Federal Regulations Archives

Guidance on 1098-T and Pandemic Relief (HEERF) Funds

December 21, 2022

By: Christy Blakney, Student Business Services (SBS) Consultant

First, The Good News

Collecting and reporting correct information on IRS Form 1098-T seems to continually cause challenges. The good news is that there are no substantive changes to reporting for the 2022 tax year and past year challenges for properly reporting pandemic relief (HEERF) funds have been firmly answered. The Internal Revenue Service previously clarified that the emergency relief funds paid directly to students, or for which the student directed to be applied to their account balance, should be treated the same as any personal payment.

Treatment of Various Fund Types

Note that the IRS guidance only applies to funds under Section 3504 (additional Federal Supplemental Educational Opportunity Grant funds), Section 18004 (HEERF), Section 18008 (Howard University, Gallaudet University), Section 314 of the COVID Relief Act, and Section 2003 of the American Rescue Plan (ARP). It may not apply to funds that came through the states under the Governor’s Emergency Education Relief (GEER) Fund under Section 18002(c)(2) of the CARES Act. Institutions that received those funds from their states could use them to fund institutional grants to students. Absent guidance to the contrary, those grants to students should likely be reported on the 1098-T in the same manner as other institutional aid, especially for state tax reporting purposes. Additionally, funds received by the institution and used to “write off” delinquent student account balances may need to be reported to the student on a 1099-C as a cancellation of debt. Be sure to consult your tax office for applicability.

Inform Your Students

While school officials want to be very clear that we will never provide tax advice, you should provide information that lets them know how each amount reported on the 1098-T was calculated. The IRS allows institutions a wide range of flexibility in reporting to allow for differences in policy and timing but that is exactly what makes a 1098-T confusing to some taxpayers. Many taxpayers expect the form to report “plug and play” amounts similar to a W-2 or 1099 but unfortunately, that is simply not true. Providing a detailed supplement of the calculations is not always feasible so it is important to clearly state your school’s policies with regard to items such as treatment of deposits, exemptions, waivers, contracts, and also the school’s choice of reporting spring charges (Box 7 option). These helpful tips can be reported on your own 1098-T FAQ site or as a communication that accompanies your 1098-T form.

At a minimum, sharing the link to the IRS FAQs may help reduce questions directed to your office and will support your calculation method for reporting amounts on the 1098-T.

Remember to Solicit Students’ TINs

And, finally, make sure you continue to follow IRS guidance to send a written solicitation (e-mail and other electronic communications are considered “written”) to any student who has not provided their taxpayer identification number (TIN), e.g., Social Security number. Best practices suggest sending this solicitation at least twice before sending your file to the IRS. Rules require schools to file 1098-Ts even if the student fails to provide his/her TIN. Proof of an annual request protects the institution from being assessed penalties for filing a 1098-T without a TIN. Also, consider working with your Registrar’s Office to coordinate this information-gathering function. Also, be sure you “check the box” on the IRS copy of your 1098-T file indicating you have complied with this solicitation requirement during 2022.

If a student fails to provide you with their TIN prior to the institution submitting their 1098-T file to the IRS, the IRS indicates that you should not issue a corrected form simply to add or correct personal information. Corrected forms are only necessary if reported amounts were calculated incorrectly and are being changed.

Still Have Questions

Student Business Services can help your institution review its existing business practices related to 1098-T and other reporting requirements. Together, we can develop a comprehensive managerial reporting plan that is easy to execute and ensures you will meet regulatory deadlines. Contact us today for a no-obligation consultation.

A FAS-Track to New Academic Year Setup

December 8, 2022

By: Lisa Seals, Senior Consultant

Ready for the New Academic Year?

Getting ready for a new academic year can be a time of reflection or pulling your hair out. It’s a time to determine what has worked well, what could be improved, and what must totally be re-evaluated or reinvented.

Where to Start?

All Student Services, or Enrollment Management, departments are crucial to the new academic year setup. Using the right information from each area in the setup process not only streamlines operations but also maintains compliance measures and ultimately gives students a better experience. Each department has specific requests and requirements of the Financial Aid Office. Mapping out everything that is needed, why it is needed, and the timelines to be met is a great starting point.

What’s Needed and From Whom?

Gathering data, from certain departments, helps to set reasonable timelines to get these steps set up in your ERP systems and to produce actual or estimated offers to all students, but specifically the first-time, first-year incoming students.

Admissions

Admissions Requirements
Admissions application acceptance
Admissions approval timelines/codes
Merit scholarship model and award amounts
Need based grant (scholarship) model for incoming students
When are students given school email and portal access?

Registrar

Academic calendar (Start/End dates)
Official break of 5 or more days
Term and Module census dates
Is the calendar approved and are all dates in the registrar module?

Business Office

Tuition and Fee rates
Billing statement dates
Will estimated aid be listed on the bill?

Housing

Will actual housing costs be available or will estimates be used?

Information Technology

When will the new academic year release of the software be installed?
Will there be an opportunity for testing the new release in a development (i.e., sandbox) environment?

What would you ask for?

Reasonable Timelines?

What is a reasonable timeline? Meeting with the various student services departments will be helpful during this process. Generally, the Admissions Office and Senior Leadership have a target date for first-year, incoming students to receive offers from the institution. With that in mind, make sure that you have the new academic calendar as well as updated tuition and fee rates, and housing costs. Also, confirm the IT Department’s timeframe for importing the new award year’s data into your ERP system.

We know that we can use estimated data for this information. Most institutions want to now use actual tuition and fee rates while establishing a cost of attendance. The goal is to have finalized information to complete the setup processes, and not have to redo anything. What do you use?

What’s Next?

Let’s set up the system! We’ll get into that soon!

CFPB Weighs In on Withholding Academic Transcripts

November 2, 2022

Withholding academic transcripts for outstanding student account or loan balances has been a primary debt collection tool for many years. Though recently under fire as harming many students (see our March 2022 Tip), this issue is drawing attention both from state regulators and legislators and, now, from the federal Consumer Financial Protection Bureau (CFPB). While 16 states have enacted laws or are proposing legislation to halt or reduce the campus practice, which is seen as inhibiting students’ academic careers or employment opportunities, the federal agency’s recent Supervisory Highlights report cites the “blanket” usage of the transcript sanction as unlawful.

The recent report came on the heels of an announcement earlier this year that the agency would examine operations of colleges that act as lenders. In this case, the CFPB has interpreted student accounts as a form of lending or credit offered to students by schools. While definitions may be subtle or subject to various interpretations, the CFPB report links transcript withholding to provisions under the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts and practices (UDAAP) because of potential financial injury to consumers.

Though the CFPB cannot enact laws, it has rulemaking and enforcement authority to deal with any consumer financial product or service. The agency also partners with other federal departments on many financial initiatives, and could work with the U.S. Department of Education to potentially promulgate new rules or guidelines.

Senior leadership at colleges and universities should have this issue on their radar from both a service delivery and compliance perspective. Presidents, chief financial officers, registrars and enrollment management leaders need to understand and weigh their existing policies and procedures on withholding academic transcripts and other services. A joint statement signed this month by 22 higher education associations urges college leaders to “have a clear understanding of institutional policies regarding transcript and enrollment holds, and be prepared to explain how they determined these policies to be effective and fair.”

In states where no restrictions currently exist, government relations staff should be monitoring legislative activities since constituent complaints have often led to proposed laws. In other cases, complaints to state attorneys general may trigger new rules or legislation.

Institutions also should engage their general counsel or an outside attorney to help interpret these laws and requirements and adjust their business practices and policies to become and/or remain in compliance. Bringing institutional resources together to review and update policies and procedures can have a positive outcome for students and finances with minimal impact on institutional resources. The National Association of College and University Business Officers (NACUBO) and the American Association of Collegiate Registrars and Admissions Officers (AACRAO) provided guidelines for schools to consider in an April 2022 statement.

Welcome to FAS’ Consulting Corner

September 30, 2022

Welcome to FAS’ Consulting Corner! In conjunction with launching our new website, we want to use this space to share relevant information with financial aid and student business services practitioners. It’s a safe and reliable place to get the latest news on what’s happening in financial aid and student finance all around the country. We’ll tackle issues from maintaining rigorous compliance standards and leveraging technology, to giving your students the best possible experience. Our consultants are thought leaders with a combined 1,600 years of experience in their respective fields. Higher Education is an industry that’s always in motion. There is always something new to talk about, so check back often. We’re adding fresh content all the time. Whether you’re considering services, need guidance or resources, or just want to connect with FAS, we’ve got something for you.

Perkins Loan Closeout – Assignment Extension

May 22, 2022

As part of the wind down of the Perkins Loan Program, the Department of Education (ED) requires institutions to assign to the Department all Perkins Loans that have been in default for more than two years. Unless the school has documentation that these borrowers are making payments toward their Perkins loan debt, you are required to assign all Perkins Loans in default for more than two years to the ED. The previous deadline of June 30, 2022, has been extended to June 30, 2023.

ED provides guidance on the Perkins loan assignment process in the Perkins Assignment and Liquidation Guide. ED will provide a school with the reason why any loan is rejected for assignment. If the school can resolve that issue(s), the loan can be resubmitted for assignment. In instances when an issue cannot be resolved and assignment is not possible, the school must purchase that loan.

Federal regulations state that ED may require a school to reimburse its Federal Perkins Loan Program Fund for the entire amount of the outstanding principal balance, plus any accrued interest on loans ED determines to be unenforceable.

ED reminded schools that although the Perkins Loan Program is winding down, they remain obligated to ensure all collection procedures, outlined in the regulations, are being followed.

Safeguarding Students’ Information Now Requires Stricter Oversight

February 26, 2022

The Federal Trade Commission (FTC) issued a final rule on December 9, 2021, amending the customer information safeguard requirements under the federal Gramm-Leach-Bliley Act (GLBA), also known as the “Safeguards Rule.” Since 1999, the GLBA has set the standards for maintaining customer data for financial institutions, including colleges and universities that participate in the Title IV federal student aid programs.

While the revised Safeguards Rule took effect on January 10, 2022, schools will have until December 2022 to implement most of the required changes in the rule. Some of the notable mandates include:

Concentrating program oversight under a single qualified individual rather than shared by a team or group of employees. While this oversight likely will be centered under an institution’s information technology department, look for the school’s chief information security officer (CISO) or chief information officer (CIO) to be the responsible party.
Ensuring that information security programs are based on a written risk assessment that looks at “foreseeable internal and external risks to the security, confidentiality, and integrity” of any consumer (student) information held by the institution. Written documentation is now a mandatory requirement under the Rule.
Designing information security programs to control assessed risks that include eight specific types of safeguards:
Monitoring and testing of internal controls and procedures regularly to protect against actual and attempted hacks of information systems.
Overseeing and assessing service providers when contracting for outside services. This will include actual periodic assessments of vendor systems by the institution.
Reporting annually to the institution’s board about its information security program and compliance with the updated Safeguards Rule.

Because higher education institutions are frequent targets of hackers and victims of data breaches, a strong and well-understood infrastructure and program to maintain and protect student information is critical. These programs require institution-wide accountability. It is vital that all employees be aware of changes and take responsibility to protect personal data.

R2T4 Rule Changes Now in Effect

November 10, 2021

R2T4 Rule Changes Now in Effect

A little more than a year ago, the Department of Education (ED) put out revised rules addressing several thorny Title IV compliance areas, including a perennial favorite: return to Title IV funds (known as R2T4). A team of negotiators had spent months in 2019 trying to improve the rules on student withdrawals, particularly as they apply to programs taught in modules. The final rules were published under the title of “Distance Education and Innovation” on September 2, 2020, and officially took effect on July 1 of this year, although schools were allowed to implement the changes sooner at their discretion.

ED has recently provided additional guidance on the new rules, primarily through updating a set of Q&As. While most of the revisions were made in August 2021, note that a few answers were revised in early September and then again in October. An April webinar focusing on changes to satisfactory academic progress and R2T4 is also useful in laying out the changes.

The revised rules change several existing definitions and introduce some new concepts:

Program Offered in Modules. Subscription-based programs and nonterm programs are now excluded from the definition. If any course offered during a term does not span the entire length of the payment period or period of enrollment, the program is offered in modules. At some institutions, while the fall and spring terms only include standard length courses, two shorter summer sessions may be combined into a single term and thus meet the definition of a program offered in modules.

Withdrawal Exemptions. A student is not considered to have withdrawn if:

In any program (not just a program offered in modules), the student has completed all the requirements for graduation before completing the days or hours in the period
In a program offered in modules
- The student successfully completes one module that includes 49 percent or more of the number of days in the payment period
- The student successfully completes a combination of modules that include 49 percent or more of the number of days in the payment period
- The student successfully completes coursework equal to or greater than required to meet the institution’s definition of a half-time student for the payment period

This is the first time the R2T4 rules consider a student’s success in the course as a determining factor. Generally, under the R2T4 rules, an earned “F” is treated the same as any other completed course.

For the purposes of the withdrawal exemptions, the number of days in the payment period is calculated by excluding scheduled breaks of five or more consecutive days and all days between modules. It will be the same for all students who enroll in the term. This is not the same as the denominator used in R2T4 calculations.

R2T4 Freeze Date Option. Institutions now have two options for determining the denominator used in the R2T4 calculation to figure out how much aid has been earned when a student withdraws from a program offered in modules:

Using an “R2T4 freeze date” as a fixed point in time to determine the number of days the student was scheduled to attend during the payment period. The R2T4 freeze date is different from a Pell recalculation date and is used for different purposes even though the school may determine they are the same date. The freeze date must not occur prior to the time that most students enroll for classes for the period. OR
Monitoring changes in the student’s enrollment throughout the period.

Scheduled days should count if they were used to determine the student’s eligibility for Title IV funds for the payment period. This is not a student-by-student decision; the school must use the same policy for all students.

Much more detailed guidance on the ins and outs of the revised R2T4 rules are discussed in ED’s Q&As. Schools are encouraged to study them closely.

Regulation F: What It Means for Educational Debt Collections

September 23, 2021

The Consumer Financial Protection Bureau (CFPB) has finalized new debt collection rules. This is the first major update to requirements put in place in 1978. The changes include definitions of communication tools, such as email and text messaging, that were not envisioned when the laws were enacted over 40 years ago. These new requirements, known as “Regulation F”, are designed to provide more consumer-oriented information and communications to those owing debts while providing a more structured environment for the agencies to conduct their business.

When Regulation F takes effect on November 30, 2021, third party collectors in all industries, including higher education, must comply with a variety of process changes. These include providing more detailed notifications and disclosures and limiting the number of contacts with consumers. While most changes are internal to the collection agencies’ operations, they will be required to obtain more detailed documentation from school clients before initiating their collection efforts.

Agencies will be required to send consumers a new, more detailed validation notice that provides actual dates of service and other related events, such as last dates for statements, payments or other transactions, as well as the current amount of the debt (principal, interest, collection costs, late fees or other related charges). Agencies also will have to provide new consumer protection information with the numerous disclosures about the debt. Under Regulation F, consumers will have a 30-day period to dispute a debt, otherwise it is assumed to be valid.

Agencies also will be restricted to the use of “limited content messages”, defining what can be disclosed when leaving voicemail messages for delinquent borrowers to help protect their privacy. Also, agency collectors will be prohibited from making more than seven telephone calls in a 7-day period, unless they’ve made direct contact with the individual. In this case, the clock restarts. These call limits are designed to eliminate any perceived harassment of consumers.

Other items contained in Regulation F that may impact educational debt collections include:

Prohibiting some contacts where students work if banned by employers.
Disallowing use of litigation to collect “time-barred” debt, or balances more delinquent than a state’s statute of limitations on a consumer debt.
Using email addresses to communicate with students. Some legal counsel have suggested that when institutional policies require bills and notices be sent to students’ institutional email addresses (e.g. .edu address), schools should obtain students’ personal email addresses to communicate with them after they leave the institution.
Using social media to communicate personal student information on a public site.

Collection agencies, specializing in educational debt collections, are contacting their clients to discuss how Regulation F is changing their business processes. Also, they are explaining what new steps schools must take to refer delinquent accounts for external collection. Again, the new rules apply to collection companies. However, institutional collection staff should work with each of their agencies to understand specific expectations, differences in account handling and placement of delinquent debts.

Schools should consult with their legal counsel to identify and mitigate potential compliance risks associated with internal business processes and forms. Specifically ask that Financial Responsibility Agreements (FRAs) be reviewed, and updated if necessary, to comply with Regulation F.

Long-Awaited Updates to Distance Education and R2T4 Rules Finalized

October 26, 2020

Long-Awaited Updates to Distance Education and R2T4 Rules Finalized

With a focus on reducing barriers to innovation, the Department of Education (ED) issued final regulations on September 2 updating its rules on distance education, withdrawal and return of Title IV funds, some definitions, and several other topics. The rules were drafted as part of a negotiated rulemaking process that began in January 2019 and ended with consensus agreement on proposed rules in April of that year. Other priorities intervened and ED delayed publishing the notice of proposed rulemaking until April 2, 2020.

Under the master calendar provisions in the Higher Education Act, Title IV rules that ED publishes by November 1 may take effect no earlier than the following July 1. The Department may allow institutions to implement changes earlier, however, and has chosen to do so in this case. Colleges and universities may implement the new rules at their discretion. ED promises to publish a separate notice on the timing of implementation soon.

Key provisions in the final rules are summarized below.

New or Modified Definitions

A number of new or revised definitions are provided to address distance education, innovation, and codify ED’s past guidance. In addition, references to outdated technologies and programs are eliminated.

Academic Engagement: The new rules establish a definition of academic engagement to standardize the activities that verify student attendance for use in the return of Title IV (R2T4) rules and elsewhere. The definition is based on the criteria for “academic attendance” and “attendance at academically related activities” in the current R2T4 regulations with some refinements.

Clock hour: Clock hours earned through distance education may be taught through synchronous (codifying existing policy) or asynchronous (new) instruction if permitted by licensing boards or other regulatory entities.

Credit hour: Codifies the flexibility provided in Dear Colleague Letter GEN-11-06 to address educational delivery models that are not based on seat time.

Distance education and correspondence courses: Continues to differentiate between “distance education” and “correspondence courses”, while allowing team approach to instruction and clarifying that if the institution provides opportunities for interaction, students do not need to take part in each one.

Subscription-based program: Defines a subscription-based program where the institution charges a student for a term (standard or nonstandard) with the expectation that a certain number of credit hours will be completed (but without a specific time frame for completion). Students must complete the requisite credit hours (or the equivalent) before receiving another disbursement. While ED originally planned to restrict the subscription–based method of disbursement to direct assessment programs, it recognized there would be unintended consequence to competency-based programs offered in credit hours, and concluded the disbursement method may be used for all types of programs. Among other provisions specific to subscription-based programs, repeat coursework is not eligible for federal aid, and the revised satisfactory academic progress rules drop the pace requirement for such programs.

Week of instructional time: Adds a new part to the existing definition for programs using asynchronous coursework through distance education or correspondence courses as a week in which instructional material, other resources, and instructor support are made available to students by the institution. No change for traditional educational programs.

Direct Assessment Programs

The definition of direct assessment program is simpler, with more emphasis on meeting the requirements of the institution’s accreditor and state approval agency. Some restrictions on offering remedial coursework, prerequisites for an eligible program, or teacher certification programs have been removed, if the institution has approval to offer direct assessment programs and the coursework is consistent with state and accreditor requirements.

Under the new rules, an institution will only need approval from ED for its first direct assessment program at a given academic level. Schools will need to notify ED when they add more programs, allowing ED to track the growth in such program offerings. ED believes that this will “encourage institutions that have demonstrated the ability to design and operate a direct assessment program to expand that model of instruction and enables institutions to respond more quickly to student and workforce needs.”

Certification of Institutional Eligibility and New Programs

In a departure from long-standing ED regulatory policy, ED added language to the rules on applying for eligibility to participate in Title IV requiring the Secretary “to ensure prompt action” on institutional applications and reapplications. ED’s historical position has been that the agency does not regulate itself.

To encourage new programs, the new rules:

Eliminate a current provision that allowed ED to tell an institution up to 30 days before a new educational program was scheduled to start that it needed approval from ED to be eligible for Title IV.
Provide for automatic renewal of an institution’s recertification for Title IV participation, if the institution submits a materially complete application no later than 90 days before its Program Participation Agreement (PPA) expires, and ED has not made a decision to grant or deny within 12 months of that expiration date.

Return of Title IV Funds

Ten years ago, ED revised its regulations for return of Title IV funds (R2T4) for students enrolled in classes taught in modules. ED had realized that some schools were skirting the R2T4 process by having students complete a short, one-credit module at the beginning to the term. Now, recognizing that the current rules have resulted in uneven treatment, ED is tweaking how the number of days of attendance are counted when a student withdraws from a program offered in modules. ED has also made new distinctions between students enrolled in standard or nonstandard-term programs and those in non-term or subscription-based programs.

Under the revised rules, in a program offered in modules (which may only be term-based), a student will not be considered to have withdrawn if the student successfully completes (1) one or more modules that include 49 percent or more of the number of days in the payment period or (2) coursework equal to or greater than that required of a half-time student. Note that:

When counting days in the payment period, scheduled breaks of five or more consecutive days and all days between modules (or combination of modules) should be excluded.
In determining the number of days in the payment period that the student is scheduled to attend (the denominator), schools should use all modules that were included in determining the student’s eligibility for Title IV funds for the term (payment period). In the preamble to the final rules, ED says it expects schools to use the student’s schedule at a fixed point. Schools have discretion to determine what that point will be such as a census date or its Pell recalculation date This avoids treating students differently based on when they dropped subsequent modules.
A student must earn a passing grade in at least one module to meet the “successfully complete” requirement. If a student has all incompletes or failing grades, at least one incomplete must be converted to a passing grade before the date that the school is required to perform an R2T4 calculation. This is a different standard than used for students enrolled in term-based programs with no modules in which an earned “F” is sufficient to fulfill all days scheduled to complete and not require an R2T4 calculation.

A student in a standard or nonstandard-term program who, after ceasing attendance in a module, is not scheduled to begin another course within 45 days is considered withdrawn. A student in a non-term or subscription-based program has 60 days to resume. In both cases, a student on an approved leave of absence is not considered to have withdrawn.

The new rules provide that a student who meets all requirements for graduation before completing the days or hours that the student was scheduled to attend is not considered to have withdrawn.

FAS has prepared a version of the revised R2T4 rules which tracks all additions and deletions.

Satisfactory Academic Progress

The maximum time frame for undergraduate credit-hour programs may now be expressed in calendar time in addition to credit hours, as under the current rules.

Other provisions in these rules address program participation agreements, clock-to-credit hour conversions, written agreements with other entities to provide education programs, and when students attending foreign institutions study in the U.S.

The Timing of Issuing a Federal Credit Balance & Recovering Unclaimed Federal Funds

October 22, 2019

Issuing a Federal Credit Balance

After the start of a term when student aid (including federal aid) has been disbursed to student accounts, most business offices issue credit balances to students within 14 days. That is, 14 calendar days, not business days. Why 14 days? A federal regulation[i] [ii]requires a school to pay directly to the student a federal aid credit balance within 14 days. Rather than determine whether any portion of a credit balance is a federal credit balance, most schools have incorporated the 14 day rule in their procedures without consideration of the source of funds. (Note: If the federal credit balance is attributable to a PLUS loan, the funds are returned to the parent, unless the parent authorized that the student receive the refund.)

So what is a federal credit balance? Simply put, subtract all federal grant and loan student aid from allowable charges, e.g., tuition, fees, room/board (provided by the institution), other educationally related charges (with student authorization), and, if any, up to $200 of carried forward, prior-year charges. If student aid remains, there is a federal credit balance. Be careful. The calculation is based solely on allowable charges and federal student aid credits for a term. Allowable charges are strictly defined by federal regulation[iii].

Some institutions may hold a credit balance beyond 14 days, if the credit balance includes non-federal funds. The institution may have a policy or procedure that allows it to hold a credit balance on a student’s account for a specified period, e.g., after a certain point in the term or until the end of term or academic year. This may be offered as an option for students who find it helpful for budgeting to cover future charges, or for those receiving nonfederal aid intended to cover more than one term.

To hold a federal credit balance the institution must have a signed authorization (that complies with federal rules[iv]) from the student (or parent, if applicable). The student (or parent) cannot be required or coerced to authorize the hold of a federal credit balance. In any case, even if an institution has an authorization to hold funds, it must release any federal funds to the student (or parent, if applicable):

by the end of the loan period, if the federal credit balance is federal loan monies, or
by the end of the last term of the award year in which the student was enrolled, if the federal credit balance is other federal aid.

Note: If the federal credit balance includes both grant and loan, these two timeframes will not necessarily coincide.

Institutions that promptly issue credit balances are doing the right thing, but must keep a watchful eye for student aid adjustments to student accounts. Federal aid adjustments can occur within the term; after a student’s withdrawal; and/or after the end of a term, an award year, or loan period. It can be maddening to manage. If there is a negative aid adjustment, a balance may be created on a student account that must be collected. If there is a positive aid adjustment, there may be a credit balance to process.

Note: A federal credit balance occurs whenever the total amount of federal aid credited to a student’s account for the term exceeds the amount of allowable charges (as federally defined) for the term.

Recovering Unclaimed Federal Funds

As maddening as adjustments can be, monitoring a failed transaction of a credit balance refund is equally frustrating and requires action, i.e., a rejected electronic fund transfer (EFT), a non-deposited or non-deliverable check, or an unprocessed credit balance on a student account. This is particularly troublesome if the credit balance includes federal student aid funds, because there are federal rules[v] for the recovery of unclaimed federal funds.

If a failed transaction includes federal student aid funds, the institution can either attempt to issue the transaction again or must return the federal aid to the appropriate federal program(s) within 45 days. Yes, 45 calendar days, not business days.

There is a federal provision that allows an institution to make more attempts to disburse the aid, but each attempt must be made within 45 days of a failed attempt. When the institution stops trying to return funds to the student (or parent, if applicable), it must return the unclaimed federal student aid funds to the appropriate federal program within 45 days of the last failed attempt. There is a limit to the total number of days in which attempts can be made. The institution must cease all attempts to disburse the funds and return the funds to the respective federal aid program(s) no later than 240 days after the initial date it issued the first check or EFT.

Of course, the business office has to determine what portion of the credit balance is federal aid. If the federal credit balance includes more than one type of federal aid, the institution has to determine to which program(s) and in what order, it will return funds.

Note: Federal regulations are silent on the order in which federal funds must be returned. However, the U.S. Department of Education strongly suggests that an institution act in the best interest of the student. That is, return loan funds before grant monies.

A best practice for recovery of unclaimed federal funds is to review at least monthly:

EFT transactions,
non-deposited and non-delivered checks, and
student accounts for unprocessed credit balances.

The business office will need a customized program or report to calculate by term the allowable charges, federal aid disbursed (excluding Federal Work-Study earnings), and the resulting balance of federal aid, if any.

If there are unclaimed funds to process, take the following steps:

Business Office: Notify the Financial Aid Office that federal unclaimed funds must be returned to the respective federal program(s).
Financial Aid: Authorize the downward adjustment amount to disbursed fund(s) on the student account.
Business Office: Process the negative disbursement. Check that the federal credit balance is reversed on the student account.
Financial Aid: Ensure the downward adjustment in disbursed amount has been submitted and accepted by the Common Origination and Disbursement (COD) system, if appropriate.
Business Office and Financial Aid: Reconcile the federal aid account(s).
Business Office: Transmit the unclaimed funds to the federal payment system (G-5), if appropriate.

The business office must always be alert to ensure that federal student aid credit balances are released on a timely basis (14 days) and, if those funds go unclaimed, to ensure that they are never escheated to a state, or revert back to the institution or any other third party. They must be returned to the appropriate federal program(s).

Failure to properly, accurately, and timely administer federal credit balances and/or repay unclaimed federal student aid funds could result in audit or program review findings citing an institution for lack of administrative capability and/or fiscal responsibility, and for having inadequate internal controls. Sanctions also may include fines or other types of enhanced oversight.

Federal Regulations: Title 34—Education, CFR – Code of Federal Regulation, 668 –Student Assistance General Provisions, 668.164 –Disbursing Funds 668.165 – Notices and Authorizations

[ii] 34 CFR 668.164(h) – Title IV, HEA credit balances

[iii] 34 CFR 668.164(c) — Crediting a student’s ledger account, includes definition of Allowable Charge

[iv] 34 CFR 668.165(b) — Student or parent authorizations

[v] 34 CFR 668.164(l) — Returning funds

Or go to: Federal Student Aid Handbook 2018-2019, U.S. Department of Education, Volume 4—Processing Aid and Managing FSA Funds, Chapter 2 – Disbursing FSA Funds, pages 4-43 through 4-47 (Allowable Charges and Federal Credit Balances), page 4-51 (Authorization to Hold Federal Funds), and pages 4-49 and 4-50.(Recovery of Unclaimed Federal Funds)

Link to: https://ifap.ed.gov/fsahandbook/attachments/1819FSAHbkVol4Ch2.pdf