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New federal rules encourage adoption of electronic student refund systems

The U.S. Department of Education recently issued rules designed to encourage colleges and universities to disburse student refunds electronically. Higher One?s Casey M. McGuane, senior vice president for client operations, provides answers to frequently asked questions about those new regulations.

Electronic payments are certainly not new. In fact, colleges and universities have been using electronic systems for payroll and vendor payments and other purposes for years. But one area that has lagged behind is student refunds. By and large, refunds are commonly issued as paper checks, which of course is a costly and inefficient payment method.

The Department of Education is trying to provide clear procedures and guidance for colleges and universities to make the best decision on how to deliver refunds to students. The department is also communicating to institutions that it is encouraging electronic delivery of refunds to improve efficiency and speed.

Yes. Prior to this there had not been clear regulations on how to use bank debit cards for refunds. More and more campuses are using bank debit cards and stored value cards for refund delivery, as compared to the much older method of paper checks.

The key issue is compliance with all aspects of the regulations. For instance, if you’re using a bank debit card or stored value program, the associated accounts must be FDIC insured. There are probably six or seven similar key requirements on using bank debit card programs for refund disbursements.

There can be no cost to the student to open the associated bank account or receive the first bank debit card. Another requirement is convenient and free access to an ATM machine. A third provision is that the card cannot be limited to particular vendors; it must be widely accepted. A fourth requirement is that refunds cannot be provided via a credit card or credit product.

I think campuses should be really excited about it. For the first time the Department of Education is telling colleges and universities, “We’re okay with electronic delivery. We like it. And we hope and encourage that you make changes to your refund policy to take effect by July 1 to adopt these procedures.”

No; they encourage adoption. But it’s also important to note that even for schools that decide to continue with paper checks, the regulations impose some new processes. For example, they’ve changed the way that schools must handle refund delivery timelines and stale checks?checks that have not been cashed by a certain period of time. So while there is no mandate to move towards electronic refund disbursement, it is really important to read these regulatory changes because they’ll likely have some sort of an impact.

Now that the Department of Education has blessed and validated and actually encouraged campuses to move in the direction of paperless refunds, it means that now is the time to act, to begin working to implement an e-refund management solution and start enjoying the cost savings and benefits all around that will be realized the minute that the change is made. I read recently that even our Social Security Administration is going paperless soon, to avoid $40 million annually in paper check processing expenses, and checks will be replaced with bank cards and e-payments.

Not really, no. Clearly this is something that students, parents and staff would prefer. And now the last remaining possible impediment, meaning a government bureaucracy that is unfriendly to this, is no longer a factor. In fact, it’s just the opposite. The government is encouraging it.