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Changes on horizon for campus cards, Title IV payments

Proposed regulations could lead to big cash management concerns
University Business, August 2015
Consumer advocacy groups support new financial-aid payment rules that have raised concerns.
Consumer advocacy groups support new financial-aid payment rules that have raised concerns.

Colleges and universities using third-party providers to process students’ Title IV payments face changes aimed at giving students more choice in receiving financial aid dollars.

Rules proposed by the Department of Education in late May would especially affect institutions that issue tuition refunds directly to students’ debit cards.

The Department of Education will issue a finalized version on the rules by Nov. 1. Under the proposed regulations:

  • Institutions must provide students with a list of account options to receive credit balance funds, and the student’s pre-existing bank account must be listed as the first choice. A refund check must also be an option for students.
  • Institutions must obtain student and parent consent to having personal information shared before the school opens an account with a financial provider.
  • Student aid recipients must have reasonable access to surcharge-free ATMs. Point-of-sale and overdraft fees would be prohibited for some accounts. Students and parents must have 30 days to access funds without any fees.
  • All contracts and cost information must be publicly disclosed.

The proposed rule is supported by consumer advocacy groups.

“The rule ensures that students are able to make their choice of where to send their financial aid dollars in a way that does not steer them toward one particular option over another,” said Christine Lindstrom, the U.S. Public Interest Research Group’s higher education program director, in a prepared statement.

Defining the relationships

The Department of Education’s proposed rule establishes two different types of arrangements between institutions and financial account providers:

  • Tier 1: 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.
  • Tier 2: An arrangement between an institution and a financial institution, or an entity that offers financial accounts through a financial institution, under which financial accounts are offered and marketed directly to students or their parents.

One potential consequence of the rule could be a reduction in the number of companies that provide debit card options for tuition refunds, says Anne Gross, vice president of regulatory affairs at NACUBO.

“Having debit cards is seen as a convenience, especially for students who don’t have pre-existing bank accounts,” Gross said. “My fear would be that schools would fall back into writing checks, which we don’t think is a good thing.”

Returning to paper checks is also a concern at Houston Community College, says Nandy Baldonaldo, HCC’s director of student financial services and cashiering operations.

Before the school went completely paperless with debit cards via a third-party provider, many checks were never cashed due to improper address information. Baldonaldo added that some students cashed their refund checks at local check-cashing facilities, which imposed high fees.

Read the proposed rule in its entirety at http://UBmag.me/dg.

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