Education Dept. Proposes New Cash Management Rules

The U.S. Education Department on Friday proposed new regulations restricting how banks partner with colleges to distribute Title IV aid.

The proposed rules, published in Monday's Federal Register, represent the Obama administration's latest effort to rein in agreements between colleges and banks that want to market their products to students. The regulations, which aim to protect as many as 9 million college students receiving $25 billion in federal student aid, would provide tougher standards and greater transparency surrounding agreements that can leave students on the hook for fees they may have incurred unintentionally.

Colleges and banks have reached hundreds of deals that, for example, allow students’ financial-aid refunds to be deposited into new bank accounts — often linked to co-branded debit cards — offered by the partner financial institution, The Chronicle of Higher Education reported. Critics of the agreements say they expose impressionable students to fees by having colleges appear to condone opening unnecessary accounts.

The proposed regulations would:

  • Prohibit institutions from requiring students or parents to open a certain account into which their credit balances are deposited.
  • Require institutions to ensure that students are not charged overdraft fees if students select an account offered directly or indirectly by contractors that assist institutions in making direct payments of federal student aid.
  • Require 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. 
  • Require institutions to ensure electronic payments made to a student’s preexisting account are as timely as, and no more onerous to the student than, payments made to accounts marketed through the institution.

The rules also address repeat coursework and clock-to-credit-hour conversion. Under the proposed regulations, institutions offering term-based programs would be allowed to count previously passed courses towards enrollment, up to one repetition per course, including when a student is retaking a previously passed course due to the student failing other coursework. Additionally, the proposal 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.

The proposed rules will be open to public comment for 45 days.


Related Links

U.S. Education Department Press Release

The Federal Register

The Chronicle of Higher Education