GAO at 27.
---------------------------------------------------------------------------
These direct marketing methods appear to be especially effective.
As Rohit Chopra, Student Loan Ombudsman at the CFPB, stated in his
presentation to the negotiated rulemaking committee, ``If a certain
financial product where the school has a financial interest is chosen
as the `default' choice or implies endorsement of the school, this can
lead to mismatched incentives . . . [and] school incentives may impact
financial product adoption rates.'' \57\
---------------------------------------------------------------------------
\57\ CFPB presentation at 14-15.
---------------------------------------------------------------------------
As GAO has recognized, there are no comprehensive data on the
number of students who elect to receive their credit balances on a
college card. However, ``the largest provider reported that overall, 43
percent of students receiving financial aid payments at its client
schools opened debit accounts.'' \58\ Furthermore, GAO found that take-
up rates ranged from 20 to 75 percent of participating students at
schools that were examined.\59\ CFPB, in its request for information
relating to college cards, similarly found that adoption rates in such
circumstances were high.\60\ For many card providers, adoption rates
were close to 50 percent of students; some providers' rates exceeded 80
percent.\61\ At a minimum, these adoption rates demonstrate that the
method of direct marketing employed by institutions, their associated
financial institutions, and third-party servicers is particularly
effective, but also suggest that students may misunderstand that
receiving their financial aid this way is optional. Because
institutions are currently not explicitly required to put student and
parent interests first in negotiating their marketing agreements, the
financial accounts marketed may not have particularly favorable terms
or be particularly convenient for students and parents.
---------------------------------------------------------------------------
\58\ GAO at 12.
\59\ Ibid.
\60\ Consumer Financial Protection Bureau, Request for
Information Regarding Financial Products to Students Enrolled in
Institutions of Higher Education (Feb. 2013). With subsequent
references ``CFPB RFI.''
\61\ Ibid.
---------------------------------------------------------------------------
On the other hand, direct marketing by financial institutions in
itself does not always establish that these accounts impact title IV
aid. For example, a financial institution may contract with an
institution to offer financial accounts to students in circumstances
where no credit balances exist (typically at high-cost institutions),
and students are therefore not receiving credit balances into the
offered financial accounts. Where such circumstances exist, the
integrity of the title IV programs is not at issue.
For this reason, we are limiting our oversight of T2 arrangements
to institutions at which students and parents subject to these direct
marketing tactics are expected to receive credit balances. Under this
approach, if an institution documents that none of its students or
parents received a credit balance in the most recently completed award
year, it does not have to comply with the restrictions in Sec.
668.164(f) that otherwise apply to financial accounts offered under a
T2 arrangement. This approach is appropriate because it allows for the
identification of arrangements where no credit balances are expected,
while at the same recognizing the remarkable effectiveness of the
marketing campaigns in general and the immediate need of students and
parents for a place in which to have title IV credit balances
deposited.\62\
---------------------------------------------------------------------------
\62\ This approach reserves an opportunity for an institution
having a financial aid history at odds with the presumption to avoid
applicability of the restrictions that would otherwise apply under
Sec. 668.164(f)(4). The institution would need to maintain its
documentation for use in the event of an audit or program review.
---------------------------------------------------------------------------
We invite comment on whether there is a need to establish a minimum
threshold of credit balance recipients at an institution before that
institution's arrangement would implicate the T2 provisions. We are
seeking feedback to determine whether a threshold would be needed to
balance burden on institutions and financial institutions against the
benefits to students of proposed Sec. 668.164. If a threshold is
recommended, we are requesting data and analysis supporting the number
chosen.
For the reasons discussed in the preceding paragraphs, we propose
to limit the definition of ``T2 arrangements'' to arrangements where
students receive credit balances and are
[[Page 28500]]
subject to direct marketing, either in the form of marketing from the
school,\63\ or through the implied or direct endorsement of the product
via a co-branding of a card or the ability to link an account to a
student ID. We emphasize that these proposed regulations govern
postsecondary institutions and their arrangements with financial
institutions; these limitations narrow the scope of the regulatory
requirements to these specific arrangements. As discussed previously,
the concerns related to these accounts are not as significant as those
involving third-party servicers. Instead, the proposed requirements
relating to T2 arrangements are designed to improve the information
available to students and parents so they understand their options. The
proposed requirements include contractual disclosures and information
related to average account holder costs; and for any account listed on
the institution's list of credit balance receipt options, disclosure of
the accounts fees and terms in an easily understandable format.\64\ We
believe these disclosure requirements will enable financial providers
and institutions with the best financial interests of students in mind
to continue offering accounts that are student-friendly and will not
result in the loss to aid recipients of critical Federal student aid
dollars.
---------------------------------------------------------------------------
\63\ Examples of this include: A recommendation of a particular
account offering to students or mailing, emailing, or otherwise
directly conveying information about an account to students pursuant
to the contract between the institution and financial institution.
\64\ To the extent that T2 arrangements permit students to open
the accounts outside of the institution's student choice process,
our conversations with banking regulators have convinced us that, in
view of the lesser degree of access to student information these T2
providers have, existing banking regulations should suffice in
providing adequate disclosure of account terms to parents and
students opening financial accounts in the traditional manner. For
students that do so, they would elect to receive the disbursement to
their newly-existing account. For students that do not open an
account in this more traditional manner and instead select the
account from the student choice menu, these disclosures would be
required to be given to students as part of the student choice menu.
---------------------------------------------------------------------------
For purposes of clarifying what types of contracts fall under the
purview of these proposed regulations, we are also providing the
following examples of circumstances which are neither T1 nor T2
arrangements and therefore would not be subject to these proposed
regulations if finalized as proposed in this NPRM:
General marketing of a financial institution that does not
specify the kind of account or how it may be opened (i.e., not direct
marketing described under Sec. 668.164(f)(3));
Sponsorship of on-campus facilities with financial
institution branding that does not promote particular accounts;
A lease permitting the operation of an on-campus branch or
on-campus ATMs; or
A list of area financial institutions recommended
generally to students for informational purposes rather than being
provided pursuant to a contract with the institution.
Finally, many agreements between institutions and financial account
providers, including those agreements with monetary benefits for the
school, are not clearly disclosed to the consumer or the public. We
believe that requiring the disclosure of information relating to the
costs to students and benefits provided to schools will encourage
market competition.
In sum, we believe that the troubling practices described in
various reports and manifested in legal actions demands a regulatory
response ensuring student aid recipients are afforded sufficient
protections and taxpayer dollars are not put at risk of loss to
unreasonable fee-based charges. We believe the most prudent approach is
to establish a set of regulatory requirements based on the level of
risk to students and taxpayers represented by the type of arrangement
between an institution and a third-party servicer or financial
institution. Due to the numerous findings and recommendations of
consumer and government reports, legal action taken against the
predominant third-party servicer in the industry, and because third-
party servicers have significant control over the disbursement process,
we have determined a higher level of regulatory scrutiny over third-
party servicer arrangements is appropriate.
Because student financial accounts offered by financial
institutions (and entities that offer financial accounts through a
financial institution) that are not third-party servicers do not
present as much of a risk to students, we do not believe the same level
of scrutiny is necessary for the arrangements between institutions and
such entities (based in part on the work Consumers Union did to
evaluate student financial account offerings \65\). However,
arrangements with these financial institutions that directly market
their products to students are not without risk to students and title
IV, HEA program funds. By bearing the imprimatur of the school, these
providers can circumvent the normal channels of informed consumer
choice and have special access to potential customers that distorts the
market. Consequently, where the financial account is endorsed or
otherwise directly marketed by the institution, the institution must
inform students of the fees in a clear, easy-to-understand disclosure
format. We believe that ensuring students receive clear information
about the financial account will enable them to make a better choice
based on the costs and benefits of the individual account, rather than
the appearance of an institutional endorsement or a misapprehension
about whether the account is a prerequisite for receiving Federal
student aid.
---------------------------------------------------------------------------
\65\ Consumers Union at 11-12.
---------------------------------------------------------------------------
We believe this regulatory framework will provide a measured and
effective level of consumer protection for those accounts that present
the greatest risk to title IV recipients. We also believe the
disclosure requirements will provide incentives for institutions and
financial institutions to ensure that the financial products marketed
are fair to aid recipients. Finally, the recommended delineations
between types of arrangements are likely to improve clarity relative to
the proposed definitions advanced during negotiations, while ensuring
the regulatory requirements are tailored to address the problems
identified by consumer groups and government agencies.
Student or parent choice (Sec. 668.164(d)(4))
Current Regulations: Current Sec. 668.164(c)(1) permits an
institution to pay title IV, HEA program funds directly to a student or
parent by (1) releasing a check, (2) issuing a check via mail or in-
person pickup, (3) initiating an EFT, or (4) dispensing cash. These
methods of payment may be used in situations when an institution pays a
student (or parent) his or her entire disbursement directly, or, more
often, when a credit balance occurs after the institution credits the
student's account to cover the cost of tuition and fees, room and
board, and other authorized educationally-related institutional
charges.
Current Sec. 668.164(c)(3) permits an institution to establish a
policy requiring its students to provide bank account information or
open an account at a bank of their choosing, but requires the
institution to disburse funds via check or cash if the student does not
provide this information in a timely manner.
Current Sec. 668.164(c)(3) also requires that, if the institution
opens a bank account on behalf of a student or parent
[[Page 28501]]
or assists the student or parent in opening a bank account, the
institution must obtain in writing affirmative consent from the student
or parent to open that account and inform the student or parent of the
terms and conditions associated with accepting and using the account
before it is opened.
Proposed Regulations: We propose to modify the regulations
governing direct payments in two ways. Under proposed Sec.
668.164(d)(4)(i), an institution that enters into an arrangement
described in Sec. 668.164(e) or Sec. 668.164(f) (i.e., uses an
account offered pursuant to a T1 or T2 arrangement), must establish a
selection process under which the student or parent chooses one of
several options for receiving those payments. Alternatively, an
institution that does not use an account offered pursuant to a T1 or T2
arrangement may make direct payments to an existing account designated
by the student or parent, issue a check, or disburse cash to the
student or parent without establishing a selection process.
For institutions required to establish a student choice process,
the proposed regulations would establish four requirements under
proposed Sec. 668.164(d)(4)(i)(A) that must be met in implementing the
process.
First, the institution must inform the student or parent in writing
that he or she is not required to open or obtain a specific financial
account or activate an access device offered by a specific financial
institution in order to receive title IV funds. Second, the institution
must ensure that the options listed are presented in a clear, fact-
based, and neutral manner, except for listing a student or parent's
preexisting account as the first, most prominent, and default option.
Third, the institution must ensure that initiating direct payments
electronically to an existing account is treated equivalently to
initiating direct payments to an account offered pursuant to a T1 or T2
arrangement. Fourth, the institution must allow the student or parent
the option to change his or her account preference with reasonable
written notice.
In addition, the proposed regulations in Sec. 668.164(d)(4)(i)(B)
would provide four provisions governing the description of account
options under the student choice process. First, the institution must
present, prominently and as the first and default option, the ability
to receive funds in the student's or parent's existing account. Second,
the institution must list and identify the major features and commonly
assessed fees associated with all accounts offered pursuant to a T1 or
T2 arrangement. (Using a format published by the Secretary in the
Federal Register following consultation with CFPB would constitute
compliance with this provision under the proposed regulations.\66\)
Third, the institution may, at its discretion, provide information
about other available financial accounts (that are not offered pursuant
to a T1 or T2 arrangement) that are insured by the FDIC or NCUA.
Finally, the institution must list issuing a check as an option for a
student or parent to receive payments.
---------------------------------------------------------------------------
\66\ The Department intends to separately seek public comment on
the manner and substance of these disclosures when publishing them
in the Federal Register.
---------------------------------------------------------------------------
Reasons: Throughout the course of public hearings and negotiated
rulemaking, and in the recommendations from consumer advocates and in
government reports, there was near universal agreement that students
and parents must be given the opportunity to make an informed choice
regarding how they will receive their title IV funds. Negotiators
representing students, State attorneys general, consumer advocates,
institutions, and the banking sector agreed that (1) students should be
given clear and neutral advice on the account terms prior to opening an
account; (2) students must not be compelled to open a particular
account; and (3) institutions should not favor one particular account
to the detriment of others. As stated in the GAO report, ``financial
markets function best when consumers are fully informed about financial
products and how to choose among them, and NACUBO has recommended that
schools present students with information about their college cards in
a neutral fashion.'' \67\ It is with these principles in mind that we
propose to revise Sec. 668.164(d)(4) to ensure that students and
parents have the opportunity to make an informed choice regarding the
account that best meets their needs.
---------------------------------------------------------------------------
\67\ GAO at 34.
---------------------------------------------------------------------------
We believe students and parents should be able to choose the
account in which they receive their funds, and that, if students and
parents are presented with options, those options should be presented
in a clear and fact-based manner. This was a recommendation echoed by
every group that has closely examined college card arrangements. GAO
recommended that we develop regulations requiring that ``objective and
neutral information'' be provided to students and parents regarding
options for receiving Federal student aid payments.\68\ USPIRG, in its
report on college cards, included a similar recommendation, stating
that ``students should have an unbiased choice of where to bank,'' and
should be ``clearly informed of their ability to use their own existing
bank account.'' \69\ OIG recommended that we ``develop regulations that
require servicers to provide objective and neutral information to
students on the available delivery options.'' \70\ Consumers Union
recommended that we ``require schools to present financial aid
disbursement options in a clear and neutral manner, so that students
can easily set up an electronic fund transfer to an existing account to
receive their funds'' \71\ and that ``when a student is making a
disbursement selection, she can easily and conveniently select direct
deposit to an existing account in order to receive funds.'' \72\ We
agree with these recommendations, and the overarching purpose of the
requirements enumerated in proposed Sec. 668.164(d)(4) is to ensure
that these recommendations are carried out.
---------------------------------------------------------------------------
\68\ GAO at 35.
\69\ USPIRG at 25.
\70\ OIG at 12.
\71\ Consumers Union at 2.
\72\ Ibid. at 20.
---------------------------------------------------------------------------
We also believe that signing up for a financial account promoted or
offered by the school should not be a prerequisite of receiving title
IV aid. For those students with a preexisting bank account, we think it
should be easy and straightforward to select their existing account for
receipt of title IV funds. The fact that students or parents have an
existing account implies that they have already exercised some measure
of informed consumer choice; and our requirement that such an option be
listed first, most prominently, and as the default choice, will ensure
that students are not misled to believe that choosing an existing
account is discouraged or will result in delays.
CFPB has recommended that, as a general matter, students receive
their financial aid via direct deposit to an existing bank account.\73\
Many school officials interviewed by GAO also acknowledge that college
cards may not be the best option for many students, especially those
who need more comprehensive products or who already have an existing
account. In fact, students attempting to maintain both a college card
and an existing account may ``find it costly or inconvenient to
[[Page 28502]]
manage both accounts concurrently.'' \74\ Furthermore, the argument
advanced by some financial account providers, that many students are
unable to qualify for a bank account, is inconsistent with statements
made by the CFPB, which has stated that ``very few students are unable
to obtain a bank account.'' \75\ For these reasons, our proposed
regulations allow students and parents to select an existing account
easily.
---------------------------------------------------------------------------
\73\ CFPB. ''Reminder: Accessing your scholarships and student
loan funds.'' [Page 1](2013), available at www.consumerfinance.gov/blog/reminder-accessing-your-scholarships-and-student-loan-funds/.
\74\ GAO at 25.
\75\ CFPB Presentation at 8.
---------------------------------------------------------------------------
More disturbing are the practices employed by some financial
account providers that seem to eliminate, or at best hamper, the
ability of students to choose a product that is best for them. The
reports produced by GAO, OIG, CFPB, Consumers Union, and USPIRG all
describe troubling practices and the lack of legitimate choice in the
student financial products marketplace. These reports describe
situations where these providers did not give students any choice as to
how they receive credit balances, or where the choice was
deceptive.\76\ The Federal Reserve Board in 2014 issued a consent order
to cease and desist and a civil money penalty assessment against Cole
Taylor Bank for deceptive practices engaged in by the bank and its
agent Higher One that violated section 5 of the Federal Trade
Commission Act.\77\ These practices were consistent with the findings
in the reports discussed throughout this preamble.
---------------------------------------------------------------------------
\76\ USPIRG at 20.
\77\ Board of Governors Of The Federal Reserve System, ``Order
to Cease and Desist and Order of Assessment of a Civil Money Penalty
Issued Upon Consent Pursuant To the Federal Deposit Insurance Act
and the Illinois Banking Act, As Amended.'' July 1, 2014, available
at: www.federalreserve.gov/newsevents/press/enforcement/enf20140701b1.pdf.
---------------------------------------------------------------------------
In another case, GAO found a school that was not only recommending
its card over direct deposit to students' existing accounts, but also
providing guidance to its students on how to switch from their existing
accounts to the card option.\78\ This finding was further reinforced in
public comments received by CFPB, in which students stated that they
``felt pressured to sign up for college cards and that this pressure
could convince uninformed students that `the provider was the only
choice.' '' \79\
---------------------------------------------------------------------------
\78\ GAO at 28.
\79\ Ibid.
---------------------------------------------------------------------------
Some financial institutions and third-party service providers
apparently work to create the impression that their product is required
or a preferred option for receiving student aid funds. In many cases,
financial institutions use access to private student information to
send university-branded mailings or a financial access device before
students have made a disbursement selection, or even arrived on campus,
which may lead the students to believe that the account has already
been established on their behalf.\80\ For example, OIG found that
Higher One typically sends a debit card with the student's name on it,
along with instructions to sign up using a Higher One Web site, which
allowed Higher One to attempt to persuade students that signing up with
that account was the easiest method for receiving credit balances
throughout the selection process.\81\ FDIC staff told the GAO that
existing practices give students the impression that selecting the
college card is a ``requirement to receive their funds.'' \82\ USPIRG
reports that, in the worst cases, some schools simply mandate that all
funds be disbursed into an account preselected by the institution.\83\
---------------------------------------------------------------------------
\80\ USPIRG at 21.
\81\ OIG at 9.
\82\ GAO at 28.
\83\ USPIRG at 22.
---------------------------------------------------------------------------
A school implying that specific accounts are preferred or required
is not the only way student choice is limited. Some providers create an
environment where the provider's preferred account offering is a de
facto requirement because of the way funds are disbursed. One example
of this is to create circumstances (or at least the appearance of such
circumstances) where receiving disbursement via a non-preferred
electronic method will require additional steps or time. Some providers
allow students to select the preferred account immediately, but
selecting the student's own account requires additional steps,
instructions, or documentation.\84\ Others allow students to select the
preferred account offering online, but require students selecting a
different option to fax hand-written forms.\85\ One provider claimed
that these additional steps are ``an antifraud measure,'' but GAO was
told by the industry organization that oversees payment processing that
such measures are unnecessary and the account selection process can be
achieved equally well online.\86\
---------------------------------------------------------------------------
\84\ GAO at 27.
\85\ USPIRG at 22-23.
\86\ GAO at 28.
---------------------------------------------------------------------------
Even if additional steps are not required, some providers set up
barriers by informing students that a deposit to an existing account
will take additional time, and that selecting the preferred account
will get students their money the fastest.\87\ For students who depend
on the timely delivery of their credit balances to pay for off-campus
housing, books, or dependent care, this additional time can often be
enough to force students to select the provider's account. For example,
one student told USPIRG that he was effectively forced to select a
preferred account ``even though he wanted to use his own account
because he cannot wait the extra [three] to [four] days for a wire to
his own bank account.'' \88\
---------------------------------------------------------------------------
\87\ USPIRG at 22.
\88\ Ibid. at 17.
---------------------------------------------------------------------------
Finally, providers that are third-party servicers have frequently
used their advantaged access to student information to market and
persuade students to select their debit card over other delivery
options.\89\ These practices have included collection of student data
incidental to the delivery of credit balances.\90\ Furthermore, student
data have often been provided to these servicers before a student has
selected an account, regardless of whether the student ever ultimately
received financial aid.\91\
---------------------------------------------------------------------------
\89\ OIG at 9.
\90\ Ibid. at 5.
\91\ Ibid. at 19.
---------------------------------------------------------------------------
Due to these troubling and widespread practices, we believe
institutions should clearly inform students and parents of their
options for receiving their title IV credit balance funds. Further, we
believe these findings demonstrate that there is no reasonable
explanation for delaying direct deposit to a student's existing account
or requiring additional documentation or verification and forces
students to choose the provider's preferred accounts to get timely
access to student aid. Finally, we believe that after an aid recipient
has selected a particular financial account--and has had experience
with that account, he or she should be afforded the opportunity by the
school to change that selection with reasonable written notice and that
initial selection of an account should not force a student to use it
indefinitely.
In addition, we are also concerned about the type of information
students receive about their choices. While some schools present
students with unbiased options for receiving their credit balances, GAO
found instances where options for receiving payments ``were not
presented to students in a clear or neutral fashion,'' and in fact
encouraged students to choose the college card over other options.\92\
Many schools rely on the materials provided by financial account
providers in describing account options, which present providers'
[[Page 28503]]
accounts in a complimentary way.\93\ As a result, the site students use
to select their method of payment often states that a particular
account is the ``preferred choice,'' rather than neutrally.\94\
---------------------------------------------------------------------------
\92\ GAO at 27.
\93\ USPIRG at 20.
\94\ Ibid.
---------------------------------------------------------------------------
FDIC staff told GAO that ``requiring a clear and conspicuous
affirmative statement that students have a choice could enhance student
awareness of options.'' \95\ NACUBO, the organization that represents
school business officers, recommends that schools provide ``a fair
explanation of services [without] misleading, biased, or aggressive
marketing schemes.'' \96\ GAO also recommended that we require that
``schools and financial account providers present students with
objective and neutral information on their options for receiving
federal student aid payments.'' \97\ We agree with these
recommendations, and believe that our requirements will help ensure
that students receive unbiased information.
---------------------------------------------------------------------------
\95\ GAO at 29.
\96\ Ibid.
\97\ Ibid. at 35.
---------------------------------------------------------------------------
USPIRG argued that if students are not informed of the account
terms in a clear and easily-understandable manner, they will be unable
to make an informed choice as to the account that best meets their
needs.\98\ OIG agreed on this point, recommending that schools help
students understand the fees that they are subject to if they select
the servicer's debit card.\99\ We believe that our requirements for
neutral and objective disclosures address these recommendations.
---------------------------------------------------------------------------
\98\ USPIRG at 21.
\99\ OIG at 13.
---------------------------------------------------------------------------
The importance of objective, neutral, and easily understandable
disclosures is highlighted by the concerns of consumer advocates
regarding fee disclosures. For example, a common complaint among
consumer advocates is that students or parents may be surprised when
they are charged fees that they may not have expected, such as the 50
cent PIN fee charged by some servicers. According to USPIRG,
``[s]tudent consumers may have built in assumptions about the product
and its fee structures and costs. . . . [T]hey are likely to think that
a debit card is a debit card and won't discern the key differences.''
\100\ Furthermore, USPIRG advises students that ``[b]anks may insert
additional or surprising fees into the small print that could cost
[students], such as a fee for not using [an] account.'' \101\ To
address this problem, GAO recommended that the Secretary should ``[i]n
consultation with CFPB, develop requirements that schools and college
card providers present students with objective and neutral information
on their options for receiving federal student aid payments.'' \102\
---------------------------------------------------------------------------
\100\ USPIRG at 21.
\101\ Ibid. at 28.
\102\ GAO at 35.
---------------------------------------------------------------------------
Since the release of the USPIRG and GAO reports, CFPB has issued an
NPRM that proposes to create short form disclosures for prepaid
accounts. These short form disclosures would highlight ``key fees that
[CFPB] believes are most important for consumers to know about. . . .''
\103\ CFPB further noted that the ``short form's design . . . will
prominently present key fees, and create a visual hierarchy of
information that will more effectively draw [a] consumer's attention to
a prepaid account product's key terms'' \104\ and that the design of
the short form ``will increase the likelihood that consumers will
engage with the disclosure.'' \105\
---------------------------------------------------------------------------
\103\ CFPB. ``Prepaid Accounts Under the Electronic Fund
Transfer Act (Regulation E) and the Truth in Lending Act (Regulation
Z).'' [Page 2] (2014), available at www.gpo.gov/fdsys/pkg/FR-2014-12-23/pdf/2014-27286.pdf. With subsequent references ``CFPB NPRM at
[page number].''
\104\ CFPB NPRM 49.
\105\ Ibid.
---------------------------------------------------------------------------
To help students and parents obtain objective, neutral, and easily
understandable information about their options, we propose to work with
CFPB to ensure that students and parents receive fee information prior
to acquiring an account by adding these disclosures to the selection
process in a format similar to the disclosures CFPB has proposed. We
agree with CFPB that receiving disclosures prior to the acquisition of
an account would ``ensure that the features of the prepaid accounts are
fully, accurately, and effectively disclosed to consumers in a manner
that permits consumers to understand the costs, benefits, and risks
associated with the account,'' \106\ and we have chosen to adopt the
same disclosure timeline for accounts offered under T1 and T2
arrangements.
---------------------------------------------------------------------------
\106\ Ibid. at 68.
---------------------------------------------------------------------------
Because the proposed disclosures in CFPB's NPRM are designed for
prepaid accounts, and the financial accounts under T1 and T2
arrangements may be either prepaid accounts or traditional checking
accounts, and because the model forms address certain fees not
permitted under this NPRM to be assessed against students or parents
opening financial accounts offered under a T1 arrangement, we will
likely be unable to use the exact format of the short form disclosure
proposed in CFPB's NPRM. In addition, CFPB may alter the requirements
for its short form disclosures while we are in the process of
developing final cash management regulations. For these reasons,
instead of adopting the short form disclosures described in the CFPB
NPRM at this time, we plan to develop consumer-friendly disclosures in
close consultation with CFPB and to release the format for those
disclosures in a Federal Register notice following the publication of
our final regulations.
Finally, in our proposed regulations, we allow schools to provide
information to students about other accounts not offered pursuant to a
T1 or T2 arrangement because we do not want the student choice
provisions to prevent schools from making good faith attempts to inform
students of convenient banking options. The proposed regulations also
allow students to continue to receive funds via a check because many
institutions believe that a disbursement option via non-electronic
means best serves their students. We invite comment as to whether the
option to receive a check should continue to be affirmatively offered
to students, although we note here that offering a check will continue
to be allowed in the event students fail to make a choice on how to
receive their credit balance.
One of the most critical aspects of this rulemaking is ensuring
that students are truly able to easily receive their title IV funds in
an account of their choosing. We believe that the requirements of
proposed Sec. 668.164(d)(4) would address the numerous problems with
the existing account selection process and provide students the
opportunity to choose their account, while still allowing institutions
the opportunity to offer students a variety of options.
Consent Prior To Disclosing a Student's or Parent's Information,
Sending an Access Device, or Associating or Opening an Account (Sec.
668.164(e)(2)(i) and (f)(4)(i))
Current Regulations: Current Sec. 668.164(c)(3)(i) states that in
cases where the institution opens a bank account on behalf of a student
or parent, establishes a process the student or parent follows to open
a bank account, or similarly assists the student or parent in opening a
bank account, the institution must obtain in writing affirmative
consent from the student or parent to open that account.
Proposed Regulations: Proposed Sec. 668.164(e)(2)(i)(A) and
(f)(4)(i)(A) require that an institution obtain consent to open an
account under a T1
[[Page 28504]]
or T2 arrangement from the student or parent before sharing any
information about the student or parent, other than name, address, and
email address, with the third-party servicer or financial institution
marketing or offering the financial account.
Proposed Sec. 668.164(e)(2)(i)(B) and (f)(4)(i)(B) require that an
institution obtain a student's or parent's consent to open a financial
account before an access device, or any representation of an access
device, is sent to the student or parent.
Proposed Sec. 668.164(e)(2)(i)(C) and (f)(4)(i)(C) require that an
institution obtain consent from the student or parent before a card or
tool provided to the student or parent for institutional purposes, such
as a student ID card, is linked with a financial account.
Reasons:
Disclosing a Student's or Parent's Information
In its report, USPIRG raised concerns regarding third-party
servicers and financial institutions using their access to personal
information to market financial accounts to students.\107\ OIG stated
that the information provided by institutions to financial account
providers was often extensive and could include a student's photo, full
name, physical address, birthdate, student ID number, phone number,
email address, and gender.\108\ OIG further stated that, in some cases,
the information being provided was ``optional . . . and therefore not
needed to complete the credit balance delivery'' and that ``[a]s
optional information, it did not serve a legitimate educational purpose
. . . .'' \109\ In response to these findings, and in an effort to
prevent marketing abuses, we initially proposed to the negotiating
committee regulations that banned institutions from sharing any
information about the student or parent with a financial institution or
a third-party servicer until a student or parent affirmatively
consented to open an account.
---------------------------------------------------------------------------
\107\ USPIRG at 21.
\108\ OIG at 19.
\109\ Ibid.
---------------------------------------------------------------------------
While some negotiators also had concerns regarding the use of a
student or parent's personally identifiable information in marketing or
opening financial accounts, others expressed concerns that third-party
servicers would be unable to perform their duties without data provided
by institutions. In response, we revised our proposal to state that an
institution may not share with the entity (e.g., a third-party
servicer, financial institution, or other person) any information about
the student or parent until the student or parent makes a selection
regarding how they choose to receive direct payments.
Prior to the final session, negotiators representing third-party
servicers and financial institutions continued to express concerns that
this draft language would prohibit third-party servicers from
performing their duties and stated that, at minimum, servicers would
require a student or parent's permanent address, delivery address (if
different), date of birth, partial Social Security number or tax ID
number, student ID number, cryptographic information, unique
identifier(s), phone number, email address, secure alternatives to
email messaging, gender, photos, password or other unique item only
known by the student, and confirmation that the student is to receive a
title IV credit balance disbursement and the amount of such
disbursement.\110\ We were not presented with evidence that all of
these items were needed, so we proposed a draft that prohibited
institutions from sharing any information with third-party servicers or
financial institutions other than the student's or parent's name,
address, and email address until the student or parent selected an
option for receiving direct payments of financial aid.
---------------------------------------------------------------------------
\110\ Kundert, Levandowski, McGuane, and Norwood. Memo to
Negotiated Rulemaking Committee. [Page 12] (2014), available at
www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii4-cashmgmt-klmn-050114.pdf. With subsequent reference ``Kundert, Levandowski,
McGuane, and Norwood May 1, 2014 Memo [page number].''
---------------------------------------------------------------------------
In this proposal, we maintain our position that the only
information that an institution may initially share with a third-party
servicer or financial institution is the student's or parent's name,
address, and email address. This limitation on sharing personal
information applies to both T1 and T2 arrangements. While we appreciate
the concerns of the negotiators for third-party servicers and financial
institutions, we disagree that extensive personal information is
necessary for a third-party servicer or financial institution before a
student or parent gives consent to open an account. However, the
institution may provide additional information after the student or
parent consents to open the account.
To clarify our position, we have also amended the language to
require that in order to share more than this basic contact information
with a servicer or financial institution, a student or parent must
provide consent to actually open an account, rather than simply select
an option for receiving direct payments of financial aid.
We believe that the proposed language strikes a balance between the
need for a third-party servicer to be able to perform its duties, a
financial institution to make its financial accounts available to
students and parents, and the privacy of an individual's personal
information. We invite comment on whether the personal information that
an institution may provide before a student or parent consents to open
a financial account in our proposed regulations is sufficient to meet
the needs of a servicer or financial institution.
Sending an Access Device
USPIRG stated that ``[o]ften, the disbursement card is mailed to
the student before he or she has made a disbursement selection'' \111\
and that, in conjunction with other aggressive marketing tactics, this
can ``set the expectation that the school has already set up the bank
account for the student and that they don't have a choice.'' \112\
---------------------------------------------------------------------------
\111\ USPIRG at 21.
\112\ Ibid.
---------------------------------------------------------------------------
We share the concerns regarding manipulation and potentially
deceptive marketing practices detailed by USPIRG. As a result of those
concerns and in response to the suggestions of negotiators at the first
session of negotiated rulemaking, we originally proposed provisions
that would allow an institution to send a debit card, prepaid card, or
access device associated with the account to a student or parent only
if the student or parent specifically requests it after providing
consent to open an account. While some negotiators supported our
position that a student or parent should have to request a card, others
expressed concerns that ``[p]rohibiting [an] institution from sending
an unactivated debit or similar card to a student interferes with the
student's access to [t]itle IV funds . . . .'' \113\
---------------------------------------------------------------------------
\113\ McGuane. Memo to Negotiated Rulemaking Committee. [Page 5]
(2014), available at www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii3-caseymcguane-cashmgmt-040214.pdf.
---------------------------------------------------------------------------
In this NPRM, we have modified the approach we initially took in
the negotiations by removing the requirement for the student or parent
to specifically request the card, while retaining a requirement that
the student or parent consent to opening the account before the card is
sent by an institution, third party servicer, or an associated
financial institution. Though we understand that the requirement to
obtain consent to open a financial account before sending an access
device
[[Page 28505]]
to a student or parent may slow the speed with which a student or
parent could access his or her credit balance, we believe that
requiring that consent be obtained initially helps to dispel the
implication that the access device and its associated financial account
are required by the institution. We also believe it reinforces the
notion that choosing to use the access device and its associated
account is, in fact, a choice. This provision does not apply to cards
or devices distributed for institutional purposes that can also serve
as access devices if activated, such as student identification cards;
those institutional cards or devices are addressed next.
Associating a Card or Device With a Financial Account
According to the GAO's report, in cases where student IDs can also
be electronically linked with financial accounts, ``either the school
or the card provider issues student ID cards to all students. Students
then can choose whether to have their ID card also serve as a debit or
prepaid card.'' \114\
---------------------------------------------------------------------------
\114\ GAO at 9.
---------------------------------------------------------------------------
In our initial draft of the proposed regulations presented at the
second session of negotiations, we proposed banning access devices from
bearing the institution's logo or mascot, or otherwise implying an
affiliation with the institution. According to negotiators, this would
have prevented student IDs or similar institutional devices from being
electronically linked to financial accounts that are controlled by
outside entities. In response to those concerns, subsequent drafts
contained provisions requiring consent to open an account that are very
similar to the provisions contained in these proposed regulations.
We note that if an institution chooses to allow this functionality
on products used for institutional purposes, the institution, third-
party servicer, or financial institution is required to obtain consent
from the student or parent to open the financial account. The proposed
language in Sec. 668.164(e)(2)(i)(C) and (f)(4)(i)(C) does not
prohibit an institution or third-party servicer from distributing a
student ID that is fully functional for institutional purposes and that
contains an inactive device or other inactive means of using the card
to access a linkable financial account. However, before activating this
financial capability, electronically linking, or otherwise associating
the ID card with the financial account, the institution must first
secure consent to open the financial account from the student or
parent. We believe this is a balanced approach that will not constrain
institutional functions for which these cards may be necessary, but
will ensure that students or parents make an affirmative decision
before an account is effectively activated on their behalf.
While we believe that this provision allows students the option to
obtain a multipurpose device while also improving consumer protections
around student IDs and similar products, we have concerns about
allowing devices distributed for institutional purposes to become
associated with financial accounts. Because of these concerns, we are
open to further suggestions from the public on how to prevent coercive
marketing practices with respect to institutional devices such as
student IDs and associated financial accounts.
Disclosure of Account Information ((Sec. 668.164(e)(2)(ii) and Sec.
668.164(f)(4)(ii))
Current Regulations: Under current Sec. 668.164(c)(3)(ii), in
cases where the institution opens a bank account on behalf of a student
or parent, establishes a process the student or parent follows to open
a bank account, or similarly assists the student or parent in opening a
bank account, the institution must, before the account is opened,
inform the student or parent of the terms and conditions associated
with accepting and using the account.
Proposed Regulations: Under proposed Sec. 668.164(e)(2)(ii) and
(f)(4)(ii), institutions must inform the student or parent of the terms
and conditions of the financial account, as required under Sec.
668.164(d)(4)(i)(B)(2), before the financial account is opened.
Reasons: For clarity and to ensure that the regulatory requirements
for institutions that have a T1 or T2 arrangement are comprehensively
listed in the relevant section of the proposed regulations, we have
cross-referenced the requirements of Sec. 668.164(d)(4)(i)(B)(2) in
Sec. 668.164(e)(2)(ii) and (f)(4)(ii), respectively. Section
668.164(d)(4)(i)(B)(2) requires that institutions list and identify the
major features and commonly assessed fees associated with all accounts
described in Sec. 668.164(e) and (f), as well as a Universal Resource
Locator (URL) for the terms and conditions of those accounts. For each
account, if an institution follows the format and content requirements
specified by the Secretary in a notice published in the Federal
Register following consultation with the CFPB, it will be in compliance
with this requirement with respect to the major features and assessed
fees associated with the account. For discussion of this issue, please
refer to the ``Clear and neutral information'' section of Sec.
668.164(d) of the preamble.
Fee Provisions for T1 Accounts (Sec. 668.164(e)(2)(iii)-(iv))
Current Regulations: Current Sec. 668.164(c)(3)(iv) states that,
if an institution opens, establishes a process the student or parent
follows to open, or similarly assists a student or parent in opening a
bank account, the institution must ensure that the student or parent
does not incur any cost in opening the account or initially receiving
any type of debit card, stored-value card, other type of ATM card, or
similar transaction device that is used to access the funds in that
account.
Current Sec. 668.164(c)(3)(v) states that institutions must ensure
that the student has convenient access to a branch office of the bank
or an ATM of the bank in which the account was opened (or an ATM of
another bank), so that the student does not incur any cost in making
cash withdrawals from that office or these ATMs. This branch office or
these ATMs must be located on the institution's campus, in
institutionally owned or operated facilities, or, consistent with the
meaning of the term ``public property'' as defined in Sec. 668.46(a),
immediately adjacent to and accessible from the campus.
Current Sec. 668.164(c)(3)(vi) requires that institutions ensure
that the debit card, stored-value card, ATM card, or other device can
be widely used. For example, the institution may not limit the use of
the card or device to particular vendors.
Finally, current Sec. 668.164(c)(3)(vii) requires that
institutions not market or portray the account, card, or device as a
credit card or credit instrument, or subsequently convert the account,
card, or device to a credit card or credit instrument.
Proposed Regulations: Proposed Sec. 668.164(e)(2)(iii)(A)
maintains the existing requirement that institutions ensure students
have ``convenient access'' to accounts offered pursuant to a T1
arrangement but specifies that convenient access includes access
through a regional or national ATM network with ATMs located on or near
each location of the institution.\115\ We propose that convenient
access also includes access to a sufficient number of
[[Page 28506]]
ATMs that are located and maintained in a manner such that funds are
reasonably available from them, including at the times the institution
or its third-party servicer makes direct payments into the student and
parent financial accounts. Proposed Sec. 668.164(e)(2)(iii)(B)(3)
requires that the institution ensure that students and parents do not
incur any cost for conducting any transaction at such an ATM.
---------------------------------------------------------------------------
\115\ The intent of the proposed regulations is that the
requirement for an ATM to be located on or near each location
applies to each location or branch approved as part of the
institution's application for eligibility under 34 CFR 600.10, or
required to be reported to or approved by the Department under 34
CFR 600.20(c)(1), 600.20(c)(3), 600.21(a)(2), or 600.21(a)(3).
---------------------------------------------------------------------------
Proposed Sec. 668.164(e)(2)(iii)(B)(1) maintains, for accounts
offered pursuant to a T1 arrangement, the current requirement that an
institution must ensure that students and parents incur no cost for
opening the account or initially receiving an access device.
Proposed Sec. 668.164(e)(2)(iii)(B)(2) specifies that an
institution must ensure that a student or parent who opens a financial
account offered pursuant to a T1 arrangement does not incur a cost
assessed by the institution, third-party servicer, or third-party
servicer's associated financial institution when the student or parent
conducts a point-of-sale transaction.
Proposed Sec. 668.164(e)(2)(iii)(B)(4) requires that an
institution ensure that a student or parent does not incur a cost
initiated by the institution, its third-party servicer, or the third-
party servicer's associated financial institution for at least 30 days
following the date that title IV funds are deposited or transferred
into the financial account offered pursuant to a T1 arrangement.
Proposed Sec. 668.164(e)(2)(iv) maintains the current requirement
that an institution ensure that the financial account or access device
is not marketed or portrayed as a credit card, and would further
specify that the card not be converted to a credit instrument and that
no fee is charged to the student or parent for any transaction that
exceeds the balance on the card, regardless of whether the full amount
of the transaction is established at the time the transaction is
authorized by the financial institution.
Reasons: Over the past several years, a growing group of consumer
advocates, higher education stakeholders, government agencies, and
Members of Congress have raised concerns about the incidence, type, and
frequency of fees assessed on cards offered to students under
agreements with third parties to receive their title IV credit
balances.\116\ The majority of funds paid to students are credit
balance disbursements of title IV student aid, which is ``intended to
help students pay for nonschool items related to their education.''
\117\ As USPIRG has stated, the amount of fees assessed to student aid
recipients under these agreements is especially critical because not
only are these funds taxpayer-provided, but ``students receiving grant
aid, such as the Pell grant, are mostly low-income students with a high
level of need. Students taking out federal loans are primarily from low
and moderate income backgrounds, paying interest on those funds.''
\118\
---------------------------------------------------------------------------
\116\ GAO at 1.
\117\ Ibid. at 4.
\118\ USPIRG at 15.
---------------------------------------------------------------------------
As noted previously, due to a number of factors, including changes
made by the CARD Act and decreasing State support for higher education,
to mitigate the cost and burden of disbursing title IV funds schools
have increasingly opted to contract with third-party servicers. While
institutions have saved money by outsourcing administrative functions,
those savings may have been transferred as costs to students through
fees that reduce their title IV aid balances. Indeed, Higher One has
stated that about 50 percent of its $180 million in revenues for the
year that ended December 31, 2011, came from account activity fees
associated with one of its account offerings.\119\
---------------------------------------------------------------------------
\119\ OIG at 4.
---------------------------------------------------------------------------
There is also evidence that some students are incurring
unreasonably high fees associated with these account offerings. Public
comment the Department received in anticipation of the negotiated
rulemaking sessions indicated that fees were unnecessarily high and
reduced student aid intended to address costs of attendance. Staff from
the FDIC have reported that some students have ``complained of paying
aggregate fees ranging from hundreds of dollars to more than $1,000,''
\120\ and even isolated cases of high levels of fees can completely
compromise the balance of funds intended to cover educationally related
expenses. These and similar reports, including the legal actions
resulting from third-party servicer behavior, have led groups like
Consumers Union and USPIRG to recommend the total elimination of fees
for campus cards.\121\
---------------------------------------------------------------------------
\120\ GAO at 23-24.
\121\ USPIRG at 3.
---------------------------------------------------------------------------
During negotiated rulemaking, the Department's proposals on the
subject of allowable fees in particular generated significant
disagreement among negotiators. Student representatives voiced support
for the Department's approach prohibiting most fees, and asked that
debit card ``swipe'' fees also be prohibited from being charged under
institutional agreements with outside parties. Other negotiators
disagreed with prohibitions on fees--particularly the provision
requiring unlimited reimbursement to students for ATM surcharges. These
negotiators stated that prohibiting institutions from allowing fees to
be charged to students would ultimately be counterproductive because it
would prevent providers from recovering their costs and drive them from
the market. Consequently, institutions would be forced to adopt less
efficient, more costly processes for making payments to students and
these less efficient processes would affect students through tuition
increases that would be more onerous to students than paying account
fees set at fair market rates.
In sum, most negotiators expressed a preference for a framework
that would: (1) Allow a reasonable fee structure to remain in place,
(2) not favor direct deposit to the point of preventing a student from
selecting a more favorable sponsored account, and (3) present a clear
set of options to allow students to make an informed choice.
The Department is sympathetic to the position advocated by consumer
advocates and students. The intent of title IV student aid is to give
students the financial assistance necessary to help pay for their
postsecondary education. The greater the number and amount of fees, the
less money students will have to pay for educationally related expenses
such as housing, books, supplies, and childcare. Title IV grant
recipients are typically low-income individuals and these fees will
disproportionately impact low-income students.
However, even financial accounts available to the general public
are not truly free, and fees can often be difficult to avoid entirely.
As OIG stated, ``students who choose to receive their title IV funds by
check or direct deposit to an existing account might incur fees or
other costs to access and spend the funds once they have been
delivered. Students who have their funds transferred to an existing
bank account are subject to the fees charged by their financial
institution based on account activity, whereas students who choose to
receive their funds by check may incur check-cashing fees.'' \122\
Furthermore, many of the providers of campus cards do not charge fees
``higher than those associated with other banking products available to
students,'' \123\ though as explained previously, certain providers are
more
[[Page 28507]]
likely to do so, and have shown evidence of doing so, resulting in our
differing treatment of T1 and T2 arrangements.
---------------------------------------------------------------------------
\122\ OIG at 14.
\123\ GAO at 15.
---------------------------------------------------------------------------
Perhaps the most disturbing aspects about fees charged to students
are the complexity, obscurity, and confusing nature of certain fees
that are charged. We believe that certain practices employed by
institutional third party servicers are inconsistent with normal
banking practices, or have damaging consequences to Federal student aid
recipients, or both. We believe that absent targeted provisions
addressing specific fee-related issues, students and parents that are
offered financial accounts under T1 arrangements will continue to be
subject to the alarming practices identified by government agencies and
consumer groups that led to this rulemaking effort.
Under this approach, the Department is not prohibiting a financial
institution from charging any particular fee; only that the contract
negotiated by the institution and the servicer prohibit certain fees
from being passed on or assessed to recipients of title IV aid who open
accounts under a T1 arrangement. The institution and servicer would, as
a part of normal contractual negotiations, bargain between themselves
for services provided in full appreciation of the true costs being
borne by all parties, including the costs to the servicer and its
associated financial institutions of complying with these regulatory
provisions. Under title IV, the cost of paying students is a
responsibility incident to the administration of the programs which the
HEA entrusts to institutions. We believe this is an appropriate remedy
for the acknowledged cost-shifting from institutions to students of
title IV disbursement services.
ATM Access
Current regulations require institutions to ensure that students
have ``convenient access'' to their title IV funds through ATMs. GAO,
OIG, USPIRG, and Consumers Union (among others) have recommended that
the Department more clearly define convenient access, so that students
``have meaningful ways to access their financial aid at no cost.''
124 125 Most financial institutions associate
their debit or prepaid card to a regional or national ATM network,
providing a level of convenience attributable largely to the total
number of ATMs; for transactions on that network, there are no
surcharges.\126\
---------------------------------------------------------------------------
\124\ Consumers Union at 1.
\125\ GAO at 35.
\126\ Ibid. at 21.
---------------------------------------------------------------------------
However, the same level of access is not typically provided by
third-party servicers, or their associated financial institutions. For
example, according to USPIRG, Higher One is responsible for disbursing
title IV funds for about 520 schools, but with 700 ATMs in
service,\127\ the number of ATMs at a given location may be
insufficient for students to have a reasonable opportunity to access
their funds at the surcharge-free ATM. According to USPIRG and GAO,
this can cause a ``run'' on surcharge-free ATMs, especially during
periods when funds are generally disbursed to students, that can result
in these ATMs running out of cash,\128\ or causing dozens of students
to line up to withdraw their money.\129\ Aside from the security
concerns associated with large groups of students withdrawing hundreds
of dollars in cash at a single location, the lack of available
surcharge-free ATMs can lead to unnecessary fees charged to students.
When lines are long or ATMs run out of money, students are forced to
incur out-of-network ATM fees, often at $5 per withdrawal.\130\ These
fees can quickly add up, especially for students who make multiple
smaller withdrawals to carefully manage their funds on a tight
budget.\131\
---------------------------------------------------------------------------
\127\ USPIRG at 16.
\128\ Ibid. at 17.
\129\ GAO at 22.
\130\ USPIRG 17.
\131\ GAO at 21.
---------------------------------------------------------------------------
As noted previously, the common approach in the financial products
market is to provide a network, either regional or national, of
surcharge-free ATMs. Even third-party servicers who otherwise restrict
surcharge-free access to a single ATM provide broader network coverage
for a flat monthly fee,\132\ indicating that such an approach is
workable given existing market conditions. To help ensure reasonable
access, ATMs located on campus must be sufficient in number and
reasonably accessible, as determined and documented by the institution.
Negotiators representing both servicers and the banking industry agreed
that access to a surcharge-free network of ATMs was a common feature of
most banking products, and a feasible approach to providing convenient
access to funds. For these reasons, the proposed regulations require
that accounts offered pursuant to a T1 arrangement provide access to
such a network, enabling students and parents exercising ordinary care
to have reasonable access to their student aid dollars.
---------------------------------------------------------------------------
\132\ Ibid. at 22.
---------------------------------------------------------------------------
Point-of-Sale Transaction Fees
One of the more troubling fees assessed to students by third party
servicers is what is known as a ``point-of-sale swipe'' fee or ``PIN
debit'' fee (hereafter referred to as a PoS fee). This fee is distinct
from the interchange fee charged to merchants on a per-sale basis as a
charge for the service of fulfilling the credit card or debit card
payment request. Instead, the PoS fee is charged to students by the
institution's financial account provider as a surcharge for selecting
the ``debit'' function and entering a PIN to complete a purchase, and
charges no such surcharge for selecting the ``credit'' function and
signing for their transaction. Each PoS fee is typically small--usually
about $0.50 \133\--but is objectionable for three reasons.
---------------------------------------------------------------------------
\133\ Ibid. at 20.
---------------------------------------------------------------------------
First, because most student cards are marketed or portrayed as a
debit card or having functionality similar to a debit card, students
are likely to believe that selecting the ``debit'' option is required
to complete the transaction.134 135 They are unlikely to
recognize that while the ``debit'' option results in a charge, the
``credit'' function does not.
---------------------------------------------------------------------------
\134\ OIG at 13.
\135\ GAO at 20.
---------------------------------------------------------------------------
Second, the PoS fee is excessive. The fee is assessed each time the
student uses the card. Since one-third of all such transactions are for
less than $15, the PoS fees are high relative to the cost of the
purchase and can add up quickly with repeated charges.\136\ Public
comments to CFPB on financial products offered to students specifically
reiterated these concerns.\137\
---------------------------------------------------------------------------
\136\ Ibid.
\137\ CFPB RFI.
---------------------------------------------------------------------------
Third, PoS fees are uncommon outside of the third-party servicer
realm. GAO found that ``no basic or student account that we reviewed
for comparison purposes charged a transaction fee for using the
account's debit card.'' \138\ Consumers Union, in a review of the
banking products made available to students, found that PoS fees were
atypical in the market--only two of the 16 products surveyed employed
such a fee.\139\ This makes such a fee unexpected and difficult for
students to both anticipate and estimate when comparing prospective
account options. It also suggests that some third-party servicers, by
imposing onerous
[[Page 28508]]
account terms, seek to take advantage of the unique position they
occupy in administering title IV programs to put onerous terms in
place, especially at the expense of often young and inexperienced
students.
---------------------------------------------------------------------------
\138\ GAO at 20.
\139\ Consumers Union at 11.
---------------------------------------------------------------------------
Third-party servicers and institutional officials told GAO, and
reiterated during negotiations, that adjustment of student behavior can
limit these charges: ``students can avoid fees in some cases by
choosing to authorize debit transactions using a signature rather than
a PIN. . . .'' \140\ However, it appears that the purpose of these
charges is to encourage students to utilize the ``credit'' function
when charging a transaction because the financial provider realizes a
higher interchange fee when a debit card transaction is processed with
a signature.\141\ Again, however, regular accounts provided in the
general banking market do not assess this fee.\142\
---------------------------------------------------------------------------
\140\ GAO at 24.
\141\ USPIRG at 33.
\142\ Ibid. at 27.
---------------------------------------------------------------------------
PoS fees have been actively identified as harmful to students in
multiple reports because they are atypical, opaque, difficult for
students to anticipate and compare with other account offerings, and
are often disproportionate to the amount of the underlying financial
transaction. Most importantly, it is feasible for schools and their
third-party servicers to negotiate the terms of a contract such that
any cost is not passed on to account holders. Indeed, that is precisely
what was accomplished at one institution when students became aware of
the charge and relayed their complaints to the institution's
administration.\143\
---------------------------------------------------------------------------
\143\ OIG at 14.
---------------------------------------------------------------------------
Overdraft Fees
Overdraft fees are more common in the general banking market.
Overdraft fees (sometimes also referred to as overdraft protection,
transaction denial fees, or insufficient funds charges, among other
designations) are assessed when an account holder attempts to charge a
purchase on a card or other access device in excess of the outstanding
balance of the account.
Historically, such fees were ``ad hoc courtesies banks would
occasionally provide customers; they were never intended to become a
routinely administered, extremely high-cost credit product.'' \144\
However, as these charges have become somewhat more common, more banks
are allowing overdrafts and charging a fee, rather than denying the
charge at the moment of attempted transaction.\145\
---------------------------------------------------------------------------
\144\ Center for Responsible Lending, ``State of Lending: High-
Cost Overdraft Practices.'' [Page 2] (2013), available at
www.responsiblelending.org/state-of-lending/reports/8-Overdrafts.pdf. With subsequent references ``Center for Responsible
Lending at [page number].''
\145\ Center for Responsible Lending at 3.
---------------------------------------------------------------------------
Nevertheless, these fees are not widely imposed across all sectors.
CFPB's study of the prepaid card market indicated that of all prepaid
card agreements surveyed, more than 95 percent did not extend overdraft
service to their cards, indicating that not only is it possible to
remove such ``protection'' from a device or account, but it is already
a widespread practice in this market segment.\146\ And the imposition
of these fees by some providers does not imply a lack of harm to the
account holder: CFPB has found that the imposition of these fees by
some providers has the ``capacity to inflict serious economic harm.''
\147\ CFPB has also determined that many consumers incur a significant
amount of overdraft fees and that even those with ``moderate''
overdraft usage may pay hundreds of dollars annually.\148\
Specifically, those who ``frequently'' overdraft and whose debit cards
lost such functionality saved more than $450 annually compared to those
who continued to receive overdraft services,\149\ an amount that on its
own would exhaust many students' entire credit balances. Communities of
color, seniors, young adults, and military families may also be
particularly susceptible to overdraft fees.\150\
---------------------------------------------------------------------------
\146\ Consumer Financial Protection Bureau. ``Study of Prepaid
Account Agreements.'' [Page 25] (2014), available at
files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf.
\147\ CFPB. ``Prepared Remarks, CFPB Roundtable on Overdraft
Practices.'' (2012), available at www.consumerfinance.gov/speeches/prepared-remarks-by-richard-cordray-at-the-cfpb-roundtable-on-overdraft-practices/).
\148\ CFPB. ``CFPB Student of Overdraft Programs: A White Paper
of Initial Findings.'' [Page 61] (2013), available at
files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf. With subsequent references ``CFPB White Paper at
[page number].''
\149\ CFPB White Paper at 38.
\150\ Center for Responsible Lending at 13.
---------------------------------------------------------------------------
The Federal Reserve has adjusted the overdraft fee to an ``opt-in''
service; however, consumers are likely to misunderstand information
given to them on such processes and whether these ``protections'' are
in their best interests.151 152 Furthermore, ``a large
majority of consumers'' prefer that banks decline debit card overdrafts
rather than approve them in exchange for the typical
fee.153 154
---------------------------------------------------------------------------
\151\ USPIRG at 32.
\152\ Center for Responsible Lending. ``Banks Collect Overdraft
Opt-ins through Misleading Marketing.'' [Page 2] (2011), available
at www.responsiblelending.org/overdraft-loans/policy-legislation/regulators/banks-misleading-marketing.html).
\153\ Center for Responsible Lending. ``Consumers Want Informed
Choice on Overdraft Fees and Banking Options.''[Page 1] (2008),
available at www.responsiblelending.org/overdraft-loans/research-analysis/final-caravan-survey-4-16-08.pdf.
\154\ The Pew Center on the States, Safe Checking in the
Electronic Age. (2012). Overdraft America: Confusion and Concern
about Bank Practices. [Page 2] (2012), available at
www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/
SCIBOverdraft20America1pdf.pdf.
---------------------------------------------------------------------------
A number of practices around overdrafts are troubling and are
likely to result in students incurring excessive fees to access their
financial aid funds. Typically, the cost of the overdraft fee itself is
as much as twice the underlying charge. The reasons for this are
difficult to discern, especially because the banking provider can deny
the transaction at no cost, rather than extending credit to the account
holder.\155\ In addition to the overdraft fee itself, some banks charge
for negative account balances--so the fee is initially incurred at the
time of the charge and then additional fees are charged for days or
weeks thereafter.\156\ One particularly troubling practice is the
purposeful reordering of transactions to prioritize the charges that
will place a customer's account in overdraft status. Then, each
subsequent (and typically smaller) transaction incurs results in
additional charges.\157\
---------------------------------------------------------------------------
\155\ Center for Responsible Lending at 3.
\156\ USPIRG at 33.
\157\ Center for Responsible Lending at 7.
---------------------------------------------------------------------------
Additionally, in 2012, Higher One settled a lawsuit with the FDIC,
agreeing to return more than $10 million to students for account
overcharges, including charging students multiple nonsufficient funds
(NSF) fees for the same transaction.158 159
---------------------------------------------------------------------------
\158\ OIG at 13.
\159\ FDIC at 1.
---------------------------------------------------------------------------
As detailed above, the overdraft fees present the potential for
significant costs and harm to students, especially because students are
often among those most vulnerable to incurring such charges. However,
in most cases, the remedy for such harm is simple and is already
practiced by the vast majority of prepaid card providers. The financial
institution has the opportunity to refuse the charge sought to be
authorized.160 161 We understand that in limited
circumstances there is a potential for a card issuer to be faced with,
for example, a gratuity that exceeds the balance on the card even
though the account contained sufficient funds to pay the initial charge
when authorized,
[[Page 28509]]
but the draft regulations would not create any exception to the ban on
overdraft fees to address such situations. Instead, the proposed
regulations would leave the card issuer responsible for placing such
limits on its authorization process that it may believe necessary, if
any, to address these situations, rather than permitting imposition of
insufficient funds fees that deplete students' and parents' title IV
credit balances. We believe deficiencies in the authorization process
should not trigger a fee assessed to a student, though we acknowledge
that the student is responsible for paying any balance due.
---------------------------------------------------------------------------
\160\ USPIRG at 26.
\161\ Center for Responsible Lending at 11.
---------------------------------------------------------------------------
30 Days Free Access to Funds
As explained above, we recognize that, generally, institutions will
charge account holders some fees, either on a regular basis or in
response to specific behaviors. We have sought to address the three
specific types of fees based on the impediments they pose for students
seeking access to the title IV aid to which the students are entitled.
We believe that these three types of fees are particularly onerous,
difficult to understand and anticipate, or uncommon. The unifying
characteristic of the proposed regulations addressing these specific
fees is to give students a reasonable opportunity to access their full
title IV credit balance refund--which is statutorily determined as the
amount intended to provide the means by which to pay for the costs of
attending the institution. The proposed regulation barring servicers or
their associated financial institutions from assessing a fee for 30
days following the receipt of title IV funds is also consistent with
our objective of affording students and parents a reasonable
opportunity to access their full title IV credit balance.
As recommended by USPIRG, we believe aid recipients should
particularly be able to access their title IV funds during the period
immediately following disbursement, when they are most likely to need
funds to cover educationally related expenses, without charge.\162\ We
emphasize that this is not a blanket prohibition on fees of any kind
being assessed to the account. For example, if a student uses an out-
of-network ATM, a servicer or its associated financial institution may
not have control over a fee assessed by the owner of that ATM. Instead,
this provision only prevents a student from incurring a cost initiated
by the servicer or its associated financial institution. During
negotiations, many non-Federal negotiators agreed that a fixed period
of time following the disbursement of funds was an acceptable
compromise, giving students a reasonable opportunity to receive their
title IV funds; the use of the account after that period would then be
subject to fees as a cost of using the account. We specifically invite
comment on whether 30 days following a disbursement is an appropriate
timeframe to allow a title IV aid recipient an opportunity to
reasonably access aid dollars free of charge.
---------------------------------------------------------------------------
\162\ USPIRG at 25.
---------------------------------------------------------------------------
Finally, we emphasize that we do not intend these fee provisions to
discourage institutions from negotiating even more favorable
arrangements that provide students and parents with better account
terms. We believe that institutions should use their considerable
negotiating leverage to get the most favorable offerings on behalf of
those they serve.
Disclosure of Contracts for T1 and T2 Arrangements ((Sec.
668.164(e)(2)(v) and (Sec. 668.164(f)(4)(iii))
Current Regulations: None.
Proposed Regulations: In both Sec. 668.164(e)(2)(v)(A) and Sec.
668.164(f)(4)(iii)(A), we propose to amend our regulations to state
that, under both T1 and T2 arrangements, no later than 60 days after
the most recently completed award year, an institution must provide to
the Secretary and disclose conspicuously on the institution's Web site
the contract between the institution and financial institution (or,
with respect to paragraph (e)(2)(v)(A), its third-party servicer) in
its entirety, except for any portions that, if disclosed, would
compromise personal privacy, proprietary information technology, or the
security of information technology or of physical facilities.
Reasons: Throughout the process of developing these proposed
regulations, outside parties informed us that a major problem with
studying the impact of college financial agreements is the lack of
transparency surrounding those agreements. As a result, USPIRG, GAO,
Consumers Union, and NACUBO have all recommended that these agreements
or contracts be made available to the public.
During negotiated rulemaking, several negotiators urged the
Department to ``issue regulations that require schools to publically
disclose the terms of such arrangements, as well as the method and
criteria used by the school in selecting the partner financial services
company.'' \163\ Because we agreed, we presented draft language to the
negotiators containing provisions requiring an institution to post the
contract on its Web site.
---------------------------------------------------------------------------
\163\ Fast and Wojewoda. Memo to Negotiated Rulemaking
Committee. [Page 3] (2014), available at www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii2-fast1-cashmgmt.pdf.
---------------------------------------------------------------------------
However, not all negotiators agreed with the Department's position
that the full contract should be available on the institution's Web
site. Negotiators representing financial institutions and third-party
servicers argued that ``disclosure of [the] contract documents would
potentially damage competition by making public critical proprietary
information, and would create security concerns where, as is often the
case, a servicer's technical system specifications and processes were
appended to or otherwise included in the contract document.'' \164\
These negotiators also reasoned that a summary of the terms would be
sufficient to achieve the transparency that negotiators representing
students, consumer advocates, and State attorneys general desired.
---------------------------------------------------------------------------
\164\ Kundert, Levandowski, McGuane, and Norwood May 1,2014 Memo
at 11.
---------------------------------------------------------------------------
While we are sensitive to the concerns raised by third-party
servicers and financial institutions, there is evidence that releasing
the complete contract would not result in the negative outcomes cited.
In a 2012 NACUBO survey, 55 percent of the responding institutions that
contracted with a third-party vendor indicated that their agreements
are publically available, and that these agreements are most likely
accessible through public records requests (39 percent) or by written
request to a specific office on campus (33 percent).\165\ As for
institutions with banking agreements, ``[t]he details of agreements
between banks and institutions are publicly available at 69 percent of
participating institutions, with contract documents accessible through
written request to a specified campus department or office (46 percent)
or through an official public records request (26 percent).'' \166\
---------------------------------------------------------------------------
\165\ NACUBO at 3.
\166\ Ibid. at 4.
---------------------------------------------------------------------------
Although this survey was only sent to 2,036 institutions with 412
responding, we believe it makes the important point that institutions
are already releasing contracts without damaging consequences. Given
that third-party servicers and financial institutions continue to
contract with institutions that make their agreements available to the
public in various ways, we believe that disclosing those agreements is
not harmful and is likely to enhance rather than inhibit competition.
[[Page 28510]]
However, to address the concerns raised by third-party servicers
and financial institutions, our proposed regulations, like the final
proposal distributed during negotiated rulemaking, would create an
exemption for any provision of the contract that would compromise
personal privacy, proprietary information technology, or the security
of information technology or of physical facilities and would permit
the parties to the contract to redact such information. We believe that
exempting these provisions from public disclosure will safeguard
proprietary and security-related information while also creating the
transparency that many advocates have called for.
Disclosure of Contract Summaries for T1 and T2 Arrangements (Sec.
668.164(e)(2)(v)(B), (e)(2)(v)(C), (f)(4)(iii)(B), and (f)(4)(iii)(C))
Current Regulations: None.
Proposed Regulations: In Sec. 668.164(e)(2)(v)(B), Sec.
668.164(e)(2)(v)(C), Sec. 668.164(f)(4)(iii)(B), and Sec.
668.164(f)(4)(iii)(C), we propose to amend our regulations to state
that, under a T1 or T2 arrangement, no later than 60 days after the
most recently completed award year, an institution must provide to the
Secretary and disclose conspicuously on its Web site the total
consideration for the most recently completed award year, monetary and
non-monetary, paid or received by the parties under the terms of the
contract, the number of students and parents who had financial accounts
under the contract at any time during the most recently completed award
year, and the mean and median of the actual costs incurred by those
account holders.
Reasons: Complicating the issue of the lack of transparency
regarding agreements between third-party servicers or financial
institutions and institutions is the fact that, as referenced in the
GAO report, ``. . . little information is available on the frequency
with which students incur ATM, PIN, and other fees, and the total
amount of college card fees paid by students is unknown.'' \167\
Additionally, in an August 2014 report, Consumers Union stated that
``[s]ummaries of key contract provisions, including fees and revenue-
sharing agreements, should be prominently and publicly disclosed on
school Web sites.'' \168\ Furthermore, OIG recommended that the
Department ``[d]evelop regulations that require schools to compute the
average cost incurred by students who establish an account with the
servicer and at least annually disclose this fee information to
students.'' \169\
---------------------------------------------------------------------------
\167\ GAO at 23.
\168\ Consumers Union at 20.
\169\ OIG at 15.
---------------------------------------------------------------------------
During negotiations, non-Federal negotiators representing students
and State attorneys general also encouraged the Department to add a
provision requiring the release of a summary of the contract and
``include in the summary form the fees imposed on sponsored accounts,
the actual payments made in connection with the agreement, and the
value of in-kind services provided to schools by third-party
providers.'' \170\ Many negotiators also argued that, in many cases, a
summary of the terms of the contract and the fees that a student or
parent incurred could be more useful to individual consumers than the
release of the full contract, and there was little contention over the
idea that a summary of the contract could be released.
---------------------------------------------------------------------------
\170\ Lindstrom and Martindale. ``Memo to Negotiated Rulemaking
Committee.'' [Page 2] (2014), available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii3-lind-mart-cashmgmt-040214.pdf. With subsequent references ``Lindstrom and Martindale
April 2 Memo at [page number].''
---------------------------------------------------------------------------
As a result of these discussions, the final draft of the
Department's proposal circulated at the fourth session contained a
provision that would have required the disclosure of a contract
summary. This latter draft would have required institutions to disclose
the name of the financial institution offering the account and the
third-party servicer or other parties involved in opening or enabling
the account; whether the contract or arrangement provided for revenue
sharing or royalty payments, and, if so, the nature and amount of that
compensation; whether the account was a checking account, prepaid debit
card, or other type of account; any fees or charges associated with the
account; the number of allowable out-of-network surcharge-free ATM
transactions; the network of surcharge-free ATMs available, indicating
all the names associated with the network, the approximate number of
available ATMs in that network both nationally and locally, and the
number and location of surcharge-free ATMs on campus (if any) and their
hours of accessibility, and a publicly accessible online ATM locator to
search for in-network ATMs; and the total number of students and
parents with an account and the average amount of fees paid by students
and parents who had the account during the most recently completed
award year or twelve-month period.
However, to reduce burden on institutions, we propose in these
regulations that an institution must only provide to the Secretary,
with respect to a contract summary provided under a T1 or T2
arrangement:
The total consideration for the most recently completed
award year, monetary and non-monetary, paid or received by the parties
under the terms of the contract;
The number of students and parents who had financial
accounts under the contract at any time during the most recently
completed award year; and
The mean and median of the actual costs incurred by those
account holders.
We believe that these proposed disclosures address the transparency
issues raised by GAO, OIG, and others since the key information most
commonly called for by advocates will now be available to the public,
as well as the full contract, except for the redactions allowed, none
of which concern consumer information.
Publication of Contracts and Contract Summaries in a Centralized
Database
Current Regulations: None.
Proposed Regulations: Proposed Sec. 664.164(e)(2)(vi) and Sec.
664.164(f)(4)(iv) require institutions to submit the URL of the Web
page where the contracts and contract summaries are posted to the
Secretary. The Secretary will then make those URLs publicly available.
Reasons: During negotiated rulemaking, non-Federal negotiators
argued that ``transparency through centrally collecting the contracts
is necessary to ensure compliance issues, to empower colleges to
negotiate even better deals for students over time, and to track trends
that may elude the individual consumer.'' \171\ Consumers Union has
also called for the submission of ``full campus banking contracts and
the accompanying summaries to the Department for collection in a
publicly-accessible central database,'' \172\ and USPIRG has stated
that contracts with third-party servicers ``should always be publically
available in an easily accessible database.'' \173\ We agree with the
non-Federal negotiators, Consumers Union, and USPIRG regarding the
importance of a centralized database containing each institution's URL
where contracts and their summaries are posted, and we have added this
provision to the proposed regulations.
---------------------------------------------------------------------------
\171\ Lindstrom. Memo to Negotiated Rulemaking Committee. [Page
2] (2014), available at www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html. With subsequent references
``Lindstrom April 22, 2014 Memo [page number].''
\172\ Consumers Union at 20.
\173\ USPIRG at 30.
---------------------------------------------------------------------------
[[Page 28511]]
Best Financial Interests of Account Holders (Sec. 668.164(e)(2)(vi)-
(vii) and Sec. 668.164(f)(4)(vi)-(vii))
Current Regulations: Current Sec. 668.82(a) states that a
participating institution or a third-party servicer that contracts with
that institution acts in the nature of a fiduciary in the
administration of the title IV, HEA programs. To participate in any
title IV, HEA program, the institution or its servicer must at all
times act with the competency and integrity necessary to qualify as a
fiduciary.
Current Sec. 668.14(b)(4) requires that a school establish and
maintain such administrative and fiscal procedures and records as may
be necessary to ensure proper and efficient administration of funds
received from the Secretary or from students under the title IV, HEA
programs.
Proposed Regulations: Proposed Sec. 668.164(e)(2)(vi) and Sec.
668.164(f)(4)(vi) would require institutions that have a T1 or T2
arrangement to ensure that the terms of accounts offered under such
arrangements are not inconsistent with the best financial interests of
the students and parents opening them. To comply with this provision,
an institution would be required to meet three requirements: (1) It
must document that it periodically conducts reasonable due diligence
reviews to ascertain whether the fees imposed under the arrangement
are, considered as a whole, not excessive in light of prevailing market
rates; (2) it must ensure that all contracts for the marketing or
offering of accounts to the institution's students or parents, pursuant
to a T1 or T2 arrangement, provide that the institution may terminate
the arrangement based on complaints received or a determination that
the fees imposed under the arrangement are excessive; and (3) it must
take affirmative steps, including contractual arrangements if
necessary, to ensure the requirements of proposed Sec. 668.164 are
met.
Reasons: The preceding sections of the preamble discussion have
documented a wide range of troubling practices by some institutions and
their associated financial entities. However, the practices themselves
are not the only disturbing aspect of the proliferation of campus card
agreements--so too are the motivations that have led to the agreements,
especially given the role of institutions as the conduits for payment
of Federal funds awarded to students.
The GAO stated that it remains concerned that benefits to
institutions, especially in the form of contractual remuneration, may
``motivate schools to encourage the use of college cards or potentially
choose the arrangement that provides the schools the most revenue
rather than one that provides students the best terms.'' \174\ We
believe that a school entering into such arrangements should not be
prohibited from realizing benefits; however, the pursuit of any such
benefits must be subordinate to serving the best financial interests of
the students and parents opening the accounts. Absent a requirement for
schools to negotiate with the best interests of students in mind, we
believe that agreements between institutions and servicers pose
potential conflicts of interest that could encourage institutions to
prioritize revenue or other benefits ``at the expense of student
interests.'' \175\
---------------------------------------------------------------------------
\174\ GAO at 29.
\175\ OIG at 5.
---------------------------------------------------------------------------
The failure on the part of some institutions to negotiate
arrangements that serve the best financial interests of the students
opening the accounts is troubling. At the institutions it reviewed, OIG
found that officials did not even attempt to negotiate better terms on
behalf of their students and instead accepted the preexisting fee
schedules offered by the financial account providers. In justifying
this approach, officials stated that they felt a student's relationship
with a financial institution was separate from the relationship with
the institution.\176\ Considering the practices identified in the
student and parent choice section of the preamble and given the fact
that many students assume that the co-branding of an access device
implies an institutional endorsement, we think this ``separate
relationship'' presumption is incorrect. Choosing not to negotiate on
behalf of students while enjoying the remuneration from financial
account providers takes advantage of the institution's position as a
conduit for Federal payments to the benefit of the institution and the
financial institution, and at the expense of inexperienced students'
and contrary to the institution's fiduciary role.
---------------------------------------------------------------------------
\176\ Ibid. at 14.
---------------------------------------------------------------------------
We are confident that postsecondary institutions can negotiate
appropriate terms on behalf of their students, especially for products
intended to be marketed to title IV recipients. Indeed, one of the
institutions reviewed by OIG that initially declined to negotiate
better terms on behalf of its students later did so after receiving
numerous student complaints about PoS fees; after negotiations, the
school was able to successfully eliminate PoS fees for students.\177\
---------------------------------------------------------------------------
\177\ Ibid.
---------------------------------------------------------------------------
This institution's experience helps to substantiate USPIRG's
argument that colleges have an advantageous negotiating position
because they control access to a lucrative student market--and they
therefore have the ability to negotiate on behalf of their
students.\178\ In a NACUBO survey released following the USPIRG report,
about 77 percent of institutions said they do consider fees when
selecting their vendor and about 60 percent said they use a competitive
bidding process.\179\ While this is not a universal practice (and
indeed, its absence on some campuses may explain the different fees
students at various institutions face), the relatively high proportion
of institutions that engage in a competitive bidding process would
indicate that this is a practice all institutions could engage in with
little additional burden.
---------------------------------------------------------------------------
\178\ USPIRG at 24.
\179\ NACUBO at 2.
---------------------------------------------------------------------------
Finally, in an effort to address this problem during negotiated
rulemaking, negotiators representing State attorneys general submitted
a proposal to require ``institutions to base decisions to enter into
such arrangements solely on consideration of the best interest of
students,'' \180\ believing that this ``would help to address possible
unforeseen changes in the industry by ensuring that no matter what
financial services or products are offered, schools place students'
best interests above the schools' interests.'' \181\ We agree, but we
also believe that institutions need and deserve guidance as to what is
expected of them under such a standard. In that regard, the proposed
regulations would require institutions to conduct, at reasonable
intervals, a due diligence review of the fees assessed at reasonable
intervals, while leaving flexibility as to the particular types and
amounts of charges entailed as long as the account is competitive in
its financial terms overall. The proposed regulations are also designed
to remove contractual impediments to ensure that arrangements serve the
best financial interests of student account holders. Specifically, they
would ensure an opportunity for early termination of an arrangement
where the financial institution has failed to provide a
[[Page 28512]]
competitive fee structure or has otherwise provoked substantial
complaints from student and parent account holders. The proposed
regulations are also designed to prevent the wholesale delegation of
institutional responsibilities to contractors, so that institutions
remain accountable. We believe that regulations requiring institutions
to consider the best financial interests of students when evaluating
their T1 and T2 arrangements can serve as a useful tool in eliminating
many troubling practices. We invite comment on the methods proposed to
evaluate whether a T1 or T2 arrangement is or remains in the best
financial interests of students and invite comment on alternative
methods that accomplish this objective.
---------------------------------------------------------------------------
\180\ Fast and Wojewoda.'' Memo to Negotiated Rulemaking
Committee.'' [Page 1] (2014), available at www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii3-fast-cashmgmt-04022014.pdf.
With subsequent references ``Fast and Wojewoda April 2 Memo [page
number].''
\181\ Ibid.
---------------------------------------------------------------------------
Ownership of Student or Parent Financial Accounts ((Sec. 668.164(g))
Current Regulations: None.
Proposed Regulations: The proposed regulations would require
institutions that offer financial accounts offered pursuant to T1 or T2
arrangements to ensure that those financial accounts meet the
requirements of either 31 CFR 210.5(a) or (b)(5), as applicable.
Reasons: The cross-referenced Treasury regulations require that an
Automated Clearing House ``federal payment,'' defined in such a way as
to include payment by EFT of title IV funds to parents and students, be
deposited in a deposit account that is either in the name of the
recipient, or, if the recipient accesses the funds by prepaid card,
meets the following requirements:
(A) The account is held at an insured financial institution;
(B) The account is set up to meet the requirements for deposit
insurance under 12 CFR part 330, or share insurance in accordance with
12 CFR part 745, such that the funds accessible through the card are
insured for the benefit of the parent or student by the Federal Deposit
Insurance Corporation or the National Credit Union Share Insurance
Fund;
(C) The account is not attached to a line of credit or loan
agreement under which repayment from the account is triggered upon
delivery of the Federal payments; and
(D) The issuer of the card complies with all of the requirements,
and provides the holder of the card with all of the consumer
protections, that apply to a payroll card account under the rules
implementing the Electronic Fund Transfer Act, as amended.
While the requirements under 31 CFR 210.5 pertain specifically to
federal payments made through the Automated Clearing House network, we
believe that to ensure such protections are extended to students, they
should apply to all financial accounts an institution includes in its
student choice process under proposed paragraph Sec. 668.164(d).
Retroactive Payments (Sec. 668.164(k))
Current Regulations: None.
Proposed Regulations: Proposed Sec. 668.164(k) provides that if an
institution did not make a disbursement to a student who was enrolled
and eligible for a payment period the student completed in the current
year or loan period (for example, because of an administrative delay or
a delay in processing or receiving the student's ISIR), the institution
may make the disbursement to the student for a payment period in the
current year or loan period.
Reasons: A student should receive all the title IV, HEA program
funds he or she is eligible to receive for the current year or loan
period, despite any delays in disbursing those funds to the student.
These provisions codify in regulations existing Department and
institutional practices.
Student or Parent Authorizations (Sec. 668.165)
Current Regulations: Current Sec. 668.165(b)(1)(ii) provides that
the Secretary may prohibit an institution from obtaining a student's or
parent's authorization to hold credit balance funds if the institution
receives title IV, HEA program funds under the reimbursement or cash
monitoring payment methods. With the student's or parent's written
authorization, an institution that is not prohibited from holding
credit balance funds may issue a stored-value card or other similar
device that allows the student or parent to access those funds at his
or her discretion to pay for educationally related expenses.
Proposed Regulations: Proposed Sec. 668.165(b)(1)(ii) specifies
that when the Secretary provides title IV, HEA program funds to an
institution placed on the reimbursement payment method or the
heightened cash monitoring payment method described in Sec.
668.162(c)(2) or Sec. 668.162(d)(2), respectively, the institution may
not hold credit balance funds.
Reasons: As discussed more fully under the heading ``Reimbursement
and cash monitoring payment methods,'' an institution that receives
title IV, HEA program funds under the reimbursement or heightened cash
monitoring payment method must show that it paid any credit balances
due to students and parents before the Department approves the
institution's request for reimbursement. Because the Department
typically places an institution on reimbursement or heightened cash
monitoring for material financial or compliance issues, we do not
believe it is appropriate to allow that institution to circumvent the
requirement that it directly pay credit balances to students and
parents by obtaining authorizations to hold those credit balance funds.
We note that this is prohibition would apply uniformly to all affected
institutions, rather than only those institutions notified by the
Secretary.
Severability (Sec. 668.167)
Current Regulations: None.
Proposed Regulations: Proposed Sec. 668.167 would make clear that,
if any part of the proposed regulations is held invalid by a court, the
remainder would still be in effect.
Reasons: We believe that each of the proposed provisions discussed
in this preamble serves one or more important, related, but distinct,
purposes. Each of the requirements provides value to students,
prospective students, and their families, to the public, taxpayers, and
the Government, and to institutions separate from, and in addition to,
the value provided by the other requirements. To best serve these
purposes, we would include this administrative provision in the
regulations to make clear that the regulations are designed to operate
independently of each other and to convey the Department's intent that
the potential invalidity of one provision should not affect the
remainder of the provisions.
Retaking Coursework (Sec. 668.2)
Current Regulations: The definition of ``full-time student'' in
current Sec. 668.2 allows repeated coursework to count towards a
student's enrollment status in a term-based program, but does not allow
an institution to include either more than one repetition of a
previously passed course or any repetition of previously passed
coursework due to a student's failure of other coursework.
Proposed Regulations: Proposed Sec. 668.2 would eliminate the
provision in the current regulations that prohibits an institution from
counting for enrollment purposes any courses that a student previously
passed if the student retakes those courses in the same term in which
the student repeats a failed course. The proposed regulation would
apply to undergraduate, graduate, and professional students.
Reasons: On October 29, 2010, we published in the Federal Register
final regulations (75 FR 66832), which
[[Page 28513]]
included the definition of ``full-time student'' described above. After
we published these regulations, institutions with medical, dental, and
other similar graduate or professional programs asked whether the
limitations on repeated coursework applied to programs above the
undergraduate level, noting that students enrolled in these program
were often required to repeat the coursework for an entire term if they
failed just one course in that term. They also pointed out that
students in these programs are only eligible for unsubsidized loans and
that denying Federal aid to these students while they were repeating
all coursework in the term would result in students relying on less
desirable private education loans or withdrawing from these programs.
During the negotiated rulemaking process, some non-Federal
negotiators recommended the Department clarify existing regulations for
repeating coursework and supported limiting the applicability of the
regulations to undergraduate students only. However, other non-Federal
negotiators were concerned that, due to the high standards some
graduate schools impose on their students, the limitations on retaking
coursework should apply to graduate students as well. Based upon these
discussions and the recommendations of some of the non-Federal
negotiators, the Department proposed to allow an institution to count
all of the coursework for a student, at all program levels, who is
enrolled in a program using an integrated curriculum that requires a
student who failed one course to retake both the failed course and all
previously passed coursework to academically progress in the program.
The current prohibition against counting more than one repetition of a
previously passed course would remain.
The Department also clarified that the revised regulation would
apply to undergraduate, graduate, and professional students.
The Department received tentative agreement from all members of the
negotiating committee on the proposed changes to the regulations.
Clock-to-Credit Hour Conversion (Sec. 668.8(k))
Current Regulations: Under Sec. 668.8(k)(1), certain undergraduate
educational institutions are required to use a specified clock-to-
credit hour formula to determine the number of credit hours in a
program. However, even if a program is offered in credit hours and the
number of credit hours in the program is determined in accordance with
the conversion formula in Sec. 668.8(l), the program must still be
treated as a clock hour program for title IV, HEA purposes under Sec.
668.8(k)(2) if (1) it is required to measure student progress in clock
hours to receive State or Federal approval or licensure to offer the
program, or for graduates to apply for licensure or the authorization
to practice the occupation that the student is intending to pursue, (2)
the credit hours in the program do not comply with the definition of a
``credit hour'' in 34 CFR 600.2, or (3) the institution does not offer
all the underlying clock hours that are the basis for the credit hours
and generally requires attendance in the clock hours that are the basis
for the credit hours awarded.
Under Sec. 668.8(k)(3), the Federal and State approval provisions
in Sec. 668.8(k)(2)(i) that make a program a clock hour program do not
apply if the program has a State or Federal approval or licensure
requirement that a limited component of the program must include a
practicum, internship, or clinical experience that is required to be
measured in clock hours.
Proposed Regulations: We are proposing to eliminate Sec. Sec.
668.8(k)(2) and (k)(3), and to make a conforming change in Sec.
668.8(l), to streamline the requirements governing clock-to-credit hour
conversions, mitigate confusion about whether a program is a clock or
credit hour program for title IV, HEA program purposes, and remove the
provisions under which a State or Federal approval or licensure action
could cause the program to be measured in clock hours.
Reasons: The Department has received many questions regarding the
clock/credit hour regulations, particularly as they relate to State
requirements. We do not wish or intend to interfere with State
requirements relating to program delivery or the number of credit or
clock hours a State recognizes or requires for its purposes. For title
IV, HEA program purposes, we believe that the conversion formula alone
is sufficient to ensure that clock hours are appropriately converted to
credit hours without regard to any State requirement or role in
approving or licensing a program. In addition, eliminating these
provisions simplifies the regulations. The negotiators reached
tentative agreement on the regulatory language in Sec. 668.8(k), as
well as on the conforming change in proposed Sec. 668.8(l).
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Introduction
As more colleges and universities enter into agreements with
financial institutions and third-party servicers to assist in the
disbursement of financial aid to students, we believe it is necessary
to address the troubling practices discussed more fully in the
preamble. Concerns regarding the marketing strategies, lack of
transparency, and financial incentives contained in contractual
relationships between colleges and universities and financial
institutions have arisen as colleges adopt new strategies to save
costs. We propose to amend the current cash management regulations to
address this changing marketplace. By doing so, the Department believes
that these current arrangements, along with future arrangements, will
be more beneficial and transparent to students and other parties.
Under Executive Order 12866, the Secretary must determine whether
this regulatory action is ``significant'' and, therefore, subject to
the requirements of the Executive order and subject to review by OMB.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action likely to result in a rule that may--
(1) Have an annual effect on the economy of $100 million or more,
or adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local, or
tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule);
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
Executive order.
This proposed regulatory action is a significant regulatory action
subject to review by OMB under section 3(f) of Executive Order 12866.
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires that an agency--
[[Page 28514]]
(1) Propose or adopt regulations only upon a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and taking into
account--among other things and to the extent practicable--the costs of
cumulative regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives--such as user fees or
marketable permits--to encourage the desired behavior, or provide
information that enables the public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' The Office of
Information and Regulatory Affairs of OMB has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these proposed regulations only on a reasoned
determination that their benefits would justify their costs. In
choosing among alternative regulatory approaches, we selected those
approaches that maximize net benefits. Based on the analysis that
follows, the Department believes that these proposed regulations are
consistent with the principles in Executive Order 13563.
In accordance with both Executive orders, the Department has
assessed the potential costs and benefits, both quantitative and
qualitative, of this regulatory action. The potential costs associated
with this regulatory action are those resulting from statutory
requirements and those we have determined as necessary for
administering the Department's programs and activities.
This Regulatory Impact Analysis is divided into six sections. The
``Need for Regulatory Action'' section discusses why amending the
current regulations is necessary.
The ``Summary of Proposed Regulations'' briefly describes the
amended changes the Department is proposing in these regulations. The
proposed regulations amend the cash management regulations, along with
two issues unrelated to cash management: Retaking coursework and clock-
to-credit-hour conversion.
The ``Discussion of Costs, Benefits, and Transfers'' section
considers the cost and benefit implications of the proposed regulations
for students, parents, financial institutions, and postsecondary
institutions. Specifically, we considered the costs and benefits of
interest-bearing bank accounts, accounts offered under T1 and T2
arrangements, retaking coursework, and clock-to-credit-hour conversion.
Under ``Net Budget Impacts,'' the Department presents its estimate
that the proposed regulations would not have a significant net budget
impact on the Federal government.
In ``Alternatives Considered,'' we describe other approaches the
Department considered for key provisions of the proposed regulations,
including prohibiting an institution from including books and supplies
as part of tuition and fees; requiring an institution to obtain consent
to open an account before sharing the student's or parent's information
with a servicer; allowing an institution to send a debit card, prepaid
card, or access device associated with the account to a student or
parent only after the student or parent specifically requests it after
providing consent to open an account; and additional disclosures
relating to contracts between postsecondary institutions and financial
institutions.
Finally, the ``Initial Regulatory Flexibility Analysis'' considers
the effect of the proposed regulations on small entities.
Need for Regulatory Action
Executive Order 12866 emphasizes that ``Federal agencies should
promulgate only such regulations as are required by law, are necessary
to interpret the law, or are made necessary by compelling public need,
such as material failures of private markets to protect or improve the
health and safety of the public, the environment, or the well-being of
the American people.'' In this case, there is indeed a compelling
public need for regulation. The Department's main goal in promulgating
the proposed regulations is to address major concerns regarding the
rapidly changing financial aid marketplace wherein financial products
are offered to students who receive title IV, HEA credit balances.
Several changes in the student financial aid marketplace make the
proposed regulations necessary. The number of institutions entering
into these agreements continues to increase. For institutions, these
agreements save money on administrative costs that they would otherwise
incur in disbursing title IV credit balances to students. While a
convenient option, we are concerned about some of the practices
employed by financial institutions and third-party servicers in
connection with these agreements. Some of these practices include
requiring or giving preference to college card accounts over
preexisting accounts, implying that the only way to receive Federal
student aid is through college card accounts, allowing private student
information to be made available to card providers without student
consent, and imposing uncommon and confusing fees on aid recipients
accessing their funds. These practices, along with others discussed in
the preamble, reduce the amount of title IV aid available for
educational expenses.
These practices are particularly disturbing because of the number
of students impacted. While data on credit card agreements and credit
balances is scarce, a GAO report from July 2013 identified 852
postsecondary institutions (11 percent of all schools that participate
in the title IV programs) that had college card agreements in place.
While 11 percent is a small percentage of total title IV participating
schools, these schools had large enrollments, making up about 39
percent of all students at schools participating in title IV
programs.\182\
---------------------------------------------------------------------------
\182\ GAO at 9.
---------------------------------------------------------------------------
[[Page 28515]]
[GRAPHIC] [TIFF OMITTED] TP18MY15.005
The GAO report also found that college card agreements were most
common at public postsecondary institutions, where 29 percent of public
schools had card agreements compared to not-for-profit schools with 6.5
percent and for-profit schools with 3.5 percent (see table [1]).
Comprehensive data do not currently exist for the number of students
who choose to enroll in a college card. However, the GAO report found
that public two-year institutions represented almost half of all
schools that used college cards to make financial aid payments.\184\
Public two-year institutions' students are most likely to receive a
financial aid payment (credit balance) due to the low tuition and fees
deducted from total aid received.
---------------------------------------------------------------------------
\183\ Ibid. at 10.
\184\ Ibid.
---------------------------------------------------------------------------
[[Page 28516]]
[GRAPHIC] [TIFF OMITTED] TP18MY15.006
Given the number of students affected by college card agreements,
according to the data available, the questionable practices of the
providers, and the amount of Federal funds at stake, we believe
amending the regulations governing title IV student aid disbursement is
warranted. We welcome public comments on comprehensive data sources or
data sources on financial institutions and third-party servicers that
may be available for further analysis.
---------------------------------------------------------------------------
\185\ Ibid. at 11.
---------------------------------------------------------------------------
Summary of Proposed Regulations
The Department proposes to amend the cash management regulations
under subpart K and other sections of the Student Assistance General
Provisions regulations issued under the HEA. The proposed regulations
are intended to ensure students have convenient access to their title
IV, HEA program funds, do not incur unreasonable and uncommon financial
account fees for accessing their title IV funds, and are not led to
believe they must open a particular financial account to receive their
Federal student aid. In addition, the proposed regulations update other
provisions in the cash management regulations under subpart K and
otherwise amend the Student Assistance General Provisions. We also
propose to clarify how previously passed coursework is treated for
title IV eligibility purposes and streamline the requirements for
converting clock hours to credit hours. The table below briefly
summarizes the major provisions of the proposed regulations.
----------------------------------------------------------------------------------------------------------------
Description of provision
Provision Reg section -------------------------------------------------
T1 T2
----------------------------------------------------------------------------------------------------------------
Defines T1 and T2 arrangements Sec. 668.164(e)...... Arrangement between an Arrangement between an
between institutions and financial Sec. 668.164(f)...... institution and a institution and a
account providers. third-party servicer financial institution
that performs one or or an entity allied
more of the functions with a financial
associated with institution under
processing direct which financial
payments of title IV accounts are offered
funds on behalf of the and marketed directly
institution and that to students or their
offers one or more parents.
financial accounts to
students and parents.
Fee mitigation....................... Sec. Prohibits point-of-sale Not Applicable.
668.164(e)(2)(iii)(B)( and overdraft fees.
2).
Sec.
668.164(e)(2)(iv).
----------------------------------------------------------------------------------------------------------------
[[Page 28517]]
Applicable to
Entities with T1 or
T2 Arrangements
------------------------------------------------------------------------
Reasonable access to funds.... Sec. Requires reasonable
668.164(c)(3). access to surcharge-
Sec. free ATMs or a
668.164(e)(2)(ii surcharge-free ATM
i)(A). network.
Student choice process........ Sec. Requires institutions
668.164(d)(4)(i). to establish a
student choice
process that:
Prohibits
institution from
requiring
students or
parents to open a
specific
financial account
to receive credit
balances.
Provides
the student a
list of options
for receiving
credit balance
funds with each
option presented
in a neutral
manner.
Lists pre-
existing accounts
as the first,
most prominent,
and default
option.
Establishes that
an aid recipient
has the right to
receive funds to
pre-existing
accounts.
Specifies
that electronic
payments made to
pre-existing
accounts are as
timely as and no
more onerous than
payments made to
another account
on the list of
options.
Consent to open account....... Sec. Student or parental
668.164(e)(2)(i) consent required to
and (f)(4)(i). open account and
before:
Providing
information about
student or parent
to financial
account provider.
Sending
access device to
student or
parent.
Associating
student ID with a
financial
account.
Contract disclosure........... Sec. Public disclosure of
668.164(e)(2)(V) contracts governing
(A). arrangements and
Sec. related cost
668.164(f)(4)(ii information.
i)(A).
Contract interpretation....... ................. Requires institutions
to establish and
evaluate T1 and T2
arrangements in
light of the best
interests of
students.
------------------------------------------------------------------------
Additional Provisions
------------------------------------------------------------------------
Secretary's reservation of ................. Confirms that the
right. Secretary reserves
the right to
establish a method
for directly paying
credit balances to
student aid
recipients.
Retention of interest on Sec. 668.163... Increases from $250
accounts holding title IV to $500 the amount
funds. of interest accrued
in accounts holding
title IV funds non-
Federal entities are
allowed to retain
annually.
Retaking coursework........... Sec. 668.2..... Eliminates, for all
program levels, the
prohibition on
counting towards
enrollment repeated
courses taken in the
same term in which
the student repeats
a failed course. The
current prohibition
against counting
more than one
repetition of a
previously passed
course would remain.
Clock-to-credit-hour Sec. 668.8(k).. Eliminates Sec.
conversion. 668.8(k)(2) and
(k)(3) and makes a
conforming change in
Sec. 668.8(l), to
streamline the
requirements
governing clock-to-
credit-hour
conversions,
mitigate confusion
about whether a
program is a clock-
or credit-hour
program for title
IV, HEA program
purposes, and remove
the provisions under
which a State or
Federal approval or
licensure action
could cause the
program to be
measured in clock
hours.
------------------------------------------------------------------------
Discussion of Costs, Benefits, and Transfers
We expect the effects of the proposed regulations would include
improved information to facilitate consumer choice of financial
accounts for receiving title IV credit balance funds, reasonable access
to title IV funds without fees, a transfer of some types of fee income
among students, institutions, and financial institutions, updated cash
management rules to reflect current practices, streamlined rules for
clock-to-credit-hour conversion, and the ability of students to receive
title IV funds for repeat coursework in certain term programs.
Students, institutions, and third-party servicers and the financial
institutions that have contractual relationships described as T1 and T2
arrangements would be most affected by the proposed regulations.
Data and Methodology
In an attempt to quantify some of the costs and to reduce the
burden associated with the proposed regulations, the Department
analyzed its own data to estimate the prevalence of credit balances.
While there may be instances where financial institutions have an
agreement with a postsecondary institution to offer college card
accounts to students who do not receive credit balances, the proposed
regulations focus on accounts offered under T1 or T2 arrangements where
students have a credit balance.
While comprehensive data on the number of students who receive
credit balances on a college card do not currently exist, we attempted
to calculate the incidence and distribution of credit balance
recipients. We analyzed the data maintained by the Department to
estimate the number of students who would potentially be affected by
the proposed regulations and to evaluate whether, in order to reduce
burden, we could establish a de minimis threshold below which an
institution would not be subject to the T2 requirements by analyzing
the percentage of students with a credit balance at various
institutions.
The numbers of students who received title IV aid in the 2013-2014
school year (from the National Student Loan Data System (NSLDS) of the
Department's Office of Federal Student Aid (FSA)) were matched by
institution to data from the Integrated Postsecondary Education Data
System (IPEDS) for tuition, fees, and room and board. The credit
balance calculation established an institutional cost that included an
estimated average tuition, fees, and room and board amount (which took
into account the percentage of students who lived in-district, in-
state, and out of state for tuition and fees expense, and the
percentage of students who lived on-campus for room and board charges).
Aid recipients were grouped by the amount of aid received (rounded into
$500 ranges). For each institution, the students in the aid ranges
above the estimated institutional cost were considered to have a credit
balance. We then used the number of
[[Page 28518]]
those students to obtain a percentage of students who received a credit
balance at each institution. For example, if the institutional cost was
determined to be $12,456 and 50 of 150 title IV aid recipients were in
the buckets from $12,500 and above, approximately 33 percent of aid
recipients at that institution were considered to have a credit
balance.
We looked only at title IV participating institutions and aid
recipients. From the data obtained, 3,400 institutions had both tuition
estimates and aid recipient information. Unsurprisingly, there is an
inverse relationship between an institution's tuition and fees and the
percentage of students receiving a title IV credit balance. Our
findings were consistent with findings from GAO and USPIRG. Based on
our data, we estimated that 2,816,104 students at these 3,400
institutions were receiving a credit balance. The Department's data
showed 70 percent of total students receiving a credit balance were at
public two-year institutions (1,972,035 students). While we estimated
that that there was a significant number of students who received a
credit balance at all of the four-year institutions, the students at
four-year institutions combined (819,062) still did not equal half the
total number of students who received a credit balance at public two-
year institutions (Table [2]). The number of students who received a
credit balance was lowest at the less-than two-year institutions, which
represented approximately 1.8 percent of institutions and under 1
percent of students who received a credit balance from the 3,400
institutions with both tuition and fee and financial aid data.
Table 2--Number of Institutions and Students With a Credit Balance
------------------------------------------------------------------------
Number of Students with a
Sector institutions credit balance
------------------------------------------------------------------------
Public, 2-year.................... 912 1,972,035
Public, 4-year or above........... 625 540,461
Private for-profit, 4-year or 195 181,530
above............................
Private not-for-profit, 4-year or 1,297 97,071
above............................
Private for-profit, 2-year........ 212 19,436
Private not-for-profit, 2-year.... 97 3,699
Public, less-than 2-year.......... 20 877
Private for-profit, less-than 2- 32 863
year.............................
Private not-for-profit, less-than 10 132
2-year...........................
-------------------------------------
Total......................... 3,400 2,816,104
------------------------------------------------------------------------
As several provisions of the proposed regulations apply to
institutions with T1 or T2 arrangements, utilizing publically available
sources and working with CFPB, we identified a listing of institutions
that were known to have card agreements with financial institutions and
applied the same methodology described above to this subset of
institutions.\186\ Of these known 914 institutions with card
agreements, 672 institutions had both tuition and fees and aid
recipient data in the Department's dataset. A total of 1,322,615
students at the 672 institutions from this dataset were estimated to
have a credit balance. The results from this subset were similar to the
larger dataset. The public two-year institutions had the largest
numbers of students with a credit balance, and the four-year
institutions also had significant numbers (See Table [3]). The less-
than two-year institutions had inconclusive data. Again, this subset
provided no additional information on a clear de minimis amount.
---------------------------------------------------------------------------
\186\ Based on information available at financial institution
Web sites including:
http://www.higheronecard.com/landing/start.jsp
https://www.pnc.com/en/personal-banking/banking/student-banking.html
https://www.usbank.com/student-banking/campus-partners/index.html
http://na.enroll.citiprepaid.com/login/logindisplay.do
http://www.siue.edu/bursar/CitiFeeSched.shtml
http://www.broward.edu/financialaid/Pages/Refund-Information.aspx
http://www.citibank.com/transactionservices/home/public_sector/higher_edu/docs/maricopa_case_study.pdf
http://fsucard.fsu.edu/suntrust-banking
http://www.southwestgatech.edu/Content/Default/6/1700/0/financial-aid/swgtc-preloaded-financial-aid-debit-card.html
http://www.tcfbank.com/account_campus-banking_disclosure.aspx.
Table 3--Students With a Credit Balance at Institutions Known To Have
Card Agreements
------------------------------------------------------------------------
Number of Students with a
Sector institutions credit balance
------------------------------------------------------------------------
Public, 2-year.................... 304 996,107
Public, 4-year or above........... 200 280,467
Private for-profit, 4-year or 38 29,593
above............................
Private not-for-profit, 4-year or 113 10,001
above............................
Private for-profit, 2-year........ 17 6,447
Private not-for-profit, 2-year.... N/A N/A
Public, less-than 2-year.......... N/A N/A
Private for-profit, less-than 2- N/A N/A
year.............................
Private not-for-profit, less-than N/A N/A
2-year...........................
-------------------------------------
Total......................... 672 1,322,615
------------------------------------------------------------------------
[[Page 28519]]
In a final attempt to analyze the data, the Department took the
subset and identified only those institutions that had a T2
arrangement. This narrowed down the data to 191,242 students at 160
institutions. The identified institutional data was further analyzed by
sector with data available for public two-year, public four-year or
above, and private not-for-profit, four-year or above institutions. The
data was similar to the larger datasets (see Table [4]) and produced
inconclusive results on a threshold to reduce burden.
Table 4--Students With a Credit Balance at Institutions Known To Have T2
Arrangements
------------------------------------------------------------------------
Number of Students with a
Sector institutions credit balance
------------------------------------------------------------------------
Public, 2-year.................... 36 135,108
Public, 4-year or above........... 70 56,066
Private not-for-profit, 4-year or 54 68
above............................
-------------------------------------
Total......................... 160 191,242
------------------------------------------------------------------------
As described in the Data and Methodology section, we analyzed the
available data to determine if we could identify a clear percentage
threshold or minimum number of students who had a credit balance before
the proposed regulations relating to T2 arrangements would apply. We
believed that applying a threshold amount would reduce the burden on
institutions where small percentages of students received a credit
balance. However, we could not conclusively identify a clear cut-off
amount as the data was evenly distributed in each of the datasets and
subsets we analyzed. We request comment on whether we should establish
a de minimis amount and, if so, what that amount should be, supporting
data, and how this amount should be established.
We also reviewed reports related to campus card use for information
on affected students and their account usage patterns. The GAO, USPIRG,
and Consumers Union, among others, have analyzed the issue of student
accounts and the use of college cards. Results from those reports that
were used in the Department's calculations are noted in the discussion
of specific provisions throughout this section.
Fee-Related Provisions Applicable to Institutions With T1 Arrangements
Institutions with T1 arrangements are required to mitigate fees
incurred by student aid recipients by prohibiting PoS and overdraft
fees charged to students and parents. Additionally, these institutions
must ensure that students have surcharge-free access to a national or
regional ATM network that has ATMs on or near each campus of the
institution. Little information is currently available on the total
amount of college card fees paid by students. Most financial account
providers are unwilling or unable to provide information on fees to the
Department. The GAO report reviewed fee schedules from eight financial
institutions and found that while college cards do not have monthly
maintenance fees, fees for out-of-network ATM use, wire transfers, and
overdraft fees were similar to the financial products marketed to non-
students. Credit unions' fees were typically lower than those charged
by college cards (see Table [5]). However, college card fees were lower
than alternative financial products, such as check-cashing
services.\187\
---------------------------------------------------------------------------
\187\ Ibid. at 18.
Table 5--Account Fees by Provider Type 188
----------------------------------------------------------------------------------------------------------------
Large banks, general checking
Fee College cards accounts Credit unions
----------------------------------------------------------------------------------------------------------------
Monthly Maintenance........................ $0 standard account: $6-$12..... $0
student account: $0-$5.......
Out-of-network ATM Transaction............. $2-$3 $2-$2.50..................... 1
PIN........................................ $0-$0.50 $0........................... 0
Overdraft.................................. $29-$36 $34-$36...................... 25
Outgoing Wire Transfer..................... $25-$30 $24-$30...................... 15
----------------------------------------------------------------------------------------------------------------
While we do not know the total amount of college card fees paid by
students annually, we do know the amounts are substantial. A review of
the annual SEC filings by one market participant, Higher One, indicates
that account revenue from a variety of fees totaled $135.8 million in
FY 2013, which represented 64.3 percent of total revenues for FY
2013.\189\ Not all of those fees would be subject to the provisions of
the proposed regulations, but the amount of student account revenue
across the industry affected by the proposed changes would be
significant.
---------------------------------------------------------------------------
\188\ Ibid. at 19.
\189\ Higher One Holdings, Inc. ``SEC Form 10-K.'' [Pages 41-42]
(2014), available at www.sec.gov/Archives/edgar/data/1486800/000148680014000018/one10k.htm.
---------------------------------------------------------------------------
In addition to the uncertainty regarding the total amount of
college card fees paid by students, consumer behavior is unpredictable,
and the responses of students and parents to the proposed disclosures
about account options and costs will significantly contribute to the
effect of the proposed regulations. While it is assumed that consumers
with appropriate information will make rational decisions, such as
avoiding fees imposed on withdrawals from out-of-network ATMs or debit
transactions that require a PIN rather than a signature, some students
may not make the optimal choices in managing their accounts. We do not
have data on the distribution of students in accounts with specific fee
arrangements, student usage patterns, or the responsiveness of students
to the information that would be provided under the proposed
regulations, and therefore it is difficult to estimate the exact
transfers that would occur if certain fees on student accounts were
prohibited. However, there is some third-party analysis of account
usage that can be used to establish a range of possible effects of the
proposed regulations. In its August
[[Page 28520]]
2014 report, Consumers Union developed minimal, moderate, and heavy
usage profiles and determined that the accounts it analyzed would cost
minimal users from $0 to $59.40, moderate users from $10.20 to $95.00,
and heavy users from $59.40 to $520.00 on an annual basis.\190\ This
range of outcomes demonstrates how the distribution of students in
accounts and the student response to account information disclosed
under the proposed regulations would affect the fee revenue transfers
under the proposed regulations.
---------------------------------------------------------------------------
\190\ Consumers Union at 16.
---------------------------------------------------------------------------
An additional analysis by U.S. PIRG included data on overdraft
behavior by age range with adults in the 18-25 age range having the
highest incidence of paying overdraft fees with 53.6% paying zero, 21.5
percent paying 1 to 4, 10.3 percent paying 5-9, 7.9 percent paying 10
to 19, and 6.8 percent paying 20 or more overdraft fees.\191\ While not
all students will fall within this age range, given the high percentage
of adults in this age range that pays at least one overdraft fee and
the amount of overdraft fees ranging from $25 to $38 when applied, the
revenue affected by the overdraft fee prohibition is significant.
Further analysis recently released by the Center for Responsible
Lending analyzed similar data on overdrafts for adults in three
categories and found average annual costs in overdraft fees of $67 for
the 15 percent of young adults with two overdrafts per year, $264 for
the 13 percent of adults with seven overdrafts per year, and $710 for
the 11 percent of adults that overdraw about 19 times per year.\192\
---------------------------------------------------------------------------
\191\ Ibid.
\192\ Center for Responsible Lending, ``Overdraft U.: Student
Bank Accounts Often Loaded with High Overdraft Fees'', March 30,
2015.
---------------------------------------------------------------------------
Another element that complicates the analysis of the effects of the
proposed regulations is the response of financial institutions and
institutions. The proposed fee limitations relating to T1 arrangements
would have cost implications for affected servicers. One purpose of the
proposed regulations is to allow students to access financial aid funds
without burden from fees or other costs; however we acknowledge that
many third-party servicers in T1 arrangements could restructure their
accounts to earn some of those funds through fees that would not be
affected by the proposed regulations. Over time, as contracts are
renewed or entered into, financial institutions could also increase the
revenue they receive from institutions, but the split between the
revenue that can be recaptured and that which might be lost to
financial institutions is not estimated in this analysis.
Disclosure Provisions and Student Choice
As noted in the Summary of Proposed Regulations section, under the
proposed regulations, institutions with T1 and T2 arrangements would be
subject to several provisions designed to increase the disclosure of
information related to student accounts and emphasize the availability
of options for students to receive credit balances. We believe this
access to account disclosures and other critical information would
allow students and parents to make informed decisions regarding the
handling and distribution of their title IV funds. The fee and contract
disclosures would help students and parents determine whether the
financial products marketed by financial institutions with
relationships to their school are the best option for them. These
disclosures would also help prevent students from being misled into
believing that they must use those financial products.
Furthermore, the proposed regulations would require institutions to
disclose the prices of books and other materials that they include as
part of tuition and fees. We believe this will encourage schools to
make one of two student-friendly changes: For schools that cannot
justify including the price of books and supplies in tuition charges
because it is not in students' best financial interest, students and
parents will be able to compare prices to determine if there are other,
more economically viable options available and buy materials available
in the marketplace. Alternatively, students benefit from the buying
power of the school in cases where the school can source the materials
for lower-than-market costs.
The proposed regulations would also help protect both students and
parents from deceptive marketing practices aimed at encouraging them to
do business with a particular financial institution without presenting
options. When students are not presented with clear choices or
information, they may be pushed into using financial accounts with
higher fees or less access than other options available to them. By
requiring clear and neutral disclosures to students and parents, the
student choice provisions would aid students and parents in identifying
accounts with lower fees. Students who select accounts with lower fees
would save money and be able to use all or more of their title IV aid
for expenses critical to their educational needs.
Reasonable Access to Funds
As noted in the discussion of fee provisions related to T1
arrangements, under the proposed regulations, a third-party servicer
with a T1 arrangement would have additional obligations with respect to
the requirement that it provide students with convenient access to
surcharge free regional or national ATM network. As under the current
regulations, financial institutions must provide students convenient
access to in-network ATMs. The proposed regulations would clarify that
``convenient access'' means ATMs are sufficient in number at each of
the institution's locations such that funds are reasonably available
from them. The provisions specifying what constitutes ``convenient
access'' are designed for the benefit of students and could have cost
implications for some third-party servicers and financial institutions.
These servicers/financial institutions could have to deploy new ATMs or
pay to be associated with a surcharge-free ATM network to meet these
requirements. Students who open accounts under a T1 or T2 arrangement
would benefit from having more surcharge-free ATMs from which to access
their title IV credit balances.
T2 Arrangements
The direct marketing methods employed by financial institutions,
third-party servicers, and postsecondary institutions have proven to be
fairly effective. As mentioned earlier in the Need for Regulatory
Action section, 10 million students (Chart 1) are at title IV
participating schools where card agreements are prevalent. While some
information is available about these agreements, it is insufficient to
support a comprehensive analysis on the costs of the proposed
regulations. We do not have data on the total number of institutions
with card agreements with financial institutions or the details of
those agreements. There is also a lack of data on the total number of
students who receive credit balances and in what form those students
receive that aid.
Beyond the data limitations, forecasting the future behavior of
students under the proposed regulations also presents another challenge
in estimating costs. Students have a variety of choices on how to
receive their aid. Based on data from the National Postsecondary
Student Aid Study (NPSAS) conducted by the National Center for
Education Statistics, we know that a majority of students receive a
refund by depositing a refund directly to a bank account (37.2 percent)
or by cashing or depositing a refund check at
[[Page 28521]]
a bank themselves (38.5 percent). The remaining 24.3 percent of
students receive refunds by cashing the check somewhere other than a
bank, receive refunds on a prepaid debit card, receive a refund through
student ID cards, or do something else not listed.\193\ While direct
marketing affects the choices a student might make, we lack data on
predicting whether students would move away from those marketed
accounts if all options were clearly presented to them. Consequently,
quantifying the costs of the proposed regulations is difficult.
---------------------------------------------------------------------------
\193\ U.S. Department of Education, National Center for
Education Statistics, 2011-12 National Postsecondary Student Aid
Study (NPSAS:12).
---------------------------------------------------------------------------
Cash Management Provisions
Interest earned on Federal advance payments deposited in interest-
bearing accounts must be remitted annually. The proposed regulations
would increase the amount allowed to be retained by non-Federal
entities for administrative expenses from $250 to $500. By doing so,
some institutions would see a minor benefit from being able to keep the
first $500 in interest accrued on accounts holding title IV funds.
Other updates to subpart K reflect technological changes and current
practices in managing title IV funds.
Retaking Coursework
The proposed regulations would eliminate provisions that prevent
institutions from counting previously passed courses towards enrollment
where the repetition is due to the student failing other coursework.
This change would benefit a limited number of undergraduate, graduate,
and professional students. Students in these circumstances would no
longer be denied title IV aid and therefore would be less likely to
drop out or need less desirable private education loans to continue
their coursework. Institutions and students would benefit as students
would be able to continue paying for educational costs with title IV
aid.
Clock-to-Credit-Hour Conversion
By streamlining the clock-to-credit-hour conversion provisions,
institutions would benefit from the simplification of regulations
affecting institutional determinations relating to title IV
eligibility.
Net Budget Impacts
We estimate that the proposed regulations would not have a
significant net budget impact. Consistent with the requirements of the
Credit Reform Act of 1990, budget cost estimates for the student loan
programs reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. A
cohort reflects all loans originated in a given fiscal year.
The proposed regulations would require institutions to disclose
agreements with financial services providers through which students may
opt to receive title IV credit balances, and restrict the fees students
could be charged for accounts offered pursuant to T1 arrangements.
Additionally, the proposed regulations would make technical changes to
subpart K cash management rules to reflect technological advances and
improved disbursement practices. The proposed regulations also would
simplify the clock-to-credit-hour conversion for title IV purposes by
eliminating the reference to any State requirement or role in approving
or licensing a program. Finally, the proposed regulations would
eliminate the provision that prevents institutions from counting
previously passed courses towards enrollment where the repetition is
due to the student failing other coursework.
Although the proposed regulations would affect the arrangements
among institutions, students, and financial service providers, they are
not expected to affect the volume of title IV aid disbursed or the
repayment patterns of students, and therefore, no significant budget
impact on title IV programs is estimated.
We welcome comments on the estimates provided and will consider
them in developing the RIA for the final regulations.
Accounting Statement
As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in Table
[6], we have prepared an accounting statement showing the
classification of the expenditures associated with the provisions of
these proposed regulations.
Table [6]--Accounting Statement: Classification of Estimated
Expenditures
[In millions]
------------------------------------------------------------------------
Category Benefits
------------------------------------------------------------------------
Greater disclosure of arrangements Not Quantified.
between institutions and financial
service providers and clearer
disclosure of fees and conditions of
student accounts.
------------------------------------------------------------------------
Costs
Category -----------------------------------
7% discount rate 3% discount rate
------------------------------------------------------------------------
Costs of compliance with paperwork $21.0 $21.2.
requirements.......................
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Alternatives Considered
As part of the development of the proposed regulations, the
Department reviewed and considered various internal proposals, as well
as proposals from non-Federal negotiators. In the following paragraphs
we summarize the major proposals that we considered but ultimately
declined to incorporate in the proposed regulations.
The Department initially considered prohibiting institutions from
including books and supplies as part of tuition and fees. However, some
of the non-Federal negotiators argued that institutions, for
pedagogical or safety reasons, are increasingly developing course-
specific or course-embedded materials that students must access and
purchase from the school and that those materials should be included in
tuition
[[Page 28522]]
and fees. After a thorough discussion, the Department decided against a
total prohibition on including books and supplies as part of tuition
and fees, and agreed to a compromise position that would still benefit
students, allow institutional flexibility when materials are integral
to the course, and hold institutions accountable through cost
transparency.
The Department initially proposed to the negotiated rulemaking
committee regulations that would have prevented institutions from
sharing with a servicer any information about a student or parent until
the student or parent affirmatively consented to open an account.
Because the proposals considered during negotiated rulemaking did not
separate T1 and T2 arrangements, the ban on information sharing would
have affected both third-party servicers and financial institutions.
After multiple negotiation sessions and working with non-Federal
negotiators representing third-party servicers, we elected to permit
the sharing of only limited information--name, address, and email
address--prior to receiving student or parent consent to open an
account. We have also decided to apply the limitation to both T1 and T2
arrangements, under definitions more focused than those proposed to the
negotiated rulemaking committee.
To clarify our position, we have also altered our phrasing to
require that a student or parent must provide consent to actually open
an account, rather than simply select an option for receiving direct
payments of financial aid before more than this basic contact
information with a third-party servicer or financial institution.
After the first negotiated rulemaking session, we proposed
provisions that would allow an institution to send a debit card,
prepaid card, or access device associated with the account to a student
or parent only after the student or parent specifically requests it
after providing consent to open an account. We modified this initial
approach by removing the requirement for the student or parent to
specifically request the card while retaining a requirement that the
student or parent consent to opening the account before the card is
sent. While we understand that the requirement to obtain consent to
open a financial account before sending an access device to a student
or parent may slow the speed with which a student or parent could
access his or her credit balance, we believe that requiring student or
parent consent to an account first helps to dispel the implication that
the access device and its associated financial account are required by
the institution. We also believe it reinforces the notion that use of
the access device and its associated account is, in fact, a choice.
We also considered several proposals regarding the disclosure of
the contracts between institutions of higher education and financial
institutions, along with contract summaries, as described in other
parts of the preamble. However, to reduce burden on institutions, we
propose that an institution must only provide to the Secretary, with
respect to a contract for a T1 or T2 arrangement, the following
information: The total consideration for the most recently completed
award year, monetary and non-monetary, paid or received by the parties
under the terms of the contract; the number of students and parents who
had financial accounts under the contract at any time during the most
recently completed award year; and the mean and median of the actual
costs incurred by those account holders.
Initial Regulatory Flexibility Act Analysis
The proposed regulations will affect institutions that participate
in the title IV, HEA programs, financial institutions, and individual
borrowers. The U.S. Small Business Administration (SBA) Size Standards
define ``for-profit institutions'' as ``small businesses'' if they are
independently owned and operated and not dominant in their field of
operation with total annual revenue below $7,000,000. The SBA Size
Standards define ``not-for-profit institutions'' as ``small
organizations'' if they are independently owned and operated and not
dominant in their field of operation, or as ``small entities'' if they
are institutions controlled by governmental entities with populations
below 50,000. The revenues involved in the sector that would be
affected by the proposed regulations, and the concentration of
ownership of institutions by private owners or public systems, means
that the number of title IV, HEA eligible institutions that are small
entities would be limited but for the fact that the not-for-profit
entities fit within the definition of a ``small organization''
regardless of revenue. Given the definitions above, several of the
entities that would be subject to the proposed regulations are small,
leading to the preparation of the following Initial Regulatory
Flexibility Analysis.
Description of the Reasons That Action by the Agency Is Being
Considered
Over the past several years, a number of changes have occurred in
the student financial products marketplace and in budgets of
postsecondary institutions that have led to a proliferation of
agreements between postsecondary institutions and ``college card''
providers. These cards, usually in the form of debit or prepaid cards
and sometimes cobranded with the institution's logo or combined with
student IDs, are marketed to students as a way to receive their title
IV credit balances via more convenient electronic means. However, a
number of government and consumer group reports have documented
troubling practices employed by some of the providers of these college
cards. Legal actions against the sector's largest provider further
substantiate these reports' findings.
The Secretary proposes to amend the cash management regulations
under subpart K and other sections of the Student Assistance General
Provisions regulations issued under the HEA, to address the findings in
multiple government and consumer group reports that students are not
able to conveniently access their title IV, HEA program funds without
onerous paper submissions and unnecessary waiting periods, unreasonable
and uncommon financial account fees, or receiving misleading
information indicating that a particular financial account is required
to receive student aid. The proposed regulations also make a number of
changes to update subpart K consistent with contemporary disbursement
practices. Finally, the proposed regulations update two additional,
unrelated provisions: Revising the way previously passed coursework is
treated for title IV eligibility purposes so students remain in
programs and do not have to find alternatives to title IV funding; and
streamlining the requirements for converting clock hours to credit
hours.
Succinct Statement of the Objectives of, and Legal Basis for, the
Regulations
Given the number of students affected by these agreements, the
amount of taxpayer-funded title IV aid at stake, and the troubling
practices and expanding breadth of the college card market, we believe
regulatory action governing the manner in which title IV student aid is
disbursed is warranted.
In addition, it has been 20 years since subpart K was
comprehensively updated, and in that time a number of technological
improvements and changes in authorized title IV programs have occurred.
We have therefore proposed a number of more minor changes throughout
subpart K.
[[Page 28523]]
Description of and, Where Feasible, an Estimate of the Number of Small
Entities to Which the Proposed Regulations Would Apply
The proposed regulations would affect institutions, financial
services providers, and students. Students are not considered small
entities for the purpose of this analysis and the Department does not
expect the financial institutions to meet the applicable definition of
a small entity. However, a significant portion of institutions of
higher education are considered to meet the applicable definition of a
small entity, and therefore, this analysis focuses on those
institutions. As discussed above, private non-profit institutions that
do not dominate in their field are defined as small entities and some
other institutions that participate in title IV, HEA programs do not
have revenues above $7 million and are also categorized as small
entities. Table [7] summarizes the distribution of small entities
affected by the proposed regulation by sector.
Table [7]--Distribution of Small Entities by Sector
----------------------------------------------------------------------------------------------------------------
Small entity Total %
----------------------------------------------------------------------------------------------------------------
Public 4-year.......................................... 0 749 0
Private NFP 4-year..................................... 1,648 1,648 100
Private For-Profit 4-year.............................. 278 827 34
Public 2-year.......................................... 0 1,074 0
Private NFP 2-year..................................... 162 162 100
Private For-Profit 2-year.............................. 667 1,035 64
Public less than 2-year................................ 0 262 0
Private NFP less than 2-year........................... 87 87 100
Private For-Profit less than 2-year.................... 1,411 1,695 83
--------------------------------------------------------
Total.............................................. 4,253 7,539 56
----------------------------------------------------------------------------------------------------------------
The Secretary invites comments from small entities as to whether
they believe the proposed changes would have a significant economic
impact on them and, if so, requests evidence to support that belief.
Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Regulations, Including an Estimate of
the Classes of Small Entities That Will Be Subject to the Requirement
and the Type of Professional Skills Necessary for Preparation of the
Report or Record
The various provisions in the proposed regulations require
disclosures by institutions as discussed in the Paperwork Reduction Act
section of this preamble. Table [8] summarizes the estimated burden on
small entities from the paperwork requirements associated with the
proposed regulations.
Table [8]--Summary of Paperwork Requirements for Small Entities
----------------------------------------------------------------------------------------------------------------
OMB control
Provision Reg section No. Hours Costs
----------------------------------------------------------------------------------------------------------------
Require institutions to establish an account 668.164(d)(4) 1845-0106 3,920 143,276
selection process..............................
Compliance with T1 requirements: Provide the 668.164e 1845-0106 6,710 245,251
terms and conditions of the financial accounts,
provide convenient access to ATMs, cannot be
converted to a credit instrument, must disclose
the contract, must disclose the mean and median
costs incurred over the prior year as well as
the number of students and parents with these
financial accounts.............................
Compliance with T2 requirements: Must obtain 668.164(f) 1845-0106 3,330 121,712
consent to open an account, provide terms and
conditions, disclose the contract, the number
of students and parents participating, the mean
and median actual costs for the prior year.....
-------------------------------
Total....................................... 13,960 510,238
----------------------------------------------------------------------------------------------------------------
Identification, to the Extent Practicable, of All Relevant Federal
Regulations That May Duplicate, Overlap, or Conflict With the Proposed
Regulations
The proposed regulations are unlikely to conflict with or duplicate
existing Federal regulations. We consulted Federal banking regulators
at FDIC, OCC and the Bureau of the Fiscal Service at the Treasury
Department, and CFPB, for help in understanding Federal banking
regulations and the Federal bank regulatory framework. We believe we
have crafted these regulations in a way that will complement, rather
than conflict with, existing banking regulations. The most significant
risk of potential conflict is with respect to account disclosure
requirements, described in more detail in the ``Disclosure of account
information'' section of this preamble.
Alternatives Considered
As described above, the Department participated in negotiated
rulemaking when developing the proposed regulations, and considered a
number of options for some of the provisions. No alternatives were
aimed specifically at small entities.
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
[[Page 28524]]
burden, the Department provides the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that: The public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents. The table at the end of this
section summarizes the estimated burden on small entities, primarily
institutions and applicants, arising from the paperwork associated with
the proposed regulations.
Section 668.164 contains information collections requirements.
Under the PRA, the Department has submitted a copy of this section, and
an Information Collections Request (ICR) to OMB for its review.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with, or is subject to penalty for
failure to comply with, a collection of information if the collection
instrument does not display a currently valid OMB control number.
In the final regulations, we will display the control numbers
assigned by OMB to any information collection requirements proposed in
this NPRM and adopted in the final regulations.
Discussion
Section 668.164 Disbursing Funds
Requirements: Student and parent choice.
Under proposed Sec. 668.164(d)(4)(i), an institution that makes
direct payments to a student or parent by EFT and that chooses to enter
into an arrangement described in Sec. 668.164(e) or Sec. 668.164(f),
must establish a selection process under which the student or parent
chooses one of several options for receiving those payments.
Alternatively, an institution that does not offer accounts under a Tier
1 (T1) or Tier 2 (T2) arrangement is not required to establish a
student choice process and instead, may make direct payments to an
existing account designated by the student or parent, issue a check, or
disburse cash to the student or parent.
For institutions required to establish a student choice process
under proposed Sec. 668.164(d)(4)(i), the proposed regulations would
establish requirements that must be met in implementing the process.
The institution must inform the student or parent in writing that
he or she is not required to open or obtain a specific financial
account or access device in order to receive title IV funds. The
institution must ensure that the options listed are presented in a
clear, fact-based, and neutral manner (except that a pre-existing
account must be listed as the first, most prominent, and default
option). The institution must ensure that initiating direct payments
electronically to an existing account is as timely as, and no more
onerous than initiating direct payments to an account offered pursuant
to a T1 or T2 arrangement. The institution must allow the student or
parent the option to change his or her account preference with
reasonable written notice.
In addition to these requirements for establishing a student choice
process, the proposed regulations under Sec. 668.164(d)(4)(i)(B)
contain the following provisions governing the description of account
options under the student choice process.
The institution must present, prominently and as the first and
default option, the ability to receive funds in a student's or parent's
pre-existing financial account or pre-existing access device. The
institution must list and identify the major features and commonly
assessed fees associated with all accounts offered pursuant to a T1 or
T2 arrangement (using a format published by the Secretary in the
Federal Register which would constitute compliance with this provision
under the proposed regulations), as well as a Universal Resource
Locator (URL) linked to the terms and conditions of these accounts.
Finally, the institution must list issuing a check as an option for a
student or parent to receive payments.
Burden Calculation: The Department calculated the incidence and
distribution of credit balance recipients. The numbers of students who
received title IV aid in the 2013-2014 cohort (from FSA) were matched
by institution to the IPEDS tuition, fees, and room and board data. The
credit balance calculation established an institutional cost that
included an estimated average tuition, fees, and room and board amount
(which took into account the percentage of students who lived in-
district, in-state, and out of state for tuition and fees expense, and
the percentage of students who lived on-campus for room and board
charges). Aid recipients were grouped by the amount of aid received
(rounded into $500 ranges). To determine the number of students at each
institution who received a credit balance, we looked at the number of
students who fell within the aid ranges above the estimated
institutional cost.
We looked only at title IV participating institutions and aid
recipients. From the data obtained, 3,400 institutions (out of the
total 7,539 participating in title IV, HEA programs) had both tuition
estimates and aid recipient information. Unsurprisingly, there was an
inverse relationship between an institution's tuition and fees and the
percentage of students receiving a title IV credit balance. The
Department's findings were consistent with findings from GAO and
USPIRG. In an effort to thoroughly analyze all of the available data,
we also applied the same methodology described above to a subset of
institutions. Utilizing publically available sources and working with
the CFPB the Department identified a listing of institutions that were
known to have card agreements with financial institutions from CFPB. If
commenters have other sources for the number of institutions with these
financial agreements, we invite them to provide those sources for our
examination. The Department's NSLDS data, when combined with the IPED's
data and the CFPB data the list of institutions that were known to have
agreements (NSLDS-IPEDS-CFPB) had tuition and fees and aid recipient
data for 672 of the 914 institutions identified by CFPB. From the data
for 672 institutions, we projected the number of students with a title
IV credit balance at the 914 institutions proportionately. As a result,
there were a total of 1,798,756 students at the 914 institutions from
this dataset who received a credit balance.
Of the 914 institutions with arrangements, the NSLDS-IPEDS-CFPB
data show that 685 institutions would be public institutions. On
average, we estimate the burden associated with developing and
implementing the proposed student and parent choice options would
increase by 20 hours per institution and therefore total burden of
13,700 hours (685 institutions times 20 hours per institution) under
OMB Control Number 1845-0106.
Of the 914 institutions with financial arrangements, the NSLDS-
IPEDS-CFPB data show that 154 institutions would be private not-for-
profit institutions. On average, we estimate the burden associated with
developing and implementing the student and parent choice options would
increase by 20
[[Page 28525]]
hours per institution and therefore total burden of 3,080 hours (154
institutions times 20 hours per institution) under OMB Control Number
1845-0106.
Of the 914 institutions with arrangements, the NSLDS-IPEDS-CFPB
data show that 75 would be private for-profit institutions. On average,
we estimate the burden associated with developing and implementing the
student and parent choice options would increase by 20 hours per
institution and therefore total burden of 1,500 hours (75 institutions
times 20 hours per institution) under OMB Control Number 1845-0106.
Overall, burden to institutions would increase by 18,280 hours (the
sum of 13,700 hours, 3,080 hours, and 1,500 hours).
The NSLDS-IPEDS-CFPB data indicates that 1,798,756 title IV
recipients with credit balances for the 2013-14 award year would be
impacted by this proposed regulation. We estimate that each of the
affected title IV recipients would take, on average, 20 minutes (.33
hours) to review the options presented by the institution or their
third-party servicer and to make their selection.
Of the total number of title IV recipients with a credit balance,
the data show that 1,736,141 recipients were enrolled in public
institutions. On average, each recipient would take 20 minutes (.33
hours) to read the materials and make their selection, increasing
burden by 572,927 hours (1,736,141 times .33 hours) under OMB Control
Number 1845-0106.
Of the total number of title IV recipients with a credit balance,
the data show that 13,601 recipients were enrolled in private not-for-
profit institutions. On average each recipient would take 20 minutes
(.33 hours) to read the materials and make their selection, increasing
burden by 4,488 hours (13,601 recipients times .33 hours) under OMB
Control Number 1845-0106.
Of the total number of title IV recipients with a credit balance,
the data show that 49,014 recipients were enrolled in private for-
profit institutions. On average each recipient would take 20 minutes
(.33 hours) to read the materials and make their selection, increasing
burden by 16,175 hours (49,014 recipients times .33 hours) under OMB
Control Number 1845-0106.
Overall, burden to title IV recipients would increase by 593,590
hours (the sum of 572,927 hours, 4,488 hours, and 16,175 hours).
Requirements: T1 Arrangements
Under the proposed regulations in Sec. 668.164(e), when an
institution enters into a contract with a third-party servicer under
which the servicer performs the functions of processing direct payments
of title IV, HEA program funds on behalf of the institution to one or
more financial accounts that are offered under the contract or by the
third-party servicer, or by an entity contracting with or affiliated
with the third party servicer to students and their parents, this would
be considered a T1 arrangement between the institution and the third-
party servicer.
Under a T1 arrangement the institution must comply with the
following requirements:
1. The institution must obtain the student's or parent's consent to
open the financial account before the institution provides any
information about the student or parent, except for name, address, and
email address, to the third-party servicer, the financial institution
at which the financial account's funds would be deposited, or the
agents of either an access device, or and before any representation of
an access device, is sent to the student or parent; and before a card
or tool provided to the student or parent for institutional purposes,
such as a student ID card, is associated with the financial account;
2. The institution must inform the student or parent of the terms
and conditions of the financial account, in a manner consistent with
disclosure requirements specified by the Secretary in a notice
published in the Federal Register following consultation with the CFPB,
before the financial account is opened;
3. The institution must ensure that the student or parent has
convenient access to the financial account through surcharge-free
national or regional ATM network that has ATMs located on or near each
location of the institution, and that those ATMs are sufficient in
number and housed and serviced such that the funds are reasonably
available from them, including at the times the institution or its
third-party servicer makes direct payments into them. The institution
must also ensure that students and parents do not incur any cost for
opening the financial account or initially receiving an access device,
assessed by the institution, third-party servicer, or associated
financial institution on behalf of the third-party servicer, when the
student or parent conducts point-of-sale transactions; or for
conducting any transaction on an ATM that belongs to the regional or
national network;
4. The institution must ensure that students and parents do not
incur a charge initiated by the institution, third-party servicer, or
associated financial institution on behalf of the third-party servicer
for at least 30 days following the date that title IV, HEA program
funds are deposited or transferred to the financial account;
5. The institution must ensure that the financial account or access
device is not marketed or portrayed as, or converted into a credit
card; that the financial account or access device is not marketed or
portrayed as, or converted into a credit instrument, that no credit may
be extended or associated with the account, and that any transaction
exceeding the balance on the card must be denied without charging the
student or parent any fee for such denial;
6. No later than 60 days after the most recently completed award
year, the institution must provide to the Secretary and disclose
conspicuously on the institution's Web site, the contract between the
institution and financial institution in its entirety, except for any
portions that, if disclosed, would compromise personal privacy,
proprietary information technology, or the security of information
technology or of physical facilities; the total consideration, monetary
and non-monetary, paid or received by the parties under the terms of
the contract, as well as the number of students and parents who had
financial accounts under the contract at any time during the most
recently completed award year, and the mean and median of the actual
costs incurred by those account holders; and to annually provide a URL
linking from the institution's Web site to the agreement and provide
basic information about the agreement;
7. The institution must ensure that the terms of the T1 financial
accounts are not inconsistent with the best financial interests of the
students and parents opening them. The Secretary considers this
requirement to be met if the institution documents that it periodically
conducts reasonable due diligence reviews to ascertain whether the fees
imposed under the T1 arrangement are, considered as a whole, excessive,
in light of prevailing market rates; and all contracts for the
marketing or offering of T1 accounts to the institution's students or
parents provide for termination of the arrangement at the discretion of
the institution based on complaints received from students or parents
or a determination by the institution that the fees assessed under the
T1 account are excessive;
[[Page 28526]]
8. The institution must take affirmative steps, by way of
contractual arrangements with the third-party servicer as necessary, to
ensure that these requirements are met with respect to all T1 financial
accounts offered.
Burden Calculation: Based upon our examination of the 2013-14 NSLDS
and IPEDS data that was further refined by examining the CFPB listing
of 914 institutions known to have arrangements that would be considered
either T1 and T2 arrangements under the proposed regulations, the data
indicate that there were 541 public institutions with a T1 arrangement.
We expect that these institutions would have to modify their systems or
procedures to ensure compliance with these proposed regulations
including, but not limited to, establish a consent process; provide
account terms and conditions disclosures; ensure compliance with the
30-day prohibition for charges made to an account following the date
that title IV, HEA program funds are deposited or transferred into the
account; provide the proposed disclosures, contract disclosures, and
use and cost data within 60 days after the end of the award year. In
addition, it is likely that institutions would make other changes in
order to conduct their proposed periodic due diligence and updating of
third-party servicer contracts to allow for termination of the contract
based upon student complaints or the institution's assessment that
third-party servicer fees have become excessive. We estimate that the
changes required by the proposed regulations would add an additional 55
hours of burden per institution, increasing burden by 29,755 hours (541
institutions times 55 hours per institution) under OMB Control Number
1845-0106.
Based upon our examination of the 2013-14 NSLDS and IPEDS data that
was further refined by examining the CFPB listing of 914 institutions
known to have arrangements that would be considered either T1 and T2
arrangements under the proposed regulations, the data indicate that
there were 80 private not-for-profit institutions with a T1
arrangement. We expect that these institutions would have to modify
their systems or procedures to ensure compliance with these proposed
regulations. Specifically, we expect that modifications would be
required including, but not limited to: The establishment of a consent
process; provide account terms and conditions disclosures; ensure
compliance with the 30-day prohibition on charges made to an account
following the date that title IV, HEA program funds are deposited or
transferred into the account; and provide the proposed disclosures,
contract disclosures, and use and cost data within 60 days after the
end of the award year. In addition, other modifications would likely be
needed with regard to how the institutions plan to conduct their
proposed periodic due diligence and updating of third-party servicer
contracts to allow for termination of the contract based upon student
complaints or the institution's assessment that third-party servicer
fees have become excessive. We estimate that the changes required by
the proposed regulations would add an additional 55 hours of burden per
institution, increasing burden by 4,400 hours (80 institutions times 55
hours per institution) under OMB Control Number 1845-0106.
Based upon our examination of the 2013-14 NSLDS and IPEDS data that
was further refined by examining the CFPB listing of 914 institutions
known to have arrangements that would be considered either T1 and T2
arrangements under the proposed regulations, the data indicate that
there were 75 private for-profit institutions with a T1 arrangement. We
expect that institutions would have to modify their systems or
procedures to ensure compliance with these proposed regulations.
Specifically, we expect that modifications would be required including,
but not limited to: The establishment of a consent process; provide
account terms and condition disclosures; ensure compliance with the 30-
day prohibition for charges made to an account following the date that
title IV, HEA program funds are deposited or transferred into the
account; and provide the proposed disclosures, contract disclosures,
and use and cost data within 60 days after the end of the award year.
In addition, it is likely that institutions would make other changes
regarding how they will conduct their proposed periodic due diligence
and updating of third-party contracts to allow for termination of the
contract based upon student complaints or the institution's assessment
that third-party fees have become excessive. We estimate that the
changes required by the proposed regulations would add an additional 55
hours of burden per institution, increasing burden by 4,125 hours (75
institutions times 55 hours per institution) under OMB Control Number
1845-0106.
Overall, burden to title IV institutions would increase by 38,280
(the sum of 29,755 hours, 4,400 hours, and 4,125 hours).
The NSLDS-IPEDS-CFPB data showed that there were 1,538,667 title IV
recipients at the with credit balances at institutions with a T1
arrangement in the 2013-14 award year. Of that number of recipients,
the data showed that 1,476,144 were enrolled at public institutions. We
estimate that, on average, each recipient would take 15 minutes (.25
hours) to read the about the major features and fees associated with
the financial account, information about the monetary and non-monetary
remuneration received by the institution for entering into the T1
arrangement, along with the number of students and parents who had
financial accounts under the T1 arrangement for the most recent
completed year, the mean and median costs incurred by account holders,
and whether to provide their consent to the institution. Therefore, the
additional burden on title IV recipients would increase by 369,036
hours (1,476,144 times .25 hours) under OMB Control Number 1845-0106.
The data showed that 13,509 title IV recipients with credit
balances were enrolled at private not-for-profit institutions. We
estimate that, on average, each recipient would take 15 minutes (.25
hours) to read the about the major features and fees associated with
the financial account, information about the monetary and non-monetary
remuneration received by the institution for entering into the T1
arrangement, along with the number of students and parents who had
financial accounts under the T1 arrangement for the most recent
completed year, the mean and median costs incurred by account holders,
and whether to provide their consent to the institution. Therefore, the
additional burden on title IV recipients would increase by 3,377 hours
(13,509 times .25 hours) under OMB Control Number 1845-0106.
The data showed that 49,014 title IV recipients with credit
balances were enrolled at private for-profit institutions. We estimate
that, on average, each recipient would take 15 minutes (.25 hours) to
read the about the major features and fees associated with the
financial account, information about the monetary and non-monetary
remuneration received by the institution for entering into the T1
arrangement, along with the number of students and parents who had
financial accounts under the T1 arrangement for the most recent
completed year, the mean and median costs incurred by account holders,
and whether to provide their consent to the institution. Therefore, the
additional burden on title IV recipients would increase by 12,254 hours
under OMB Control Number 1845-0106.
Overall, burden to recipients would increase by 384,667 hours (the
sum of
[[Page 28527]]
369,036 hours, 3,377 hours, and 12,254 hours).
Requirements: T2 Arrangements
Under the proposed regulations in Sec. 668.164(f), when an
institution enters into a contract with a financial institution under
which financial accounts, into which title IV, HEA program funds will
be transferred or deposited, are offered and marketed directly to
students or their parents, the agreement would be considered a T2
arrangement. The Secretary considers that title IV, HEA program funds
would be transferred or deposited into financial accounts that are
offered under a contract between an institution and a financial
institution if students or parents that receive credit balance funds
are subject to the direct marketing. The Secretary considers that a
financial account is marketed directly if the institution communicates
information directly to its students or their parents about the
financial account and how it may be opened; the financial account or
access device is co-branded with the institution's name, logo, mascot,
or other affiliation; or a card or tool that is provided to the student
or parent for institutional purposes, such as a student ID card, is
linked with the financial account or access device.
Under a T2 arrangement, the institution must comply with the
following requirements:
1. The institution must obtain the student's or parent's consent to
open the financial account before the institution provides, or permits
a third-party servicer to provide, any information about the student or
parent, except for name, address, and email address, to the financial
institution or its agents; and before an institution provides any
access device, or any representation of an access device, is sent to
the student or parent; and before a card or tool provided to the
student or parent for institutional purposes, such as a student ID
card, is linked to the financial account;
2. The institution must inform the student or parent of the terms
and conditions of the financial account, in a manner consistent with
the disclosure requirements specified by the Secretary in a notice
published in the Federal Register following consultation with the CFPB,
before the financial account is opened if the institution includes the
financial account in its student choice process under proposed
paragraph (d);
3. No later than 60 days after the most recently completed award
year, the institution must provide to the Secretary and disclose
conspicuously on the institution's Web site the contract between the
institution and financial institution in its entirety, except for any
portions that, if disclosed, would compromise personal privacy,
proprietary information technology, or the security of information
technology or of physical facilities; as well as, the total
consideration, monetary and non-monetary, paid or received by the
parties under the terms of the contract; and the number of students and
parents who had financial accounts under the contract at any time
during the most recently completed award year, and the mean and median
of the actual costs incurred by those account holders;
4. The institution must ensure that the funds deposited in the
financial accounts are accessible through surcharge free in-network
ATMs convenient to each of the institution's locations, and that those
ATMs are sufficient in number and housed and serviced such that the
funds are reasonably available from them, including at the times the
institution or its third-party servicer makes direct payments into
them;
5. The institution must ensure that the financial accounts are not
marketed or portrayed as or converted into credit cards.
6. The institution must ensure that the terms of the T2 financial
accounts are not inconsistent with the best financial interests of the
students and parents opening them. The Secretary considers this
requirement to be met if the institution documents that it periodically
conducts reasonable due diligence reviews to ascertain whether the fees
imposed under the T2 financial account are, considered as a whole,
excessive, in light of prevailing market rates; and all contracts for
the marketing or offering of T2 accounts to the institution's students
or parents provide for termination of the arrangement at the discretion
of the institution based on complaints received from students or
parents or a determination by the institution under (B) that the fees
assessed under the T2 account are excessive;
7. The institution must take affirmative steps, by way of
contractual arrangements with the financial institution as necessary,
to ensure that these requirements are met with respect to all T2
financial accounts offered.
Burden calculation: Based upon our examination of the 2013-14 NSLDS
and IPEDS data on title IV recipients there were 7,539 institutions of
higher education participating in title IV, HEA programs.
Of the total number of 7,539 institutions in the 2013-14 award
year, the NSLDS-IPEDS-CFPB data showed that there would be 144 public
institutions with T2 arrangements. Under these proposed regulations, we
estimate that an institutions would have to modify its systems or
procedures to ensure compliance with these proposed regulation
regulations by, among other things, including, but not limited to,
establish a consent process; provide account terms and conditions
disclosures; ensure compliance with the 30-day prohibition for charges
made to an account following the date that title IV, HEA program funds
are deposited or transferred into the account; as well as provide the
proposed disclosures, contract disclosures, and use and cost data
within 60 days after the end of the award year. In addition, other
changes regarding how the institution will to conduct its proposed
periodic due diligence and updating of third-party servicer contracts
to allow for termination of the contract based upon student complaints
or the institution's assessment that third-party servicer fees have
become excessive. We estimate that the changes required by the proposed
regulations would add an additional 45 hours of burden per institution,
increasing burden by 6,480 hours under OMB Control Number 1845-0106.
Of the total number of 7,539 institutions, the NSLDS-IPEDS-CFPB
data showed that there would be 74 private not-for-profit institutions
that had a T2 arrangement. We estimate that an institutions would have
to modify its systems or procedures to ensure compliance with these
proposed regulation including, but not limited to, establish a consent
process; provide account terms and condition disclosures; ensure
compliance with the 30-day prohibition for charges made to an account
following the date that title IV, HEA program funds are deposited or
transferred into the account; as well as provide the proposed
disclosures, contract disclosures, and use and cost data within 60 days
after the end of the award year. In addition, other changes regarding
how the institution will conduct its proposed periodic due diligence
and updating of third-party servicer contracts to allow for termination
of the contract based upon student complaints or the institution's
assessment that third-party servicer fees have become excessive. We
estimate that the changes required by the proposed regulations would
add an additional 45 hours of burden per institution, increasing burden
by 3,330 hours under OMB Control Number 1845-0106.
Of the total number of 7,539 institutions, the NSLDS-IPEDS-CFPB
[[Page 28528]]
data showed that there would be 0 private for-profit institutions where
title IV recipients had credit balances had a T2 arrangement.
Overall, burden to institutions would increase by 9,810 hours (the
sum of 6,480 hours and 3,330 hours).
From the NSLDS-IPEDS-CFPB data, we projected that there were
260,089 title IV recipients with credit balances at institutions with
T2 arrangements. Of that number of recipients, the data showed that
259,997 were enrolled at public institutions. We estimate that, on
average, each recipient would take 15 minutes (.25 hours) to read the
institution's consent information and decide whether to provide it or
not. Therefore, the additional burden on title IV recipients would
increase by 64,999 hours under OMB Control Number 1845-0106.
Of the total 260,089 title IV recipients with credit balances at
institutions that had a T2 arrangement, we estimated that 92 were
enrolled at private not-for-profit institutions. We estimate that, on
average, each recipient would take 15 minutes (.25 hours) to read the
institution's consent information and decide whether to provide it or
not. Therefore, the additional burden on title IV recipients would
increase by 23 hours under OMB Control Number 1845-0106.
Of the total 260,089 title IV recipients with credit balances at
institutions with T2 arrangements, the data showed that zero were
enrolled at private for-profit institutions.
Overall, burden to institutions would increase by 65,022 hours (the
sum of 64,999 hours and 23 hours).
Collectively, the total increase in burden for Sec. 668.164 would
be 1,109,649 hours under OMB Control Number 1845-0106.
Consistent with the discussion above, the following chart describes
the sections of the proposed regulations involving information
collections, the information being collected, and the collections that
the Department will submit to OMB for approval and public comment under
the PRA, and the estimated costs associated with the information
collections. The monetized net costs of the increased burden on
institutions and borrowers, using wage data developed using BLS data,
available at www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $19,431,272 as
shown in the chart below. This cost was based on an hourly rate of
$36.55 for institutions and $16.30 for students.
Collection of Information
----------------------------------------------------------------------------------------------------------------
OMB control No. and
Regulatory section Information collection estimated burden (change Estimated
in burden) costs
----------------------------------------------------------------------------------------------------------------
668.164-Disbursing Funds.............. The proposed regulations would OMB 1845-0106; This $19,431,272
require institutions to would be a revised
establish a account selection collection. We estimate
process if the institution that the burden would
prefers to send EFT payments increase by 1,109,649
to an account described in hours.
proposed Sec. Sec.
668.164(e) and (f).
Under proposed Sec.
668.164(e), when an
institution enters into a
contract with a third-party
servicer to make direct
payments of title IV, HEA
program funds as a T1
arrangement, the institution
must meet certain
requirements that include,
but are not limited to,
provide the terms and
conditions of the financial
accounts, provide convenient
access to ATMs, cannot be
converted to a credit
instrument, must disclose the
details of the contract with
the public via the
institution's Web site by
providing a URL to a link
showing the contract,
including the mean and median
costs incurred over the prior
year as well as the number of
students and parents with
these financial accounts.
Under proposed Sec.
668.164(f), when an
institution enters into a
contract or marketing
agreement with a financial
institution under which title
IV, HEA program funds would
be transferred or deposited
and are directly offered or
marketed to students and
their parents as a T2
arrangement, the institution
must meet certain
requirements that include but
are not limited to, obtaining
consent to open an financial
account or access device that
is co-branded with the
institution's name, logo,
mascot, or other affiliation,
or a card or tool that is
provided to the student or
parent for institutional
purposes such as a student ID
card that is linked to the
financial account, provide
the terms and conditions of
the account, disclose the
contract between the
institution and the financial
institution.
----------------------------------------------------------------------------------------------------------------
The total burden hours and change in burden hours associated with
each OMB Control number affected by the proposed regulations follows:
------------------------------------------------------------------------
Proposed
Control number Total proposed change in
burden hours burden hours
------------------------------------------------------------------------
1845-0106............................... 4,282,188 + 3,599,340
Total................................. 4,282,188 = 3,599,340
------------------------------------------------------------------------
We have prepared an Information Collection Request (ICR) for these
information collection requirements. If you want to review and comment
on the ICR, please follow the instructions in the ADDRESSES section of
this notice.
Note: The Office of Information and Regulatory Affairs in the
Office of Management and Budget (OMB), and the Department of
Education review all comments posted at www.regulations.gov.
In preparing your comments, you may want to review the ICR in by
using the
[[Page 28529]]
Docket ID number specified in this notice. This proposed collection is
identified as proposed collection OMB 1845-0106.
We consider your comments on this proposed collection of
information in--
Deciding whether the proposed collection is necessary for
the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collection, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques.
Between 30 and 60 days after publication of this document in the
Federal Register, OMB is required to make a decision concerning the
collection of information contained in these proposed regulations.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives your comments by June 17, 2015. This
does not affect the deadline for your comments to us on the proposed
regulations.
If your comments relate to the ICR for these proposed regulations,
please specify the Docket ID number and indicate ``Information
Collection Comments'' on the top of your comments.
Intergovernmental Review
These programs are not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.
Assessment of Educational Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether the proposed regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Accessible Format: Individuals with disabilities can obtain this
document in an accessible format (e.g., braille, large print,
audiotape, or compact disc) on request to the person listed under FOR
FURTHER INFORMATION CONTACT.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. Free
Internet access to the official edition of the Federal Register and the
Code of Federal Regulations is available via the Federal Digital System
at: www.gpo.gov/fdsys. At this site you can view this document, as well
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by the Department.
List of Subjects in 34 CFR Part 668
Administrative practice and procedure, Aliens, Colleges and
universities, Consumer protection, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements,
Selective Service System, Student aid, Vocational education.
Dated: May 13, 2015.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary of
Education proposes to amend part 668 of title 34 of the Code of Federal
Regulations as follows:
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
0
1. The authority citation for part 668 continues to read as follows:
Authority: 20 U.S.C. 1070g, 1091, and 1094, unless otherwise
noted.
0
2. Section 668.2 is amended by revising the definition of full-time
student in paragraph (b) to read as follows:
Sec. 668.2 General definitions.
* * * * *
(b) * * *
Full-time student: An enrolled student who is carrying a full-time
academic workload, as determined by the institution, under a standard
applicable to all students enrolled in a particular educational
program. The student's workload may include any combination of courses,
work, research, or special studies that the institution considers
sufficient to classify the student as a full-time student. For a term-
based program, the student's workload may include repeating any
coursework previously taken in the program but may not include more
than one repetition of a previously passed course. However, for an
undergraduate student, an institution's minimum standard must equal or
exceed one of the following minimum requirements:
(1) For a program that measures progress in credit hours and uses
standard terms (semesters, trimesters, or quarters), 12 semester hours
or 12 quarter hours per academic term.
(2) For a program that measures progress in credit hours and does
not use terms, 24 semester hours or 36 quarter hours over the weeks of
instructional time in the academic year, or the prorated equivalent if
the program is less than one academic year.
(3) For a program that measures progress in credit hours and uses
nonstandard terms (terms other than semesters, trimesters or quarters)
the number of credits determined by--
(i) Dividing the number of weeks of instructional time in the term
by the number of weeks of instructional time in the program's academic
year; and
(ii) Multiplying the fraction determined under paragraph (3)(i) of
this definition by the number of credit hours in the program's academic
year.
(4) For a program that measures progress in clock hours, 24 clock
hours per week.
(5) A series of courses or seminars that equals 12 semester hours
or 12 quarter hours in a maximum of 18 weeks.
(6) The work portion of a cooperative education program in which
the amount of work performed is equivalent to the academic workload of
a full-time student.
(7) For correspondence coursework, a full-time course load must
be--
(i) Commensurate with the full-time definitions listed in
paragraphs (1) through (6) of this definition; and
(ii) At least one-half of the coursework must be made up of non-
correspondence coursework that meets one-half of the institution's
requirement for full-time students.
0
3. In Sec. 668.8, paragraphs (k) and (l) are revised to read as
follows:
Sec. 668.8 Eligible program.
* * * * *
(k) Undergraduate educational program in credit hours. If an
institution offers an undergraduate educational program in credit
hours, the institution must use the formula contained in paragraph (l)
of this section to determine whether that program satisfies the
requirements contained in paragraph (c)(3) or (d) of this section, and
the number of credit hours in that educational program for purposes of
the title IV, HEA programs, unless--
[[Page 28530]]
(1) The program is at least two academic years in length and
provides an associate degree, a bachelor's degree, a professional
degree, or an equivalent degree as determined by the Secretary; or
(2) Each course within the program is acceptable for full credit
toward that institution's associate degree, bachelor's degree,
professional degree, or equivalent degree as determined by the
Secretary provided that--
(i) The institution's degree requires at least two academic years
of study; and
(ii) The institution demonstrates that students enroll in, and
graduate from, the degree program.
(l) Formula. (1) Except as provided in paragraph (l)(2) of this
section, for purposes of determining whether a program described in
paragraph (k) of this section satisfies the requirements contained in
paragraph (c)(3) or (d) of this section, and of determining the number
of credit hours in that educational program with regard to the title
IV, HEA programs--
(i) A semester hour must include at least 37.5 clock hours of
instruction;
(ii) A trimester hour must include at least 37.5 clock hours of
instruction; and
(iii) A quarter hour must include at least 25 clock hours of
instruction.
(2) The institution's conversions to establish a minimum number of
clock hours of instruction per credit may be less than those specified
in paragraph (l)(1) of this section if the institution's designated
accrediting agency, or recognized State agency for the approval of
public postsecondary vocational institutions, for participation in the
title IV, HEA programs has not identified any deficiencies with the
institution's policies and procedures, or their implementation, for
determining the credit hours that the institution awards for programs
and courses, in accordance with 34 CFR 602.24(f), or, if applicable, 34
CFR 603.24(c), so long as--
(i) The institution's student work outside of class combined with
the clock hours of instruction meet or exceed the numeric requirements
in paragraph (l)(1) of this section; and
(ii)(A) A semester hour must include at least 30 clock hours of
instruction;
(B) A trimester hour must include at least 30 clock hours of
instruction; and
(C) A quarter hour must include at least 20 hours of instruction.
* * * * *
0
4. Subpart K is revised to read as follows:
Subpart K--Cash Management
Sec.
668.161 Scope and institutional responsibility.
668.162 Requesting funds.
668.163 Maintaining and accounting for funds.
668.164 Disbursing funds.
668.165 Notices and authorizations.
668.166 Excess cash.
668.167 Severability.
Sec. 668.161 Scope and institutional responsibility.
(a) General. (1) This subpart establishes the rules under which a
participating institution requests, maintains, disburses, and otherwise
manages title IV, HEA program funds.
(2) As used in this subpart--
(i) Access device means a card, code, or other means of access to a
financial account, or any combination thereof, that may be used by the
student or parent to initiate electronic fund transfers.
(ii) Day means a calendar day, unless otherwise specified;
(iii) Depository account means an account at a depository
institution described in 12 U.S.C. 461(b)(1)(A), or an account
maintained by a foreign institution at a comparable depository
institution that meets the requirements of Sec. 668.163(a)(1);
(iv) EFT (Electronic Funds Transfer) means a transaction initiated
electronically instructing the crediting or debiting of a financial
account, or an institution's depository account. For purposes of
transactions initiated by the Secretary, the term ``EFT'' includes all
transactions covered by 31 CFR 208.2(f). For purposes of transactions
initiated by or on behalf of an institution, the term ``EFT'' includes,
from among the transactions covered by 31 CFR 208.2(f), only Automated
Clearinghouse transactions;
(v) Financial account means a student's or parent's checking or
savings account, prepaid card account, or other consumer asset account
held directly or indirectly by a financial institution;
(vi) Financial institution means a bank, savings association,
credit union, or any other person or entity that directly or indirectly
holds a financial account belonging to a student or parent that issues
an access device associated with a financial account and agrees with a
student or parent to provide EFT services;
(vii) Parent means the parent borrower of a Direct PLUS Loan;
(viii) Student ledger account means a bookkeeping account
maintained by an institution to record the financial transactions
pertaining to a student's enrollment at the institution;
(ix) Title IV, HEA programs include the Federal Pell Grant, Iraq-
Afghanistan Service Grant, TEACH Grant, FSEOG, Federal Perkins Loan,
FWS, and Direct Loan programs, and any other program designated by the
Secretary.
(b) Federal interest in title IV, HEA program funds. Except for
funds provided by the Secretary for administrative expenses, and for
funds used for the Job Location and Development Program under subpart B
of the FWS regulations, funds received by an institution under the
title IV, HEA programs are held in trust for the intended beneficiaries
or the Secretary. The institution, as a trustee of those funds, may not
use or hypothecate (i.e., use as collateral) the funds for any other
purpose or otherwise engage in any practice that risks the loss of
those funds.
(c) Standard of conduct. An institution must exercise the level of
care and diligence required of a fiduciary with regard to managing
title IV, HEA program funds under this subpart.
Sec. 668.162 Requesting funds.
(a) General. The Secretary has sole discretion to determine the
method under which the Secretary provides title IV, HEA program funds
to an institution. In accordance with procedures established by the
Secretary, the Secretary may provide funds to an institution under the
advance payment method, reimbursement payment method, or cash
monitoring payment method.
(b) Advance payment method. (1) Under the advance payment method,
an institution submits a request for funds to the Secretary. The
institution's request may not exceed the amount of funds the
institution needs immediately for disbursements the institution has
made or will make to eligible students and parents.
(2) If the Secretary accepts that request, the Secretary initiates
an EFT of that amount to the depository account designated by the
institution.
(3) The institution must disburse the funds requested as soon as
administratively feasible but no later than three business days
following the date the institution received those funds.
(c) Reimbursement payment method. (1) Under the reimbursement
payment method, an institution must credit a student's ledger account
for the amount of title IV, HEA program funds that the student or
parent is eligible to receive, and pay the amount of any credit balance
due under Sec. 668.164(h), before the institution seeks reimbursement
from the Secretary for those disbursements.
[[Page 28531]]
(2) An institution seeks reimbursement by submitting to the
Secretary a request for funds that does not exceed the amount of the
disbursements the institution made to students or parents included in
that request.
(3) As part of its reimbursement request, the institution must--
(i) Identify the students or parents for whom reimbursement is
sought; and
(ii) Submit to the Secretary, or an entity approved by the
Secretary, documentation that shows that each student or parent
included in the request was--
(A) Eligible to receive and has received the title IV, HEA program
funds for which reimbursement is sought; and
(B) Paid directly any credit balance due under Sec. 668.164(h).
(4) The Secretary will not approve the amount of the institution's
reimbursement request for a student or parent and will not initiate an
EFT of that amount to the depository account designated by the
institution, if the Secretary determines with regard to that student or
parent, and in the judgment of the Secretary, that the institution has
not--
(i) Accurately determined the student's or parent's eligibility for
title IV, HEA program funds;
(ii) Accurately determined the amount of title IV, HEA program
funds disbursed, including the amount paid directly to the student or
parent; and
(iii) Submitted the documentation required under paragraph (c)(3)
of this section.
(d) Heightened cash monitoring payment method. Under the heightened
cash monitoring payment method, an institution must credit a student's
ledger account for the amount of title IV, HEA program funds that the
student or parent is eligible to receive, and pay the amount of any
credit balance due under Sec. 668.164(h), before the institution--
(1) Submits a request for funds under the provisions of the advance
payment method described in paragraph (b)(1) and (2) of this section,
except that the institution's request may not exceed the amount of the
disbursements the institution made to the students included in that
request; or
(2) Seeks reimbursement for those disbursements under the
provisions of the reimbursement payment method described in paragraph
(c) of this section, except that the Secretary may modify the
documentation requirements and review procedures used to approve the
reimbursement request.
Sec. 668.163 Maintaining and accounting for funds.
(a)(1) Institutional depository account. An institution must
maintain title IV, HEA program funds in a depository account. For an
institution located in a State, the depository account must be insured
by the FDIC or NCUA. For a foreign institution, the depository account
may be insured by the FDIC or NCUA, or by an equivalent agency of the
government of the country in which the institution is located. If there
is no equivalent agency, the Secretary may approve a depository account
designated by the foreign institution.
(2) For each depository account that includes title IV, HEA program
funds, an institution must clearly identify that title IV, HEA program
funds are maintained in that account by--
(i) Including in the name of each depository account the phrase
``Federal Funds''; or
(ii)(A) Notifying the depository institution that the depository
account contains title IV, HEA program funds that are held in trust and
retaining a record of that notice; and
(B) Except for a public institution located in a State or a foreign
institution, filing with the appropriate State or municipal government
entity a UCC-1 statement disclosing that the depository account
contains Federal funds and maintaining a copy of that statement.
(b) Separate depository account. The Secretary may require an
institution to maintain title IV, HEA program funds in a separate
depository account that contains no other funds if the Secretary
determines that the institution failed to comply with--
(1) The requirements in this subpart;
(2) The recordkeeping and reporting requirements in subpart B of
this part; or
(3) Applicable program regulations.
(c) Interest-bearing depository account. (1) An institution is
required to maintain its title IV, HEA program funds in an interest-
bearing depository account, except as provided in 2 CFR 200.305(b)(8).
(2) Any interest earned on Federal Perkins Loan program funds is
retained by the institution as provided under 34 CFR 674.8(a).
(3) An institution may keep the initial $500 in interest it earns
during the award year on other title IV, HEA program funds it maintains
in accordance with paragraph (c)(1) of this section. By June 30 of that
award year, the institution must remit to the Department of Health and
Human Services, Payment Management System, Rockville, MD 20852 any
interest over $500.
(d) Accounting and fiscal records. An institution must--
(1) Maintain accounting and internal control systems that identify
the cash balance of the funds of each title IV, HEA program that are
included in the institution's depository account or accounts as readily
as if those funds were maintained in a separate depository account;
(2) Identify the earnings on title IV, HEA program funds maintained
in the institution's depository account or accounts; and
(3) Maintain its fiscal records in accordance with the provisions
in Sec. 668.24.
Sec. 668.164 Disbursing funds.
(a) Disbursement. (1) Except as provided under paragraph (a)(2) of
this section, a disbursement of title IV, HEA program funds occurs on
the date that the institution credits the student's ledger account or
pays the student or parent directly with--
(i) Funds received from the Secretary; or
(ii) Institutional funds used in advance of receiving title IV, HEA
program funds.
(2)(i) For a Direct Loan for which the student is subject to the
delayed disbursement requirements under 34 CFR 685.303(b)(4), if an
institution credits a student's ledger account with institutional funds
earlier than 30 days after the beginning of a payment period, the
Secretary considers that the institution makes that disbursement on the
30th day after the beginning of the payment period; or
(ii) If an institution credits a student's ledger account with
institutional funds earlier than 10 days before the first day of
classes of a payment period, the Secretary considers that the
institution makes that disbursement on the 10th day before the first
day of classes of a payment period.
(b) Disbursements by payment period. (1) Except for paying a
student under the FWS program or unless 34 CFR 685.303 applies, an
institution must disburse during the current payment period the amount
of title IV, HEA program funds that a student enrolled at the
institution, or the student's parent, is eligible to receive for that
payment period.
(2) An institution may make a prior year, late, or retroactive
disbursement, as provided under paragraph (c)(3), (j), or (k) of this
section, respectively, during the current payment period as long as the
student was enrolled and eligible during the payment period
[[Page 28532]]
covered by that prior year, late, or retroactive disbursement.
(3) At the time that a disbursement is made for a payment period,
the institution, along with the third-party servicer engaged by the
institution to draw down title IV, HEA program funds or otherwise
perform activities leading to or supporting that disbursement, must
confirm that the student is enrolled at the institution, and that the
student, or the student's parent, is eligible for that disbursement.
(c) Crediting a student's ledger account. (1) An institution may
credit a student's ledger account with title IV, HEA program funds to
pay for allowable charges associated with the current payment period.
Allowable charges are--
(i) The amount of tuition, fees, and institutionally provided room
and board assessed the student for the payment period or, as provided
in paragraph (c)(5) of this section, the prorated amount of those
charges if the institution debits the student's ledger account for more
than the charges associated with the payment period; and
(ii) The amount incurred by the student for the payment period for
purchasing books, supplies, and other educationally related goods and
services provided by the institution for which the institution obtains
the student's or parent's authorization under Sec. 668.165(b).
(2) If an institution includes the cost of books and supplies as
part of tuition and fees under paragraph (c)(1)(i) of this section, it
must separately disclose those costs and explain why including them is
in the best financial interests of students.
(3)(i) An institution may include in one payment period for the
current year, prior year charges of not more than $200 for--
(A) Tuition, fees, and institutionally provided room and board, as
provided under paragraph (c)(1)(i) of this section, without obtaining
the student's or parent's authorization; and
(B) Educationally related goods and services provided by the
institution, as described in paragraph (c)(1)(ii) of this section, if
the institution obtains the student's or parent's authorization under
Sec. 668.165(b).
(ii) For purposes of this section--
(A) The current year is the current loan period for any student or
parent who received a Direct Loan, or the current award year for any
student who did not receive a Direct Loan; and
(B) A prior year is any loan period or award year prior to the
current loan period or award year, as applicable.
(4) An institution may include in the current payment period
allowable charges stemming from any previous payment period in the
current award year or loan period for which the student was eligible,
if the student was not already paid for such previous payment period.
(5) For purposes of this section, an institution determines the
prorated amount of charges associated with the current payment period
by--
(i) For a program with substantially equal payment periods,
dividing the total institutional charges for the program by the number
of payment periods in the program; or
(ii) For other programs, dividing the number of credit or clock
hours the student enrolls in, or is expected to complete, in the
current payment period, by the total number of credit or clock hours in
the program and multiplying that result by the total institutional
charges for the program.
(d)(1) Direct payments. Except as provided under paragraph (d)(3)
of this section, an institution makes a direct payment--
(i) To a student, for the amount of the title IV, HEA program funds
that a student is eligible to receive, including Direct PLUS Loan funds
that the student's parent authorized the student to receive, by--
(A) Initiating an EFT of that amount to the student's financial
account;
(B) Issuing a check for that amount payable to, and requiring the
endorsement of, the student; or
(C) Dispensing cash for which the institution obtains a receipt
signed by the student;
(ii) To a parent, for the amount of the Direct PLUS Loan funds that
a parent does not authorize the student to receive, by--
(A) Initiating an EFT of that amount to the parent's financial
account;
(B) Issuing a check for that amount payable to and requiring the
endorsement of the parent; or
(C) Dispensing cash for which the institution obtains a receipt
signed by the parent.
(2) Issuing a check. An institution issues a check on the date that
it--
(i) Mails the check to the student or parent; or
(ii) Notifies the student or parent that the check is available for
immediate pick-up at a specified location at the institution. The
institution may hold the check for no longer than 21 days after the
date it notifies the student or parent. If the student or parent does
not pick up the check, the institution must immediately mail the check
to the student or parent, pay the student or parent directly by other
means, or return the funds to the appropriate title IV, HEA program.
(3) Payments by the Secretary. The Secretary may pay title IV, HEA
credit balances under paragraphs (h) and (m) of this section directly
to a student or parent using a method established or authorized by the
Secretary and published in the Federal Register.
(4) Student or parent choice. (i) An institution that makes direct
payments to a student or parent by EFT and that chooses to enter into
an arrangement described in paragraph (e) or (f) of this section,
including an institution that uses a third-party servicer to make those
payments, must establish a selection process under which the student or
parent chooses one of several options for receiving those payments.
(A) In implementing its selection process, the institution must--
(1) Inform the student or parent in writing that he or she is not
required to open or obtain a financial account or access device offered
by or through a specific financial institution;
(2) Ensure that the student's or parent's options for receiving
direct payments are described and presented in a clear, fact-based,
and, except as provided in paragraph (d)(4)(i)(B)(1) of this section,
neutral manner;
(3) Ensure that initiating direct payments electronically to a
financial account or access device associated with an existing student
or parent financial account is as timely and no more onerous to the
student or parent as initiating direct payments to an account described
in paragraph (e) or (f) of this section; and
(4) Allow the student or parent the option to change, at any time,
his or her choice as to how direct payments are made, as long as the
student or parent provides the institution with written notice of the
change within a reasonable time.
(B) In describing the options under its selection process, the
institution--
(1) Must present prominently as the first and default option, the
financial account or access device associated with an existing
financial account belonging to the student or parent;
(2) Must list and identify the major features and commonly assessed
fees associated with all financial accounts described in paragraphs (e)
and (f) of this section, as well as a Universal Resource Locator (URL)
for the terms and conditions of those accounts. For each account, if an
institution follows the format and content requirements specified by
the Secretary in a notice published in the Federal Register following
consultation with the CFPB, it
[[Page 28533]]
will be in compliance with this requirement with respect to the major
features and assessed fees associated with the account;
(3) May provide information about available financial accounts
other than those described in paragraphs (e) and (f) of this section
that have deposit insurance under 12 CFR part 330, or share insurance
in accordance with 12 CFR part 745, for the benefit of the student or
parent; and
(4) Must include issuing a check as an option for a student or
parent to receive payments.
(ii) An institution that does not offer or use any financial
accounts described in paragraphs (e) or (f) of this section may make
direct payments to a student's or parent's existing financial account,
or issue a check or disburse cash to the student or parent without
establishing the selection process described in paragraph (d)(4)(i) of
this section.
(e) Tier one arrangement. (1) In a Tier one (T1) arrangement, an
institution has a contract with a third-party servicer under which the
servicer performs one or more of the functions associated with
processing direct payments of title IV, HEA program funds on behalf of
the institution to one or more financial accounts that are offered
under the contract or by the third-party servicer, or by an entity
contracting with or affiliated with the third party servicer to
students and their parents.
(2) Under a T1 arrangement, the institution must--
(i) Obtain the student's or parent's consent to open the financial
account before--
(A) The institution provides any information about the student or
parent, except for name, address, and email address, to the third-party
servicer, to the financial institution at which the financial account's
funds would be deposited, or the agents of either;
(B) An access device, or any representation of an access device, is
sent to the student or parent; or
(C) A card or tool provided to the student or parent for
institutional purposes, such as a student ID card, is linked to the
financial account;
(ii) Inform the student or parent of the terms and conditions of
the financial account, as required under Sec. 668.164(d)(4)(i)(B)(2),
before the financial account is opened;
(iii) Ensure that the student or parent--
(A) Has convenient access to the financial account through a
surcharge-free national or regional ATM network that has ATMs located
on or near each location of the institution, and that those ATMs are
sufficient in number and housed and serviced such that the funds are
reasonably available from them, including at the times the institution
or its third-party servicer makes direct payments into the student or
parent financial accounts;
(B) Does not incur any cost--
(1) For opening the financial account or initially receiving an
access device;
(2) Assessed by the institution, third-party servicer, or third-
party servicer's associated financial institution when the student or
parent conducts point-of-sale transactions;
(3) For conducting any transaction on an ATM that belongs to the
surcharge free regional or national network; and
(4) For a charge initiated by the institution, third-party
servicer, or third-party servicer's associated financial institution
for at least 30 days following the date that title IV, HEA program
funds are deposited or transferred to the financial account;
(iv) Ensure that--
(A) The financial account or access device is not marketed or
portrayed as or converted into a credit card; and
(B) No credit may be extended or associated with the financial
account, and that no fee is charged to the student or parent for any
transaction that exceeds the balance on the card, regardless of whether
the full amount of the transaction is established at the time the
transaction is authorized by the financial institution;
(v) No later than 60 days after the most recently completed award
year disclose conspicuously on the institution's Web site--
(A) The contract(s) establishing the T1 arrangement between the
institution and third-party servicer and financial institution acting
on behalf of the third-party servicer, as applicable, except for any
portions that, if disclosed, would compromise personal privacy,
proprietary information technology, or the security of information
technology or of physical facilities;
(B) The total consideration for the most recently completed award
year, monetary and non-monetary, paid or received by the parties under
the terms of the contract; and
(C) The number of students and parents who had financial accounts
under the contract at any time during the most recently completed award
year, and the mean and median of the actual costs incurred by those
account holders;
(vi) Annually provide to the Secretary the URL for the items under
paragraph (e)(2)(v) of this section for publication in a centralized
database;
(vii) Ensure that the terms of the accounts offered pursuant to a
T1 arrangement are not inconsistent with the best financial interests
of the students and parents opening them. The Secretary considers this
requirement to be met if--
(A) The institution documents that it periodically conducts
reasonable due diligence reviews to ascertain whether the fees imposed
under the T1 arrangement are, considered as a whole, not excessive in
light of prevailing market rates; and
(B) All contracts for the marketing or offering of accounts
pursuant to T1 arrangements to the institution's students or parents
make provision for termination of the arrangement by the institution
based on complaints received from students or parents or a
determination by the institution under paragraph (e)(2)(vi)(A) of this
section that the fees assessed under the T1 arrangement are excessive;
and
(viii) Take affirmative steps, by way of contractual arrangements
with the third-party servicer as necessary, to ensure that requirements
of this section are met with respect to all accounts offered pursuant
to T1 arrangements.
(f) Tier two arrangement. (1) In a Tier two (T2) arrangement, an
institution has a contract with a financial institution or entity that
offers financial accounts through a financial institution, under which
financial accounts are offered and marketed directly to students or
their parents.
(2) The Secretary presumes that title IV, HEA program funds are
deposited or transferred into the financial accounts offered and
marketed under paragraph (f)(1) of this section. However, the
institution does not have to comply with the requirements described in
paragraph (f)(4) of this section if it documents that, for the most
recently completed award year no student or parent received a credit
balance.
(3) The Secretary considers that a financial account is marketed
directly if--
(i) The institution communicates information directly to its
students or their parents about the financial account and how it may be
opened;
(ii) The financial account or access device is co-branded with the
institution's name, logo, mascot, or other affiliation; or
(iii) A card or tool that is provided to the student or parent for
institutional purposes, such as a student ID card, is linked with the
financial account or access device.
(4) Under a T2 arrangement, the institution must--
(i) Obtain the student's or parent's consent to open the financial
account before--
[[Page 28534]]
(A) The institution provides, or permits a third-party servicer to
provide, any information about the student or parent, except for name,
address, and email address, to the financial institution or its agents;
(B) An access device, or any representation of an access device, is
sent to the student or parent; or
(C) A card or tool provided to the student or parent for
institutional purposes, such as a student ID card, is linked to the
financial account;
(ii) Inform the student or parent of the terms and conditions of
the financial account as required under Sec. 668.164(d)(4)(i)(B)(2),
before the financial account is opened;
(iii) No later than 60 days after the most recently completed award
year, provide to the Secretary and disclose conspicuously on the
institution's Web site--
(A) The contract(s) establishing the T2 arrangement between the
institution and financial institution in its entirety, except for any
portions that, if disclosed, would compromise personal privacy,
proprietary information technology, or the security of information
technology or of physical facilities;
(B) The total consideration for the most recently completed award
year, monetary and non-monetary, paid or received by the parties under
the terms of the contract; and
(C) The number of students and parents who had financial accounts
under the contract at any time during the most recently completed award
year, and the mean and median of the actual costs incurred by those
account holders;
(iv) Annually provide to the Secretary the URL for the items under
paragraph (f)(4)(iii) of this section for publication in a centralized
database;
(v) Ensure that the funds deposited in the financial accounts are
accessible through surcharge free in-network ATMs convenient to each of
the institution's locations, and that those ATMs are sufficient in
number and housed and serviced such that the funds are reasonably
available from them, including at the times the institution or its
third-party servicer makes direct payments into them; and
(vi) Ensure that the financial accounts are not marketed or
portrayed as or converted into credit cards;
(vii) Ensure that the terms of the accounts offered pursuant to a
T2 arrangement are not inconsistent with the best financial interests
of the students and parents opening them. The Secretary considers this
requirement to be met if--
(A) The institution documents that it periodically conducts
reasonable due diligence reviews to ascertain whether the fees imposed
under the T2 arrangement are, considered as a whole, not excessive in
light of prevailing market rates; and
(B) All contracts for the marketing or offering of accounts
pursuant to T2 arrangements to the institution's students or parents
make provision for termination of the arrangement by the institution
based on complaints received from students or parents or a
determination by the institution under paragraph (f)(4)(vi)(A) of this
section that the fees assessed under the T2 arrangement are excessive;
(viii) Take affirmative steps, by way of contractual arrangements
with the financial institution as necessary, to ensure that
requirements of this section are met with respect to all accounts
offered pursuant to T2 arrangements; and
(ix) Ensure students and parents incur no cost for opening the
account or initially receiving an access device.
(g) Ownership of financial accounts opened through outreach to an
institution's parents or students. Any financial account offered
pursuant to an arrangement described in paragraphs (e) or (f) of this
section must meet the requirements of either 31 CFR 210.5(a) or (b)(5),
as applicable.
(h) Title IV, HEA credit balances. (1) A title IV, HEA credit
balance occurs whenever the amount of title IV, HEA program funds
credited to a student's account for a payment period exceeds the amount
assessed the student for allowable charges associated with that payment
period as provided under paragraph (c) of this section.
(2) A title IV, HEA credit balance must be paid directly to the
student or parent as soon as possible, but no later than--
(i) 14 days after the balance occurred if the credit balance
occurred after the first day of class of a payment period; or
(ii) 14 days after the first day of class of a payment period if
the credit balance occurred on or before the first day of class of that
payment period.
(i) Early disbursements. (1) Except as provided in paragraph (i)(2)
of this section for a first-year, first-time borrower or a student
employed under the FWS program, the earliest an institution may
disburse title IV, HEA funds to an eligible student or parent is--
(i) If the student is enrolled in a credit-hour program offered in
terms that are substantially equal in length, 10 days before the first
day of classes of a payment period; or
(ii) If the student is enrolled in a credit-hour program offered in
terms that are not substantially equal in length, a non-term credit-
hour program, or a clock-hour program, the later of--
(A) Ten days before the first day of classes of a payment period;
or
(B) The date the student completed the previous payment period for
which he or she received title IV, HEA program funds.
(2) An institution may not--
(i) Make an early disbursement of a Direct Loan to a first-year,
first-time borrower who is subject to the 30-day delayed disbursement
requirements in 34 CFR 685.303(b)(4). This restriction does not apply
if the institution is exempt from the 30-day delayed disbursement
requirements under 34 CFR 685.303(b)(4)(i)(A) or (B); or
(ii) Compensate a student employed under the FWS program until the
student earns that compensation by performing work, as provided in 34
CFR 675.16(a)(5).
(j) Late disbursements. (1) Ineligible student. For purposes of
this paragraph, an otherwise eligible student becomes ineligible to
receive title IV, HEA program funds on the date that--
(i) For a Direct Loan, the student is no longer enrolled at the
institution as at least a half-time student for the period of
enrollment for which the loan was intended; or
(ii) For an award under the Federal Pell Grant, FSEOG, Federal
Perkins Loan, Iraq-Afghanistan Service Grant, and TEACH Grant programs,
the student is no longer enrolled at the institution for the award
year.
(2) Conditions for a late disbursement. Except as limited under
paragraph (i)(4) of this section, a student who becomes ineligible, as
described in paragraph (i)(1) of this section, qualifies for a late
disbursement (and the parent qualifies for a parent Direct PLUS Loan
disbursement) if, before the date the student became ineligible--
(i) The Secretary processed a SAR or ISIR with an official expected
family contribution for the student for the relevant award year; and
(ii)(A) For a loan made under the Direct Loan program or for an
award made under the TEACH Grant program, the institution originated
the loan or award; or
(B) For an award under the Federal Perkins Loan or FSEOG programs,
the institution made that award to the student.
(3) Making a late disbursement. Provided that the conditions
described
[[Page 28535]]
in paragraph (i)(2) of this section are satisfied--
(i) If the student withdrew from the institution during a payment
period or period of enrollment, the institution must make any post-
withdrawal disbursement required under Sec. 668.22(a)(4) in accordance
with the provisions of Sec. 668.22(a)(5);
(ii) If the student completed the payment period or period of
enrollment, the institution must provide the student or parent the
choice to receive the amount of title IV, HEA program funds that the
student or parent was eligible to receive while the student was
enrolled at the institution. For a late disbursement in this
circumstance, the institution may credit the student's ledger account
as provided in paragraph (c) of this section, but must pay or offer any
remaining amount to the student or parent; or
(iii) If the student did not withdraw but ceased to be enrolled as
at least a half-time student, the institution may make the late
disbursement of a loan under the Direct Loan program to pay for
educational costs that the institution determines the student incurred
for the period in which the student or parent was eligible.
(4) Limitations. (i) An institution may not make a late
disbursement later than 180 days after the date the institution
determines that the student withdrew, as provided in Sec. 668.22, or
for a student who did not withdraw, 180 days after the date the student
otherwise became ineligible, pursuant to paragraph (i)(1) of this
section.
(ii) An institution may not make a late second or subsequent
disbursement of a loan under the Direct Loan program unless the student
successfully completed the period of enrollment for which the loan was
intended.
(iii) An institution may not make a late disbursement of a Direct
Loan if the student was a first-year, first-time borrower as described
in 34 CFR 685.303(b)(4) unless the student completed the first 30 days
of his or her program of study. This limitation does not apply if the
institution is exempt from the 30-day delayed disbursement requirements
under 34 CFR 685.303(b)(4).
(iv) An institution may not make a late disbursement of any title
IV, HEA program assistance unless it received a valid SAR or a valid
ISIR for the student by the deadline date established by the Secretary
in a notice published in the Federal Register.
(k) Retroactive payments. If an institution did not make a
disbursement to an enrolled student for a payment period the student
completed (for example, because of an administrative delay or because
the student's ISIR was not available until a subsequent payment
period), the institution may pay the student for all prior payment
periods in the current award year or loan period for which the student
was eligible.
(l) Returning funds. (1) Notwithstanding any State law (such as a
law that allows funds to escheat to the State), an institution must
return to the Secretary any title IV, HEA program funds, except FWS
program funds, that it attempts to disburse directly to a student or
parent that are not received by the student or parent. For FWS program
funds, the institution is required to return only the Federal portion
of the payroll disbursement.
(2) If an EFT to a student's or parent's financial account is
rejected, or a check to a student or parent is returned, the
institution may make additional attempts to disburse the funds,
provided that those attempts are made not later than 45 days after the
EFT was rejected or the check returned. In cases where the institution
does not make another attempt, the funds must be returned to the
Secretary before the end of this 45-day period.
(3) If a check sent to a student or parent is not returned but is
not cashed, the institution must return the funds to the Secretary no
later than 240 days after the date it issued the check.
(m) Provisions for books and supplies. (1) An institution must
provide a way for a student who is eligible for title IV, HEA program
funds to obtain or purchase, by the seventh day of a payment period,
the books and supplies applicable to the payment period if, 10 days
before the beginning of the payment period--
(i) The institution could disburse the title IV, HEA program funds
for which the student is eligible; and
(ii) Presuming the funds were disbursed, the student would have a
credit balance under paragraph (h) of this section.
(2) The amount the institution provides to the student to obtain or
purchase books and supplies is the lesser of the presumed credit
balance under this paragraph or the amount needed by the student, as
determined by the institution.
(3) The institution must have a policy under which the student may
opt out of the way the institution provides for the student to obtain
or purchase books and supplies under this paragraph.
(4) If a student uses the method provided by the institution to
obtain or purchase books and supplies under this paragraph, the student
is considered to have authorized the use of title IV, HEA funds and the
institution does not need to obtain a written authorization under
paragraph (c) of this section and Sec. 668.165(b) for this purpose.
Sec. 668.165 Notices and authorizations.
(a) Notices. (1) Before an institution disburses title IV, HEA
program funds for any award year, the institution must notify a student
of the amount of funds that the student or his or her parent can expect
to receive under each title IV, HEA program, and how and when those
funds will be disbursed. If those funds include Direct Loan program
funds, the notice must indicate which funds are from subsidized loans
and which are from unsubsidized loans.
(2) Except in the case of a post-withdrawal disbursement made in
accordance with Sec. 668.22(a)(5), if an institution credits a
student's account at the institution with Direct Loan, Federal Perkins
Loan, or TEACH Grant program funds, the institution must notify the
student or parent of--
(i) The anticipated date and amount of the disbursement;
(ii) The student's or parent's right to cancel all or a portion of
that loan, loan disbursement, TEACH Grant, or TEACH Grant disbursement
and have the loan proceeds and TEACH Grant proceeds returned to the
Secretary; and
(iii) The procedures and time by which the student or parent must
notify the institution that he or she wishes to cancel the loan, loan
disbursement, TEACH Grant, or TEACH Grant disbursement.
(3) The institution must provide the notice described in paragraph
(a)(2) of this section in writing--
(i) No earlier than 30 days before, and no later than 30 days
after, crediting the student's ledger account at the institution, if
the institution obtains affirmative confirmation from the student under
paragraph (a)(6)(i) of this section; or
(ii) No earlier than 30 days before, and no later than seven days
after, crediting the student's ledger account at the institution, if
the institution does not obtain affirmative confirmation from the
student under paragraph (a)(6)(i) of this section.
(4)(i) A student or parent must inform the institution if he or she
wishes to cancel all or a portion of a loan, loan disbursement, TEACH
Grant, or TEACH Grant disbursement.
(ii) The institution must return the loan or TEACH Grant proceeds,
cancel the loan or TEACH Grant, or do both, in accordance with program
regulations provided that the institution receives a
[[Page 28536]]
loan or TEACH Grant cancellation request--
(A) By the later of the first day of a payment period or 14 days
after the date it notifies the student or parent of his or her right to
cancel all or a portion of a loan or TEACH Grant, if the institution
obtains affirmative confirmation from the student under paragraph
(a)(6)(i) of this section; or
(B) Within 30 days of the date the institution notifies the student
or parent of his or her right to cancel all or a portion of a loan, if
the institution does not obtain affirmative confirmation from the
student under paragraph (a)(6)(i) of this section.
(iii) If a student or parent requests a loan cancellation after the
period set forth in paragraph (a)(4)(ii) of this section, the
institution may return the loan or TEACH Grant proceeds, cancel the
loan or TEACH Grant, or do both, in accordance with program
regulations.
(5) An institution must inform the student or parent in writing
regarding the outcome of any cancellation request.
(6) For purposes of this section--
(i) Affirmative confirmation is a process under which an
institution obtains written confirmation of the types and amounts of
title IV, HEA program loans that a student wants for the period of
enrollment before the institution credits the student's account with
those loan funds. The process under which the TEACH Grant program is
administered is considered to be an affirmative confirmation process;
and
(ii) An institution is not required to return any loan or TEACH
Grant proceeds that it disbursed directly to a student or parent.
(b) Student or parent authorizations. (1) If an institution obtains
written authorization from a student or parent, as applicable, the
institution may--
(i) Use the student's or parent's title IV, HEA program funds to
pay for charges described in Sec. 668.164(c)(1)(ii) or (c)(3)(i)(B)
that are included in that authorization; and
(ii) Unless the Secretary provides funds to the institution under
the reimbursement payment method or the heightened cash monitoring
payment method described in Sec. 668.162(c)(2) or (d)(2),
respectively, hold on behalf of the student or parent any title IV, HEA
program, funds that would otherwise be paid directly to the student or
parent as credit balance under Sec. 668.164(h).
(2) In obtaining the student's or parent's authorization to perform
an activity described in paragraph (b)(1) of this section, an
institution--
(i) May not require or coerce the student or parent to provide that
authorization;
(ii) Must allow the student or parent to cancel or modify that
authorization at any time; and
(iii) Must clearly explain how it will carry out that activity.
(3) A student or parent may authorize an institution to carry out
the activities described in paragraph (b)(1) of this section for the
period during which the student is enrolled at the institution.
(4)(i) If a student or parent modifies an authorization, the
modification takes effect on the date the institution receives the
modification notice.
(ii) If a student or parent cancels an authorization to use title
IV, HEA program funds to pay for authorized charges under paragraph
(a)(4) of this section, the institution may use title IV, HEA program
funds to pay only those authorized charges incurred by the student
before the institution received the notice.
(iii) If a student or parent cancels an authorization to hold title
IV, HEA program funds under paragraph (b)(1)(ii) of this section, the
institution must pay those funds directly to the student or parent as
soon as possible but no later than 14 days after the institution
receives that notice.
(5) If an institution holds excess student funds under paragraph
(b)(1)(ii) of this section, the institution must--(i) Identify the
amount of funds the institution holds for each student or parent in a
subsidiary ledger account designed for that purpose;
(ii) Maintain, at all times, cash in its depository account in an
amount at least equal to the amount of funds the institution holds for
the student; and
(iii) Notwithstanding any authorization obtained by the institution
under this paragraph, pay any remaining balance on loan funds by the
end of the loan period and any remaining other title IV, HEA program
funds by the end of the last payment period in the award year for which
they were awarded.
Sec. 668.166 Excess cash.
(a) General. The Secretary considers excess cash to be any amount
of title IV, HEA program funds, other than Federal Perkins Loan program
funds, that an institution does not disburse to students by the end of
the third business day following the date the institution--
(1) Received those funds from the Secretary; or
(2) Deposited or transferred to its Federal account previously
disbursed title IV, HEA program funds, such as those resulting from
award adjustments, recoveries, or cancellations.
(b) Excess cash tolerance. An institution may maintain for up to
seven days an amount of excess cash that does not exceed one percent of
the total amount of funds the institution drew down in the prior award
year. The institution must return immediately to the Secretary any
amount of excess cash over the one-percent tolerance and any amount of
excess cash remaining in its account after the seven-day tolerance
period.
(c) Consequences for maintaining excess cash. Upon a finding that
an institution maintained excess cash for any amount or time over that
allowed in the tolerance provisions in paragraph (b) of this section,
the actions the Secretary may take include, but are not limited to--
(1) Requiring the institution to reimburse the Secretary for the
costs the Federal government incurred in providing that excess cash to
the institution; and
(2) Providing funds to the institution under the reimbursement
payment method or heightened cash monitoring payment method described
in Sec. 668.162(c) and (d), respectively.
Sec. 668.167 Severability.
If any provision of this subpart or its application to any person,
act, or practice is held invalid, the remainder of the section or the
application of its provisions to any person, act, or practice shall not
be affected thereby.
[FR Doc. 2015-11917 Filed 5-15-15; 8:45 am]
BILLING CODE 4000-01-P