Program Integrity and Improvement, 67125-67201 [2015-27145]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 80, Number 210 (Friday, October 30, 2015)]
[Rules and Regulations]
[Pages 67125-67201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27145]



[[Page 67125]]

Vol. 80

Friday,

No. 210

October 30, 2015

Part V





Department of Education





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34 CFR Part 668





 Program Integrity and Improvement; Final Rule

Federal Register / Vol. 80 , No. 210 / Friday, October 30, 2015 / 
Rules and Regulations

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DEPARTMENT OF EDUCATION

34 CFR Part 668

RIN 1840-AD14
[Docket ID ED-2015-OPE-0020]


Program Integrity and Improvement

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the cash management regulations and other 
sections of the Student Assistance General Provisions regulations 
issued under the Higher Education Act of 1965, as amended (HEA). These 
final 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, the final regulations 
update other provisions in the cash management regulations and 
otherwise amend the Student Assistance General Provisions. The final 
regulations also clarify how previously passed coursework is treated 
for title IV eligibility purposes and streamline the requirements for 
converting clock hours to credit hours.

DATES: Effective date: These regulations are effective July 1, 2016.
    Compliance dates: Compliance with the regulations in Sec.  
668.164(e)(2)(vi) and (f)(4)(iii) is required by September 1, 2016; 
Sec.  668.164(d)(4)(i)(B)(2) by July 1, 2017; and Sec.  
668.164(e)(2)(vii) and (f)(4)(iv) by September 1, 2017.

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: 
amy.wilson@ed.gov.
    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: vanessa.freeman@ed.gov; 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: aaron.washington@ed.gov.
    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: ashley.higgins@ed.gov; or Nathan Arnold, 
U.S. Department of Education, 1990 K Street NW., Room 8081, Washington, 
DC 20006-8502. Telephone: (202) 219-7134 or by email at: 
nathan.arnold@ed.gov.
    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:

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 \1\ credit balances via a more convenient 
electronic means. However, as we describe in more detail elsewhere in 
this preamble and in the preamble to the notice of proposed rulemaking 
published in the Federal Register on May 18, 2015 (NPRM),\2\ 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.
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    \1\ 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.
    \2\ 80 FR 28484, 28488-28490. The NPRM is available at https://www.gpo.gov/fdsys/pkg/FR-2015-05-18/pdf/2015-11917.pdf. We cite to 
the NRPM in subsequent references as 80 FR at [page].
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    According to these reports, the following practices were found:
     Providers were prioritizing disbursements to their own 
affiliated accounts over aid recipients' preexisting bank accounts;
     Providers and schools were 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 was 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 were charged onerous, confusing, or 
unavoidable fees in order to access their student aid funds or to 
otherwise use the account.
    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 every year, that students are a 
captive audience subject to marketing from their institutions, that the 
college card market is expanding, and because there have been numerous 
concerns raised by existing practices, we believe regulatory action 
governing the disbursement of title IV, student aid is warranted.
    In addition, we include in these regulations a number of minor 
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 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 regulatory changes will result in more equitable 
treatment of student aid recipients and simplify title IV requirements 
in these areas.
    The NPRM contained background information and our reasons for 
proposing the particular regulations. The final regulations contain 
changes from the NPRM, which are fully explained in the Analysis of 
Comments and Changes section of this document.
    Summary of the Major Provisions of This Regulatory Action:
    The regulations--
     Explicitly 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'';
     Define a ``T1 arrangement'' as an arrangement between an 
institution and a third-party servicer, under which the servicer (1) 
performs one or more of the functions associated with processing direct 
payments of title IV funds on behalf of the institution, and (2) offers 
one or more financial accounts under

[[Page 67127]]

the arrangement, or that directly markets the account to students 
itself or through an intermediary;
     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. However, if an 
institution documents that, in one or more of the three recently 
completed award years, no students received credit balances at the 
institution, the requirements associated with T2 arrangements do not 
apply. If, for the three most recently completed award years, the 
institution documents that on average fewer than 500 students and less 
than five percent of its enrollment received credit balances then only 
certain requirements associated with T2 arrangements apply;
     Require institutions that have T1 or T2 arrangements to 
establish a student choice process that: prohibits an institution from 
requiring students to open an account into which their credit balances 
must be deposited; requires an institution to provide a list of account 
options from which a student may choose to receive credit balance funds 
electronically, where each option is presented in a neutral manner and 
the student's preexisting bank account is listed as the first and most 
prominent option with no account preselected; and ensures electronic 
payments made to a student's preexisting account are initiated in a 
manner as timely as, and no more onerous than, payments made to an 
account made available pursuant to a T1 or T2 arrangement;
     Require that any personally identifiable information 
shared with a financial account provider as a result of a T1 
arrangement before a student makes a selection of that provider (1) 
does not include information about the student other than directory 
information under 34 CFR 99.3 that is disclosed pursuant to 34 CFR 
99.31(a)(11) and 99.37, with the exception of a unique student 
identifier generated by the institution (that does not include a Social 
Security number, in whole or in part), the disbursement amount, a 
password, PIN code, or other shared secret provided by the institution 
that is used to identify the student, and any additional items 
specified by the Secretary in a Federal Register notice; (2) is used 
solely for processing direct payments of title IV, HEA program funds, 
and (3) is not shared with any other affiliate or entity for any other 
purpose;
     Require that the institution obtain the student's consent 
to open an account under a T1 arrangement before the institution or 
account provider sends an access device to the student or validates an 
access device that is also used for institutional purposes, enabling 
the student to use the device to access a financial account;
     Require that the institution or financial account provider 
obtain consent from the student to open an account under a T2 
arrangement before (1) the institution or third-party servicer provides 
any personally identifiable information about that student to the 
financial account provider or its agents, other than directory 
information under 34 CFR 99.3 that is disclosed pursuant to 34 CFR 
99.31(a)(11) and 99.37 and (2) the institution or account provider 
sends an access device to the student or validates an access device 
that is also used for institutional purposes, enabling the student to 
use the device to access 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, by 
prohibiting both point-of-sale (POS) fees and overdraft fees charged to 
student account holders, and by providing students with the ability to 
conveniently access title IV, HEA program funds via domestic 
withdrawals and transfers in part and in full up to the account 
balance, without charge, at any time following the date that such title 
IV, HEA program funds are deposited or transferred to the financial 
account;
     Require that contracts governing T1 and T2 arrangements 
are conspicuously and publicly disclosed;
     Require that cost information related to T1 arrangements 
is conspicuously and publicly disclosed;
     Require that cost information related to T2 arrangements 
is conspicuously and publicly disclosed when on average over three 
years five percent or more of the total number of students enrolled at 
the institution received a title IV credit balance or the average 
number of credit balance recipients for the three most recently 
completed award years is 500 or more;
     Require that institutions that have T1 arrangements 
establish and evaluate the contracts governing those arrangements in 
light of the best financial interests of students; and
     Require that where a T2 arrangement exists and where 
either on average over three years five percent or more of the total 
number of students enrolled at the institution received a title IV 
credit balance, or the average number of credit balance recipients for 
the three most recently completed award years is 500 or more, the 
institution establish and evaluate the contract governing the 
arrangement in light of the best financial interests of students.
    The regulations also--
     Allow an institution offering term-based programs to 
count, for enrollment status 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.
    Costs and Benefits: The expected effects of these final regulations 
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, and redistribution of some of the costs 
of payment of credit balances 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. Institutions, third-party 
servicers, and financial institutions will incur implementation costs 
related to the regulations. The anticipated effects of the regulations 
are detailed in the Discussion of Costs, Benefits, and Transfers in the 
Regulatory Impact Analysis as well as the Paperwork Reduction Act of 
1995 section of this preamble.
    Public Comment: In response to our invitation in the NPRM, 211 
parties submitted comments on the proposed regulations. We group major 
issues according to subject, with appropriate sections of the 
regulations referenced in parentheses. We discuss other substantive 
issues under the sections of the proposed regulations to which they 
pertain. Generally, we do not address technical or other minor changes.
    Analysis of Comments and Changes: An analysis of the comments and 
of any changes in the regulations since publication of the NPRM 
follows.

General Comments

    Comments: The Department received many positive comments regarding 
the proposed regulations. These commenters argued that in light of 
several recent consumer and government reports and legal actions 
documenting troubling practices on the

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part of financial account providers, the Department was justified in 
proposing changes to the cash management regulations to ensure title IV 
student aid recipients are able to access their title IV funds. The 
commenters praised the Department's proposed regulations and stated 
that the changes would provide strong protections for students and 
disclosure rules that would provide incentives for better behavior in 
the college card marketplace.
    Many other commenters had concerns about the regulations or 
suggestions for how to improve them. These suggestions are discussed in 
detail in the remaining sections of this preamble.
    Other commenters argued that it would be counterproductive for the 
Department to regulate in this area. One commenter asserted that the 
fees that students are paying are already lower than the fees they 
would be charged for a standard bank account. Other commenters argued 
that providers of both T1 and T2 arrangements would be forced to exit 
the marketplace, leaving institutions with limited options for 
delivering title IV credit balances. Another commenter stated that 
institutions would choose not to renew contracts with account 
providers. One commenter noted that if this happens, students may be 
pushed towards higher-fee products. Other commenters contended that the 
costs of compliance would force institutions to raise tuition. One 
commenter suggested that the Department assist institutions with the 
cost of compliance.
    Discussion: We thank the commenters who provided thoughtful 
suggestions for how to improve the proposed regulations, and we also 
thank those who supported the proposal generally.
    We disagree with the commenter who stated that fees under T1 and T2 
arrangements are lower than the fees students would encounter in 
traditional banking relationships. As stated in the NPRM, there is 
significant evidence that students are incurring unreasonably high 
fees, particularly, although not exclusively, under T1 arrangements.\3\
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    \3\ 80 FR at 28506.
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    We also disagree with commenters who expressed concerns that the 
new requirements will drive account providers from the marketplace, to 
the disadvantage of both institutions and students. We note that 
account providers are still permitted to charge the institution 
whatever costs the two parties agree to, we have simply limited the 
amount and types of fees that are charged to title IV recipients (and 
also note that certain fees, including monthly maintenance fees, can 
still be passed on to offset costs). In addition, we believe that 
account providers recognize the long-term value in establishing 
relationships with students who may, in the future, require other 
products and services offered by their financial institutions. Because 
these more transparent and commonplace fees will be allowable under the 
regulations and because of the future opportunities created by 
establishing a banking relationship with students, we do not foresee a 
situation in which account providers will exit the market and students 
will be forced to choose among options that include even higher fees. 
Because third-party servicers will still be able to offer savings to 
institutions, we do not believe that institutions will choose to 
abandon their providers.
    We also note that schools are responsible for the costs of 
participating in the title IV programs and are required to ensure that 
students receive the full balance of title IV funds to which they are 
entitled, without additional financial assistance from the Department.
    Changes: None.

Legal Authority

    Comments: Some commenters supported the Department's legal 
authority to regulate issues relating to disbursements of title IV 
funds, to ensure that institutions and their servicers act as 
responsible stewards of taxpayer dollars, and to enable students to 
access the full balance of their Federal student aid.
    Several commenters questioned our legal authority to promulgate 
these regulations, arguing that the Department lacks the legal 
authority to regulate banks and financial accounts.
    Commenters further argued that the Department was acting outside 
its statutory authority in regulating T2 arrangements, because the bank 
accounts under those arrangements fall within the purview of other 
government agencies and not within the authority of the Department 
under the HEA. Instead, the commenters believed that the Department 
should limit its regulations to institutions. These commenters also 
pointed to section 492(a)(1) of the HEA, which states that for purposes 
of negotiated rulemaking, the Department must consult with 
``representatives of the groups involved in student financial 
assistance programs under this title, such as students, legal 
assistance organizations that represent students, institutions of 
higher education, State student grant agencies, guaranty agencies, 
lenders, secondary markets, loan servicers, guaranty agency servicers, 
and collection agencies.'' The commenters argued that because banks are 
not among those groups enumerated in this list, the Department does not 
have authority to regulate them.
    Another commenter argued that the proposed regulations 
impermissibly expanded the definition of ``disbursement,'' and that the 
HEA does not authorize the Department to expand the definition of 
``disbursement services.''
    Another commenter argued that the proposed regulations violate the 
First Amendment. Specifically, the commenter argued that by requiring 
institutions to list a student's preexisting bank account as the first 
and most prominent option, the Department was depriving institutions 
that believe that a student's preexisting account is not in the 
student's best interests of the right to more prominently display 
another account. The commenter argued that a less restrictive means of 
achieving the Department's goal would be to require that all account 
options are listed neutrally and with objective information.
    Discussion: We appreciate the comments supporting our proposal and 
agreeing that we have the statutory authority to promulgate the 
regulations.
    We disagree with the commenters who argued that these regulations 
are outside of our purview under title IV of the HEA. The Department is 
responsible for overseeing Federal student aid, which annually 
disburses billions of dollars intended to benefit students, to ensure 
that the program operates as effectively and efficiently as possible. 
Multiple statutory provisions vest the Department with broad rulemaking 
authority to effectuate the purposes of the program. See, e.g., 20 
U.S.C. 1094(c)(1)(B); 1221e-3; 3474. As the statute makes clear, 
foremost among those purposes is ensuring that students actually 
receive the awards Congress authorized. Thus, for example, Section 487 
of the HEA requires that in the program participation agreement an 
otherwise eligible institution must enter into before it is authorized 
to award title IV funds, the institution must pledge to ``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 ``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.'' Similarly, section 
401(f)(1) of the HEA provides that ``[e]ach student financial aid 
administrator [at each institution] shall . . . (C) make the

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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 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)(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.'' Given 
that these provisions and many more demonstrate an overriding purpose 
of ensuring that students receive their title IV funds, it is the 
Department's responsibility to use its rulemaking authority to ensure 
title IV does not operate as a means to benefit third parties while 
inhibiting students' access to the full amounts of their awards. The 
GAO report and other investigations show that college card programs can 
and sometimes do operate to impair full access. These regulations are 
narrowly tailored to prevent that from continuing to happen. The 
regulations address a problem directly within the Department's 
cognizance and are an appropriate exercise of the Department's 
rulemaking authority.
    We have consistently interpreted the HEA as authorizing regulation 
of the matters addressed in the regulations, including in the 2007 cash 
management regulations 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.
    Furthermore, we disagree that section 492(a)(1) of the HEA provides 
evidence that we are acting outside our statutory authority; on the 
contrary, we believe that section further supports our authority. 
Section 492(a)(1) provides a list of the groups ``involved'' in the 
title IV programs, ``such as'' lenders, secondary markets, and 
collection agencies. The term ``such as'' signifies that the list is 
illustrative, rather than comprehensive; indeed, the Department has 
previously included several other types of representative groups in 
negotiated rulemaking. The rulemaking that led to these final 
regulations included banking sector representatives who provided 
helpful expertise in improving the regulations we proposed. In 
addition, the term ``involved'' denotes Congress's recognition that the 
Department's regulation of institutions would necessarily impact groups 
that are not directly regulated, as is the case here. Finally, lenders, 
secondary markets, and collection agencies are certainly entities that 
are directly regulated by other government entities, yet are impacted 
by the Department's regulation of institutions and the title IV 
programs, similar to financial account providers in these regulations. 
We are regulating the disbursement process and institutions (and their 
servicers) that are authorized to disburse title IV funds under the 
HEA.
    We also disagree with the commenter who argued that we do not have 
the authority to clarify the definition of disbursement services. In 
section 401(e) of the HEA, regarding Pell Grants, Congress directed 
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.'' This 
section further states 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. . . 
.'' Under section 455(a)(1) of the HEA, Congress directed the Secretary 
to prescribe such regulations as may be necessary to carry out the 
purposes of the Direct Loan program. This includes regulations 
applicable to third-party servicers and for the assessment against such 
servicers of liabilities for violations of the program regulations, to 
establish minimum standards with respect to sound management and 
accountability of the Direct Loan programs. 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.
    Finally, we disagree with the commenter who argued that the 
proposed regulations violate the First Amendment. The regulations do 
not require an institution to endorse a particular banking product as a 
vehicle for title IV credit balance funds--in fact, the regulations 
prohibit institutions from expressly stating or implying that a 
particular account is required to receive their funds. We included this 
limitation to counteract the practices employed by some financial 
account providers that were leading title IV recipients to believe that 
a particular account was required. The provision requiring that the 
student be given a neutral list of accounts affords the student the 
opportunity to select an account that is the best fit for that 
individual. The requirement that a student's preexisting account be 
listed first and most prominently, rather than endorsing that option, 
simply ensures that students can easily locate and select the option to 
receive their funds via an account they have already chosen without 
confusion or additional steps. As we described in more detail in the 
NPRM,\4\ we proposed this requirement because government and consumer 
reports found several examples where it was difficult or impossible for 
a student to determine how to have funds deposited in a preexisting 
account. In addition, we have eliminated the requirement for a 
``default'' option (please refer to the student choice section of this 
preamble for further discussion); we believe that this will provide a 
student with a simple, neutral means of determining the available 
options for receiving title IV funds and represents the least 
restrictive means for doing so. For these reasons, among others, the 
provision does not violate the First Amendment, but is absolutely 
necessary.
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    \4\ 80 FR at 28497-28499.
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    Changes: None.

Possible Conflict With Existing Laws and Regulations

    Comments: Some commenters argued that the Department's regulatory 
efforts are duplicative of, or will conflict with, existing banking 
regulations from other Federal entities. These commenters argued that 
other existing federal laws and regulations, including the Electronic 
Fund Transfer Act,\5\ the Dodd-Frank Wall Street Reform and Consumer 
Protection Act,\6\ the Truth in Savings Act,\7\ the Expedited Funds 
Availability Act,\8\ and the Federal Trade Commission Act of 1914,\9\ 
already

[[Page 67130]]

provide sufficient student choice measures and protections and the 
Department's efforts would conflict with those provisions.
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    \5\ Public Law 95-630, and implemented in Regulation E, 12 CFR 
part 205.
    \6\ Public Law 111-203.
    \7\ Public Law 102-242.
    \8\ Public Law 100-86.
    \9\ 15 U.S.C. 41-58.
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    Commenters contended that the existence of these laws demonstrates 
a congressional intent to exclude the Department from regulating in 
this area, and that the Department lacks the expertise to do so. One 
commenter also alleged that the Department issued the proposed 
regulations based only on information from consumer advocacy groups and 
without consulting banking regulators.
    Discussion: We disagree with commenters who argued that the 
proposed regulations would duplicate or conflict with existing banking 
regulations. As we repeatedly stated throughout the preamble to the 
NPRM, we are not regulating banks or banking products. As a threshold 
matter, to the extent that institutions elect to contract with other 
parties, the regulations may impact those contracted parties. That does 
not, however, make those parties the subjects of the Department's 
regulations.
    We recognize that there are numerous laws, regulations, and 
government entities that govern the banking sector and we have 
specifically limited the reach of the regulations where there might 
have been conflict or overlap (for example, by not requiring a 
duplicative disclosure of account terms already required under banking 
regulations when a student has already selected an account outside the 
student choice menu). We wish to make clear that these regulations 
govern institutions and the arrangements they voluntarily enter into 
that directly affect title IV disbursements, recipients, and taxpayer 
funds authorized under the HEA.
    The commenters did not identify language in any law or regulation 
administered by another Federal agency that conflicts with the 
regulations, and neither have we in conducting our review or consulting 
with other agencies, including the Consumer Financial Protection Bureau 
(CFPB). Congress entrusted the Department with the responsibility for 
protecting the integrity of the title IV, HEA programs, and that is the 
purpose these regulations serve.
    We also disagree with the commenter who stated that the Department 
did not seek out the expertise of banking regulators. As stated in the 
NPRM, the Department ``consulted Federal banking regulators at FDIC, 
[the Office of the Comptroller of the Currency] OCC, and the Bureau of 
the Fiscal Service at the United States Department of the Treasury 
(Treasury Department), and CFPB, for help in understanding Federal 
banking regulations and the Federal bank regulatory framework'' while 
developing the proposed regulations.\10\ We have continued discussing 
these matters as we developed the final regulations to ensure that any 
regulatory changes are appropriate given existing banking rules.
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    \10\ 80 FR at 28523.
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    Changes: None.

Role of Existing Protections and Validity of Consumer and Government 
Reports

    Comments: Some commenters argued that existing cash management 
regulations provide sufficient protections for students and these 
regulations are unnecessary. These commenters noted that existing 
regulations already contain certain disclosure, notification, and 
insurance requirements, as well as some fee prohibitions. One commenter 
argued that existing Federal requirements have already resulted in 
corrective action.
    One commenter questioned the validity of the reports underlying the 
justification for the proposed regulations. This commenter noted that 
the Office of the Inspector General (OIG) only studied four schools, 
just one of which had a T2 arrangement, and that no issues were found 
regarding the T2 arrangement. This commenter also contended that the 
Government Accountability Office (GAO) stated that the practices it 
uncovered already violated current regulations and consumer protection 
laws.
    Discussion: We disagree with the commenters who argued that the 
Department's existing cash management regulations provide sufficient 
protections to students. As commenters noted, our long-standing 
regulations authorized under the HEA already contain requirements 
relating to disclosures, notifications, fee prohibitions, and several 
other topics involving the institutional disbursement process. While we 
believe these protections are important for students, the numerous 
instances of troubling behavior identified by government and consumer 
groups and discussed in detail in the NPRM demonstrate that additional 
protection is necessary. We also note that while the legal system has 
addressed some issues associated with these types of arrangements, it 
has not and cannot resolve every issue that has been raised regarding 
T1 and T2 arrangements, and thousands of title IV recipients would be 
harmed in the intervening time. We believe the regulatory framework 
presented in this document is better suited to address the issues and 
recommendations jointly agreed upon by numerous government and consumer 
investigations.
    We also disagree with the commenter who questioned the Department's 
reliance on an OIG report. Although the OIG reviewed the practices of 
only four schools, those schools collectively represent 158,000 
enrolled students and 596.6 million title IV dollars in total.\11\ The 
OIG noted in its report that under what would now been defined as T2 
arrangements, ``students sometimes misunderstood how the two accounts 
worked and whether the checking account was required.'' \12\ 
Additionally, the proposed regulations were based on much more than a 
single report. As we noted throughout the preamble to the NPRM, a 
number of independently prepared government and consumer reports from 
the GAO, United States Public Interest Research Group (USPIRG), 
Consumers Union, and others all came to a consensus (shared by the OIG 
report) regarding the severity and scope of the troubling practices 
employed by several financial account providers in the college card 
market. Additionally, legal actions, both by private individuals and 
government entities, substantiated many of the claims in these reports. 
These reports were also in agreement that corrective action and 
additional protections are needed. For all these reasons--rather than 
on the basis of a single, limited report as the commenter implied--we 
proposed regulatory changes to subpart K.
---------------------------------------------------------------------------

    \11\ 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].''
    \12\ OIG at 11.
---------------------------------------------------------------------------

    We also disagree that the GAO only found violations of current 
consumer protection laws and regulations. For example, the GAO 
specifically recommended several corrective actions for the Secretary 
to undertake, including developing requirements for distributing 
objective and neutral information to students and parents.\13\ Changes: 
None.
---------------------------------------------------------------------------

    \13\ United States Government Accountability Office. ``College 
Debit Cards: Actions Needed to Address ATM Access, Student Choice, 
and Transparency,'' page 35 (2014), available at www.gao.gov/assets/670/660919.pdf (hereinafter referred to as ``GAO at [page 
number]'').
---------------------------------------------------------------------------

Request for Extension of the Comment Period

    Comments: In view of the length and nature of the issues discussed 
in the NPRM, some commenters requested that the Department extend the 
comment period. One commenter requested a 30-

[[Page 67131]]

day extension, while another commenter requested an extension of at 
least 60 days to be consistent with the general recommendations in 
Executive Order 13563.
    Discussion: While we agree that the issues addressed in the 
proposed regulations are important and deserve thoughtful deliberation 
and discussion, we also have a duty to protect title IV funds, aid 
recipients, and taxpayers. If we had extended the comment period beyond 
45 days, we would have been unable to comply with the master calendar 
provision of section 482(c) of the HEA, which requires that the 
Department publish final regulations before November 1 to take effect 
on July 1 of the following year. (In this case, we need to publish 
final regulations by November 1, 2015, in order for the regulations to 
be effective on July 1, 2016.) An extension of the comment period would 
therefore allow the abuses identified to persist an additional year. We 
also believe that 45 days provided the public a meaningful opportunity 
to comment, and this is supported by the complex and thoughtful 
comments we received.
    Executive Order 13563 seeks, where feasible and in accordance with 
law, to promote participation and input by and from the public and 
interested stakeholders in general notice and comment rulemaking that 
is conducted pursuant to the Administrative Procedure Act (APA), 5 
U.S.C. 553. The APA, in contrast to title IV, does not contemplate 
proceedings that include negotiated rulemaking--extensive additional 
participatory proceedings that are generally required by title IV and 
were in fact conducted as part of this rulemaking. Those negotiations, 
preceded by regional public hearings, provided opportunities for public 
participation and stakeholder input far in excess of 60 days. The 
purposes of the Executive order have been more than met, and a longer 
comment period would have been neither feasible, consistent with the 
master calendar provision, nor in the public interest.
    We also note that we directly responded to each of the commenters 
who requested an extension of the comment period with a message similar 
in substance to the preceding discussion. We sent these responses as 
quickly as was practicable to provide notice to these commenters that 
we would not be extending the comment period and to give them 
sufficient time to submit substantive comments on the proposed 
regulations prior to the close of the comment period.
    Changes: None.

Definitions (Sec.  668.161(a))

    Comments: One commenter generally appreciated the inclusion of 
credit unions in the definitions of ``financial institution'' and 
``depository institution.'' However, this commenter also asked that the 
Department recognize the unique structure of credit unions as ``member-
owned cooperatives'' when drafting future regulations. Another 
commenter asked that the Department exempt credit unions that serve 
students and alumni of an institution. Another commenter praised the 
Department for adding definitions of ``access device,'' ``depository 
account,'' ``EFT (Electronic Funds Transfer),'' ``financial account,'' 
``financial institution,'' and ``student ledger account.''
    However, one commenter also asked that we include a clear 
definition of ``third-party servicer'' in the regulations, stating that 
it was unclear without such a definition whether certain banking 
activities could cause a financial institution to become a T1 entity.
    Discussion: We thank the commenters for their support of our 
definitions, and we will take note of one commenter's request to keep 
the unique structure of credit unions in mind as we draft future 
regulations. However, on review of the final regulations, we have found 
no provisions warranting separate treatment of credit unions.
    Finally, for a more thorough discussion regarding what types of 
activities would trigger the T1 requirements, please see the Tier One 
(T1) Arrangements section of this preamble.
    Changes: Consistent with the removal of ``parents'' in Sec.  
668.164(d)(4)(i), (e), and (f) in this final rule(the reasons for which 
are discussed in the student choice section of this preamble), we have 
also removed references to ``parent'' from the definition of ``access 
device.''

Non-Prepaid/Debit Provisions

Paying Credit Balances Under the Reimbursement and Heightened Cash 
Monitoring (HCM) Payment Methods (Sec.  668.162(c) and (d))

    Comments: Several commenters objected to the provision in Sec.  
668.162(c) and (d) under which an institution must pay any credit 
balance due to a student or parent before it seeks reimbursement from, 
or submits a request for funds to, the Secretary. For the benefit of 
the reader, HCM1 refers to the payment method described under the 
heightened cash monitoring provisions in Sec.  668.162(d)(1) and HCM2 
refers to the provisions in Sec.  668.162(d)(2).
    One of the commenters argued that a credit balance does not occur 
when an institution posts on a student's ledger account, as an 
``anticipated disbursement,'' the amount of title IV, HEA program funds 
that the student is expected to receive. The commenter asserted that at 
the time the institution submits a reimbursement request such postings 
are merely transactions on student ledger accounts pending the 
Department's review and subsequent release of the funds associated with 
the posted amounts. The commenter argued that without a requirement on 
the Department to process reimbursement requests in a timely manner, 
institutions will have to wait for the requested funds through a 
process than can be arduous and riddled with delays, citing instances 
where reimbursement requests were delayed for 45 to 60 days because the 
analysts assigned by the Department to review those requests were out 
of the office or assigned to other projects. The commenter stated that 
these delays are further exacerbated by an administrative process under 
which the Department allows an institution to submit only one 
reimbursement request every 30 days, which further delays the release 
of title IV, HEA program funds to the institution to cover a student's 
direct cost of tuition, books, and fees. However, the commenter 
believed this proposal was reasonable for an institution placed on HCM1 
because under that payment method the institution is not dependent on 
the Department to act timely--it controls the timing of its cash 
requests. Finally, some commenters stated that the HCM requirements 
were not clearly articulated in the proposed regulations, and 
questioned whether the requirement to first pay credit balances applied 
to an institution placed on HCM1. The commenters suggested that the 
Department only require institutions placed in HCM2 to pay credit 
balances before seeking reimbursement.
    Another commenter noted that guidance published in the 2014-15 FSA 
Handbook already provides that an institution placed on reimbursement 
must first pay required credit balances before it submits a 
reimbursement request, but questioned why the Department extended that 
provision in the NPRM to apply to an institution placed on heightened 
cash monitoring. This commenter, and others, argued that the Department 
should consider the nature of the compliance concerns that trigger 
whether an institution is placed on reimbursement or HCM. For example, 
where there are serious concerns about an institution's ability to

[[Page 67132]]

account appropriately for title IV, HEA program funds an institution 
would be placed on reimbursement, but for technical reasons or less 
troublesome compliance and financial issues, the institution could be 
placed on HCM1. The commenters noted that an institution is typically 
placed on HCM1 for failing to meet the financial responsibility 
standards under Subpart L of the General Provisions regulations; but 
under those regulations the institution must a submit a letter of 
credit for an amount determined by the Department and payable to the 
Department. The commenters stated that the letter of credit serves as a 
sufficient guarantee of the institution's ability to fulfill its 
financial obligations.
    Under the circumstance where administrative capability is not at 
issue, the commenters questioned why the Department proposed to require 
the institution, which may be operating at lean margins at the 
beginning of a payment period, to ``front'' additional funds to pay 
credit balances to students that may include significant amounts for 
student housing and other living expenses. Similarly, another commenter 
believed that an institution would be penalized by having to act as a 
private lender of their own funds to students to meet the proposed 
requirement to pay credit balances before seeking funds from the 
Department. The commenter suggested regulatory language that would 
allow the institution to pay credit balances upon receiving funds from 
the Department. Alternatively, the commenter suggested changing the 
definition of disbursement for an institution placed on HCM or 
reimbursement to stipulate that funds requested for non-direct costs 
that would generate a credit balance are considered disbursed after the 
institution credits the student's account and receives the funds from 
the Department.
    One commenter argued that requiring the institution to pay credit 
balances with institutional funds would push it into a temporary cash-
flow position under which the institution would shoulder the costs of 
students' decisions about how much to borrow above the cost of tuition 
and fees, particularly where those decisions are beyond the control of 
the institution. The commenter stated that under the gainful employment 
regulations, the Department does not hold an institution accountable 
for costs that it does not control and should therefore refrain from 
placing undue financial strain on an institution that stems from 
decisions made by students. Moreover, because students may add or drop 
classes early in a payment period, students may move from one category 
to the other, introducing additional burden. For these reasons, the 
commenter suggested that an institution placed on HCM should have the 
option of (1) paying credit balances before seeking reimbursement, or 
(2) putting in escrow an amount equal to the expected credit balances 
and subsequently requesting funds prior to paying those credit 
balances.
    One commenter stated that if the intent of the proposed regulations 
is to require an institution placed on HCM1 to first make credit 
balance payments, the commenter suggested that the Department 
explicitly require that as soon as an HCM1 institution initiates an EFT 
to the student's account, it may immediately request the funds from the 
Department and that those funds will be available within the same 24-48 
hours timeframe that is currently in place.
    A commenter questioned whether the Department intended to require 
an institution to credit all of a student's title IV, program funds at 
once, thereby creating a credit balance, or prohibit the institution 
from submitting a reimbursement request that includes a credit balance 
that has not been paid. The commenter provided the following example: a 
student is due to receive $15,000 in title IV program funds and 
institutional charges are $10,000. Can the institution credit just 
$10,000, get reimbursed, then credit or directly pay the other $5,000, 
and then get reimbursed for that, or must the institution credit all 
$15,000 and pay out the $5,000 before it can get any funds back in 
reimbursement? Along the same lines, another commenter argued that the 
proposed regulations present a significant administrative burden for an 
institution placed on HCM1 because the institution would need to seek 
payment from the Department separately for two categories of students--
those who are expected to receive a credit balance and those who are 
not.
    A commenter requested the Department to provide examples of 
documentation that may be considered appropriate proof that an 
institution paid credit balances prior to seeking reimbursement, and to 
outline the steps necessary for the institution to be removed from the 
HCM and reimbursement payment methods.
    Discussion: As a general matter, under the current and previous 
regulations the payment method under which the Department provides 
title IV, HEA program funds to an institution does not in any way 
excuse the institution from meeting the 14-day credit balance 
requirements under Sec.  668.164(h) or the provisions for books and 
supplies under Sec.  668.164(m). In the NPRM, we proposed to require an 
institution placed on HCM or reimbursement to make any credit balance 
payments due to students and parents before the institutions would be 
able to submit a reimbursement request under HCM2 or submit a request 
for cash under HCM1, to assure the Department that the institution made 
those payments before title IV funds are provided or made available to 
the institution. We note that an institution may still make credit 
balance payments at any time within the 14-day timeframe, but if the 
institution wants to include in its reimbursement or cash request a 
student or parent who is due a credit balance, the institution must pay 
that credit balance even if there is time remaining under 14-day 
provisions to make that payment.
    With regard to payment methods, under section 401(a)(1) of the HEA 
and Sec.  668.162(a), the Secretary has the sole discretion to 
determine whether to provide title IV, HEA program funds to an 
institution in advance or by way of reimbursement. The Department 
places an institution on reimbursement or HCM for compliance, 
financial, or other issues the Department believes necessitate a higher 
level of scrutiny. In general, these issues relate directly to the 
compliance history of the institution or its failure to satisfy 
financial standards that serve as proxy for the institution's ability 
to (1) provide the services described in its official publications, (2) 
administer properly the tile IV, HEA programs in which it participates, 
and (3) meet all of its financial obligations. Requiring institutions 
to pay credit balances prior to obtaining funds from the Department is 
consistent with that higher level of scrutiny.
    To provide the reader a more complete primer, under Sec.  
668.164(a), 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 (1) funds its receives from the 
Secretary, or (2) institutional funds used in advance of receiving 
title IV, HEA program funds. With regard to crediting a student's 
ledger account, we clarified in the preamble to the NPRM published on 
September 23, 1996 (61 FR 49878) and in the preamble to the final 
regulations published on November 29, 1996 (61 FR 60589) that a 
``credit memo'' is not a disbursement--it merely represents an entry 
made by the institution, noting the type and amount of the title IV, 
HEA program awards the student qualifies to receive, for the purpose of 
generating invoices or bills

[[Page 67133]]

to students for institutional charges not covered by those awards.
    With this background in mind, the comment that transactions on the 
student's ledger account are merely anticipated disbursements pending 
review by the Department of a reimbursement request is, at best, 
confusing. If the postings of anticipated disbursements are credit 
memos, then an institution placed on reimbursement or HCM cannot submit 
a reimbursement or cash request because it has not properly made 
disbursements to eligible students. If the postings represent actual 
disbursements, then regardless of any delays or administrative 
processes, under current and past regulations the institution is 
obligated to pay any credit balances due to students regardless of when 
the institution received funds to make those payments. With regard to 
comments about processing reimbursement requests timely, the Department 
takes care to assign adequate staff, but minor delays will occur from 
time to time. We note that the vast majority of delays in approving 
reimbursement requests occur because institutions do not provide the 
requested documentation or acceptable documentation.
    With regard to the comments that the Department should distinguish 
between the alternate methods of payment (i.e., between HCM and 
reimbursement or between HCM1 and HCM2) in applying the requirement to 
pay credit balances before requesting funds, we do not believe the 
distinction is warranted. Regardless of the alternate payment method 
the institution is placed on, or whether it submits a letter of credit 
to the Department for failing to satisfy the financial responsibility 
standards or for other reasons, the institution must still make 
required credit balance payments to students in a timely fashion. While 
we agree with the commenters that a letter of credit provides some 
measure of protection to the Department, it does nothing for students 
who are the primary beneficiaries of title IV, HEA program funds, and 
is not tied in any way that we can determine with the institution's 
fiduciary duty to make timely payments to students.
    With respect to the comments that an institution would have to 
``front'' institutional funds to students, that has always been and 
continues to be the nature of the alternate payment methods. As 
previously noted, in the ordinary course, an institution is placed on 
an alternate payment method based on concerns about its financial 
capacity or ability to properly administer the title IV, HEA programs. 
Requiring that the student beneficiaries are protected under these 
circumstances is consistent with the purpose behind the alternate 
methods of payment. In addition, we do not believe it is appropriate to 
change the disbursement process, such as putting credit balances in 
escrow or altering when funds are considered disbursed, to accommodate 
institutions with compliance issues.
    With respect to the comment that the Department does not hold an 
institution accountable under the gainful employment regulations for 
costs it does not control, we note that a student's loan debt is capped 
at the total amount of tuition, fees, books, supplies, and equipment in 
determining the debt to earnings (D/E) rate of a program. So, to the 
extent that the student borrows funds in excess of that amount to pay 
for living costs, the excess funds are not counted in calculating the 
D/E rate, but all of the student's loan funds are counted in 
calculating the median loan debt of the program that is used for 
disclosure purposes. In any event, capping loan debt for the purpose of 
calculating a performance metric has no bearing on paying credit 
balances to students. Regardless of whether an institution has or 
exercises control of the amount of title IV, HEA program funds the 
student elects to borrow, the institution is responsible for disbursing 
the awards, including making credit payments to those students.
    In response to the comment that the Department explicitly allow an 
institution on HCM1 institution to request funds immediately after it 
initiates an EFT to the student's account, we note that under Sec.  
668.164(a) an institution makes a disbursement on the date it credits a 
student's ledger account or pays the student directly. As provided in 
Sec.  668.164(d), an institution pays a student directly on the date it 
initiates an EFT to the student's financial account. So, the 
regulations already provide that as soon as an institution on HCM1 
makes a disbursement, it may request funds from the Department.
    In response to the comment about whether an institution must credit 
the student's account with all the funds the student is eligible to 
receive for a payment period, it depends. For example, if the 
institution determines at or before the time it submits a reimbursement 
or cash request that a student is eligible for a Federal Pell Grant but 
not yet eligible for a Direct Loan (either because the student has not 
signed a master promissory note or for some other reason), the 
institution may include the student on that reimbursement or cash 
request. When the student establishes eligibility for the Direct Loan, 
the institution is required to credit the student's account with the 
loan funds and pay any resulting credit balance before including that 
student on a subsequent reimbursement or cash request. In most cases, 
however, the institution will have determined before submitting a 
reimbursement or cash request that the student was eligible to receive 
all of his or her awards for a payment period and therefore the amount 
of all of those awards will have to be credited, in full, to the 
student's ledger account and the institution will have to pay any 
resulting credit balance before including the student on a 
reimbursement or cash request.
    With respect to the request that the Department provide examples of 
the documentation needed to prove that an institution paid credit 
balances and outline the steps necessary for an institution to be 
removed from the HCM and reimbursement payment methods, we believe that 
both of these issues are best addressed administratively on a case-by-
case basis depending on how the payments were made or the steps than an 
institution takes to correct its financial or compliance issues.
    Changes: None.

Institutional Depository Account (Sec.  668.163)

    Comments: Under proposed Sec.  668.163(a), an institution located 
in a State must maintain title IV, HEA program funds in an insured 
depository account. Some commenters supported the Department's proposal 
that an institution may not engage in any practice that risks the loss 
of Federal funds.
    One commenter noted than an institution may have a ``sub'' account 
for title IV, HEA program funds within its operating account and asked 
whether this arrangement was acceptable or whether the institution 
needed to maintain title IV funds in a completely different bank 
account with no other operating funds and insured at the FDIC limit of 
$250,000. Similarly, another commenter asked the Department to clarify 
the insurance requirement because most institutions maintain title IV 
funds in accounts with balances that exceed FDIC or NCUA insurance 
limits.
    Another commenter asked whether an institution had to disburse 
title IV, HEA program funds from the same account that the funds were 
originally deposited into, and, if not, whether the institution could 
sweep the funds in the account from which they are disbursed.
    Another commenter stated that nightly sweeps are a standard 
practice for large organizations and the commenter is not aware of any 
losses

[[Page 67134]]

stemming from funds held in secured investment accounts. However, 
because most colleges and universities disburse title IV funds before 
submitting a cash request or disburse shortly after receiving the 
funds, the commenter stated the issue of where the funds are held is 
less important than it was in the past.
    Discussion: Under Sec.  668.163(b), the Department may require an 
institution with compliance issues to maintain title IV, HEA program 
funds in a separate depository account. However, as a general matter, 
an institution may use its operating account, or a subaccount of its 
operating account, as long as the operating account satisfies the 
requirements in Sec.  668.163(a)(2). With regard to the insurance 
limit, it does not matter whether an institution maintains title IV, 
HEA programs funds in a depository account in an amount higher than the 
insurance limit, it only matters that the account itself is insured by 
the FDIC or NCUA.
    In response to whether an institution must use the same account for 
depositing and disbursing title IV, HEA program funds, the institution 
may choose to use the same depository account or different accounts 
(e.g., a depository account into which title IV, HEA program funds 
received from the Department are transferred or deposited and an 
operating account from which disbursements are made to students and 
parents). Regardless of whether the institution uses the same account 
or more than one account, it must ensure that title IV, HEA program 
funds maintained in any account are not included in any sweeps of any 
account. For example, if an institution transfers funds from its title 
IV depository account to its operating account, any title IV funds held 
on behalf of students cannot be included as part of the sweep of other 
funds in its operating account.
    With regard to the commenter who stated no losses have occurred on 
title IV funds held in secure investment accounts, we reiterate our 
position that, given the $500 limit on retaining interest earnings, 
there is no point in placing Federal funds at risk. About the comment 
regarding the declining importance of maintaining Federal funds in 
investment accounts, we assume the commenter is referring to the wind-
down of the Federal Perkins Loan Program (see Dear Colleague Letter 
GEN-15-03). Previously, an institution could maintain its Perkins Loan 
Fund in a secure investment account and any interest earned would 
become part of the Fund and available to the institution to make 
Perkins Loans to students. Now that the statutory authority for 
institutions to make Perkins Loans has ended, there is no need for 
investment accounts.
    Changes: None.
    Comments: A commenter agreed with our proposal in Sec.  
668.163(a)(1) that the Secretary may approve a depository account 
designated by a foreign institution if the government of the country in 
which the institution is located does not have an agency equivalent to 
the FDIC or NCUA. However, the commenter believed that the requirements 
in Sec.  668.163(a)(2)--that the name of the depository account must 
contain the phrase ``Federal funds'' or the institution must notify the 
depository institution that the account contains title IV, HEA program 
funds--were not meaningful in a foreign context and should be removed. 
In addition, the commenter noted that the laws in foreign countries may 
in some cases preclude an institution from maintaining funds in 
interest-bearing accounts as required under Sec.  668.163(c). To avoid 
conflicts with the regulations in these instances, the commenter 
suggested that the provisions for interest-bearing accounts apply only 
to domestic institutions.
    Discussion: We agree that the provisions for maintaining title IV, 
HEA program funds in interest-bearing accounts, and for including the 
phrase ``Federal funds'' in the name of the depository account or 
notifying the depository institution that Federal funds are maintained 
in those accounts, may not be meaningful or relevant to foreign 
institutions.
    Changes: We have revised the notice requirements in Sec.  
668.163(a)(2) and the interest-bearing account requirements in Sec.  
668.163(c)(1) so they apply only to institutions located in a State.

Disbursements During the Current Payment Period (Sec.  668.164(b)(1))

    Comments: Under proposed Sec.  668.164(b)(1), an institution must 
disburse during the current payment period the amount of title IV, HEA 
program funds the student or parent is eligible to receive, except for 
Federal Work Study (FWS) funds or unless the provisions in 34 CFR 
685.303 apply. Because Sec.  685.303 contains a number of provisions, 
one commenter asked the Department to specify the provisions that apply 
to disbursing funds during the current payment period.
    Discussion: We agree with the commenter that a specific cross 
reference to Sec.  685.303 would be helpful. Under Sec.  
685.303(d)(4)(i), if one or more payment periods have elapsed before an 
institution makes a disbursement, the institution may include loan 
proceeds for completed payment periods in the disbursement. This is the 
only circumstance in Sec.  685.303 that is an exception to the general 
rule specified in Sec.  668.164(b)(1) that an institution must disburse 
during the current payment period the amount of title IV, HEA program 
funds the student or parent is eligible to receive.
    Changes: We have amended Sec.  668.164(b)(1) to specify that an 
institution must disburse during the current payment period the amount 
of title IV, HEA program funds the student or parent is eligible to 
receive except for FWS funds or unless 34 CFR 685.303(d)(4)(i) applies.

Confirming Eligibility (Sec.  668.164(b)(3))

    Comments: Some commenters objected to the proposal in Sec.  
668.164(b)(3) under which a third-party servicer, along with the 
institution, would be responsible for confirming a student's 
eligibility at the time a disbursement is made. The commenters stated 
the current regulations are clear that a disbursement occurs when an 
institution credits a student's account with title IV funds or pays 
title IV funds to a student directly. These commenters argued that the 
proposal contradicts the existing provision in 34 CFR 668.25(c)(4) by 
expanding the requirement to confirm student eligibility to servicers 
who have any involvement with the disbursement process and not just to 
servicers who actually disburse funds as already provided in Sec.  
668.25. The commenters noted that many third-party servicers provide, 
among other services, reporting and reconciliation of institutionally 
provided data to the Department as a liaison between the institution 
and the Department. The commenters stated that extensive regulations 
already cover disbursement of Federal aid to eligible students, and 
that it is ultimately the institution's responsibility to ensure fiscal 
accountability and to fulfill its fiduciary duty under the terms of its 
Program Participation Agreement. The commenters opined that requiring a 
servicer to confirm a student's eligibility results in a higher 
standard of care, additional administrative burdens and cost being 
forced upon institutions that elect to engage a servicer that do not 
exist for institutions that do not use a servicer. The commenters 
argued that the additional and duplicative confirmation process would 
also likely result in unnecessary disbursement delays to eligible 
students. The commenters also objected to third-party servicers being 
held jointly responsible for the veracity of any information provided 
to them by the institution,

[[Page 67135]]

arguing that servicers are not officials of the institution, or part of 
its ownership or on-campus management team. The commenters reasoned 
that requiring a servicer, or any other unrelated entity, to be 
responsible for information provided by its client institution is 
comparable to requiring a CPA or other tax preparation service to be 
responsible for the accuracy, completeness, and validity of their 
clients' income, expense, and deduction claims. Because rules are 
already in place regarding taxpayer and institutional liability for 
non-compliance with Federal aid disbursements, the commenters argued 
that expanding institutional liability to third-party servicers that 
have no authority to control the actions of institutions or their 
employees is unnecessary. The commenters stated that institutions that 
typically engage a servicer are small businesses and the significant 
cost that they would incur to have servicers perform a function that 
the institution is already required by regulation to perform would 
result in either school closures, higher tuition costs, or 
inexperienced aid administrators with no ability to engage a servicer.
    Similarly, another commenter opined that the proposed regulations 
would apply to nearly all servicers since virtually all of them perform 
activities that could be characterized as ``leading to or supporting'' 
disbursements. The commenter stated that the function of confirming the 
enrollment and eligibility status for each student for whom a 
disbursement is ordered requires review of original source records and 
information created and maintained by the institution, a process which 
can entail a considerable amount of time. Although the commenter 
acknowledged that the Department indicated in the preamble to the NPRM 
that an institution and a servicer could establish a process under 
which the servicer periodically affirms that the institution confirmed 
student eligibility at the of disbursement, the commenter argued that 
the language in proposed Sec.  668.164(b)(3) appeared to impose a duty 
on the servicers themselves to confirm enrollment and eligibility 
status. In addition, the commenter argued that the process discussed in 
the preamble was ambiguous, with many unaddressed factors including the 
frequency of servicer reviews, the percentage of files that need to be 
sampled, the method of selecting files, the level of error that should 
be cause for concern, and the course of action that should be taken if 
that error level is detected.
    The commenter also inferred that third-party servicers who perform 
activities leading to or supporting a disbursement will be required to 
calculate the return of title IV funds for those students who withdraw 
prior to completing a payment period for which a disbursement is made. 
The commenter argued this proposal effectively redefines when a 
servicer is considered to be a servicer who ``disburses funds'' for 
purposes of 34 CFR 668.25(c)(4). Moreover, the commenter was concerned 
that if a servicer is considered to have a separate and independent 
duty to confirm enrollment and eligibility under Sec.  668.164(b)(3), 
the servicer would be liable under 34 CFR 668.25(c)(3) for paying those 
liabilities in the event the institution closed. In addition, the 
commenter opined that the HEA does not authorize the Secretary to 
impose on servicers, through an expansive definition of disbursement, 
title IV functions and obligations of an institution that the servicer 
has not agreed to assume under its contractual relationship with that 
institution.
    The commenter lastly opined that it would be inconsistent to treat 
a software provider as a third-party servicer if the provider used 
student aid information from its software product to perform COD 
reporting, reconciliations, or other business functions, but not treat 
as a third-party servicer a software provider whose product performs 
the same functions, including activities that lead to or support a 
disbursement, that are carried out by an institution. Along these 
lines, the commenter concluded that third-party servicers and software 
providers that perform title IV functions on behalf of institutions 
would potentially be jointly and severally liable for title IV errors, 
but a software provider whose product is used solely by an institution 
would not, even though that product performs functions that lead to or 
support disbursements. For these reasons, the commenter concluded that 
the proposed regulations likely will preclude many institutions from 
having access to the expertise and services provided by third-party 
servicers and software service providers and thereby will result in a 
higher incidence of title IV errors. In addition, the commenter argued 
that the proposed regulation likely will put some third-party 
servicers, software service providers, and institutions out of 
business.
    Another commenter noted that organizations are considered third-
party servicers if they deliver title IV credit balances, but opined 
that the cash management regulations appear to be written for a very 
small subset of servicers who have complete access to all award and 
billing information, enabling them to make title IV eligibility 
determinations and consequently control the disbursement process. The 
commenter stated that most third-party servicers participate in only a 
few steps of the overall disbursement process and have very little 
insight or influence on the process of awarding financial aid. These 
third-party servicers are not involved in determining the eligibility 
of students or the corresponding amounts to be disbursed. The commenter 
was concerned that unless the proposed rule is amended, the 
responsibility and potential liability of a service provider could far 
outweigh any reasonable charges for disbursement services, and 
suggested that the Department clarify the various types of service 
providers and the degree of responsibility and liability associated 
with each type.
    Discussion: We disagree with the commenters that portray a third-
party servicer as merely a liaison between an institution and the 
Department or as an unrelated entity that simply uses whatever 
information a client provides to conduct transactions on the client's 
behalf. As provided in Sec.  668.25(c)(1), when a third-party servicer 
enters into a contract with an institution, the servicer must agree to 
comply with the statutory provisions in the HEA and the regulations 
governing the title IV, HEA programs that fall within the ambit of the 
activities and transactions the servicer will perform under that 
contract. In performing those activities and transactions on behalf of 
the institution, the third-party servicer must act as a fiduciary in 
the same way that the institution is required to act if it performed 
those activities or transactions itself. So, in the capacity of a 
fiduciary, the third-party servicer is subject to the highest standard 
of care and diligence in performing its obligations and in accounting 
to the Secretary for any title IV, HEA program funds that it 
administers on behalf of the institution.
    In situations like those described in the NPRM, where a third-party 
servicer determines the type and amount of title IV, HEA program awards 
that students are eligible to receive, requests title IV funds from the 
Department for those students, or accounts for those funds in reports 
and data submissions to the Department, the servicer has a fiduciary 
duty to ensure that disbursements are made only to eligible students 
for the correct amounts. Otherwise, improper disbursements may be made 
to students that in turn affect the accuracy of the institution's 
fiscal records and data

[[Page 67136]]

reported to the Department. Moreover, where a third-party servicer is 
engaged to perform one or more of these activities it is not possible 
to confine the servicer's fiduciary responsibilities to discrete 
functions, as the commenters proffer, because these activities are 
interrelated. For example, a servicer that determines the type and 
amount of awards that students are eligible to receive and requests 
funds from the Department, would rely on the award amounts for those 
students in requesting the funds necessary to meet the institution's 
immediate disbursement needs.
    We disagree with the assertion made by the commenters that an 
institution is solely responsible for disbursement errors simply 
because the institution makes an entry crediting a student's ledger 
account. As a practical matter, where a third-party servicer is engaged 
to determine the type and amount of title IV, HEA program funds that a 
student is eligible to receive, the institution may reasonably rely on 
that information in crediting the student's ledger account. Moreover, 
disbursing funds is a process that begins with determining the awards 
that a student is eligible to receive and culminates in making payments 
of those awards to the student. So, the act of crediting the student's 
ledger account is just part of that process--it simply identifies the 
date on which the student receives the benefit of title IV, HEA program 
funds.
    With regard to the concerns raised by the commenters that requiring 
a third-party servicer to confirm eligibility at the time of 
disbursement would be costly, cause delays, and duplicate the work of 
the institution, we believe those concerns are overstated. As discussed 
more fully in Volume 4, Chapter 2 of the FSA Handbook,\14\ in 
confirming eligibility, an institution determines whether any changes 
or events have occurred, from the date that a student's awards were 
made to the date the student's ledger account is credited, that may 
affect the type and amount of those awards. Most of these changes and 
events relate to the student's enrollment at the institution--whether 
the student began attendance in classes, the student's enrollment 
status, whether the student successfully completed the hours in the 
prior payment period, and whether a first-time borrower has completed 
the first 30 days of his or her program. Other events include whether 
the institution has any new information that would cause the student to 
exceed his or her lifetime eligibility for Federal Grants, or for 
Direct Loans, whether the student has a valid master promissory note. 
These are basic enrollment and award tracking functions required of all 
institutions under the record retention provisions in Sec.  668.24 and 
applicable program regulations, so we see no reason why it would be 
costly or time consuming for an institution to implement a process 
where this information is shared with its third-party servicer.
---------------------------------------------------------------------------

    \14\ Available at https://ifap.ed.gov/ifap/byAwardYear.jsp?type=fsahandbook&awardyear=2015-2016.
---------------------------------------------------------------------------

    As we explained in the preamble to the NPRM (80 FR 28495), the 
institution and its third-party servicer may establish a process under 
which the institution confirms eligibility and the servicer verifies 
periodically that the confirmations were made in accordance with that 
process. With regard to the comments that the Department should specify 
the requirements or procedures used under these processes, we do not 
believe that is necessary--the institution and the servicer should be 
sufficiently motivated to implement credible processes because they are 
jointly responsible and jointly liable.
    With regard to comments that the proposed regulations contradict 
the existing provisions in Sec.  668.25(c)(4), the Department 
respectfully disagrees. As discussed previously in this section and in 
the NPRM, the language holding an institution and its third-party 
servicer responsible for confirming a student's eligibility is not a 
new policy or a change in policy--it merely emphasizes current 
requirements and reiterates institutional and servicer 
responsibilities.
    In response to the comment about whether software providers or the 
use of their products are treated in the same way as third-party 
servicers, we would make that determination on a case-by-case basis 
depending on the how the software products are used and the role of the 
software provider in performing title IV functions.
    With regard to the comments that the proposed regulations require 
servicers who perform activities leading to or supporting a 
disbursement to also calculate the return of Title IV funds for 
students who withdraw, that responsibility already exists in 34 CFR 
668.25(c)(4)(ii). Changes to that regulation are beyond the scope of 
these regulations.
    In response to the suggestion that the Department clarify the 
various types of service providers and the degree of responsibility and 
liability associated with each type, doing so is beyond the scope of 
these regulations. However, a third-party servicer is not subject to 
the provisions for confirming eligibility under Sec.  668.164(b)(4) if, 
for example, the servicer is engaged only to deliver credit balance 
payments to students, or only to provide exit counseling to student 
loan borrowers.
    Changes: We have revised Sec.  668.164(b) to clarify that an 
institution remains responsible for confirming a student's eligibility 
at the time of disbursement. We also clarify that a third-party 
servicer is responsible for confirming eligibility if the servicer is 
engaged to perform activities or transactions that lead to or support a 
disbursement, and identify the general scope of those activities and 
transactions.

Books and Supplies (Sec.  668.164(c)(2))

    Comments: Under proposed Sec.  668.164(c)(2), if an institution 
includes the costs of books and supplies as part of tuition and fees it 
must separately disclose those costs and explain why including them is 
in the best financial interests of students.
    Several commenters stated that these disclosures were redundant and 
unnecessary. Some of the commenters cited section 133 of the HEA and 
the Department's Dear Colleague Letters GEN 08-12 and GEN 10-09 that 
describe the provisions for textbook disclosures, and noted that, 
according to these sources, institutions are required to comply with 
the textbook disclosure requirements even if the textbooks are included 
as part of the tuition and fees. A few commenters believed the proposed 
disclosure requirements violate section 133(i) of the HEA, which 
prohibits the Secretary from regulating textbook disclosures.
    In response to our request for comment about how and the frequency 
with which an institution should disclose the costs of books and 
supplies that are included as part of tuition and fees, one commenter 
recommended that the disclosures be made at the time of enrollment and 
then again at the beginning of each payment period.
    Another commenter stated that if these disclosures would be most 
useful when a student is deciding whether to contract for the program 
of study, the disclosures should be made prior to a student entering 
into a financial obligation with the institution for enrolling in a 
program of study. Further, if the costs of books and supplies are 
included as part of tuition and fees for all students in a program, the 
commenter recommended that charges for those materials should be listed 
in an offer of admission and financial aid, so that students are able 
to make enrollment decisions that include all mandatory costs.

[[Page 67137]]

    One commenter argued that there are no effective ramifications of 
the disclosure (e.g., there is no obligation on the institution to 
reverse those charges so the student can purchase the materials 
elsewhere) so the only real effect of the disclosure is to persuade the 
student not to enroll or to seek a similar program elsewhere. However, 
the commenter did not recommend that an institution be required to 
reverse the charges, stating that would undermine legitimate efforts by 
the institution to negotiate better deals for students on a volume 
basis. The commenter, and others, also suggested that any student 
consumer information or disclosures should be not be part of the cash 
management regulations, but in subpart D of the General Provisions 
regulations.
    Another commenter agreed with the Department's concerns regarding 
institutions artificially inflating the cost of books and supplies, but 
did not believe that such disclosures are warranted under the statute, 
and doubted that they would actually address the Department's concerns. 
The commenter contended that the disclosure provision would be 
potentially time-consuming and expensive to implement, and confusing or 
meaningless to students.
    A commenter supported the disclosures arguing that the cost of 
books and supplies should be listed as specific line items on the bill 
or invoice sent to the student, along with the explanation of why those 
materials are required, so the student can make appropriate financial 
aid decisions.
    A few commenters did not find compelling or relevant the 
Department's rationale for initially proposing that institutions may 
not include books and supplies as part of tuition and fees, and they 
stated that the attorneys present at the negotiated rulemaking sessions 
submitted documents that did not include any findings of institutions 
charging inflated prices. Although there was a report submitted at a 
Department hearing concerning books and supplies, the concerns raised 
in that report had more to do with manipulating credit balances to 
coerce students to buy books directly from the institution rather than 
the issues raised by the Department in the NPRM. In addition, the 
commenters stated that the Department's regulatory intent was not 
clear, with one commenter providing an example where an institution 
includes as part of tuition and fees the cost of a new hardbound 
textbook under an arrangement where it negotiated a discount in the 
student price of that textbook from $400 to $100. In this case, the 
commenter asked whether the Department would allow that arrangement as 
in the best financial interest of the student or disallow the 
arrangement because the textbook is nevertheless available in the 
marketplace.
    The same commenters took exception to the Department's position in 
the preamble to the NPRM that the costs of attendance provisions in 
section 472 of the HEA treat books and supplies as separate from 
tuition and fees. One commenter argued that under the plain meaning of 
the statute, institutions have the sole discretion to determine what 
constitutes tuition and fees, pointing to the provision in section 
472(1) of the HEA that states that tuition and fees may include the 
costs for rental or purchase of ``any materials'' or ``supplies.'' The 
commenter opined that these terms are broad enough to include learning 
materials like textbooks and digital learning platforms. Where tuition 
and fees do not include the costs of materials and supplies, the cost 
of attendance also includes an allowance for books, supplies, 
transportation, and other expenses under section 472(2) of the HEA. The 
commenters concluded that instead of providing the Department with 
authority to limit the institutions' ability to include books and 
supplies as part of tuition and fees, section 472 of the HEA appears to 
provide institutions with authority to do just that--i.e., include 
books and supplies as part of tuition and fees. Moreover, the 
commenters contended that while section 401(e) of the HEA limits the 
disbursement of title IV funds to tuition and fees, because it is 
silent on the question of what constitutes tuition and fees, it does 
nothing to limit the discretion vested in institutions by section 472.
    Some commenters argued that using title IV funds to pay for books 
and supplies included as part of tuition and fees benefits students in 
two ways. First, it ensures that students are able to have all the 
required learning materials in their possession on the first day of 
class, which educators agree is an important element in overall student 
success. Second, it often provides students with substantial discounts, 
because, by including books and supplies as tuition and fees, 
institutions are able to negotiate volume discounts on behalf of their 
students. In addition, as more classes are taught using digital 
learning platforms, institutions will require flexibility to adopt new 
models for how those materials may be used and purchased. Digital 
learning platforms fully integrate content with personalized learning 
technologies and other elements to provide students with a holistic 
learning experience that can be accessed with a laptop, a tablet, a 
smartphone or some combination of devices. The commenter stated that 
the emergence of digital learning platforms will also create new market 
dynamics. While many of these new dynamics are over the horizon, some 
are reasonably clear at present. Because digital learning platforms 
integrate content with personalized quizzes, exercises and problems as 
well as a calendar of assignments and student-faculty online 
communication, the platforms are not optional--students must have 
access to the digital learning platform by the first day of class. 
Moreover, the commenter contended there can be no legitimate 
aftermarket for digital learning platforms and there is no way to 
legitimately access the platforms except through portals authorized by 
the digital learning company. Consequently, including digital learning 
platforms as tuition and fees is one way to ensure that students have 
access to this new technology in a convenient and timely manner.
    A few commenters stated that if the Department goes forward with 
the regulations, it should require that, as proposed by the community 
colleges during negotiated rulemaking, if an institution includes the 
cost of books and supplies as part of tuition and fees, it must 
separately and publicly disclose such costs in the schedule of tuition 
and fees along with a written statement justifying the reason for this 
inclusion and the value to students for taking this approach by the 
institution. The commenters argued that this proposal requires 
disclosure and promotes transparency, and also incorporates the concept 
of ``value to the student'' which would include both the financial best 
interest of the student as well as the pedagogical value to the 
student. The commenters explained that under the community colleges' 
proposal, books and supplies could be included as tuition and fees 
where there is pedagogical benefit to the student but the effect on the 
student's financial best interest is neutral. The commenters concluded 
by stating that it is clear that including books and supplies as 
tuition and fees can provide pedagogical benefits to students: Those 
benefits should be taken into account by any regulation promulgated by 
the Department and should be sufficient in and of themselves to justify 
including books and supplies as part of tuition and fees.
    Other commenters agreed with the proposal. Some believed the 
proposal would provide helpful transparency around the practice of 
including charges for books and supplies along with

[[Page 67138]]

tuition and fees which sometimes limits the ability of students to make 
purchasing decisions on their own. Another commenter noted this that 
this provision will prevent institutions from automatically lumping 
books and supplies into tuition and fees, which simply increases the 
amount of funds that the institution gets to keep before making credit 
balance payments to students. In addition, the commenter believed the 
provision provides students with needed transparency about precisely 
what is being charged by institutions, arguing that if an institution 
cannot provide a plausible explanation that it is providing the 
materials at below market cost or the provided materials are generally 
not otherwise available, then the institution will not be able to 
include these costs. Instead, those costs will be treated in the 
traditional manner as part of the additional cost of attendance and the 
aid that would have otherwise been used to pay those costs will be 
forwarded to the student.
    While acknowledging the Department's concerns about overcharging 
for otherwise widely available materials, one commenter disagreed that 
imposing the ``best financial interest'' requirement on all 
institutions is warranted or applicable when course materials are not 
widely available or available electronically only through the 
institution. Instead, the commenter suggested that the regulations 
merely require an institution to disclose the amounts separately, 
arguing that this allows for students to do a cost comparison for 
materials that may be available through other channels and make an 
informed decision.
    Discussion: After considering all of the comments received on this 
topic, we are revising the provision to set forth three conditions 
under which an institution may include the costs of books and supplies 
as part of tuition and fees. Because the final regulations do not 
require an institution to make textbook disclosures, we are not 
addressing as part of this discussion the merits of the comments 
regarding those disclosures.
    We take issue with the notion that institutions enjoy complete 
discretion to include books and supplies in tuition and fees pursuant 
to section 472 of the HEA. Books are referenced in section 472(2), a 
paragraph separate and apart from section 472(1), the provision 
regarding tuition and fees. Moreover, ``supplies'' are addressed not 
only in section 472(1), but also in 472(2)--the first covering 
``tuition and fees normally assessed a student carrying the same 
academic workload as determined by the institution, and including costs 
for rental or purchase of any equipment, materials, or supplies 
required of all students in the same course of study,'' and the second 
covering ``an allowance for books, supplies, transportation, and 
miscellaneous personal expenses. . . .'' So section 472 on its face 
contains no justification for including books, whether paper or 
digitized, as tuition and fees; and it permits an institution to treat 
supplies as tuition and fees only if they are ``normally assessed'' and 
``required of all students in the same course of study.'' This 
structure is inconsistent with the commenter's claims.
    Furthermore, it would be unlawful to read section 472 in isolation 
from the other portions of title IV of the HEA. Whenever books and 
supplies are included in tuition and fees, this results in students 
having no opportunity to decide for themselves whether or how to obtain 
these materials or what if anything to pay for them. Two separate 
provisions of title IV prohibit such a result. Section 401(e) of the 
HEA, regarding Pell Grants, provides that ``any disbursement allowed to 
be made [by an institution] by crediting the student's [ledger] account 
shall be limited to tuition and fees and, in the case of 
institutionally owned housing, room and board. The student may elect to 
have the institution provide other such goods and services by crediting 
the student's [ledger] account.'' (Emphasis added). Section 455(j)(1) 
of the HEA, regarding Direct Loans, states that ``Proceeds of loans to 
students under this part shall be applied to the student's account for 
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.'' (Emphasis added). Sections 401(e) and 
455(j)(1) serve to ensure students are free to make the choices they 
regard as in their own best interests as consumers. Under well-settled 
principles of statutory construction, these consumer rights cannot be 
read out of the statute through a construction of section 472(1) as 
permitting institutions broad discretion to designate charges for goods 
and services that are purchased rather than produced by the institution 
as tuition and fees. Instead, reading the statute as a whole and in 
harmony as required by law, any such discretion is circumscribed and 
must conform to the purposes of sections 401(e) and 455(j)(1) of 
protecting the rights of students as consumers.
    With regard to the request that we adopt the community college 
proposal under which an institution that includes books and supplies as 
part of tuition and fees would provide a written statement justifying 
the reason and the value to student for doing so, we decline. As noted 
by the commenters, under this proposal an institution could provide a 
pedagogical reason for including books and supplies. Although well 
intended, the proposal would allow some institutions to include the 
costs of books and supplies as part of tuition and fees to the 
detriment of students. Neither students nor the Department would be 
positioned to evaluate claims regarding pedagogical value, and under 
HEA sections 401(e) and 455(j)(1) consumer protection supersedes 
pedagogy. For these reasons, and to enable to the Department to take 
enforcement actions, we proposed in the NPRM that including books and 
supplies had to be in the best financial interests of students. 
However, we are partially persuaded by the commenters to adopt a 
different approach that is beneficial to students and institutions, 
while also addressing the Department's concerns.
    Under this approach, an institution may include the costs of books 
and supplies as part of tuition and fees under three circumstances: (1) 
The institution has an arrangement with a book publisher or other 
entity that enables it to make those books or supplies available to 
students at below competitive market rates, (2) the books or supplies, 
including digital or electronic course materials, are not available 
elsewhere or accessible by students enrolled in that program from 
sources other than those provided or authorized by the institution; or 
(3) the institution demonstrates there is a compelling health or safety 
reason.
    The commenters made a persuasive argument that including books and 
supplies would not only enable an institution to negotiate better 
prices for its students, it would result in students having required 
course materials at the beginning of a term or payment period. Although 
the commenters did not elaborate on the extent to which an institution 
could negotiate better prices, if the price charged to students is not 
below prevailing market prices, the only remaining benefit to the 
student is that he or she will have the materials at the beginning of 
the term. But, that is already addressed by Sec.  668.164(m), which 
requires an institution to provide a way for many students to obtain or 
purchase required books and supplies

[[Page 67139]]

by the seventh day of a payment period. Therefore, we believe that 
arrangements with book publishers or other entities must result in 
books and supplies costs that are below competitive market rates.
    However, even if the institution's prices are below competitive 
market rates, by allowing the institution to include books and supplies 
as part of tuition and fees, students will not have the option of 
seeking even lower cost alternatives such as used books, rentals, or e-
books. This is the same outcome that may occur by the way an 
institution provides books and supplies to students under Sec.  
668.164(m). Under that section, the student may opt out of the way 
provided by the institution and use his or her credit balance funds to 
obtain books and supplies elsewhere. The same opt out provision is 
needed here to enable students to seek potentially lower cost 
alternatives. We note that a student who opts out under this section is 
considered to also opt out under Sec.  668.164(m), and vice versa, 
because the student has determined to obtain books and supplies 
elsewhere. But, even with an opt out provision, we are concerned that 
students who would otherwise seek lower cost alternatives will settle, 
out of sheer convenience, for the price of books and supplies 
negotiated by the institution. So, we encourage institutions to 
negotiate agreements with publishers and other entities that provide 
options for students. Finally, we adopt for this provision the same 
approach used in Sec.  668.164(m), that an institution must provide a 
way for a student to obtain the books and supplies included as part of 
tuition and fees by the seventh day of a payment period.
    We are convinced that digital platforms, and digital course content 
in general, will become more ubiquitous and that including digital 
content as part of tuition and fees ensures that students have access 
to this technology. Similarly, we agree with some commenters that where 
books and supplies are not available from sources other than 
institution, those materials may be included as part of tuition and 
fees.
    Lastly, as discussed during the negotiated rulemaking sessions, if 
there are compelling health or safety concerns, an institution may 
include, as part of tuition and fees, the cost of materials, supplies, 
or equipment needed to mitigate those concerns. For example, as part of 
a marine biology or oceanographic degree program, an institution 
requires students to take a scuba diving class where it is critical 
that those students have specific and properly functioning equipment to 
avoid serious health issues. To ensure the safety of its students, the 
institution maintained and provided the same equipment to all of the 
students in the class.
    An institution that does not satisfy or choose to exercise at least 
one these options, may not include the costs of books and supplies as 
part of tuition and fees for a program. In that case, the institution 
has to obtain the student's authorization under Sec.  668.165(b) to use 
title IV, HEA programs to pay for books and supplies that it provides. 
We remind institutions that under Sec.  668.165(b)(2)(i), they may not 
require or coerce a student to provide that authorization. Therefore, 
an institution may not require a student to purchase or obtain books 
and supplies that it provides. This consequence, and the condition 
where an arrangement with a publisher or other entity must result in 
below market prices, addresses the Department's concerns that students 
may be overcharged for books and supplies.
    Changes: We have amended Sec.  668.164(c) to state that an 
institution may include the costs of books and supplies as part of 
tuition and fees if: (1) The institution has an arrangement with a book 
publisher or other entity that enables it to make those books or 
supplies available to students at below competitive market rates. 
However, the institution must provide a way for a student to obtain the 
books and supplies by the seventh day of a payment period and must 
establish a policy under which a student may opt out of the way 
provided by the institution, (2) the institution documents on a current 
basis that the books or supplies, including digital or electronic 
course materials, are not available elsewhere or accessible by students 
enrolled in that program from sources other than those provided or 
authorized by the institution, or (3) the institution demonstrates 
there is a compelling health or safety reason.

Prior-Year Charges (Sec.  668.164(c)(3) and (4))

    Comments: Proposed Sec.  668.164(c)(3) addresses the payment of 
prior year charges with current year funds. One commenter supported our 
proposal in Sec.  668.164(c)(3)(ii) to define the terms ``current 
year'' and ``prior year'' in the same way those terms were defined in 
our Dear Colleague Letter GEN 09-11. However, another commenter 
suggested that the Department allow an institution the flexibility to 
determine the current year period when both loans and other title IV 
funds (e.g., Pell Grants or campus-based funds) are in play. The 
commenter also stated that the guidance issued by the Department 
defining a prior year was confusing in a number of circumstances. In 
general, the commenter was concerned that the regulation's lack of 
flexibility could cause some undesirable outcomes when the loan period 
for a Direct Loan and the award year for a Pell Grant did not match up, 
for example, situations where there are multiple loan periods within 
the same academic year, and where institutions assign summer cross-over 
periods to either the upcoming award year or to the concluding award 
year. The commenter did not like the fact that in some situations, 
charges that fell within the same academic year had to be considered 
prior year charges because a loan period was being used instead of an 
award year to define the current year for payment purposes. The 
commenter also took issue with the fact that, because an institution 
has the authority to assign cross-over payment periods on a student by 
student basis, the results might vary student by student depending on 
which award year the institution assigns to a cross-over payment 
period. Basically, the comment reflected frustrations that others have 
expressed over the years with the fact that there is a limitation on 
the amount of a student's ``current year'' aid that can be used to pay 
for outstanding ``prior year'' charges.
    On a separate issue, this commenter asked whether proposed Sec.  
668.164(c)(4) would work as intended when aid from different title IV, 
HEA programs comes in at different times. The commenter posited the 
example of a student getting Pell Grant and campus-based aid for the 
fall and spring terms on time, but also getting a Direct Loan (that was 
intended for the fall and spring) disbursed as a single late payment in 
the spring term. In view of proposed Sec.  668.164(c)(4) which allows 
an institution to include in the current payment period allowable 
charges from a 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 a previous payment period, the commenter asked 
whether the portion of the loan applicable to the fall could be used to 
credit the student's account for allowable outstanding fall charges 
under proposed Sec.  668.164(c)(1) (basically tuition and fees, and 
room and board charges) without the student's permission even though 
the student was paid other aid in the fall. The commenter also asked 
whether there would be an exception to the rule in Sec.  668.164(c)(4) 
when institutional charges were greater in one term compared to another 
term, since Pell

[[Page 67140]]

Grant and Direct Loan payments are made in equal installments.
    Discussion: The basic premise behind the limitation on the use of 
current year funds to pay for prior year charges is the statutory 
construct that title IV, HEA program funds are provided to a student to 
cover educational expenses associated with a particular period of time. 
Thus, it could be argued that none of a student's title IV, HEA program 
funds for a given year should ever be used to cover expenses associated 
with a prior year. However, because students may be prevented from 
registering for classes because of minor unpaid prior year charges and, 
more importantly, because these charges are small enough to be 
construed as inconsequential, the Department has taken the position 
that it is acceptable to use a corresponding de minimis amount of 
current year funds (currently $200 or less) to pay for prior year 
charges. It should be an unusual situation when title IV funds for a 
current period are used for expenses for a prior period, and such a use 
should only be allowed when the expenses in question are of a de 
minimis nature. This then left us with the issue of how to determine 
the period of time that should be used to define ``current year'' and 
``prior year'' for purposes of this provision. Considering the 
complicating facts that (1) Federal title IV aid is often given for 
different periods of time, and (2) schools often comingle a student's 
aid from different sources in a single student account, the Department 
proposed a rule that would allow the school to use a single period of 
time as the current year, depending on whether a Direct Loan was part 
of the aid package. While this appeared to work well in the vast 
majority of situations for the past six years, we agree that less than 
desirable results can sometimes occur. Thus, we are revising the 
``current year/prior year charges'' provision in Sec.  668.164(c)(3) to 
allow a school some additional flexibility in this area, while still 
maintaining the concept that, except for the $200 that can be used for 
prior year expenses, aid intended for a current year must be used for 
expenses associated with that current year.
    With regard to Sec.  668.164(c)(4), we agree with the commenter who 
suggested that Direct Loan funds (or any title IV funds) that are 
intended to cover previous payment period expenses, but are disbursed 
late in a lump sum in a subsequent payment period, should be allowed to 
be credited to a student's account without the student's permission to 
cover unpaid charges from those previous payment periods, 
notwithstanding the fact that the student may have already been paid 
some other title IV aid for those previous payment periods. Had the aid 
in question been ideally disbursed, it would have been disbursed in all 
payment periods for which it was intended and such disbursements would 
have alleviated, or substantially reduced, any carry over charges from 
the earlier payment periods. In fact, we believe that the institution 
should be able to bring forward to the current payment period any 
unpaid allowable charges from previous payment periods in the current 
award year or current loan period for which the student was eligible 
for title IV, HEA program funds. The principle behind Sec.  
668.164(c)(1) is that an institution should not be able to collect from 
title IV funds institutional charges for the entire program in the 
first few payment periods, thereby denying the student the ability to 
use some of his or her funds for non-institutional educational expenses 
in those early payment periods. Ideally, some of a student's title IV 
aid should be available to the student to pay for non-institutional 
educational expenses in each payment period. However, if the student 
has allowable outstanding institutional charges associated with 
previous payment periods in the current award year or loan period, as 
opposed to charges associated with future payment periods, then we 
believe it is appropriate for the institution to be able to use title 
IV funds to cover those expenses before it makes those funds available 
to the student for non-institutional educational expenses.
    Changes: We have revised Sec.  668.164(c)(3)(ii) to state the 
following rules. If a student's title IV aid package includes only a 
Direct Loan, the current year is the current loan period. If a 
student's title IV aid package includes only non-Direct Loan aid, the 
current year is the award year. If a student's title IV aid package 
includes both a Direct Loan and other aid, the institution may choose 
to use either the loan period or the award year as the current year. 
And, we have clarified that a prior year is any loan period or award 
year prior to the current loan period or award year.
    We have also revised Sec.  668.164(c)(4) to indicate that all 
allowable unpaid prior payment period charges from payment periods in 
the current award year or loan period for which the student was 
eligible for title IV aid can be brought forward and associated with 
the current payment period.

Prorating Charges (668.164(c)(5))

    Comments: When an institution charges a student up front (i.e., it 
debits the student's account) for more than the costs associated with a 
payment period, for the purpose of determining the amount of any credit 
balance, the institution must prorate those charges under the 
procedures in Sec.  668.164(c)(5) to reflect the amount associated with 
the payment period.
    One commenter asked whether book charges must be prorated in the 
same way as tuition and fees, and room and board. Another commenter 
opined that the prorating provisions effectively preclude an 
institution from charging by the program. A third commenter believed 
that the proposed method for prorating charges was appropriate, but 
questioned whether it would have any effect on the regulation 
addressing the treatment of title IV funds under Sec.  668.22 when a 
student withdraws from the institution. The commenter also noted that 
current rules addressing the cost of attendance for loan recipients 
require an institution that charges for more than one year up front to 
include all the program charges in the cost of attendance for a loan 
made for the first year, and include only costs other than the program 
charges in the cost of attendance for loans made for subsequent years. 
The commenter reasoned that this loan provision coupled with the 
proposed requirement to evenly prorate institutional charges over the 
number of payment periods in the program may result in large credit 
balances provided to the student for the payment periods covered by the 
first year loan, while the smaller, subsequent year loan payments 
applied to prorated charges may not produce any credit balances for the 
student.
    Discussion: Under Sec.  668.164(c)(5), an institution is required 
to prorate charges for books only if those charges are included as part 
of tuition and fees under Sec.  668.164(c)(2), and the institution 
charges the student upfront for an amount of tuition and fees that 
exceeds the amount associated with the payment period.
    Prorating charges under Sec.  668.164(c)(5) does not affect the 
return of title IV funds calculation under Sec.  668.22.
    We acknowledge that that the cost of attendance rules for loans 
coupled with prorating charges could result in the outcome noted by the 
commenter. However, we believe the advantages of prorating charges--
that students will generally have credit balance funds available to 
meet current educational expenses--outweigh the anomalous situation 
created by institutions that charge students upfront. If they choose, 
institutions can easily avoid the outcome of uneven credit balances by

[[Page 67141]]

charging students each payment period, instead of upfront.
    Changes: None

Direct Payments by the Secretary (Sec.  668.164(d)(3))

    Comments: Although proposed Sec.  668.164(d)(3) states that the 
Department may pay title IV credit balances directly to students or 
parents using a method established or authorized by the Secretary, it 
does not say that the Department will use that method. However, a 
number of commenters believed the regulation would set up such a 
payment system. Those who were against having such a direct payment 
system argued that it would cause delays for students, and stifle 
competition that could otherwise lead to improvements in payment 
systems. Some of these commenters also believed that the government 
usually does not perform as efficiently as private business and they 
worried about the transition between the current use of private sector 
systems and the ``up-coming'' use of a government system. Some 
commenters also believed that, with a government system set up to 
disburse title IV funds, there would still need to be a private system 
to disburse non-title IV funds and that the two systems would be costly 
and inefficient. One commenter argued that the government should not 
rely on its experience with the disbursement of Social Security 
benefits, noting a number of differences between that program and its 
recipients compared to the Federal student aid programs and its 
recipients. Several commenters urged the Department to engage in 
additional notice and comment rulemaking before implementing a 
governmental payment system.
    Those who favored establishing a direct payment system noted that 
other Federal agencies have successfully implemented such systems and 
that the receipt of Federal benefits under those systems has gone 
smoothly. Some commenters also noted that government-issued cards can 
be a good solution for people without bank accounts; and one noted that 
the government's negotiating power could compel vendors to create a 
product with low fees and consumer-friendly features. Thus, some 
commenters urged the Department to continue to explore such a method of 
payment and, in fact, to expedite its initiation.
    Discussion: Section 668.164(d)(3) states that the Secretary may pay 
title IV credit balances directly to students (or parents). This 
regulation does not set up such a payment system, but simply serves as 
a notice of the Secretary's prerogative in this area. If the Secretary 
should determine that it would be prudent to put such a system into 
effect, the Department would provide advance notice to institutions and 
others that the system will be implemented by publishing that 
information in the Federal Register. If the Secretary should adopt a 
method that requires a revision to existing regulations through 
negotiated rulemaking, the Secretary would initiate those proceedings. 
A determination on that matter, however, cannot be made unless and 
until the Secretary decides whether and how to exercise his or her 
authority in this area.
    We thank all those commenters who shared their thoughtful analyses 
of whether such a direct payment system would be in the best interests 
of students, institutions, private parties, and the government itself. 
Their comments constitute a good beginning in the overall analysis of 
the possible benefits and pitfalls of establishing a direct payment 
system. We will consider this feedback as we continue to determine how 
title IV credit balance funds may be delivered to students in the most 
effective, efficient, and convenient manner possible.
    Changes: None.

Tier One (T1) Arrangements (Sec.  668.164(e)(1))

    Comments: We received several comments expressing support for our 
regulatory framework that differentiates the arrangements institutions 
enter into with third-party servicers that also offer accounts to 
students from arrangements between institutions and non-third-party-
servicers that are typically more traditional banking entities (the 
accounts offered under these two types of arrangements were described 
as ``sponsored accounts'' during negotiated rulemaking and not 
differentiated in the regulations prior to the NPRM). These commenters 
stated that the proposed approach struck an appropriate balance in 
light of practices that led to the rulemaking. Some commenters who also 
served as non-Federal negotiators noted that this issue was 
particularly difficult for the rulemaking committee and commended the 
Department for employing an approach with differentiated levels of 
regulatory scrutiny that appropriately responded to the levels of risk 
presented by different arrangements. These commenters agreed that 
government and consumer reports illustrated both the incentives for 
securing short-term, fee-related revenue for T1 arrangements and the 
evidence that students opening accounts under such arrangements were 
more likely to face unusual or onerous fees. The commenters stated that 
the proposed regulations provided strong consumer protections in 
situations where USPIRG, Consumers Union, GAO, and OIG noted troubling 
practices.
    Other commenters stated that the Department's increased scrutiny of 
T1 arrangements and third-party servicers was misplaced and 
unwarranted. These commenters argued that we did not demonstrate why a 
higher level of scrutiny was appropriate for third-party servicers that 
offer financial products than for more traditional banking entities 
that directly market their products to students.
    Discussion: We appreciate the comments supporting our proposed 
regulatory approach and our decision to bifurcate the level of scrutiny 
applied to different types of arrangements that govern the accounts 
offered to title IV recipients. We agree with the commenters that noted 
the troubling examples cited in government and consumer reports and 
that led to legal actions against certain account providers, and 
believe that a higher level of regulatory scrutiny is appropriate for 
certain types of arrangements, especially with respect to fees, to 
protect title IV recipients from abusive practices and ensure they are 
able to access the student aid funds to which they are entitled.
    We disagree with the commenters who asserted that we did not 
provide sufficient justification for subjecting accounts offered under 
a T1 arrangement to a higher level of regulatory scrutiny. To the 
contrary, in the preamble to the NPRM, we describe in detail the 
findings of several consumer groups and government entities. As stated 
in the NPRM, ``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.'' \15\ Banks and credit unions have incentives to 
create long-term relationships with college students because such 
providers are working to establish a relationship (and resultant fee- 
or interest-based revenue) long after the student has left the 
institution.\16\
---------------------------------------------------------------------------

    \15\ 80 FR at 28498.
    \16\ Consumers Union. ``Campus Banking Products: College 
Students Face Hurdles to Accessing Clear Information and Accounts 
that Meet Their Needs,'' page 5 (2014), available at: 
consumersunion.org/wp-content/uploads/2014/08/Campus_banking_products_report.pdf (hereinafter referred to as 
``Consumers Union at [page number]'').
---------------------------------------------------------------------------

    Other types of entities--third-party servicers in particular--are 
more likely to ``seek to partner with schools to provide fee-based 
services to both the

[[Page 67142]]

institution and the student.'' \17\ The relationship with a student 
typically 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.'' \18\ In addition, 
third-party servicers have privileged access to systems and data that 
more traditional banks not serving as third-party servicers do not. As 
a result, these third-party servicers have been able to brand or market 
access devices in ways that may be confuse students into assuming the 
device is required as part of enrollment, can prioritize electronic 
delivery of credit balances to a preferred account before a preexisting 
bank account, and access personal student information for targeted 
marketing purposes.
---------------------------------------------------------------------------

    \17\ USPIRG. ``The Campus Debit Card Trap,'' page 13 (2012), 
available at: www.uspirg.org/sites/pirg/files/reports/thecampusdebitcardtrap_may2012_uspef.pdf (hereinafter referred to as 
``USPIRG at [page number]'').
    \18\ Ibid.
---------------------------------------------------------------------------

    These issues are not merely theoretical. OIG found that ``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.'' \19\ There have also been a 
series of legal actions, including allegations by the FDIC of ``unfair 
and deceptive practices,'' and violations of the Federal Trade 
Commission Act.20 21 Third-party servicer practices were 
specifically and repeatedly highlighted in recommendations to the 
Department for a higher level of regulatory scrutiny.\22\ For these 
reasons, and others discussed in the NPRM, we are declining to alter 
our heightened regulatory scrutiny of T1 arrangements.
---------------------------------------------------------------------------

    \19\ OIG at 5.
    \20\ GAO at 24.
    \21\ ``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 (hereinafter referred 
to as ``FDIC at [page number]'').
    \22\ OIG at 5.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters pointed out what they believed were 
ambiguities in the proposed definition of ``T1 arrangement.'' These 
commenters stated that such arrangements only involved accounts offered 
by third-party servicers and that the rule should further clarify that 
the rules do not apply with respect to practices that do not create a 
third-party servicer relationship. Specifically, many commenters opined 
that ``treasury management services'' or ``normal bank electronic 
transfers'' should not be considered third-party servicer functions 
under paragraph (1)(i)(F) of the definition of third-party servicer at 
34 CFR 668.2(b). These commenters described a situation where an entity 
contracts with an institution to conduct electronic funds transfer 
services to bank accounts, and that entity also offers bank accounts to 
the general public that are not offered in connection with the entity's 
contractual relationship with the institution. The commenters asserted 
that the existence of both a contractual relationship with the 
institution to provide disbursement services and account offerings to 
the public (some of whom may be students) would create a regulatory 
obligation on the part of the entity to ensure that all the entity's 
account offerings comply with the regulatory provisions of Sec.  
668.164(e). Consequently, the commenters requested that the Department 
explicitly exempt bank electronic funds transfers from establishing a 
third-party servicer relationship that would trigger the regulatory 
requirements of Sec.  668.164(e).
    Many of the same commenters also stated that the regulatory 
provisions establishing the conditions of a T1 arrangement were, in 
their opinion, overly broad. They argued that because many banking 
entities also provide third-party services, and because Sec.  
668.164(e)(1) establishes that accounts ``that are offered under the 
contract or by the third-party servicer'' (emphasis added) fall under 
the purview of the regulations, these entities would have to comply 
with the T1 regulatory requirements regardless of whether the accounts 
are promoted specifically to students or selected through the student 
choice menu, noting that such accounts are ones that are also often 
offered to the general public. Therefore, they argued, such a set of 
circumstances would effectively require a banking entity that serves as 
a third-party servicer for even a single institution to ensure all of 
its accounts offered to the general public comply with the regulatory 
requirements of Sec.  668.164(e). These commenters argued that it would 
be impractical, expensive, and outside the Department's legal authority 
to alter the account terms of such a broad swath of the general banking 
market. They also argued that such accounts were not those identified 
by government and consumer reports as requiring regulatory scrutiny. 
Some commenters recommended eliminating this provision entirely; others 
proposed that we limit the provisions of Sec.  668.164(e) to only those 
accounts chosen under the student choice process.
    Discussion: We agree with commenters who point out that the 
definition of ``third-party servicer'' under Sec.  668.2 excludes 
``normal bank electronic fund transfers.'' However, that same 
definition also explicitly includes as third-party servicing the 
``receiving, disbursing, or delivering [of t]itle IV, HEA program 
funds.'' Rather than altering the definition of third-party servicer, 
these regulations specify that the third-party servicing activities 
that lead to or support making direct payments of title IV funds are 
those that are encompassed under Sec.  668.164(e).
    We understand and acknowledge that there are some entities that 
simply provide EFT services to institutions and may deliver funds 
electronically as a contracted function independent of their marketing 
of other banking services to the general public. However, contrary to 
commenters' fears, we are not altering the definition of third-party 
servicer, which already provides that ``normal bank electronic fund 
transfers'' does not trigger a third-party servicing relationship. 
Doing so would be outside the scope of this rulemaking. Because 
``third-party servicer'' is a defined term, and these regulations refer 
to that defined term, we believe it is clear which entities are covered 
by the regulations and which are not. For entities that are not third-
party servicers--for example, those whose sole function on behalf of 
the institution is normal bank electronic fund transfers--these 
regulations neither alter their status nor subsume the contract they 
have with the institution into a T1 arrangement. We therefore decline 
to include additional language exempting arrangements that do not go 
beyond normal bank electronic funds transfers from the regulatory 
description of T1 arrangement because our use of the defined term 
``third-party servicer'' already does this.
    We appreciate the comments that pointed out the consequences of the 
proposed definition of ``T1 arrangement,'' and that any third-party 
servicer that offers accounts generally to the public would fall under 
the provisions of Sec.  668.164(e). We note, as a threshold matter, 
that it was not our intention to regulate accounts only incidentally 
offered to students. As we noted throughout the preamble to the NPRM, 
these regulations seek to govern institutions, third-party servicers, 
and the arrangements those entities voluntarily enter into that impact 
title IV funds.
    We are persuaded that a portion of the definition of ``T1 
arrangement,'' as

[[Page 67143]]

proposed in the NPRM, is overly broad. Section 668.164(e)(1), as 
proposed, stated that 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. 
We did not receive comments about the majority of this proposed 
language; however, we agree that the language ``or by the third-party 
servicer, or by an entity contracting with or affiliated with the 
third-party servicer to students and their parents'' would subsume 
accounts into the regulatory framework that we had not intended to 
cover.
    As we explained in the preamble to the NPRM, our intent for 
including these additional clauses was to prevent an easily exploitable 
loophole whereby a third-party servicer who offers one or more accounts 
to title IV recipients simply omits any mention of such accounts from 
the contract with the institution. However, commenters correctly 
pointed out that some third-party servicers are also banking entities 
that offer several different types of accounts to the general public, 
and that by fulfilling both the condition of being a third-party 
servicer that performs one or more of the functions associated with 
processing direct payments of title IV, HEA program funds and the 
condition of offering accounts to the public, some of whom may be 
students, all of the servicer's generally-available accounts would be 
required to comply with Sec.  668.164(e). This was not our intent, and 
we agree that the regulations should be modified to reflect these 
comments.
    However, we disagree with commenters who recommended two 
alternative approaches--eliminating the provision entirely, or limiting 
the scope of the regulations to accounts chosen under the student 
choice process. For the reasons explained in the NPRM and the preceding 
paragraphs of this section, these alternatives would create a loophole 
easily exploitable by those seeking to evade the regulatory 
requirements applicable to T1 arrangements; simply omitting mention of 
the account in question from the contract establishing a T1 
arrangement, establishing a separate contract, or involving a third-
party as either the servicer or the account provider would render Sec.  
668.164(e) without effect. Similarly, limiting the provisions of Sec.  
668.164(e) to those accounts selected under the student choice menu 
would create an incentive to avoid the regulatory requirements by 
ensuring that students sign up for an account through any other method.
    Instead, we believe an appropriate alternative is to continue to 
cover those accounts offered under the contract between the institution 
and third-party servicer, but limit other accounts covered by Sec.  
668.164(e) to those where information about the account is communicated 
directly to students by the third-party servicer, the institution on 
behalf of or in conjunction with the third-party servicer, or an entity 
contracting with or affiliated with the third-party servicer. This not 
only limits the scope of the provision to those accounts that are 
intended for title IV recipients but does so in a way where third-party 
servicers that also offer accounts to the general public can ensure 
that general-purpose accounts not actually marketed directly to 
students need not be covered by the regulations.
    In Departmental reviews of accounts offered to students at 
institutions with contracts that would fall under Sec.  668.164(e) as 
proposed, we have observed that the predominant practice of account 
providers under T1 arrangements is to offer a separate, standalone 
student banking product. While this practice may not be universal, its 
prevalence indicates that it is both financially and operationally 
feasible to offer students a standalone financial product that complies 
with the fee limitations and other requirements of Sec.  668.164(e). To 
the extent that a student opens an account offered to the general 
public and not marketed under or pursuant to a T1 arrangement and then 
elects to use that preexisting account option under Sec.  
668.164(d)(4), that account would not be required to comply with the 
provisions of Sec.  668.164(e). Therefore, if a third-party servicer 
were concerned that all of its general banking products would be 
covered by Sec.  668.164(e) because it markets and promotes all of 
those products to students at the contracting institution, it can elect 
to establish a standalone banking product that complies with the 
provisions of Sec.  668.164(e) and limit its direct marketing, 
promotion, and specialized communications to students at that 
institution to this latter bank account offering. This practice, which 
we have observed is already common among many third-party servicer 
financial account providers, would ensure that only the account 
designed for title IV recipients at the institution would have to 
comply with Sec.  668.164(e).
    Changes: We have amended Sec.  668.164(e)(1) to replace the second 
and third references to an account ``offered'' by a third-party 
servicer or other entity with: An account where information about the 
account is communicated directly to students by the third-party 
servicer, the institution on behalf of or in conjunction with the 
third-party servicer, or an entity contracting with or affiliated with 
the third-party servicer.
    Comments: Some commenters pointed out that they have multiple 
agreements with institutions and questioned whether it was possible 
under the proposed regulations to have accounts offered under both T1 
and T2 arrangements with a particular institution, where the two 
accounts would have different regulatory requirements, as opposed to 
both accounts having to comply with the requirements applicable to T1 
arrangements.
    Some commenters requested that the Department provide specific 
examples of what would constitute a T1 arrangement, a T2 arrangement, 
or neither; these commenters stated that examples would assist 
institutions attempting to comply with the regulations. One commenter 
believed that an institution assisting a student in opening an account, 
regardless of the actual relationship between the institution and the 
bank, would give rise to a T1 arrangement.
    We also received comments arguing that parents should not be 
included in the regulatory provisions under T1 arrangements because 
they are not typically the recipients of credit balances; and even when 
they are, such credit balances are typically transferred to a 
preexisting account, rather than an account offered under a T1 
arrangement.
    One commenter requested that we clarify whether the requirements 
for T1 arrangements continue to apply when the student is no longer 
enrolled at the institution.
    Discussion: With respect to commenters' questions about whether it 
would be possible to have both T1 and T2 arrangements at a single 
institution, we note that this scenario would be possible. For this to 
occur, the institution would have to have separate agreements with 
different financial account providers: One that provided third-party 
servicing functions and the other that provided accounts that met the 
T2 arrangement direct marketing definition in some way, perhaps by 
offering account functionality through student IDs.

[[Page 67144]]

    To the extent that a single provider serves as a third-party 
servicer and offers multiple account options to students of that 
institution, those account offerings must comply with the requirements 
for T1 arrangements even if, absent the third-party relationship, one 
or more of those offerings would only constitute a T2 arrangement. This 
is because the differentiating factor between these two types of 
arrangements is the presence of a third-party servicer that is offering 
(or communicating information about) the account to students. If a 
third-party servicer that contracts with an institution is offering or 
marketing multiple accounts to title IV recipients at that institution, 
all of those accounts would be required to comply with the requirements 
for T1 arrangements. We intended this different treatment because, as 
we explained earlier in this section of the preamble and in the NPRM, a 
third-party servicer exerts a tremendous amount of control over the 
disbursement process and timing. Simply because such a financial 
account provider offers functionality through, for example, a student 
ID that would only constitute a T2 arrangement absent a third-party 
servicer relationship, does not obviate the potential for abuse when 
such a third-party servicer relationship does exist. Therefore, it 
would not be possible for a single financial account provider to offer 
two different types of accounts at a single institution, one that was 
required to comply with the requirements for T1 arrangements and the 
other with the requirements for T2 arrangements.
    In response to providing examples of what constitutes the two 
different arrangements under the proposed regulations, we believe the 
regulatory language and the extensive descriptions of these 
arrangements in the preambles to the proposed and final regulations 
provide sufficient detail. In short, accounts offered under the 
contract with third-party servicers or marketed by third-party 
servicers, their agents, or the institution on behalf of the third-
party servicer, are T1 arrangements that fall under Sec.  668.164(e). 
Accounts offered by non-third-party servicers and directly marketed to 
students (either by the institution, through the use of a student ID, 
or through a cobranding arrangement) are T2 arrangements that fall 
under Sec.  668.164(f). Accounts offered to students that do not fall 
under either of these arrangements are not subject to the regulations. 
Examples of such circumstances include general marketing agreements 
(i.e. no direct marketing) that do not specify the kind of account or 
how it may be opened, arrangements sponsoring on-campus facilities 
(e.g., stadium or building naming rights), lease agreements for on-
campus branches or ATMs, or a list of area financial institutions 
recommended generally to students solely for informational purposes.
    With respect to the commenter who stated that an institution 
assisting a student in opening an account would give rise to a T1 
arrangement, this is not the case. An arrangement qualifies as a T1 
arrangement only if an institution engages a third-party servicer to 
perform activities on its behalf.
    We agree with the commenter who argued that parents should not be 
included in Sec.  668.164(e). We discuss our reasons for this change in 
greater detail in the student choice section of this document.
    Because the purpose of these regulations is to ensure that students 
have access to their title IV credit balance funds, we believe the 
regulations should not apply when a student is no longer enrolled and 
there are no pending title IV disbursements, because it is not then 
possible for the student to receive title IV credit balance funds into 
an account offered under a T1 arrangement. We are therefore adding a 
provision specifying this treatment; because the considerations are 
equally applicable to T2 arrangements, we will add an equivalent 
provision in Sec.  668.164(f). However, we do not believe this should 
eliminate institutions' responsibility to limit the sharing of private 
student information and because institutions are already limited from 
sharing that information under the final regulation, we do not believe 
a continued limitation would present an additional appreciable burden.
    For students who discontinue enrollment but then reenroll at a 
later date, either at the same institution or a different institution, 
they would go through the same student choice process described in 
Sec.  668.164(d)(4)(i) as any other student receiving a credit balance. 
Such students would either communicate preexisting account information 
or select an account offered under a T1 arrangement from the student 
choice menu.
    We note that this provision ending the regulation of accounts 
opened under T1 and T2 arrangements does not limit the requirement that 
an institution must report the mean and median annual cost information 
for students who were enrolled in a preceding award year. For example, 
a student is enrolled and receives credit balance funds in the 2018-
2019 award year and then graduates at the end of that year. Although 
the provisions of Sec.  668.164(e) would no longer apply to that 
student in award year 2019-2020, the institution would still have to 
include the student in its report of mean and median annual cost 
information for award year 2018-2019, even if the reporting itself is 
completed during award year 2019-2020.
    Changes: We have removed references to ``parent'' in Sec.  
668.164(e).
    We have added Sec.  668.164(e)(3) to specify that the requirements 
applicable to T1 arrangements cease to apply with respect to a student 
when the student is no longer enrolled and there are no pending title 
IV disbursements at the institution, except for Sec.  
668.164(e)(2)(ii)(B) and (C), governing the limitation on use and 
sharing of private student information. We have specified in paragraph 
(e)(3) that this does not limit the institution's responsibility to 
report mean and median annual cost information with respect to students 
enrolled during the award year for which the institution is reporting. 
We have also clarified that an institution may share information 
related to title IV recipients' enrollment status with the servicer or 
entity that is party to the arrangement for purposes of compliance with 
paragraph (e)(3).

Tier Two (T2) Arrangements (Sec.  668.164(f)(1)-(3))

    Comments: A number of commenters recommended that we apply the fee-
related provisions under T1 arrangements to accounts offered under T2 
arrangements. These commenters argued that the dangers present for T1 
arrangements are equally applicable to T2 arrangements, in that the 
contracts governing both of those arrangements require direct marketing 
by the institution and are intended to strongly encourage students to 
deposit title IV funds into accounts offered under the arrangements. 
Moreover, the commenters believed there is no functional difference 
between accounts under these arrangements when those accounts are 
offered as a part of the disbursement selection process. The commenters 
noted that the proposed regulations treated the two types of 
arrangements equally for purposes of the student and parent choice 
protections (Sec.  668.164(d)(4)) and argued this was evidence that the 
fee provisions should apply equally as well. Other commenters noted 
that institutions benefit from T2 arrangements in the form of bonus 
payments or a share of interchange fees, and that title IV funds will 
almost assuredly be deposited into such accounts when title IV credit

[[Page 67145]]

balance recipients are present at a particular institution--therefore, 
they argued, the Department has an interest in regulating such 
arrangements.
    Several commenters argued that agreements that constitute T2 
arrangements under the proposed regulations are outside the 
Department's purview. Some commenters argued that the simple presence 
of cobranding or direct marketing did not amount to coercion of 
students to sign up for the financial product in question. Others 
argued that the government and consumer reports cited by the Department 
in the NPRM did not single out arrangements that would constitute T2 
arrangements as posing additional danger to students, and therefore 
regulation of these arrangements was unwarranted. Some commenters 
recommended that the Department eliminate the requirements relating to 
T2 arrangements; others suggested that we instead require institutions 
to prominently inform students that no account is required to receive 
title IV aid.
    Discussion: We appreciate that the commenters who urged us to apply 
the fee limitation provisions for T1 arrangements to T2 arrangements 
believe that doing so would ultimately be beneficial to students. 
However, we believe that applying the fee limitations to T2 
arrangements would be contrary to the rationale outlined in the NPRM 
and would effectively collapse any distinction between T1 and T2 
arrangements. Although we acknowledge that T2 arrangements, as defined 
in the proposed regulations, involve products marketed to students with 
the apparent endorsement of the institution, we believe those products 
nevertheless represent a lower level of risk than products offered 
under T1 arrangements.
    As we explained in the NPRM, T1 arrangements involve account 
offerings where the financial account provider acts in place of the 
institution as a third-party servicer, controlling the mechanics of the 
disbursement process itself. The arrangements are also geared toward 
shorter-term fee revenue,\23\ whereas T2 arrangements usually involve 
more traditional banking entities that have an incentive to establish a 
longer-term banking relationship.\24\ Indeed, GAO found that several of 
these types of providers do not charge fees ``higher than those 
associated with other banking products available to students.'' \25\ 
The evidence presented in government and consumer reports bears out 
this difference in risk. The most troubling practices were 
predominantly employed by third-party servicers, and, in some cases, 
students with accounts offered under T2 arrangements actually received 
rates more favorable than available in the general market.
---------------------------------------------------------------------------

    \23\ USPIRG at 13.
    \24\ Consumers Union at 5.
    \25\ GAO at 15.
---------------------------------------------------------------------------

    Nevertheless, contrary to the claims of the commenters who urged us 
to abandon the regulations governing T2 arrangements, these accounts 
are not without risks to title IV recipients. As we noted in the NPRM, 
the account offered under a T2 arrangement has an apparent 
institutional endorsement, and the marketing or branding of the access 
device associated with that account is likely to lead students to 
believe that the account is required to receive title IV funds. In 
addition, offering an account under a T2 arrangement gives students the 
impression that the terms of the account have been competitively bid 
and negotiated by the institution, or, at a minimum, represents a good 
deal because it has been endorsed by the institution. As we detailed in 
the NPRM, the institution's assistance in marketing activities and 
apparent seal of approval led to take-up rates far in excess of what 
would occur in the event of arms-length transactions by consumers 
choosing a product in their best interest.\26\ The CFPB agreed with 
this conclusion, noting that the mismatched incentives created by these 
arrangements can lead to skewed adoption rates of these financial 
products.\27\ Specifically, the special marketing advantage enjoyed by 
a financial account provider under a T2 arrangement, might still 
encourage providers to offer title IV recipients less competitive terms 
than those available on the market generally, although not as much as 
in T1 arrangements.
---------------------------------------------------------------------------

    \26\ 80 FR at 28499.
    \27\ Consumer Financial Protection Bureau presentation. 
``Perspectives on Financial Products Marketed to College Students,'' 
pages 14-15 (2014), available at: www2.ed.gov/policy/highered/reg/hearulemaking/2014/pii2-cfpb-presentation.pdf (hereinafter referred 
to as ``CFPB Presentation at [Page number])''.
---------------------------------------------------------------------------

    We believe the best way to mitigate the risks presented by accounts 
offered under different types of arrangements is the tiered framework 
we proposed in the NPRM. If we applied the fee provisions applicable to 
T1 arrangements to T2 arrangements, we believe this distinction would 
break down and we would not be applying a regulatory framework 
appropriate to the dangers that different types of accounts present to 
students receiving title IV aid. If we instead eliminated the proposed, 
more limited regulatory provisions governing T2 arrangements, the 
disclosure requirements would not be in place to serve the dual 
functions of ensuring that students receive adequate information prior 
to account opening and that institutions are entering into contracts 
that provide fair terms to aid recipients. We also note that consistent 
with some commenters' recommendations, the proposed regulations already 
required that institutions inform credit balance recipients that their 
receipt of title IV funds does not require that they open any 
particular financial account. As we explained in the NPRM, we believe 
the approach proposed strikes the proper balance and targets regulatory 
action to the areas where it is warranted.
    Changes: None.
    Comments: Some commenters argued that the Department does not have 
authority over accounts offered under T2 arrangements. One commenter 
supported the Department's intent to regulate only these arrangements 
when the disbursement of title IV funds is involved; another suggested 
that we only regulate arrangements that specifically address title IV 
disbursements in the contractual language establishing the arrangement.
    We received a number of comments on the provision in the proposed 
definition of ``T2 arrangement'' and the limitation where the 
requirements do not apply if the institution awarded no credit balances 
in the previous year. Some commenters supported the approach in the 
proposed regulations and recommended that even if we altered the 
numerical threshold, we should maintain the structure of the provision, 
which requires institutions to document that they are exempt from the 
requirement, rather than establishing the presumption of an exemption.
    Other commenters claimed that institutions would not be able to 
determine whether any students were credit balance recipients in the 
prior award year. Many commenters believed that a threshold of a single 
title IV recipient was not commensurate with the cost and burden 
imposed on institutions to comply with the requirements of Sec.  
668.164(f). Several commenters supported a ``reasonable'' threshold, 
but did not specify what ``reasonable'' would constitute. However, only 
one of these commenters offered an alternative threshold for a safe 
harbor. That commenter recommended a safe harbor threshold of 5,000 
enrolled students (rather than title IV credit balance recipients) 
before applying the requirements of Sec.  668.164(f), but did not 
provide any

[[Page 67146]]

basis for why this threshold should be adopted or why it should be 
based on enrolled students rather than title IV credit balance 
recipients.
    Discussion: We agree with commenters who argued that we should not 
attempt to regulate arrangements wholly unrelated to disbursing title 
IV funds. As we stated in the NPRM, ``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. In these circumstances, the 
integrity of the title IV programs is not at issue.'' \28\ For this 
reason, we explicitly proposed to limit our oversight of T2 
arrangements to those instances where it is likely the case that title 
IV credit balance funds are at issue. In the NPRM, we recognized that 
our authority is limited in instances where no credit balance 
recipients exist at an institution and requested comment on whether 
this was an appropriate threshold. We disagree with commenters who 
recommended that we limit our oversight to those instances where title 
IV disbursements are explicitly mentioned in the contractual language 
of the arrangement or where the title IV funds are disbursed as part of 
the selection process. We believe such an approach would be easily 
circumvented by, for instance, not explicitly mentioning title IV funds 
in the contract establishing the relationship or by forcing students to 
sign up for an account outside the disbursement process in a deliberate 
effort to avoid the regulatory requirements. Instead, we believe that 
the combination of (1) the presence of title IV credit balances 
recipients at the institution, (2) the uptake rates of accounts that 
are endorsed or marketed by institutions,\29\ (3) the requirement that 
institutions responsible for paying credit balances ensure that funds 
are disbursed to students in a timely manner, and (4) a contractual 
arrangement between the institution and financial account provider 
(evidencing that the account provider has privileged marketing access 
to a lucrative customer cohort) demonstrates that a T2 arrangement 
warrants regulations safeguarding the integrity of the title IV funds.
---------------------------------------------------------------------------

    \28\ 80 FR at 28499.
    \29\ Ibid.
---------------------------------------------------------------------------

    As discussed below, we agree with commenters that a higher 
threshold of title IV recipients at an institution in a given year is 
appropriate for certain T2 requirements. Nonetheless, we agree with 
commenters who recommended that, whatever threshold applies, we should 
continue to require institutions to document that they are exempt, 
rather than establishing a presumption that institutions are exempt. We 
believe that for reasons of student protection and ensuring compliance 
with program reviews, requiring institutions to document that they 
qualify for an exception is a more appropriate framework.
    We reject the assertion that institutions are unable to determine 
the number of credit balance recipients in a prior award year. Under 
the record keeping requirements of 34 CFR 668.24 and the 14-day credit 
balance requirements that have been in effect for many years, an 
institution is responsible not only for maintaining records of those 
credit balances, but for showing that those balances were paid in a 
timely manner to students and parents. Therefore, if a credit balance 
occurs, the school must not only pay it, but also have records of such 
payment.
    We requested comment on whether the number of recipients should be 
expanded beyond a single credit balance recipient in the previous award 
year. While we appreciate that several commenters believed the 
threshold should be increased, with one exception, commenters did not 
offer alternatives and supporting evidence, as we requested. We are not 
adopting the only suggested threshold of 5,000 enrolled students for 
several reasons. First, there was no reasoning provided for this 
alternative threshold. Second, this number is based on enrollment 
rather than the number of title IV or credit balance recipients, and 
therefore is not sufficiently related to the Department's intent of 
exercising appropriate regulatory oversight of the title IV programs.
    We continue to believe that a number of the T2 protections should 
apply unless the institution documents that it had no credit balance 
recipients in at least one of the three most recently completed award 
years. For example, if an institution had no credit balance recipients 
two years ago, but had credit balance recipients both last year and 
three years ago, it would not be required to comply with the regulatory 
provisions associated with T2 arrangements. This is to ensure that for 
an institution that had a credit balance recipient in only a single 
year and for which this was a unique occurrence, it would not be 
subject to regulatory requirements designed for institutions where 
credit balance recipients are consistently present. Under these final 
regulations, if an institution had at least one title IV credit balance 
recipient in each of three most recently completed award years, the 
institution: (1) Needs to ensure that students incur no cost for 
opening the account or initially receiving an access device; (2) must 
ensure that the student's consent to open the financial account is 
obtained before the institution or its third-party servicer provides 
any personally identifiable about the student to the financial 
institution or its agents (other than directory information under 34 
CFR 99.3 that is disclosed pursuant to 34 CFR 99.31(a)(11) and 99.37), 
sends the student a financial account access device, or validates a 
financial account access device that is also used for institutional 
purposes; (3) must include the account offered under the T2 arrangement 
on the student choice menu and disclose as part of that choice process 
the terms and conditions of the account; (4) must ensure that the 
account is not marketed or portrayed as a credit card; (5) must 
disclose the contract between the financial account provider and the 
institution by posting it on the institution's Web site and providing 
an up-to-date URL to the Secretary; and (6) must ensure that the 
provisions in the contract underlying the T2 arrangement are consistent 
with the regulatory requirements of Sec.  668.164(f)(4).
    We continue to believe the above provisions should apply unless 
there were no credit balance recipients in at least one of the three 
most recently completed award years for several reasons: To comply with 
provisions of the HEA; because of the risks present to students absent 
these protections; and because of the low burden of compliance for 
institutions. Most importantly, the prohibition on account-opening fees 
is mandated by, for example, HEA sections 487(a)(2) and 454(a)(5).
    In addition, obtaining the student's consent before private 
information is shared, or an unsolicited access device is provided, is 
necessary to ensure the protection of student data and that students 
are given account information before being sent an access device. These 
provisions ensure that title IV does not become a vehicle for 
circumventing the privacy protections in FERPA. We also note that under 
the revisions made in these final regulations, the financial account 
provider may secure this consent.

[[Page 67147]]

    The requirements to include the account on the student choice menu 
and provide the student with the terms and conditions of the account 
are likewise applicable under the final rule. All of the non-Federal 
negotiators and numerous commenters stated that a crucial principle in 
this rulemaking is ensuring that all students are provided account 
terms up front so they can properly understand the terms and fees of an 
account before they consent to open it. Because financial account 
providers will be required to comply with the upcoming CFPB card 
disclosures, and because those disclosures can be provided 
electronically, these provisions do not go beyond ensuring that 
information required to be disclosed anyway is furnished in a time and 
manner that is effective in helping title IV recipients choose a 
financial account. The burden associated with providing these 
disclosures to students as a part of the student choice menu is 
negligible and occurs at a juncture at which institutions are already 
required to communicate with prospective credit balance recipients. We 
see no justification for not providing these disclosures in any 
circumstance in which title IV credit balance recipients are among the 
population affected by a T2 arrangement.
    We are also requiring that institutions post their T2 contracts to 
their Web sites and provide the Secretary with an up-to-date URL for 
that Web site (up-to-date signifying that should relevant documentation 
no longer be located at that URL, that the institution must provide the 
Secretary with an updated URL). The Department and the public have a 
strong interest in knowing the terms of marketing contracts shown to 
have the potential for operating to the financial detriment of the 
millions of students receiving millions of dollars in Federal student 
aid. The HEA strongly supports providing important consumer information 
to students and the public, as evidenced by, for example, Parts C and E 
of title I, and section 485 of title IV. Increased transparency will 
help ensure accountability and encourage institutional practices that 
are in the interests of students. We also note that at least one 
commenter who is a financial account provider expressed both 
willingness for contractual disclosure and the ability of all parties 
to the contract to be able to comply with disclosure requirements. 
Given that some States already require such disclosure and for the 
preceding reasons, we believe this requirement is not only important, 
but of minimal additional burden.
    The final requirements for this credit balance recipient threshold, 
that the access device not be portrayed as a credit card and that the 
contract comply with the requirements of Sec.  668.164(f)(4), are also 
important to ensure that even if a limited number of students receive 
credit balances, those students are not under the false impression that 
they have received a credit card, and that the institution's contract 
is in compliance with the regulatory requirements set out for T2 
arrangements. We also note that these provisions present little 
additional burden to the institution. The credit card prohibition is an 
existing requirement and we do not believe institutions or their 
financial account providers will have difficulty continuing to comply 
with a requirement that prevents them from portraying an access device 
as a credit card. Similarly, because institutions with a contract 
governing the direct marketing specified in Sec.  668.164(f)(3) will 
necessarily have to negotiate the terms of that contract, we do not 
believe appreciable additional burden is entailed by ensuring that such 
contracts comply with the applicable regulatory provisions outlined in 
these regulations.
    However, we agree with the balance of the comments that one title 
IV recipient is too low a threshold for several of the other provisions 
in Sec.  668.164(f)(4); and are therefore establishing a higher 
threshold of credit balance recipients that would trigger the 
requirements in Sec.  668.164(f)(4)(iv)-(vi) and (f)(4)(viii). These 
requirements are: The yearly posting of certain cost and account 
enrollment figures on the same institutional Web site that contains the 
full posted contract--the requirement for which would already exist 
because of the presence of one credit balance recipient at the 
institution; the availability of surcharge-free ATMs; and the due 
diligence of institutions in entering into and maintaining T2 
arrangements. While these provisions focus on the terms of the T2 
contract and attempt to ensure, through transparency and affirmative 
requirements, that the accounts that institutions market to title IV 
credit balance recipients provide favorable terms and convenient 
access, we recognize that at many institutions that may have T2 
arrangements, relatively high tuition and fees mean that students 
receiving credit balances may be the exception rather than the rule. At 
these institutions where title IV credit balances are atypical, if the 
number of credit balance recipients is sufficiently small, a number of 
factors come into play, drawing into question the benefit of applying 
one or more of the provisions at Sec.  668.164(f)(4)(iv)-(vi) and 
(f)(4)(viii):
     As many commenters noted, these provisions do impose some 
burden. They involve the tracking, compilation, and public disclosure 
of statistical data and other information; are more likely to require 
negotiations between the institution and its T2 partner(s); and 
necessitate providing convenient ATM access and ongoing efforts on the 
part of the institution in providing the due diligence required.
     An institution with few credit balance recipients will, in 
all likelihood, be negotiating a T2 arrangement for accounts to be used 
almost exclusively by more affluent students able to maintain higher 
account balances. Such an institution will have different goals and 
account features in mind, and the financial account provider will have 
different incentives, than would be the case if the students enrolled 
included a significant number of lower-income credit balance 
recipients.
     More broadly, as mentioned, a number of financial 
institution commenters have questioned the link between campus 
marketing arrangements and title IV administration. Immediate prior 
history of the enrollment of a significant proportion of credit balance 
recipients at the institution establishes that credit balance 
recipients are necessarily among the intended targets of the marketing 
campaign and in sufficient numbers to justify requiring specific 
attention be paid to their interests.
    After considering all of the above, we believe Sec.  
668.164(f)(4)(iv)-(vi) and (f)(4)(viii) should not apply to 
institutions at which the occurrence of credit balance recipients is 
purely incidental and de minimis, and have included in the rules 
criteria necessary to identify such institutions. Under these rules, 
institutions will be subject to the provisions in Sec.  
668.164(f)(4)(iv)-(vi) and (f)(4)(viii) unless they document that they 
fall below both of the following thresholds: (A) Five percent or more 
of the total number of students enrolled at the institution received a 
title IV credit balance; or (B) the average number of credit balance 
recipients for the three most recently completed award years is 500 or 
more.
    The five percent figure is calculated by dividing:
    (1) For the numerator, the average number of students who received 
a title IV credit balance during the three most recently completed 
award years;
    (2) For the denominator, the average of the number of students who 
were

[[Page 67148]]

enrolled at the institution during the three most recently completed 
award years. We have defined enrollment for purposes of these 
thresholds as the number of students enrolled at an institution at any 
time during an award year. For both of these thresholds we are using 
averages to smooth fluctuations in enrollment or title IV credit 
balance recipients that may occur year to year. The three-year period 
for calculating the thresholds is consistent with the period of time 
for which an institution is required to maintain records under 34 CFR 
668.24.
    With regard to the threshold based on percentages of credit balance 
recipients, the Department has found a five percent threshold useful 
and reliable in other contexts in identifying when an occurrence or 
characteristic is too infrequent to warrant application of regulatory 
requirements. In the Department's financial responsibility regulations 
at 34 CFR 668.174(a)(2), we set a threshold of five percent of title IV 
funds received as the level at which liabilities assessed for program 
violations are significant enough to take the violation into account in 
determining the past performance aspect of financial responsibility. 
Likewise, 34 CFR 668.173(c) provides that an institution is not in 
compliance with the refund reserve requirements if a program review or 
audit establishes that the institution failed to return unearned funds 
timely for five percent or more of the students in the sample reviewed 
or audited. Similarly here, the five percent threshold operates to 
exempt institutions from the requirements in Sec.  668.164(f)(4)(iv)-
(vi) and (f)(4)(viii) where receipt of a credit balance is atypical. At 
the same time, the data related to the average enrollment among the 
various sectors of institutions (discussed in more detail in the 
Regulatory Impact Analysis section) shows that using a threshold of 
five percent will not stand in the way of these provisions reaching all 
sectors of institutions identified in the oversight and consumer 
reports as having card agreements.
    We recognize that using a five percent threshold may, in a limited 
number of cases, affect smaller institutions with relatively few credit 
balance recipients. For example, an institution with 1000 students 
could conceivably have as few as 50 credit balance recipients before 
being required to comply with the entirety of the provisions relating 
to T2 arrangements. First, we note that such cases will be extremely 
rare. An institution with so few credit balance recipients is unlikely 
to provide a sufficiently large potential customer base for a financial 
account provider to enter into a T2 arrangement with the institution. 
Furthermore, it is entirely within the institution's control whether 
they choose to enter into a direct marketing contract with a financial 
account provider. If the institution decides that it would like to have 
a financial account available for its students, it can easily provide 
information about locally-available accounts without entering into a 
contract with a financial account provider at all. Alternatively, it 
can enter into a contract with a financial account provider, but ensure 
that the institution is not directly marketing the account or 
providing, for example, cobranded card features. By ensuring that the 
account is only generally marketed to students, the school can choose 
not to have a T2 arrangement and will not have to comply with the 
regulatory requirements.
    The final rule supplements the five percent threshold with a 
threshold relating to the average number of credit balance recipients, 
because at large institutions, a five percent threshold, standing 
alone, would leave large numbers of title IV credit balance recipients 
without the protections of Sec.  668.164(f)(4)(iv)-(vi) and 
(f)(4)(viii). We believe Sec.  668.164(f)(4)(iv)-(vi) and (f)(4)(viii) 
should, at a minimum, apply to any institution at which credit balance 
recipients are numerous enough, standing alone, to significantly impact 
the commercial viability of entering into a T2 arrangement. Based on 
the data currently available to the Department, we have determined that 
a threshold of 500 credit balance recipients satisfies this test and 
have incorporated that figure as a separate threshold triggering 
applicability of Sec.  668.164(f)(4)(iv)-(vi) and (f)(4)(viii). In 
establishing that threshold, we note that, in examining publicly 
available institutional and financial account provider data reflecting 
the institutions that have elected to enter into agreements with 
financial account providers, institutions with an average enrollment as 
low as approximately 2,000 students nevertheless had a sufficiently 
large student population to lead to formation of these agreements. Five 
hundred credit balance recipients would represent almost 25 percent of 
the students receiving T2 marketing materials at these 
institutions.\30\ Furthermore, given evidence gathered by the GAO that 
the take-up rate for T2 accounts ranges between 20 and 80 percent,\31\ 
a 500 credit balance recipient threshold would approximate, standing 
alone, a sufficient market to support a T2 arrangement experiencing a 
take-up rate at the lower end of this range in take-up rates. 
Accordingly, where on average at least 500 credit balance recipients 
are included in the school's enrollment, we see no justification for 
the institution failing to negotiate with their interests in mind and 
providing them with the protections described in the regulations. In 
addition, at the average level of 500 credit balances over three years, 
we believe a high-tuition institution has shown sufficient commitment 
to low-income students that it will not eliminate tuition discounts as 
a means of avoiding applicability of these rules.
---------------------------------------------------------------------------

    \30\ While there were few credit balance recipients at some of 
the smaller institutions in question, we have no evidence that a 
higher number of credit balance recipients would have adversely 
impacted the viability of the T2 arrangements. In fact, according to 
the GAO, some institutions make cards available only to students 
receiving balances. GAO report at 12. The Department's experience 
indicates that there may be a variety of factors that cause smaller 
institutions not to have credit balances.
    \31\ 80 FR at 28499.
---------------------------------------------------------------------------

    In sum, we believe that requiring that an institution have credit 
balance recipients either comprising five percent of enrollment or 
totaling 500 students, averaged over three years, before Sec.  
668.164(f)(4)(iv)-(vi) and (f)(4)(viii) are triggered will exclude 
institutions at which credit balances are atypical and credit balance 
recipients are few, while maintaining a separate threshold to provide 
students the other benefits and protections afforded under T2 
arrangements and in providing the Department and the public with 
information regarding the nature of these arrangements. We also note 
that these thresholds do not preclude schools from providing this 
information to the Department or negotiating their contracts in the 
best interests of students, and have added regulatory language 
reflecting this fact. Ultimately, we believe this will assist in future 
policymaking to ensure we are properly balancing the considerations 
discussed in the preceding paragraphs. We recognize that some 
institutions exempted by our thresholds will nonetheless provide all of 
the protections described in the final rule, and we are including a 
provision encouraging them to do so.
    Changes: We have revised Sec.  668.164(f)(2) to specify that an 
institution does not have to comply with the requirements described in 
Sec.  668.164(d)(4)(i) or (f)(4) if it documents that no students 
received a credit balance in at least one of the three most recently 
completed award years, and that it does not have to comply with

[[Page 67149]]

the requirements described in Sec.  668.164(f)(4)(iv)-(vi) and 
(f)(4)(viii) if it documents that the average number of students who 
received a title IV credit balance during the three most recent 
completed award years is less than five percent of the average number 
of students enrolled during those years, and the average number of 
credit balance recipients in the three most recently completed award 
years is also less than 500. We have defined enrollment for purposes of 
these thresholds as the number of students enrolled at an institution 
at any time during an award year. We have added Sec.  
668.164(f)(4)(xii), encouraging institutions falling below these 
thresholds to comply voluntarily with all the requirements of paragraph 
(f)(4).
    Comments: We received a number of comments regarding the proposed 
definition of ``direct marketing,'' specifically as it relates to 
cobranded cards. Commenters argued that many cobranding agreements are 
not marketed to students, but instead offered by the financial account 
provider to the general public as part of ``affinity arrangements.'' As 
described by the commenters, under these arrangements cobranded card 
products are offered to any customer of a financial institution--the 
cobranded products are not marketed principally to title IV recipients, 
and the financial institution may have little or no on-campus presence 
or affiliation with an institution beyond the use of the institution's 
logo. The commenters stated that affinity arrangements required a 
contractual agreement with the institution (in order to use the 
institution's intellectual property) and that cobranded products under 
these arrangements are offered as a benefit to existing or prospective 
accountholders rather than used as a method to market accounts to title 
IV recipients, or to imply an institutional endorsement of the 
cobranded product. Some commenters recommended that we specifically 
exempt general affinity cobranding agreements if the cobranded access 
device is available universally to the public (not just enrolled or 
prospective students) and the institution does not communicate 
information about the account underlying the access device to students 
or parents or assist them in opening that account. Other commenters 
recommended that we ban cobranding on cards under T2 arrangements 
entirely. Some commenters requested that we provide further guidance 
specifying the meaning of cobranding under the regulations.
    Some commenters also opposed categorizing student IDs with 
financial account access features as accounts that are directly 
marketed to students for purposes of Sec.  668.164(f)(1). These 
commenters stated that the dual functionality provided by these 
products are a benefit to students and are not the types of products 
that students may confuse as a required prerequisite to enrollment or 
receipt of title IV funds.
    Some commenters expressed concern that the definition of a ``T2 
arrangement,'' especially with respect to direct marketing, was vague. 
These commenters argued that the regulations would introduce 
uncertainty as to whether certain products would constitute directly 
marketed accounts for purposes of Sec.  668.164(f)(1). Another 
commenter requested that we specify that the examples cited in the 
preamble were illustrative, not comprehensive, and that other types of 
arrangements could also fall outside the definition of ``T2 
arrangement'' under Sec.  668.164(f)(1). Some commenters asked that we 
further define ``direct marketing.'' For example, one commenter asked 
whether a financial account provider that directly markets a product 
without assistance from the institution would be conducting direct 
marketing under Sec.  668.164(f)(1).
    Other commenters contended that the proposed regulations would 
discourage institutions from informing students about the types of 
accounts available for receiving their student aid funds, arguing, this 
would constitute direct marketing activity that would create a T2 
arrangement. These commenters believed that institutions should be able 
to inform students and parents of all the options available for 
obtaining title IV credit balances.
    Some commenters requested that we exempt general marketing, lease 
agreements, and other non-direct marketing activities from Sec.  
668.164(f). Commenters also requested that we incorporate the preamble 
discussion from the NPRM into Sec.  668.164(f) and enumerate through 
regulation examples of practices to which Sec.  668.164 does not apply.
    Discussion: With respect to affinity agreements, we are persuaded 
that the proposed definition of cobranding under Sec.  668.164(f)(3) 
may be too expansive because card products under these agreements are 
generally intended for banking consumers or other groups and not for 
students with the title IV credit balances.
    Nevertheless, based on consumer reports, there are several 
instances of cobranding arrangements outside of the student ID context 
in which students are subject to the types of direct marketing 
specified under Sec.  668.164(f) and therefore the risks we have 
described are still present. For this reason, although we are narrowing 
the types of cobranding arrangements that will constitute financial 
accounts that are directly marketed for purposes of Sec.  668.164(f), 
we believe it is appropriate to include certain instances of 
cobranding. Based on program reviews, and as described in the comments, 
we believe the distinguishing characteristic between affinity 
agreements and those instances where students are the subject of direct 
marketing is whether the access device is principally marketed to 
students, rather than offered as a perquisite to the general public.
    We believe that in the vast majority of cases this distinction will 
be plainly evident from the underlying contracts, based on the 
descriptions of how those contracts in public comments and the 
practices identified in consumer and government reports. In affinity 
agreements, the contract typically covers the use of the intellectual 
property, whereas in cases where there is a more comprehensive 
cobranding marketing contract, bonuses or incentive payments may compel 
an institution to take actions to sign up a certain number of 
accountholders. This likely explains some of the practices observed 
during program reviews such as the presence of the financial account 
provider at registration events or the institution's administrative 
offices. Therefore, we will limit the requirements relating to T2 
arrangements to those cobranding arrangements where the access device 
is marketed principally to students at the institution. For 
institutions with affinity agreements, the widespread availability of a 
cobranded access device (as well as devices with cobranding of entities 
other than a single institution of higher education) to the general 
public and the language of the agreement itself will be strong evidence 
that the underlying agreement is not a T2 arrangement.
    However, in order to ensure that institutions and financial account 
providers are not exploiting this safe harbor, an institution must 
retain the contract and document, if applicable, why the contract does 
not establish a T2 arrangement (e.g., because of the widespread 
availability from the account provider of the institution's cobranded 
access device, and of access devices cobranded with a variety of 
entities rather than exclusively with the T2 postsecondary 
institution). This will enable the Department to determine during 
program reviews that institutions with T2 arrangements are not evading 
the disclosure requirements by falsely claiming that cobranded card 
products

[[Page 67150]]

are marketed under an affinity agreement. We believe this is a balanced 
approach. Rather than banning the use of cobranding altogether in 
connection with accounts in which title IV credit balances are received 
or subjecting all cobranded accounts, including those available to the 
general public, to the requirements of Sec.  668.164(f), it targets the 
protections to those instances of cobranding that occur in the context 
of the T2 arrangement and accordingly pose the danger of exposing title 
IV credit balance recipients to the problematic marketing practices 
identified in consumer and government reports.
    We disagree with the commenters who suggested that student IDs 
should not be covered under the regulations. While we agree that 
student IDs with financial account functionality may represent a 
convenience for some students, that fact does not obviate the concerns 
regarding marketing and institutional endorsement identified in the 
NPRM, especially if the terms of the underlying account are not 
favorable to the student. We disagree with commenters who argued that 
students would not confuse such functionality with a requirement to use 
the account as a condition to enroll or receive aid. To the contrary, 
most student IDs are institutional requirements, provided by the 
institution itself, and certainly bear the branding of the institution. 
We believe that students could easily be led to believe that activating 
financial account functionality on such a student ID is tantamount to 
activating the student ID itself; and therefore, disclosure 
requirements for these accounts are necessary under these 
circumstances.
    We disagree with the commenters who argued the definition of 
``direct marketing'' is vague. In Sec.  668.164(f)(3) we proposed a 
general set of actions and circumstances that would be considered 
direct marketing under the regulations. To ensure the regulations are 
understandable and because it would not be feasible to address every 
possible circumstance in detail, we decline to set out a list in the 
regulations of all specific actions and circumstances that may or may 
not constitute direct marketing. However, we agree with the commenters 
who noted that the examples provided in the preamble to the NPRM are 
illustrative of conduct that does not constitute direct marketing, 
rather than comprehensive, and decline to include those examples in the 
regulations. We believe those examples on their face fall outside the 
plain language of Sec.  668.164(f)(3) and its description of ``direct 
marketing'' for the purposes of the T2 arrangement requirements. We 
believe that institutions and financial account providers considering 
whether their agreements fall under the definition of ``T2 
arrangement'' can determine whether the institution itself communicates 
information directly to its students about the financial account and 
how it may be opened. If, for example, the institution publishes 
instructions for opening the account on its Web site, sends students 
links via text message to a Web page with promotional materials for the 
account, or sends a mailing to students with account information 
produced by the account provider, these practices are plainly direct 
marketing because the institution is directly conveying information 
about the account itself or how to open it. If, in contrast, the 
institution includes advertisements for the financial account provider 
(rather than the account itself) in a magazine or displays the 
financial account provider's logo in a dining hall or Web site, these 
practices would not fall under the ``direct marketing'' definition in 
the regulations and would be considered general marketing, as described 
in the NPRM. To the extent that a financial account provider markets a 
product to students without assistance from the institution (and if the 
product is not a cobranded access device or student ID), that is not 
direct marketing by the institution under the regulations for the 
preceding reasons.
    We also disagree with commenters who argued that institutions would 
be discouraged from informing students about the types of accounts 
available for receiving their student aid funds because that would 
constitute direct marketing activity and would create a T2 arrangement. 
Institutions that sincerely believe that an account is a good deal for 
students can continue to provide information about that account absent 
a contractual agreement with the financial account provider. However, 
we believe that when an agreement is entered into, the institution has 
an obligation to promote the account, resulting in an intensity of 
effort more likely to prompt students to regard the account as a 
requirement for receipt of title IV aid.
    We also disagree with the commenter who stated that a lease 
agreement would constitute a T2 arrangement. This is plainly not direct 
marketing under our definition and was highlighted in the NPRM as an 
example of general marketing that does not constitute direct marketing.
    Changes: We have revised Sec.  668.164(f)(3)(ii) to specify that a 
cobranded financial account or access device is marketed directly if it 
is marketed principally to enrolled students. We have also added Sec.  
668.164(f)(4)(xi) to provide that if an institution enters into an 
agreement for the cobranding of a financial account with the 
institution's name, logo, mascot or other affiliation but the account 
is not marketed principally to its enrolled students and is not 
otherwise marketed directly within the meaning of paragraph (f)(3), the 
institution must retain the cobranding contract and other documentation 
that the account is not marketed principally to its enrolled students, 
including documentation that the cobranded financial account or access 
device is offered generally to the public.
    Comments: One commenter pointed out that institutions that did not 
have to comply with the T2 arrangements provisions under Sec.  
668.164(f)(1) because they did not have any title IV credit balance 
recipients in the preceding award year would still have to comply with 
the requirements of Sec.  668.164(d)(4) to establish a student choice 
menu.
    Although the commenter did not explicitly argue that this 
requirement was inappropriate, it appears that the commenter believed 
that the accounts offered pursuant to a T2 arrangement at an 
institution where there are no credit balances should not be subject to 
the student choice requirements.
    We also received comments arguing that parents should not be 
included in the regulatory provisions under T2 arrangements because 
they are not typically the recipients of credit balances; and, even 
when they are, the credit balances are typically transferred to a 
preexisting account, rather than an account offered under a T2 
arrangement.
    One commenter noted that once a student is no longer enrolled at an 
institution and therefore will no longer be receiving a title IV credit 
balance disbursement, the regulatory requirements should no longer 
apply.
    Discussion: We agree with the commenter who pointed out that under 
the proposed regulations, an institution would have to establish a 
student choice menu under Sec.  668.164(d)(4)(i), even if no student 
received a title IV credit balance in the prior year. We have included 
a cross-reference to Sec.  668.164(d)(4)(i) to address this issue.
    We agree with the commenter who argued that parents should not be 
included in the provisions of Sec.  668.164(f). We discuss our reasons 
for this change in greater detail in the student choice section of the 
preamble.
    We also added a paragraph specifying that the requirements relating 
to T2

[[Page 67151]]

arrangements no longer apply when a student ceases enrollment at an 
institution. For a detailed discussion of this issue, please refer to 
the preamble discussion in the section on T1 arrangements, where we 
have added an equivalent provision.
    Changes: We have removed the references to ``parent'' in Sec.  
668.164(f).
    We have added paragraph Sec.  668.164(f)(5) to specify that the 
requirements for T2 arrangements no longer apply when the student is no 
longer enrolled and there are no pending title IV disbursements at the 
institution. We have also specified that paragraph (f)(5) does not 
limit the institution's responsibility to report mean and median annual 
cost information with respect to students enrolled during the award 
year for which the institution is reporting. We have also specified 
that an institution may share information related to title IV 
recipients' enrollment status with the financial institution or entity 
that is party to the arrangement to carry out this paragraph.

Student Choice (Sec.  668.164(d)(4))

    Comments: Under proposed Sec.  668.164(d)(4), if an institution has 
a T1 or T2 arrangement under Sec.  668.164(e) or (f) and plans to pay 
credit balances by EFT, it must establish a selection process under 
which a student or parent chooses an option to receive those payments. 
This selection process must present various options in a neutral 
manner. One commenter noted that it has been extensively documented by 
the Department's Inspector General, the GAO, the CFPB, the Federal 
Reserve, and independent research that institutions and banks engage in 
a variety of practices intended to steer students into accounts offered 
under T1 or T2 arrangements. This commenter stated that students have 
been forced into accounts by deceptive marketing practices that make it 
seem as if the sponsored account is the only feasible choice, and that 
the proposed regulations would correctly restore choice to the extent 
possible without a complete ban on revenue sharing or third-party 
servicing account offers. Another commenter echoed this sentiment, 
stating that the reforms proposed by the Department correct a history 
of deceptive practices and will help students shop for the best 
accounts that meet their financial needs. In addition, this commenter 
urged the Department to require schools to communicate with students 
about their disbursement choices early, before funds are ready to be 
disbursed, so that students who do not have bank accounts have the 
opportunity to open an account that works best for them. Students who 
have existing accounts (or open new ones) should be able to provide the 
bank account and routing numbers in advance so that funds can be 
directly deposited as soon as possible. Several commenters noted that 
the proposed regulations would provide relief for students who have 
often been compelled to sign up for an institutional-sponsored bank 
account by: Prohibiting deceitful tactics that enable financial 
institutions to mail an institutional-sponsored debit card to a student 
aid recipient before the student gets to campus; stopping the 
prioritization of financial aid deposits into institutional-sponsored 
accounts while delaying deposits into existing bank accounts; 
prohibiting the creation of non-essential barriers that make it more 
time-consuming for the student to choose his or her existing account 
over one sponsored by the institution; and requiring marketing material 
to be presented in a neutral way that enables the student to choose 
either his or her own account or the campus account without being 
coerced into choosing the campus account. A number of commenters voiced 
strong support for the concept of a neutral presentation of options 
within the school's selection process, with one commenter suggesting 
that language be added to prevent a school or financial account 
provider from undermining that neutrality by communicating with the 
student outside the selection process or telling the student that the 
institution endorses or otherwise recommends a certain provider or its 
products. Other commenters suggested that, notwithstanding the desire 
for an overall neutral presentation of options, the student's existing 
account should be the prominent first option.
    Discussion: Section 668.164(d)(4) of the proposed regulations would 
require institutions that are making direct payments to students or 
parents by EFT and that have entered into a T1 or T2 arrangement under 
Sec.  668.164(e) or (f) to establish a selection process under which 
students or parents choose how they will receive those payments. Under 
this selection process in the proposed regulations, the institution 
must (1) inform the students and parents that they are not required to 
use a financial account offered by any specific financial institution, 
(2) ensure that the various options in the selection process are 
presented in a clear, fact-based, and neutral manner, (3) ensure that 
initiating payments to the student's or parent's existing account is as 
timely and easy for the student or parent as initiating payments to any 
accounts offered in the selection process under T1 or T2 arrangements, 
and (4) allow the students or parents to change their choice about 
which account is to be used with written notice provided in a 
reasonable time. Further, in listing the options in this selection 
process under the proposed regulations, the institution (1) must 
prominently present the student's or parent's existing account as the 
first and default option, (2) must identify the major features and fees 
associated with any account offered under a T1 or T2 arrangement that 
the school lists in the selection process, and (3) may provide 
information about certain other accounts.
    We generally agree with the commenters who stated that proposed 
Sec.  668.164(d)(4) provides relief for students who have often been 
compelled to sign up for certain institutionally-sponsored accounts, 
and continue to believe that a number of choices for receiving credit 
balance payments should be available to students in certain 
circumstances, such as those associated with the required selection 
process described above. In particular, for reasons we discussed at 
length in the NPRM, we believe that the basic requirement that certain 
options be presented to students in a clear, fact-based, and neutral 
manner is very important.\32\ However, presuming that most students 
with an existing bank account have already, to some degree, made their 
choice, we believe that the selection process should continue to 
prominently list the student's existing bank account as the first 
option. Certainly, it is possible that one or more of the remaining 
options offer the student a better deal than his or her existing 
account, and that the existing account may not have the same 
protections that are afforded to students under these regulations. 
However, the clear, fact-based information associated with the required 
presentation of the student's options will allow the student to compare 
and choose how to receive his or her title IV funds. In addition, the 
requirement that the student be allowed at any time to change his or 
her choice (as long as written notice of such a requested change is 
provided within a reasonable time) provides even greater assurance that 
the student has a real opportunity to receive title IV funds in an 
inexpensive and convenient manner that suits the student's needs.
---------------------------------------------------------------------------

    \32\ 80 FR at 28501-28503.
---------------------------------------------------------------------------

    We agree that it is important for the student to be given neutral 
information about account choices. However, we do

[[Page 67152]]

not agree, as one commenter suggested, that there is a need to add 
language to the regulations that would prevent an institution or 
financial account provider from undermining that neutrality through 
communications with the student outside the selection process. Indeed, 
this outside direct marketing activity is what distinguishes many of 
the arrangements that are covered by the regulations. Nor do we believe 
that additional language is needed in the regulations to require 
institutions to communicate early with students about their 
disbursement choices. By requiring, in certain situations, that an 
institution establish a selection process for students to choose how to 
receive their credit balance payments, Sec.  668.164(d)(4) already 
sufficiently contemplates that.
    Changes: None.
    Comments: One commenter stated that the student choice provisions 
strengthen the student's ability to deposit disbursements into an 
existing account, which is often the best option. The commenter further 
noted that ensuring that direct deposit remains a choice has been a 
consistent challenge in the face of attempts to mandate use of a 
specific product under contract. Another commenter suggested that we 
require the institution to make direct deposit to an existing account 
the most prominent and default option for receiving funds. However, 
several commenters objected to requiring institutions to list an 
existing account as the prominent first option, arguing that it may 
mislead individuals into thinking that it is the best option (which may 
not be the case). These commenters stated that existing accounts would 
not be subject to the same requirements as would accounts offered under 
T1 or T2 arrangements and, thus, students would not receive the benefit 
of the protections provided under the regulations related to those 
accounts. They also noted that it is problematic to make an existing 
account the default option if an election is not made as to how to 
receive the credit balance. Without existing account EFT information, 
an institution would have no way to disburse funds into the appropriate 
account. In the absence of an election, the sole way to comply with the 
14-day credit balance regulation would be to issue a check (a far less 
efficient and manual process). The commenters contended that setting an 
existing account as the default option would imply the school's 
endorsement of the existing account (about which the school has no 
information). Institution would be steering recipients toward their 
existing accounts, with no way of knowing whether those accounts are 
the best option. Further, a number of commenters stated that making the 
existing account the default option goes against the Department's 
encouragement of a clear, fact-based, and neutral presentation of 
options. This, the commenters argued, could discourage students' review 
of other options that could be more affordable and more convenient for 
their needs. Other commenters noted that many students with existing 
accounts do not attend college in the same city where the existing 
account is located. They stated that participation in institutional-
sponsored accounts ensures that those accounts are ones that provide 
ATMs on campus (whereas the existing account might not). Another 
commenter stated that experience has shown that many students prefer 
not to put their credit balance payments in their checking accounts in 
order to keep those funds separate from their other funds. Still 
another commenter stated that the majority of students at many colleges 
come to campus without a banking relationship, and that creating a 
default to an existing account will cause confusion among those 
students and result in their receipt of a check. This commenter noted 
that EFT is a more appropriate solution based on its security, 
convenience, and efficiency and that any action that will hinder this 
process should be reconsidered. One commenter contended that the vast 
majority of college students either already have bank accounts when 
they enroll, or would be able to easily obtain a bank account on the 
open market. This commenter stated that the neutrality provision of the 
proposed regulations encourages an open and free market, and that this 
competition will result in better and more innovative financial 
products and accounts for students that have low fees and meet their 
needs.
    One commenter noted that, in its 2014 report, the GAO identified 
situations in which schools did not present disbursement options in a 
clear and neutral manner, and appeared to encourage students to select 
school-sponsored accounts. In some cases, choosing a different option--
such as the student's existing bank account--required additional 
documentation that was time-consuming to locate, and often was not 
readily available online. This commenter noted that, when making a 
disbursement selection, a student is effectively at the point of sale 
and, therefore, most vulnerable to steering practices, and that the 
Department may want to further specify the order in which the 
disbursement options must be displayed. The commenter pointed out that, 
at the negotiated rulemaking session, some negotiators recommended a 
two-step approach whereby the disbursement selection screen would offer 
the direct deposit option in a prominent and central location, and then 
include links further down the page that students could click on if 
they did not have existing account information to provide.
    Discussion: It was not our intent under the proposed regulation 
that a student's existing account be used for the receipt of credit 
balances in the event that a student makes no affirmative selection or 
does not provide his or her existing account information. Rather, our 
intent was that the existing account option would be preselected on the 
choice menu. This was proposed in response to concerns that 
institutional-sponsored accounts had been preselected in the past. 
However, the menu would allow students to change that account by 
selecting any other option (account). Certainly, the student must 
provide the necessary information associated with his or her account to 
enable the institution or third-party servicer to use it. If a student 
does not make an affirmative selection from the student choice menu, 
the institution will still have to comply with the appropriate 14-day 
time-frame in Sec.  668.164(h)(2) and pay the student the full amount 
of the student's credit balance due by EFT, issuing a check, or 
dispensing cash with a receipt signed by the student.
    However, based on the concerns expressed, we are eliminating the 
proposed requirement that the student's existing account must be pre-
selected on the choice menu (i.e., that it must be a ``default'' 
option). Instead, no option may be pre-selected, making the selection 
process more neutral in terms of how options are presented. We do not 
believe that it is necessary to further specify the order in which 
disbursement options are presented. Instead, we are convinced that the 
approach of establishing a clear, fact-based, and substantially equal 
presentation of options (with the student's existing account being 
prominently presented first) is sufficient to prevent institutions or 
others from unfairly steering students toward accounts that may not be 
in their best interest.
    Changes: We have revised Sec.  668.164(d)(4)(i)(B)(1) by removing 
the reference to ``default'' to indicate that the student's existing 
financial account must be prominently presented as the first option in 
the selection process without requiring that it be a default option. We 
have added Sec.  668.164(d)(4)(i)(A)(5) to indicate that

[[Page 67153]]

no option can be preselected in the student choice process. We have 
also added Sec.  668.164(d)(4)(i)(A)(6) to specify that if a student 
does not make an affirmative selection from the student choice menu, 
the institution must still pay the full amount of the student's credit 
balance within the time-period specified in Sec.  668.164(h)(2), using 
a method specified in Sec.  668.164(d)(1), i.e., by initiating an EFT 
to the student's financial account, issuing a check, or dispensing cash 
with a receipt signed by the student within the appropriate 14-day 
time-period.
    Comments: One commenter indicated that an institution should not be 
forced to offer any sponsored accounts to students under a selection 
process, and another commenter argued that establishing a selection 
process places a burden on colleges that are trying to find ways to cut 
costs and operate more efficiently under budget limitations. This 
commenter questioned whether the college would have to act as a 
personal banker during the admissions process. The commenter also asked 
whether the college would have to compare account options and, in 
essence, become an extension of the financial (banking) industry, or 
whether communicating to students that they can use an existing account 
or utilize a sponsored account would be enough.
    Discussion: We disagree with the commenter who stated that 
institutions should not have to include sponsored accounts in a 
selection process. And, we disagree with the commenter who stated that 
institutions should not have to establish a selection process. When an 
institution chooses to make direct payments to a student by EFT and has 
entered into an arrangement under Sec.  668.164(e) or (f) (a T1 or T2 
arrangement), the Department believes that it is imperative that 
students be given a choice as to where they will receive their title IV 
credit balances. As discussed elsewhere in this document, students have 
too often been forced to receive their credit balances in accounts that 
have proven to be too costly for them. Establishing a selection process 
under which the student is presented information about various options 
(financial accounts) and is able to choose one of them for receiving 
his or her title IV credit balance payments corrects many of the 
problems that students have encountered in the past. Institutions do 
not have to act as a personal banker under this requirement. However, 
in compliance with Sec.  668.164(d)(4), if they have a T1 or T2 
arrangement, they will have to describe the student's options, 
including listing and identifying the major features and commonly 
assessed fees associated with financial accounts described in Sec.  
668.164(e) or (f) (T1 or T2 arrangement accounts) that are options in 
the selection process.
    Changes: None.
    Comments: One commenter indicated that banks embrace informed 
choice as a vital consumer protection, and stated that it is critical 
for a student refund selection process to offer information about 
credit balance payment options in a clear, fact-based, and neutral 
manner. But, the commenter argued that, only if the credit balance 
payment process facilitates the opening of an account as an integrated 
step within the process, should the account be part of the selection 
process. Thus, the commenter stated that it is critically important to 
distinguish between accounts opened for receipt of title IV credit 
balances within the selection process, and ordinary bank accounts 
opened for general use--including accounts available for use with a 
validated access device that is also used for institutional purposes 
(such as a student ID), enabling the student to use the device to 
access a financial account (previously we had referred to this type of 
arrangement as an account linked to a card used for institutional 
purposes, but we have changed our terminology to better conform with 
banking regulations). This commenter contended that the proposed 
regulations would convert traditional, general-use, deposit accounts 
into accounts regulated by the Department, and that it would, 
therefore, obligate institutions with stand-alone campus card or 
cobranded debit card programs--T2 arrangements as described in Sec.  
668.164(f)--to list all such T2 accounts within the institution's 
credit balance payment selection process, even though the card programs 
operate completely independently from those arrangements. The commenter 
noted that, because some T2 arrangements allow a student ID card to 
become a validated access device, enabling the student to use the 
device to access a financial account, the proposed regulations could 
require schools to list terms and conditions for not just one account, 
but for a bank's entire selection of eligible consumer-deposit 
accounts. The commenter concluded that the appropriate focus for the 
proposed regulations should be on non-standard deposit accounts opened 
through the title IV credit balance payment process. Thus, the 
commenter argued that T2 accounts should be excluded from the scope of 
the student choice process.
    Another commenter echoed this sentiment, stating that colleges and 
universities should not be required to bring T2 financial accounts into 
the selection process for title IV refunds. This commenter noted that 
at many schools T2 arrangements are completely independent of the 
credit balance payment process and are not explicitly offered as a 
choice at the time a student is asked to tell the school how he or she 
prefers to receive credit balance payments. The commenter noted that 
this is particularly true when the student financial accounts offered 
under a T2 arrangement take the form of a checking account. The 
commenter argued that the college typically has no role in the 
student's effort to open an account. With respect to the selection 
process, this commenter argued that students who have opted to open an 
account at a bank with a T2 arrangement should simply be viewed as 
having an existing account that they will designate for direct deposit 
of their credit balances. Along similar lines, another commenter urged 
the Department to amend proposed Sec.  668.164(d)(4) to provide that an 
institution does not have to provide students with specific options for 
receiving title IV payments if it: (1) Requests that students or 
parents simply identify a deposit account to receive their funds when 
setting up credit balance payment plans, and (2) makes no specific 
recommendations on the deposit account to be used during the process of 
setting up those plans.
    Discussion: We disagree with the argument that an account offered 
under a T2 arrangement should only be required to be part of the 
selection process if the account is opened for the purpose of receiving 
credit balance payments. T2 arrangements involve accounts that are 
opened under institutional contracts with financial entities (such as 
banks or credit unions) and that are offered and marketed directly to 
students. When a financial entity enters into a contract with an 
institution with 500 credit balance recipients or five percent or more 
of its enrollment comprised of credit balance recipients and, pursuant 
to that contract, it or the institution markets financial accounts 
directly to students, it is reasonable to conclude that the parties 
anticipate that some or all of the students opening the accounts will 
use them to receive title IV credit balances. This is true regardless 
of whether the contract or arrangement is agreed to independent of the 
credit balance payment process, and regardless of whether the 
institution makes any specific recommendations on the deposit account 
to be used when setting

[[Page 67154]]

up credit balance payment plans. Thus, we believe it is reasonable to 
require that accounts offered under a T2 arrangement be a part of the 
selection process in all situations. By doing so, we are making it 
easier for students to make informed choices regarding where their 
credit balances are to be sent. Financial entities that have objected 
to having accounts offered under a T2 arrangement be part of the 
selection process have done so on grounds that institutions must list 
the major features and commonly assessed fees associated with such 
accounts and that these accounts may include a number of general use 
deposit accounts that happen to be campus card or cobranded debit card 
accounts. However, we are unpersuaded by these concerns. Both the 
financial entities offering these accounts and the institutions that 
have contracted with them are benefitting from the direct marketing of 
those accounts to students. These students, if they are receiving title 
IV student aid, should be afforded the benefits and protections 
associated with having these accounts be a part of the selection 
process for the payment of credit balances. As noted above, the parties 
to a T2 arrangement are free to develop a standalone account for 
purposes of the arrangement and avoid subjecting general use deposit 
accounts to these rules.
    Changes: None.
    Comments: One commenter suggested that an institution that enters 
into a contractual arrangement with a third party to provide deposit 
services or distribute title IV funds should be required to establish a 
review process or panel to ensure that certain benefits and protections 
are provided to its students. As envisioned by this commenter, this 
panel or process would:
    (1) Ensure that bank account fees and ATM locations meet regulatory 
requirements;
    (2) Guarantee that all bank accounts are insured ones and that any 
fees are charged and received by the insured (banking) institution;
    (3) Decide the order in which the various options to receive credit 
balances are presented to the student, based on how well each account 
provides banking services, considering costs, convenience and other 
factors;
    (4) Ensure that all student options are presented in a neutral 
manner;
    (5) Ensure that student payments are made as expeditiously as 
possible;
    (6) Share appropriate personal information in a timely manner so 
that each depository institution can meet its obligations to verify the 
student's identity and other information necessary to expedite the 
delivery of funds;
    (7) Require third-party servicers who disburse or accept title IV 
funds to enter into non-disclosure agreements to protect student 
privacy and commit to not using the personal information for anything 
other than its intended purposes without the student's consent;
    (8) Allow the depository institution to charge a reasonable fee for 
more than one overdraft a month; and
    (9) Require that financial literacy education be provided to 
students as part of each bank offering.
    Discussion: We disagree. Institutions are required to ensure that 
they comply with all aspects of the regulations and, in order to ensure 
that compliance, an institution could establish a panel or process, but 
it could also ensure compliance in other ways. The Department has also 
decided not to adopt some of the requirements that the commenter 
suggested with regard to a panel or process. For example, the final 
regulations do not require an institution to base the order in which 
student options are presented on how well each account provides banking 
services, considering costs, convenience, and other factors. We believe 
that the existing regulatory requirements that the student's options be 
presented in a clear, fact-based, and neutral manner are sufficient to 
ensure that necessary protections are provided to the student. Thus, 
after prominently listing the student's existing account as the first 
option, there is not any other mandatory order in which the options 
must be presented. And, while we agree that financial literacy 
education would benefit students, we believe that the required 
disclosures that institutions must make with regard to the major 
features and commonly assessed fees associated with accounts described 
in Sec.  668.164(e) and (f)(T1 and T2 accounts) will provide students 
with sufficient information to make an informed choice. Many of the 
commenter's other suggestions that certain benefits and protections are 
provided to students--such as requiring institutions to present options 
in a neutral manner, ensure that student payments are made 
expeditiously, share only appropriate personal information, and not use 
such information for anything other than its intended purposes without 
the student's consent--are incorporated in various ways in other parts 
of the regulations and are discussed elsewhere in this preamble.
    Changes: None.
    Comments: One commenter noted that few institutions offer parents 
the option to receive credit balance payments for PLUS loans by EFT. 
This is generally because institutions do not maintain separate records 
for parents in their databases and are not inclined to gather and 
manage this additional information. Further, the commenter stated that 
it is rare for institutions to include financial accounts for parents 
within the scope of their agreements with servicers and financial 
institutions. Thus, this commenter argued that, even if the institution 
offers parents a choice of an EFT or check, it does not make sense to 
require the institution to provide information and disclosures to 
parents unless the institution also offers them an account under a T1 
or T2 arrangement.
    Discussion: We agree that it may not be necessary to require 
institutions to provide information and disclosures to parents in their 
credit balance selection process. Credit balance payments for PLUS 
loans to parents are often sent to the student's account (on whose 
behalf the parent borrowed the money), even though the parent can 
choose to have the money sent to himself or herself. And, even if the 
credit balance portion of the PLUS loan is sent to the parent, the 
parent generally has more experience with, and a better understanding 
of, banking account options, and is more likely to already have a bank 
account, than a student. Thus, we are changing the final regulations so 
that Sec.  668.164(d)(4) addresses ``student'' choice, and not 
``student or parent'' choice, in the institution's selection process 
for an EFT option for the receipt of title IV funds. Section 668.164(e) 
and (f) (T1 and T2 arrangements) will similarly be modified to clarify 
that they apply only to students. Thus, institutions may, but will not 
be required to, provide the parents of students with a choice of 
options as to how they will receive title IV funds, and they may, but 
will not be required to, have the accounts offered pursuant to their T1 
and T2 arrangements to the parents of their students comply with the 
provisions of Sec.  668.164(e) and (f) when those parents receive 
parent PLUS loan credit balance funds.
    Changes: We have removed the references to ``parents'' in Sec.  
668.164(d)(4)(i). However, we retained the reference to ``parents'' in 
Sec.  668.164(d)(4)(ii) to specify that an institution does not have to 
set up a student choice menu if it has no T1 or T2 arrangement but 
instead makes direct payments to a student's or parent's existing 
financial account, or issues a check or disburses cash to the student 
or parent.

[[Page 67155]]

    Comments: Several commenters stated that there should be no delays 
in receiving funds via direct deposit to an existing account, i.e., 
that it should be as fast as when funds are deposited into an 
institutional-sponsored account. On the other hand, numerous commenters 
noted that while institution can indeed initiate electronic payments in 
a timely manner without regard to which account the funds are being 
sent, as required under Sec.  668.164(d)(4)(i)(A)(3) of the proposed 
regulations, they have no way to ensure that electronic payments made 
to existing accounts are received in as timely a manner as 
disbursements made to accounts offered under T1 or T2 arrangements. 
According to one commenter, after an institution initiates an EFT, it 
can take between two and four business days for the funds to be 
received at the financial account in question, depending on the 
receiving bank's policy. This commenter also pointed out that there are 
currently disbursement methods that provide students with access to 
their funds within 15 minutes when those funds are directed to a 
prepaid card.
    Discussion: If the student chooses to use an existing account, 
there should be no delay in transmitting funds, i.e., the deposit to an 
existing account should be initiated as quickly as it would be if funds 
were deposited into an institutional-sponsored account. The requirement 
that deposits be as timely regardless of which account a student 
chooses pertains to initiating electronic payments by the institution 
or its servicer, not the actual date when funds are received by the 
bank in question. The proposed regulation reflected this concept. The 
Department understands that once an electronic payment is initiated the 
institution does not have any control over the practices of the bank 
offering the student's existing account with respect to when that bank 
makes the funds in question available to the student.
    Changes: None.
    Comment: Another commenter raised a couple of technical concerns 
with proposed Sec.  668.164(d)(4)(i)(A)(3), recommending that we 
replace the phrase ``initiating direct payments electronically to a 
financial account'' with the phrase ``initiating direct payment by EFT 
. . .,'' since the term EFT is used in other places in the regulations, 
and also pointed out that technically an EFT would not be made to an 
access device, but rather to the financial account underlying that 
device.
    Discussion: The Department agrees to use the term ``EFT'' in place 
of the word ``electronically'' in Sec.  668.164(d)(4)(i)(A)(3), and 
that we should eliminate the concept that payments can be made by EFT 
to an access device.
    Changes: We have revised Sec.  668.164(d)(4)(i)(A)(3) to indicate 
that initiating direct payments by EFT to a student's existing 
financial account must be as timely and no more onerous to the student 
as initiating direct payments by EFT to an account offered pursuant to 
a T1 or T2 arrangement. We have also revised Sec.  
668.164(d)(4)(i)(A)(3) by removing the reference to an ``access 
device'' to indicate that, even if an access device is used, the direct 
payment is made to the financial account that is associated with that 
access device, and not to the access device itself.
    Comments: One commenter contended that the requirements related to 
student or parent choice with respect to a selection process for 
receiving credit balance funds are impractical for a foreign 
institution wishing to provide timely processing of student loan funds. 
According to the commenter, in many cases, it may not be possible to 
use the various alternative methods of processing payments anticipated 
by the proposed regulations. This commenter argued that if this 
provision is applied to foreign institutions, the result will be delays 
in processing payments, which not only can be inconvenient but can 
result in visa problems for the students, who often must be able to 
show that they have sufficient funds to support themselves before they 
are permitted to travel to the foreign institution. Thus, this 
commenter stated that the provisions of Sec.  668.164(d)(4) should 
apply only to domestic institutions.
    Discussion: We agree that the requirements related to student 
choice in a selection process for receiving credit balance funds may be 
impractical for many foreign educational institutions wishing to 
provide timely processing of student loan funds. We recognize that both 
the foreign educational institutions and the students attending them 
often face problems that domestic institutions and their students do 
not--including potential visa problems. Thus, we agree that the 
provisions of Sec.  668.164(d)(4) should apply only to domestic 
institutions.
    Changes: We have revised Sec.  668.164(d)(4) to state that the 
student choice provisions apply only to institutions located in a 
State.
    Comments: With respect to Sec.  668.164(d)(4)(i)(A)(4) (the 
requirement that schools allow students the option to change their 
choices as to how the payment of credit balances are to be made, so 
long as they provide the school with written notice within a reasonable 
time), one commenter questioned what a reasonable time would be and 
encouraged the Department to offer some guidance in this area.
    Discussion: The institution should accommodate a student's written 
request to change financial accounts or payment options as soon as 
administratively feasible. We recognize, however, that in cases where 
the institution or third-party servicer receives the student's request 
shortly after it has initiated an EFT or issued a check, there may be 
delays in honoring the student's request pending the disposition of the 
funds disbursed. In these cases, the institution may have a policy 
regarding how or whether it will reissue the check, initiate an EFT to 
the new account, or recover the funds disbursed. Consequently, we are 
not specifying a timeframe.
    Changes: None.

Requirement To Include Checks as an Option for Receipt of Title IV 
Credit Balance Funds (Sec.  668.164(d)(4)(i)(B)(4))

    Comments: A number of commenters stated that including checks as a 
disbursement choice is impractical, short sighted, and old fashioned. 
Others stated that checks are a costly and inefficient option that many 
institutions are trying to avoid as they will cause a delay in the 
receipt of funds by students. Several commenters noted that a large 
number of institutions offer only electronic disbursement options 
upfront for security and efficiency. One commenter specifically 
mentioned the time and expense required to issue checks and postage, to 
reissue lost checks, to complete stop payment processes, and complete 
escheatment processes for uncashed checks. Other commenters noted that 
some students have to take their checks to a check-cashing facility and 
pay significant fees, which undermines a goal of the regulations--to 
give students fee-free access to their funds. Some commenters also 
stated that fraud is more prevalent with checks, and several noted that 
checks are easily lost, misplaced, or stolen. Several commenters noted 
that the check option creates greater risk than other options, 
particularly with putting unbanked students in a position where they 
are carrying large amounts of cash. They argued that even if students 
have bank accounts and deposit their checks into those accounts, they 
will typically have their funds held for 3-5 business days, negating 
the intended benefit of the regulations to give students timely access 
to their financial aid funds. Another commenter

[[Page 67156]]

stated that the Department's goal should be to enable students to have 
access to a cost-effective, low-risk, FDIC-insured account, so that 
they have an opportunity to manage their title IV funds wisely for the 
entire school year. This commenter argued that, with the fee 
restrictions proposed on accounts offered under T1 arrangements, there 
is no reason not to continue to pursue a goal of 100 percent electronic 
disbursement to an FDIC-insured account. Several commenters also 
mentioned that the requirement to offer a check option to students runs 
counter to the regulations encouraging electronic disbursement of 
refunds and certain Federal requirements for electronic disbursement of 
Federal benefits. The commenters noted that, according to the Treasury 
Department, direct deposit is safer, easier, faster, and more 
convenient than checks. One commenter argued that the use of prepaid 
cards in lieu of checks has enabled government agencies to outsource 
many of the administrative responsibilities associated with managing a 
payment program and, in the process, reduce costs. The commenter noted 
that prepaid cards also offer numerous advantages to students over 
checks, such as real-time access to funds, a means to participate in 
the modern economy, and access to the same consumer protections that 
apply to traditional debit cards. The commenter stated that requiring 
schools to specifically offer students the option of receiving their 
credit balances by check ignores this trend and that including this 
method of disbursement as a student choice would signal a backward 
movement in getting funds to students in a safe and efficient way. 
Reiterating that direct deposits are usually a better option than 
checks, several commenters suggested that the Department keep its 
current practice of allowing an institution to ``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 the disbursement of title IV, HEA program funds to students.''
    On the other hand, several commenters supported the requirement 
that schools include checks as an option in their selection process for 
the receipt of credit balances. One commenter stated that, while most 
students today may opt for electronic receipt of their financial aid 
funds, some may find that a check better meets their needs. Further, 
some institutions such as community colleges may not have direct 
control over how funds are disbursed due to State or municipal 
regulations, and may not be able to provide direct deposit as a 
disbursement option at the present time. The commenter argued that, for 
these reasons, retaining the check option makes sense at least in the 
short term. The commenter suggested that the Department could consider 
a gradual phase-out of checks in three to five years as an alternative 
approach that would encourage States and municipalities to facilitate a 
move toward EFT options for impacted institutions. Another commenter 
noted that, in fiscal year 2014, his school issued 18,999 refunds, 
totaling $23.9 million. Of those 18,999 refunds, 10,794 were checks and 
8,205 were EFT direct deposit (i.e, 57 percent of students at this 
school chose the check option). Based on this, the commenter encouraged 
the Department to maintain the check option. The commenter further 
suggested that the Department should consider eliminating the cash 
option, as institutions of higher education should not be placed in the 
position of handling potentially millions of dollars in cash. Another 
commenter stated that offering a check as an option provides some 
benefit toward student choice. While acknowledging that a check may 
represent the least convenient option for students, and is potentially 
a more costly option for schools, this commenter suggested that the 
presence of a check option, which permits a student to fully ``opt 
out'' of the processes associated with EFT, may serve a purpose in 
providing an incentive for all parties to ensure that EFT methods work 
well, are convenient to access, and are priced appropriately.
    Discussion: We invited comments in the NPRM as to whether the 
option to receive a check should be affirmatively offered to students 
through a school's selection process, and we received a number of 
comments on both sides of that issue. However, the majority of 
commenters believed that checks, in most circumstances, should be used 
only as a last resort. We agree that, in many circumstances, checks are 
a less efficient means of transferring money and understand the desire 
of many to move exclusively (to the extent possible) to electronic 
banking methods. We also find persuasive the fact that many government 
agencies are moving away from checks to electronic banking methods 
because direct deposit is safer, faster, easier, and more convenient, 
and the argument that the Department should not ignore this trend. 
While we understand that some students may prefer to receive a check, 
we do not believe that fact should dictate to an institution that it 
must write checks to anyone who wants one when the institution wishes 
to move forward to a more cost-effective and secure method of 
disbursing money to its students. This does not mean that the 
institution cannot choose to use checks in those situations where it 
finds doing so is to its benefit, just that it should not be forced to 
affirmatively offer a check option to its students. Similarly, with 
regard to institutions that find themselves in a position in which they 
cannot use electronic banking options, such institutions always have 
the option of choosing to use checks or including them in the student 
choice selection process. For similar reasons, we do not find 
persuasive the suggestion that the Department implement a gradual 
phase-out of paper checks over three to five years. If an institution 
wants to continue to use checks or include them in a student choice 
selection process, it may do so. With regard to the comment that 
acknowledges that checks are an inferior way of disbursing money in 
most instances, but that the check option should perhaps be preserved 
anyway to provide an incentive for all parties to ensure that EFT 
methods work well, are convenient to access, and are priced 
appropriately, we do not believe that that is the best way to achieve 
that goal. We believe that the regulations sufficiently address these 
goals and that any incremental value in keeping checks for this purpose 
is outweighed by the costs to institutions of requiring checks as a 
payment option.
    The Department acknowledges that there are times when issuing a 
check will be necessary to pay a credit balance to a student. As is the 
case under the current regulations, when an institution wishes to pay a 
student with an EFT, but the student does not choose such an option, or 
otherwise fails to supply the institution with sufficient information 
in a timely manner to allow the institution to disburse the title IV 
credit balance in the desired fashion, the institution must still pay 
the student. The institution can then issue a check to that individual 
to fulfil the requirement. And we acknowledge that some institutions 
may choose to use checks exclusively or in limited circumstances. 
However, after considering the arguments made by the commenters, we 
agree that a check is not usually the best choice for the institution 
or the student and that the Department should not require it to be 
offered as an option to the student in the selection process. The 
institution should be left with the option here, and

[[Page 67157]]

be able to choose to use checks exclusively or move its disbursement 
process towards electronic processes and only have to issue a check (or 
pay with cash) as a last resort.
    Finally, with regard to the suggestion to eliminate the cash 
option, the Department believes that, while it is probably only rarely 
used, it may be a convenient way for an institution to pay a student in 
some circumstances and, therefore, is being retained. However, this 
option is not required to be listed in a school's selection process 
and, thus, is not one that a student can choose.
    Changes: We have revised Sec.  668.164(d)(4) by removing the 
requirement that an institution must include checks as an option in its 
selection process, and we are adding a requirement that indicates that 
the institution must be able to issue a check or disburse cash in a 
timely manner to a student in situations where the student does not 
provide the institution with the necessary information to receive a 
disbursement under one of the methods in the institution's selection 
process.

Ban on Sharing Student Information Prior to Account Selection (Sec.  
668.164(e)(2)(i)(A) and (f)(4)(i)(A))

    Comments: Several commenters expressed support for limiting the 
amount of personally identifiable information shared between schools 
and financial institutions or third-party servicers that offer 
financial products to students. However, other commenters expressed 
concerns that the Department's proposal, as written, would not allow 
institutions to share enough information with their servicers to 
prevent fraud and ensure accuracy. These commenters suggested that, at 
minimum, a servicer would need a student ID number to authenticate a 
student's identity. Commenters also suggested that a photograph, a 
unique identifier, the amount of the disbursement, the date of birth, 
and a ``shared secret'' would also be necessary to ensure the security 
of title IV funds.
    One commenter stated that universities have the right to share 
information relating to their business practices with third-party 
servicers without requesting prior permission and that this provision 
could cause delays in transferring title IV funds to students. Another 
commenter stated that the allowable data that could be disclosed under 
the proposed regulations would be more limited than what educational 
institutions are permitted to disclose under the directory information 
exception to consent under the Family Educational Rights and Privacy 
Act (FERPA), 20 U.S.C. 1232g(a)(5) and 34 CFR 99.31(a)(11) and 99.37.
    Commenters also expressed concern that the proposed regulations 
could cause increased administrative burden for institutions. One 
commenter suggested that institutions would have to implement a 
roundabout process wherein institutions themselves would ask students 
if they wanted to open a financial account and then, only upon 
receiving consent to the opening of the account, share the information 
necessary to permit the third-party servicer to authenticate the 
student's identity or cut a disbursement check. That commenter noted 
that such a process would be impractical. Other commenters suggested 
that the proposed language would interfere with a student's ability to 
select another disbursement option such as a check or EFT to a 
preexisting account.
    One commenter suggested that current regulations prevent student 
information from being used for purposes other than identification, and 
noted that other government programs use Social Security numbers or 
dates of birth for identification purposes. Another commenter 
recommended that the Department revise the regulations to clarify that 
third-party servicers are still able to obtain information required to 
perform general administrative purposes.
    However, other commenters suggested that the proposed regulations 
did not go far enough. These commenters expressed concern that even the 
limited personal information that servicers and financial institutions 
can receive prior to a student giving consent allows account providers 
to market accounts to students and that the materials received by 
students under these circumstances imply a school's endorsement of 
those accounts. Commenters also suggested that we include a provision 
strictly limiting use of data shared with a third-party servicer to the 
processing of title IV disbursements, and prohibit institutions from 
disclosing this information to any other entity except for the purposes 
of fulfilling title IV duties.
    Discussion: We generally agree with the commenters who stated that 
some additional information is necessary for third-party servicers to 
ensure that title IV funds are safely transferred to the students for 
whom they are intended. For example, we agree that sharing a student ID 
number (as long as it does not include the Social Security number of 
the student); the amount of the disbursement; and a password, PIN code, 
or other shared secret provided by the institution that is used to 
identify the student serves a legitimate authentication purpose. We 
also believe the regulations should provide for the sharing of any 
other data deemed necessary by the Secretary in a Federal Register 
notice, so as to ensure that the regulations can be kept up to date 
with technology and changes in best practices. As a result, we have 
added these items to the list of data an institution may share with an 
account provider under a T1 arrangement. We have also accommodated the 
need of servicers for additional information by making this information 
available upon selection by the student of the servicer's account in 
the student choice process. We note that this information sharing is 
unnecessary if the student opts to use an existing account, but if the 
student chooses the servicer's account, we regard that as tantamount to 
consent to sharing by the institution with the servicer of the 
information necessary to authenticate the student's identity for 
purposes of making the title IV payment. We did not wish to delay 
disbursement in the latter situation.
    We disagree with the commenter who stated that universities have 
the right to share any information they choose with their business 
partners without prior consent. FERPA, 20 U.S.C. 1232g and 34 CFR part 
99, contains broad limits on the right of educational institutions and 
agencies receiving funding under a program administered by the 
Department to disclose an eligible student's personally identifiable 
information from education records without the student's prior, written 
consent. Wholesale sharing of information, beyond the information 
needed to perform the servicing tasks, is not within the servicer's 
purview under title IV.
    We also disagree that this regulatory provision, with the changes 
described above, will cause significant delays with regard to 
transferring title IV credit balances to students. An institution 
desiring to share additional information needed by the servicer only 
has to ensure that the student made a selection in the student choice 
process that triggers additional disclosure of personally identifiable 
information.
    We agree with the commenter who stated that the provision, as 
proposed in the NPRM, would have been more restrictive than FERPA with 
respect to the disclosure of directory information. As a result, for 
accounts offered under T1 arrangements, we have clarified that an 
institution may share directory information, as defined in 34 CFR 99.3 
and in conformity with the requirements of 34 CFR 99.31(a)(11) and 
99.37, in addition to the student ID

[[Page 67158]]

number; the amount of the disbursement; and a password, PIN code, or 
other shared secret provided by the institution that is used to 
identify the student prior to selection of the account in the student 
choice process. For accounts offered under T2 arrangements, we have 
clarified that an institution may share directory information, as 
defined in 34 CFR 99.3 and in conformity with the requirements of 34 
CFR 99.31(a)(11) and 99.37--but nothing else--with the account provider 
prior to obtaining consent to open an account.
    We acknowledge that the restrictions on information sharing may 
create additional administrative burden for institutions. However, we 
believe that the changes made to these provisions ensure that 
institutions that have T1 arrangements will not have to engage in the 
two-step process envisioned by these commenters to deliver a credit 
balance. We believe that the changes to the regulations ensure that 
institutions can continue to use third-party servicers to contact 
students, safely identify them, and guide them through the selection 
process. A student can then either choose an account offered under a T1 
arrangement, prompting the sharing of additional information, or 
provide his or her banking information at the selection menu. For this 
reason, we do not believe these regulations will interfere with a 
student's ability to select his or her own, preexisting account.
    In addition, we do not believe that the restrictions on 
information-sharing as they apply to accounts offered under T2 
arrangements are problematic from a credit balance delivery perspective 
since account providers under T2 arrangements do not manage direct 
payments of title IV funds. Before the student has agreed to open the 
account, there is no need or justification for sharing the student's 
non-directory information with the account provider. We disagree with 
the commenter who suggested that current regulations have been 
sufficient to deter unwarranted sharing of personally identifiable 
information. Oversight reports \33\ have shown otherwise. Moreover, 
while other government programs may use Social Security numbers or 
dates of birth for identification purposes, in light of the noted 
concerns about unwanted (and unnecessary) sharing of student personally 
identifiable information, we do not believe that there is any need for 
sharing personally identifiable information beyond that permitted by 
the regulations, as revised, prior to selection by the student of the 
servicer's account or consent from the student to the opening of an 
account offered under a T2 arrangement.
---------------------------------------------------------------------------

    \33\ OIG at 19.
---------------------------------------------------------------------------

    We disagree with the commenter who suggested that we clarify that 
third-party servicers are still able to obtain information required to 
perform general administrative purposes. We believe such a statement is 
too broad and would undermine our ability to ensure that student 
information is not used for purposes other than the delivery of title 
IV credit balances.
    We agree with the commenters who suggested that the provision as 
drafted did not address the fact that shared information should only be 
used for legitimate title IV purposes and not the marketing of 
financial accounts. As a result, we have revised the section on T1 
arrangements to state that institutions must ensure that information 
shared prior to student selection is used solely for activities that 
support making direct payments of title IV funds and cannot be shared 
with any other affiliate or entity. We have not made a similar change 
to the provisions governing accounts offered under T2 arrangements 
because those account providers do not process title IV funds. 
Furthermore, under the regulations account providers under T2 
arrangements will not have any non-directory information to disclose 
prior to the student's consent to opening the account.
    Changes: We have revised Sec.  668.164(e)(2)(ii) to state that, 
under a T1 arrangement, the institution must ensure that any 
information shared as a result of the institution's arrangement with 
the third-party servicer before a student makes a selection of the 
financial account associated with the third-party servicer as described 
under paragraph (d)(4)(i) of the section does not include information 
about the student other than directory information under 34 CFR 99.3 
and disclosed pursuant to 34 CFR 99.31(a)(11) and 99.37, beyond--
     A unique student identifier generated by the institution 
that does not include a Social Security number or date of birth, in 
whole or in part;
     The disbursement amount;
     A password, PIN code, or other shared secret provided by 
the institution that is used to identify the student; or
     Any additional items specified by the Secretary in a 
notice published in the Federal Register.
    We have also revised Sec.  668.164(e)(2)(ii) to provide that the 
institution must ensure that the information--
     Is used solely to support making direct payments of title 
IV, HEA program funds and not for any other purpose; and
     Is not shared with any other affiliate or entity for any 
other purpose.
    We have also revised Sec.  668.164(f)(4)(i)(A) to state that, under 
a T2 arrangement, the institution must ensure that the student's 
consent to open the financial account is obtained before the 
institution provides, or permits a third-party servicer to provide, any 
personally-identifiable information about the student to the financial 
institution or its agents, other than directory information under 34 
CFR 99.3 that is disclosed pursuant to 34 CFR 99.31(a)(11) and 99.37.

Sending an Access Device Prior to Consent (Sec.  668.164(e)(2)(i) and 
(f)(4)(i)(B))

Sending an Access Device Not Used for Institutional Purposes
    Comments: While many commenters expressed strong support for the 
provision preventing institutions from sending an access device to a 
student before receiving consent to open an account on the grounds that 
this procedure implies that the card is required to receive title IV 
funds, some commenters did object to the ban on sending access devices 
prior to receiving consent.
    Several commenters who objected stated that this provision would 
slow the speed with which students are able to receive their title IV 
funds and that this provision would create more administrative burden 
for institutions, financial institutions, and third-party servicers in 
delivering credit balances to students. Other commenters also stated 
that this provision disproportionally disadvantaged unbanked students 
and students who do not currently have a preexisting bank account by 
delaying their access to title IV funds.
    Several commenters contended that requiring institutions to obtain 
consent would greatly increase administrative burden. One commenter in 
particular noted that, while they supported the provision generally, 
the regulatory language suggests that a school must obtain the consent 
from a student to open an account, even if the student has already 
provided consent to the third-party servicer or a financial 
institution. This commenter suggested that requiring a school to obtain 
consent could confuse students. The commenter requested that we clarify 
that a third-party servicer or financial institution is able to obtain 
the consent necessary to receive an access device.
    Finally, several commenters suggested that existing laws and 
regulations make

[[Page 67159]]

this provision unnecessary, and that the existing requirement to 
disclose terms and conditions of an account prior to its opening 
provides sufficient consumer protections for students. Commenters also 
argued that strict requirements regarding financial accounts already 
exist and that it could be difficult for financial account providers to 
comply with new requirements.
    Discussion: While we acknowledge that prohibiting an institution or 
third-party servicer from sending an access device to a student prior 
to the student's consent may in some cases cause delays in disbursing 
title IV funds, we do not feel those delays outweigh the concerns 
stated in the NPRM that the pre-mailing of an inactive access device 
implies that the associated account is required by the institution.\34\
---------------------------------------------------------------------------

    \34\ 80 FR 28504.
---------------------------------------------------------------------------

    We also acknowledge the commenter's concerns that this provision 
would disproportionally disadvantage students without existing bank 
accounts by delaying their access to title IV funds. However, we do not 
feel that this provision creates a significant disadvantage since 
students will still be able to obtain an access device after providing 
consent to open an account. Institutions may time their student choice 
process so as to accommodate these students.
    With regard to the comment that the proposed regulations implied 
that the institution, not the third-party servicer or financial 
institution, would have to obtain consent to open a financial account 
before sending an access device, we note that this was not our 
intention. We have revised Sec.  668.164(e)(2)(i)(A) and Sec.  
668.164(f)(4)(i)(B) of the final regulations to clarify that a third-
party servicer or financial institution can obtain the consent before 
sending an access device. We believe this also addresses the commenters 
who raised concerns about administrative burden for institutions. 
However, we note that institutions are responsible for ensuring that a 
process is in place to obtain consent before an access device is sent.
    We respectfully disagree with the commenters that argued that 
sufficient consumer protections already exist in current law or in 
other provisions of these regulations that render this provision 
unnecessary, especially in light of adoption rates ranging from 50 
percent to over 80 percent at some institutions.\35\ We also agree with 
the commenters that stated that this provision is necessary to dispel 
the implication that these cards are required for students to access 
their title IV funds.
---------------------------------------------------------------------------

    \35\ Consumer Financial Protection Bureau, Request for 
Information Regarding Financial Products to Students Enrolled in 
Institutions of Higher Education (Feb. 2013) (hereinafter referred 
to as ``CFPB RFI'').
---------------------------------------------------------------------------

    Changes: We have condensed the two separate provisions regarding 
sending and validating an access device into a single provision. We 
also have revised Sec.  668.164(e)(2)(i)(A) and (f)(4)(i)(B) to remove 
language specifying that it must be the institution that obtains the 
student's consent to opening the financial account before an access 
device may be sent to a student.
Sending an Access Device Also Used for Institutional Purposes
    Comments: Many commenters expressed support for the provision that 
would ban the practice of allowing an access device used for 
institutional purposes to be validated to enable the student to access 
the financial account before the student consents to open the financial 
account. However, several commenters stated that this provision still 
does not go far enough, arguing that allowing access devices used for 
institutional purposes to be validated still suggests that such an 
account is a preferred option. Other commenters expressed concern that 
sending a cobranded student ID card that has this capability still 
allows a third-party servicer or financial institution to send access 
devices to students before they have consented to open an account. One 
commenter requested that the Department prohibit all cobranding of 
student ID cards.
    Finally, one commenter suggested that, while they agree with the 
provision, third-party servicers and financial institutions should be 
allowed to collect the consent needed to validate an access device that 
is also used for institutional purposes, arguing that forcing the 
institution to do so creates unnecessary administrative burden.
    Discussion: We acknowledge that allowing access devices used for 
institutional purposes to be validated, enabling the student to access 
a financial account, still implies that such an account is preferred or 
required. However, we do not feel that concerns over this implication 
outweigh the benefits a student might receive from such an arrangement 
and have chosen not to regulate this practice beyond what was proposed 
in the NPRM.
    We also acknowledge that this provision may allow an institution 
and its third-party servicer or financial institution to send 
unsolicited access devices that also function as school ID cards before 
a student consents to open an account. One possible approach to this 
circumstance would be to prohibit an institution from sending a student 
ID with an inactive access device and effectively require institutions 
and their third-party servicer or financial account provider to send a 
second student ID with an activated access device only after the 
student consents. As we explained in the NPRM, we recognize the costs 
to institutions with mandating such a framework and therefore declined 
to require this two-step process in the regulations. Nevertheless, we 
note that financial institutions must still comply with consumer 
protection rules regarding unsolicited access device issuance (as set 
forth in Regulation E, 12 CFR 1005.5).
    We disagree with the commenter who requested that we ban all 
cobranding on access devices used for institutional purposes. Our 
concern with respect to these arrangements is the effect of cobranding 
on a participating institution's discharge of its responsibilities for 
delivering title IV funds. The related requirements in the regulations 
are tailored to that purpose.
    Finally, as with the provision requiring institutions to obtain 
consent to open an account before sending an access device, we have 
clarified that a third-party servicer or financial institution can 
collect the consent required prior to validating an access device that 
is also used for institutional purposes.
    Changes: We have condensed the two separate provisions regarding 
sending and validating an access device used for institutional purposes 
into a single provision, and we have changed the language referencing 
``linking'' an access device used for institutional purposes to 
``validating'' in order to better conform with banking regulations and 
terminology. We also have revised Sec.  668.164(e)(2)(i)(B) and 
(f)(4)(i)(C) to remove language specifying that it must be the 
institution that obtains the student's consent to open an account or 
validate an access device.

Disclosure of Account Information (Sec.  668.164(d)(4)(i)(B)(2))

    Comments: Several commenters expressed concern that the disclosure 
requirements in Sec.  668.164(d)(4)(i)(B)(2) could conflict with the 
disclosure forms the CFPB is developing. Commenters also noted that 
having duplicative disclosures could confuse students and significantly 
increase costs for account providers. Some of these commenters also 
requested that the Department specify that any disclosures required by 
the CFPB would satisfy the requirements under these regulations. One 
commenter contended that a

[[Page 67160]]

standard disclosure would not capture the disparate needs of various 
institutions and the students they serve.
    Some commenters also expressed concern over transparency, and other 
risks of duplicative or conflicting requirements. One commenter stated 
that standard banking disclosures are sufficient to inform students of 
the terms and conditions of an account and asked that we strike this 
requirement entirely. Another commenter stated that transparency was 
already in the best interests of the financial institutions as they 
compete for business. Another commenter contended that requiring 
disclosures for only accounts offered under T1 or T2 arrangements would 
not be helpful or transparent for students since they would not receive 
comparable information regarding check fees or preexisting financial 
accounts. Finally, one commenter suggested that requiring these 
disclosures may inadvertently compel institutions to market these 
accounts to students.
    Commenters also stated that there may be insurmountable 
difficulties in delivering these disclosures in certain situations. For 
example, some commenters noted that, for a student opening a bank 
account at a financial institution prior to enrolling in an institution 
of higher education, it would be impossible to give that student the 
disclosure, as the financial institution would not know that the 
prospective accountholder was planning to become a student at an 
institution where a T1 or T2 arrangement exists.
    Other commenters expressed concerns with the process of developing 
the disclosures. One commenter expressed disappointment that a 
prototype of the disclosures was not included in the NPRM. Other 
commenters opposed the creation of a disclosure form without notice and 
comment rulemaking. One commenter expressed concern that the NPRM did 
not elaborate on what would constitute a ``commonly-assessed fee'' and 
how we would determine which fees would be included in the disclosure. 
Another commenter asked that we create a consumer-friendly and 
consumer-tested format for these disclosures, and that the Department 
seek feedback from students, families, and other groups when developing 
the form in a process similar to the development of Truth in Lending 
Act disclosures for private student loans.
    One commenter stated that the Department should ensure that there 
is adequate time for financial institutions to develop and begin 
delivering disclosures to students.
    However, several commenters noted that they supported the idea of 
increased transparency for students and the creation of the new 
disclosures. One commenter in particular requested that the Department 
create a database containing all of the disclosures collected from 
financial institutions with T1 or T2 arrangements.
    Finally, one commenter noted the importance of disclosing the 
manner in which a financial institution calculates overdrafts in the 
forms, including the order in which transactions are processed, the 
maximum number of overdrafts that can be charged in a day, any 
exceptions to the overdraft fee, sustained overdraft fees and the 
number of days before that fee is charged, and alternatives to 
overdraft fees.
    Discussion: The Department appreciates the commenters' concern that 
having duplicative disclosures could be both confusing for students and 
expensive for financial account providers to develop. However, as 
explained in the NPRM, because the CFPB's disclosure forms have not yet 
been finalized and because, as proposed, they would apply only to 
certain kinds of accounts, we are unable to determine that those 
specific disclosures will be appropriate for all accounts offered under 
T1 and T2 arrangements.\36\ These disclosures also would not 
necessarily be triggered by the student choice process established by 
these regulations. Nevertheless, we will continue to work with the CFPB 
as it finalizes its disclosure forms to ensure that our forms do not 
conflict with the CFPB's final disclosures and, to the maximum extent 
possible, we will work to ensure that the CFPB's disclosures and the 
disclosures required for accounts offered under T1 and T2 arrangements 
are as similar as possible to mitigate confusion and administrative 
burden.
---------------------------------------------------------------------------

    \36\ 80 FR 28503.
---------------------------------------------------------------------------

    We disagree with the commenter who stated that the disclosures 
would not be helpful because different institutions and different 
students have different needs, and we believe the nature of these 
disclosures will make it easier for students to determine whether the 
accounts meet their needs, since the information will be presented in a 
standardized way.
    We continue to believe that clear, short-form disclosures are 
necessary for students to make informed choices regarding financial 
accounts opened for deposit of title IV funds. For the reasons 
expressed in the NPRM,\37\ including concerns regarding the need for 
objective and neutral information laid out in numerous government and 
consumer reports,38 39 we do not believe that current 
banking disclosures and free-market principles regarding transparency 
guarantee that title IV recipients are fully informed of the most 
relevant terms of their accounts or their rights and options when asked 
by or on behalf of their educational institution to select a financial 
account into which their title IV funds will be deposited.
---------------------------------------------------------------------------

    \37\ 80 FR 28503.
    \38\ USPIRG at 28.
    \39\ GAO at 35.
---------------------------------------------------------------------------

    We disagree with the commenter that stated that these disclosures 
would not be helpful to students since they do not receive comparable 
information for other account options. Because accounts are marketed 
specifically to students through T1 and T2 arrangements by institutions 
of higher education that participate in the title IV, HEA programs, we 
believe that a higher standard of disclosure is required to ensure that 
students are informed of the terms and conditions of the account before 
the account is opened, enabling them to make the choices best suited to 
maximizing the value of their title IV awards. We also disagree that 
objectively disclosing the terms of the accounts in the selection menu 
constitutes marketing by the school or the financial institution 
because the information is given as a standardized disclosure of 
consumer information and a student's own bank account is required to be 
the first, most prominent choice in the selection menu.
    We thank and agree with the commenters who stated that it would be 
impossible for financial institutions to guarantee that students 
receive disclosures in cases where students open an account at a 
location outside the selection menu, such as at a bank branch. In 
response, we would like to note that these disclosures only have to be 
made in the selection menu in order for institutions to meet the 
requirements of Sec.  668.164(d)(4)(i)(B)(2). In addition, the 
regulations impose no requirements in the student choice process as to 
disclosures with respect to pre-existing bank accounts.
    We understand the concerns of the commenters who would have 
preferred for the forms to be published as part of the NPRM. However, 
because some of the accounts will be subject to CFPB disclosure 
requirements, we believe it is crucial to ensure that the student 
choice disclosures for those accounts dovetail with the CFPB's 
requirements once finalized to avoid confusion. When the Department's 
disclosures are developed, they will be published in the Federal

[[Page 67161]]

Register, and we will provide notice and an opportunity for comment at 
that time. This process will provide interested parties with the 
opportunity to comment to the Department and for the forms to 
ultimately reflect input received from both the CFPB and the 
Department. The Department's notice will also clarify which fees the 
Department considers to be ``commonly assessed.''
    We agree with the concern that there may not be enough time for 
institutions to implement this requirement given that the disclosures 
have not yet been developed. For this reason, we have delayed 
implementation of this requirement to July 1, 2017.
    We thank the commenter who suggested that we create a database of 
these disclosures. However, we believe that this is contrary to the 
purpose of the disclosures. The disclosures are meant to be given to 
students at the time they select an account for title IV purposes to 
ensure that they understand the features and fees associated with the 
account. We believe that creating such a database would not be 
consistent with this function and may in fact cause unnecessary 
confusion for students.
    We thank the commenter who asked that we use consumer-testing and 
seek feedback from student and families. However, since we intend to 
work closely with the CFPB to mirror their consumer-tested forms and 
since we will subject the disclosures to publication in the Federal 
Register and notice and comment, we believe that additional formal 
consumer-testing is unnecessary in this case.
    Finally, we thank the commenter who asked that we require 
institutions to disclose the manner in which overdrafts are calculated. 
We will take this feedback into account as we work to develop the 
disclosures.
    Changes: We have revised Sec.  668.164(d)(4)(i)(B)(2) to specify 
that institutions will not be required to list and identify the major 
features and commonly assessed fees associated with accounts offered 
under T1 and T2 arrangements until July 1, 2017.

General Comments on Fees (Sec.  668.164(e)(2)(iii)(B) and (f)(4)(ix))

    Comments: There was strong support from several commenters for the 
fee limitations proposed in the NPRM. These commenters noted the 
importance of providing students protections sufficient to ensure they 
have reasonable opportunities to access their title IV aid without fees 
and are not charged unreasonable, onerous, or confusing fees. The 
commenters also agreed with the extensive documentation of unreasonable 
fee practices in consumer and government reports and discussed at 
length in the NPRM in support of these fee limitations.
    Several other commenters opposed the proposed limitations on fees, 
arguing that student choice was a sufficient protection, and students 
affirmatively choosing to select a particular account will have a 
reasonable understanding of the fees associated with that account. 
These commenters also argued that the fee limitations would increase 
costs and burden on institutions and financial account providers 
because they would limit the costs that could be assessed to 
accountholders for the convenience of utilizing the accounts. Some 
commenters argued that limitations on fees would discourage responsible 
behavior on the part of accountholders--specifically, that learning to 
deal with account fees is part of becoming a responsible accountholder.
    Some commenters also expressed support for the existing provision, 
maintained in the proposed regulations, that prohibits a fee for 
opening an account.
    Commenters also submitted numerous additional recommendations 
specific to the individual fee provisions. We discuss those comments in 
subsequent sections of the preamble.
    Discussion: We appreciate the support from numerous commenters for 
the proposed limitations on fees under Sec.  668.164(e)(2)(iii)(B) and 
(f)(4)(ix). We agree with commenters that the specific fees prohibited 
are especially confusing, uncommon, or onerous, or otherwise have a 
high likelihood to deprive title IV recipients of an opportunity to 
reasonably access their student aid. We also thank commenters for 
supporting our decision to maintain the prohibition on a fee for 
opening an account.
    We disagree with those commenters who argued that the fee 
limitations are unnecessary. We discussed in great detail our reasons 
for proposing to limit fees in the NPRM, and we believe the comments 
generally support those limitations.\40\ We also believe the extensive 
documentation of troubling behavior by financial account providers in 
consumer and government reports reflects structural problems that 
prevent market mechanisms--disclosures and choice alone--from 
sufficiently protecting title IV recipients. We also disagree with 
commenters who argued that the fee limitations would lead to 
irresponsible accountholder behavior. On the contrary, government and 
consumer reports documented that the practices of account providers in 
the college banking market are troubling and not representative of the 
typical banking practices in the broader marketplace. These fee 
limitations are designed to eliminate the confusing, uncommon, and 
onerous fee practices of financial account providers that act in place 
of the institution and provide students with account options that allow 
them to access their title IV aid.
---------------------------------------------------------------------------

    \40\ 80 FR 28505-28509.
---------------------------------------------------------------------------

    We agree with the commenters who argued that the proposed 
provisions will limit the ability of institutions and financial account 
providers to pass the costs of administering the title IV, HEA programs 
on to students. While we have allowed a reasonable fee structure to 
remain in place, an important impetus behind this rulemaking was a 
recognition that too many institutions were passing along the costs of 
administering financial aid programs to the aid recipients through 
these arrangements and generating artificial demand for otherwise 
uncompetitive financial accounts. This also resulted in the financial 
account providers profiting at students' and taxpayers' expense. In 
light of the fiduciary role of institutions as stewards of the title 
IV, HEA programs, we believe that this institutional cost shifting is 
an impermissible development and that students should not be in the 
position to pay significant, unavoidable, and misleading costs as a 
prerequisite to obtaining their Federal student aid.
    Changes: None.

Prohibition on Charging an Account-Opening Fee (Sec.  
668.164(e)(2)(iv)(B)(1) and (f)(4)(x))

    Comments: Some commenters expressed concern over prohibiting a fee 
for account opening as it relates to student ID cards that serve both 
institutional and financial purposes. They suggested either altering or 
removing this provision, arguing that these multi-function cards 
primarily serve institutional purposes.
    One commenter described student ID cards as primarily serving an 
institutional need and only including payment functionality as an 
``incidental'' mechanism. The commenter expressed concern that under 
the account-opening fee provision, schools could not charge students to 
obtain these cards, resulting in a lack of funding for other programs. 
The commenter also expressed concern that this provision would prohibit 
charging a student for replacing an ID card.

[[Page 67162]]

    Another commenter noted that a fee normally charged for opening a 
student ID card is allotted to a ``campus access control system,'' and 
eliminating the fee would result in less robust campus security.
    Both commenters recommended that the Department exclude student ID 
cards from the provision prohibiting fees for account opening.
    Discussion: We believe the concerns expressed by these commenters 
address an issue separate from the account-opening fee subject to these 
regulations. We understand that student IDs are by their nature 
primarily used for institutional purposes--whether for simple 
identification or to access student services, such as libraries, 
fitness facilities, and on-campus housing. However, the prohibition on 
fees charged for opening an account has been a longtime requirement 
under existing regulations.
    Existing Sec.  668.164(c)(3)(iv) requires that an institution 
ensure that the student 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. We have retained this existing 
requirement in the final regulations--specifically, Sec.  
668.164(e)(2)(iv)(B)(1) and(f)(4)(x) require that an institution 
``ensure students incur no cost for opening the account or initially 
receiving an access device.''
    It appears that the commenters' concern derives from the use of the 
term ``access device.'' However, this term is distinguished in the 
regulations from ``a card or tool provided to the student for 
institutional purposes, such as a student ID card'' (see, e.g., 
Sec. Sec.  668.165(e)(2)(i)(C) and 668.164(f)(4)(i)(C)). To the extent 
that an institution recoups the costs of disseminating a student ID 
card to all its enrolled students through direct fees, tuition costs, 
or other measures, this is not prohibited under the regulations. 
However, we maintain in the regulations the prohibition on charging a 
fee when a student ID card is validated, enabling the student to use 
the device to access a financial account or when the underlying 
financial account is opened.
    While we intended this distinction in the proposed regulations and 
we are making no substantive change to the proposed regulations, we 
recognize that additional clarifying language will ensure that students 
are not charged a fee to open an account into which title IV funds will 
be deposited.
    Changes: We have revised Sec.  668.164(e)(2)(iv)(B)(1) and 
(f)(4)(x) to clarify the prohibition of a fee for allowing a card or 
tool provided to the student for institutional purposes, such as a 
student ID card to be validated, enabling the student to use the device 
to access a financial account, in addition to the existing prohibition 
on opening the account or initially receiving an access device.

ATM Access (Sec.  668.164(e)(2)(iii)(A) and (f)(4)(v))

    Comments: Several commenters praised the Department for proposing 
regulations that would provide for the availability of free access to 
ATMs. These commenters noted the problems cited in consumer and 
government reports demonstrating that in several instances students 
attempting to withdraw their title IV funds were faced with an 
insufficient number of ATMs, ATMs running out of cash, ATMs in locked 
buildings, and other factors forcing students to out-of-network ATMs 
where they incurred quickly mounting fees. These commenters encouraged 
the Department to maintain requirements ensuring ATM access to title IV 
recipients.
    Some commenters expressed support for the Department's approach of 
providing more specificity for the term ``convenient access'' than 
exists under the current regulations, while still allowing sufficient 
flexibility to provide ATM access tailored to individual institutions. 
Other commenters requested that the Department provide additional 
detail, expressing concern that without explicit guidance, financial 
account providers would be reluctant to offer campus cards for fear of 
running afoul of the regulatory requirements.
    Several commenters argued that the requirement for access to a 
national or regional ATM network was both unnecessary and economically 
infeasible. One commenter argued that the OIG report showed that ATM 
access at the reviewed institutions was not an issue and that students 
had sufficient access to funds. Other commenters stated that the ATM 
access requirements would prevent providers from offering cost-
efficient services and the costs of providing a fee-free network would 
be passed on to students or result in financial firms exiting the 
campus financial products marketplace. Other commenters also contended 
that the ATM access requirements are unnecessary, arguing that cash is 
increasingly becoming an outmoded method of payment, especially among 
students.
    Some commenters stated that the requirements for access to a 
national or regional ATM network should apply equally to T1 and T2 
arrangements. One commenter also stated that solely applying the 
requirements to T1 arrangements demonstrated the Department's 
unjustified preference for preexisting accounts. Another commenter 
recommended that the requirements be applied to T2 arrangements to 
ensure that students have sufficient access to their student aid credit 
balances.
    One commenter expressed concern regarding withdrawal limits and 
noted that for students with large credit balances, daily limitations 
on the amount of funds that can be withdrawn would effectively 
eliminate the convenient access requirements under the regulations. 
This commenter recommended that we provide a mechanism by which 
students have fee-free access to their title IV refunds throughout the 
payment period.
    Several commenters expressed concern that the convenient access 
requirements would be difficult for campuses located in rural, less 
populated areas. These commenters argued that ATMs have relatively high 
maintenance costs (one commenter stated that these costs are $20,000 to 
$40,000 per year), making it economically infeasible to install an ATM 
at those locations. Most of these commenters suggested that the 
Department establish a safe harbor providing a minimum number of 
students before the ATM access requirements would apply at a location; 
however, no commenters provided a recommendation for such a numerical 
threshold or justification for a particular number of students. Another 
commenter suggested that the Department should, rather than quantifying 
a required threshold for ATM access, evaluate each school on an 
individual and ongoing basis to ensure that students had sufficient ATM 
access. Other commenters recommended that we simply remove the 
convenient-access requirement from the regulations.
    Some commenters noted that ATM access provided to accountholders in 
the general financial products marketplace rarely includes 
international access to ATMs. These commenters recommended that the 
provision governing convenient access to ATMs apply only to domestic 
ATM access.
    Some commenters also noted that certain ATMs provide functionality 
unrelated to more traditional banking services, such as purchasing 
postage or other services. These commenters recommended we limit fee-
free access to the more traditional banking services.

[[Page 67163]]

    Finally, some commenters stated that out-of-network ATM fees are 
instrumental in recovering the funds lost in allowing out-of-network 
activity. These commenters recommended that the Department not prohibit 
fees charged for out-of-network ATM access for students.
    Discussion: We appreciate the support from numerous commenters for 
the Department's proposal to provide specificity to existing 
regulations requiring that title IV recipients have convenient access 
to ATMs. As we explained in detail in the NPRM, there have been 
numerous troubling instances of students without the access required 
under the regulations, especially among third-party servicers offering 
financial accounts. An example of this included a financial provider 
which is responsible for disbursing title IV funds at about 520 
schools, but, with 700 ATMs in service,\41\ 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. As we 
explained in the NPRM, in the worst cases, 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 \42\ or causing dozens of students to line up to withdraw their 
money.\43\ This raises a number of concerns regarding student access to 
title IV funds, not the least of which is the numerous fees many 
students incur when they are forced to withdraw their funds from out-
of-network ATMs, sometimes at $5 per withdrawal.\44\
---------------------------------------------------------------------------

    \41\ USPIRG at 16.
    \42\ Ibid. at 17.
    \43\ GAO at 22.
    \44\ USPIRG at 17.
---------------------------------------------------------------------------

    We also appreciate commenters' recognition, discussed during the 
negotiated rulemaking, that the Department has provided more 
specificity to the meaning of ``convenient access,'' while still 
recognizing that different institutional profiles require that we 
provide flexibility for account providers to meet this requirement. 
While we appreciate the request from some commenters that we provide 
even more detail, we believe that, by setting a clear standard without 
specifying one particular method by which providers ensure there are 
sufficient funds available, we take a balanced approach that recognizes 
the challenges of serving a varied higher education market.
    In general, we disagree with commenters who claim access to a 
regional or national ATM network is unnecessary and economically 
infeasible. As described by the GAO report, and not disputed during 
negotiations by those representing financial institutions and 
servicers, 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, for some product offerings, restrict 
surcharge-free access still provide broader network coverage for a flat 
monthly fee, indicating this requirement should be feasible for 
providers.\45\ We believe that this practice is already employed in the 
market, demonstrating that such products are economically feasible, and 
will not force account providers to stop providing cost-efficient 
services, or opt out of the market entirely. For these reasons, we also 
agree generally with commenters arguing that the ATM requirements 
should apply to both T1 and T2 accounts.
---------------------------------------------------------------------------

    \45\ GAO at 22.
---------------------------------------------------------------------------

    As discussed in a prior section we have, however, limited the ATM 
requirements applicable to T2 arrangements at institutions where the 
incidence of credit balances is de minimis as measured against 
thresholds of five percent of enrollment or 500 students.
    With respect to the commenter who expressed concern that students 
would not have sufficient access to their title IV aid due to 
withdrawal limits, we believe this concern, while well-intentioned, 
will have limited practical impact because of the other regulatory 
provisions. Most relevant are the changes we describe in the section 
discussing the NPRM's 30-day fee restriction (discussed subsequently), 
which we proposed in part to address the situation described by this 
commenter. We believe that by providing students a method to withdraw a 
portion or the entirety of their aid free of charge students will be 
ensured sufficient access to funds to cover educationally related 
expenses. We also believe that the requirement for neutral presentation 
of account information will allow students to make an account choice 
that further limits the negative circumstances the commenter describes. 
Similarly, we see no utility in regulating for a cash-free economy that 
does not yet exist, at a time when cash remains a convenient means of 
exchange readily accepted from and usable by all students.
    We recognize the merit of commenters' concerns about providing ATM 
access to all institutional locations, especially those with few title 
IV recipients. While we do not agree with the cost estimates provided 
in the comments--especially for ATMs located in less populated areas 
\46\--we believe it is important to balance the cost and burden of 
providing ATMs against the real need for students to have convenient 
access to their student aid, which is an existing regulatory 
requirement. We agree that institutions and their partner financial 
account providers' responsibility for providing an ATM at an 
institutional location should depend on the title IV credit balance 
recipient population at a particular location. Because commenters did 
not provide any estimate of what such a limit should be or basis on 
which such a limit should be calculated, we believe it would be overly 
proscriptive to set a particular numerical threshold that may bear 
little resemblance to the varied needs of divergent institutional 
locations. Instead, we believe that the additional detail we included 
in the NPRM with respect to the meaning of ``convenient access'' 
provides sufficient specificity. By requiring that there are in-network 
ATMs sufficient in number and housed and serviced such that the funds 
are reasonably available to the accountholder, the students will have 
access to their funds while institutions will have flexibility in 
instances where few credit balance recipients are enrolled. For 
example, at a large campus with thousands of title IV recipients, it is 
likely that several ATMs would be required. In contrast, if an 
institution has a location with only a few credit balance recipients, 
or a location where students are only taking one class, an ATM that is 
part of a larger regional network at a store several blocks away may be 
sufficient. A location of an institution providing students with 100 
percent of an educational program in a small town in a rural region 
would need to provide ATM access on campus if students would otherwise 
have no free access to their funds through an in-network ATM or branch 
office of the account provider located in the town.
---------------------------------------------------------------------------

    \46\ The cost of providing such ATMs is discussed in further 
detail in the Regulatory Impact Analysis section of this preamble.
---------------------------------------------------------------------------

    We believe that Sec.  668.164(e)(2)(viii) and (f)(4)(viii), which 
govern the best interests of accountholders, will enable institutions 
to ensure they are complying with this provision. If there continues to 
be ``runs'' on fee-free ATMs, or if students are forced to incur an 
abnormally high number of out-of-network ATM fees, or if the 
institution receives complaints about the number and location of its 
ATMs (all indicators that were cited in consumer and

[[Page 67164]]

government reports), there would be good evidence that the institution 
is not complying with the fee-free convenient ATM access provisions of 
the regulations and would need to evaluate whether additional ATMs or 
different locations would be necessary.
    It is also our expectation that, in practice, student access to a 
national or regional ATM network required under T1 arrangements will 
compensate for the absence of ATMs at very sparsely attended locations 
and will help bolster the number of fee-free ATMs at highly attended 
locations where market demand would be met by ATMs provided by a 
national or regional network. We believe that this approach will 
obviate the need for the Department to conduct ongoing monitoring of 
ATMs at each institution, which we think is unworkable. Instead, we 
think that periodic compliance reviews, in combination with access to 
fee-free ATM networks, will significantly improve student access to 
ATMs.
    We also agree that fee-free international ATM access is not a 
common feature of the financial products marketplace, and we are 
accepting the commenters' suggestion that we limit this provision to 
domestic ATM access. In addition, we clarify that it was our intent to 
limit this provision to the basic banking functions of balance 
inquiries and cash withdrawals, and we did not intend to include more 
atypical or nonfinancial transactions.
    Finally, we recognize that out-of-network ATM fees are both a 
common feature of the market and necessary in recovering the costs of 
providing access to such ATMs. While we never prohibited the owners of 
ATMs from assessing fees, we proposed to limit the imposition of an 
additional fee by the student's financial account provider for 30 days 
following each disbursement of title IV funds. However, due to changes 
we are making to that provision, which are discussed in detail in the 
section on the 30-day fee-free restriction, we are no longer limiting 
those fees.
    Changes: We have revised Sec.  668.164(e)(2)(iv)(A) and 
(e)(2)(iv)(B)(3) to specify that the institution must ensure that a 
student enrolled at an institution located in a State, has convenient 
access to the funds in the financial account through a surcharge-free 
national or regional ATM network that has ATMs sufficient in number and 
housed and serviced such that the funds are reasonably available to the 
accountholder, including at the times the institution or its third-
party servicer makes direct payments into the student financial 
accounts. Similarly, for financial accounts under T2 arrangements, we 
have revised Sec.  668.164(f)(4)(vi) to specify that an institution 
located in a State must ensure that students have access to title IV 
funds deposited into those accounts through surcharge-free in-network 
ATMs sufficient in number and housed and serviced such that the funds 
are reasonably available to the accountholder, including at the times 
the institution makes direct payments of those funds. Finally, we have 
revised both provisions to limit the fee-free access requirement to 
balance inquiries and cash withdrawals.

Prohibition on Point-of-Sale (POS) Fees (Sec.  
668.164(e)(2)(iii)(B)(2))

    Comments: There was universal support among commenters for 
prohibiting POS fees that accompany the debit and PIN transaction 
system for T1 arrangements. Commenters characterized these fees as 
unusual, expensive, and atypical of the financial products marketplace. 
Since POS fees are generally not part of regular banking practices, 
commenters argued that students do not realize that the fees exist when 
opening an account. Commenters contended that it is entirely 
appropriate for the Department to ensure a fee is not charged to title 
IV recipients when that fee is not generally assessed in the banking 
market.
    Some commenters suggested broadening the provision to ban all fees 
that serve to steer accountholders to a particular type of payment 
network. One commenter also explained that evolving payment systems may 
lead to additional, unforeseen fees that should be covered in the POS 
fee provision. This commenter recommended that the Department prohibit 
``any discriminatory cost . . . for the use of any particular 
electronic payment network or electronic payment type.''
    One commenter noted that it is customary practice for banks to 
charge per-purchase transaction costs for international purchases and 
recommended that we limit the POS fee prohibition to transactions 
conducted domestically.
    Discussion: We appreciate the support of commenters for this 
provision and the idea that students' title IV aid should be protected 
from fees that are difficult to understand or anticipate, and are 
unusual or present particular danger to student aid recipients.
    As we stated in the NPRM, most campus cards are portrayed as debit 
cards (or having functionality more similar to a debit card than a 
credit card) and students are therefore likely to misunderstand that 
selecting a ``debit'' option is not required to complete a transaction, 
or that doing so would result in a fee.47 48 Because these 
POS fees can quickly add up, depriving students of the title IV funds 
to which they are entitled,49 50 and because these fees are 
atypical to the market,\51\ we agree with commenters that it is 
especially troubling that these fees are charged to student aid 
recipients, many of whom may still be gaining a familiarity with 
banking products. Because of the practices employed by certain 
providers and identified in consumer and government reports, we 
continue to believe that a prohibition on this fee for T1 arrangements 
is appropriate.
---------------------------------------------------------------------------

    \47\ OIG at 13.
    \48\ GAO at 20.
    \49\ Ibid.
    \50\ CFPB RFI.
    \51\ GAO at 20.
---------------------------------------------------------------------------

    While we appreciate the principle underlying commenters' 
recommendation to expand this prohibition, we continue to believe that 
doing so to include T2 arrangements is unwarranted at this time. For 
the reasons discussed at length in the NPRM and reiterated in the 
section discussing fees generally, we believe it is appropriate to 
apply the fee restrictions only to T1 arrangements. Because POS fees 
are not charged by traditional banking entities \52\ we are not 
expanding this provision to T2 arrangements.
---------------------------------------------------------------------------

    \52\ USPIRG at 27.
---------------------------------------------------------------------------

    We acknowledge the commenter's interest in protecting students 
against unforeseen fees that may become established as technology 
progresses and other payment methods gain widespread use. Throughout 
the negotiated rulemaking process, we received a significant amount of 
feedback emphasizing that the financial products marketplace is 
changing and will continue to change rapidly. We have made a 
significant effort throughout this rulemaking process to protect 
student aid recipients and safeguard taxpayer dollars, while remaining 
mindful of possible unintended consequences, such as the restriction of 
technological progress. We believe we have struck a balance in the 
regulations that will allow students the opportunity to make an 
individualized choice of account option with sufficient protections, 
while giving account providers flexibility to develop new student-
friendly payment methods.
    The commenter's suggested language to prohibit all unanticipated 
fees is well intentioned, but we believe it is overly broad. We believe 
that it would be infeasible to determine the

[[Page 67165]]

permissibility of a fee based on whether a cost is ``discriminatory.'' 
Instead, we have designed Sec.  668.164(e)(2)(viii) and (f)(4)(vii) to 
accomplish the goals implicit in the commenter's suggestion. By 
requiring that institutions conduct reasonable due diligence reviews 
regarding the fees under the contract, we believe the regulations will 
help prevent fees similar to POS fees from being charged to students.
    Finally, we agree with the commenter that international per-
purchase transaction fees are a common characteristic of financial 
products, and it is reasonable for students to expect those fees. We 
are therefore altering the POS fee prohibition to reflect that it will 
apply only to domestic transactions.
    Changes: We have revised Sec.  668.164(e)(2)(iii)(B)(2) to specify 
that the institution must ensure that the student does not incur any 
cost assessed by the institution, third-party servicer, or third-party 
servicer's associated financial institution when the student conducts a 
POS transaction in a State.

Overdraft Fee Limitation/Conversion to Credit Instrument (Sec.  
668.164(e)(2)(v)(B) and (f)(4)(vi))

    Comments: Several commenters expressed support for the overdraft 
fee limitations, citing not only the supporting research we highlighted 
in the NPRM, but also additional support from government sources 
including the CFPB, as well as their own experiences with overdraft 
fees, particularly those imposed on students at their institutions. 
These commenters noted that students may be particularly vulnerable to 
overdraft fees because of their relative inexperience with banking 
products. They also noted that title IV recipients would be vulnerable 
to these fees, because many have relatively lower incomes. Commenters 
further stated that overdraft fees are of particular concern because 
overdrafts are more likely to occur without the knowledge of the 
student.
    Multiple commenters stated that the overdraft fee limitation should 
extend to students with accounts offered under T2 arrangements as well, 
arguing that the dangers of overdraft fees for T1 arrangements are 
equally present in T2 arrangements.
    In contrast, other commenters argued that overdrafts represent a 
benefit to accountholders. These commenters argued that overdrafts (and 
their associated fees) represent a protection, allowing recipients to 
utilize the overdraft feature in the case of an emergency, which would 
be impermissible with the overdraft fee limitation. These commenters 
also stated that the proposed fee limitation ignores current regulatory 
procedures (including Regulation E and Regulation DD) that require 
accountholders to opt-in to enable overdrafts and the related fees. 
These commenters argued that overdraft fees are common to the banking 
market and that it would be operationally difficult to apply a 
particular fee limitation to a subset of accountholders. For these 
reasons, these commenters recommended removing the limitation on 
overdraft fees in the regulations.
    Some commenters suggested that the regulations specify that the 
overdraft fee limitation does not apply to bounced checks or Automated 
Clearinghouse (ACH) over-withdrawals. Another commenter asked for 
clarification on whether the provision only applies when the student is 
using a card or if it applies to any transaction that exceeds the 
balance of the financial account. Another commenter requested 
clarification as to whether schools would automatically violate the 
provision if a student with pre-approved overdraft services retains his 
or her account when enrolling.
    That commenter also stated that the term ``credit card'' is not 
defined in the proposed regulations, and suggested that we clarify that 
the provision does not apply to financial institutions when they are 
marketing credit cards outside of a T1 or T2 arrangement. Finally, the 
commenter recommended that we clarify that the provision does not apply 
to linking an account to a credit card for the purpose of making credit 
card payments or covering insufficient funds when a credit card product 
is opened under a mechanism separate from the depository account.
    We also received a limited number of comments from a financial 
account provider and its payment processer that currently offer a 
financial product that does not allow overdrafts or charge any related 
fees. These comments were more technical in nature and laid out a set 
of scenarios where the proposed regulations would create significant 
operational difficulties for the functioning of their voluntary 
prohibition on overdrafts. While the commenters' specific accounts 
prevent accountholders from exceeding the balance in their accounts, 
the commenters pointed out that there are circumstances where an 
overdraft of the account is unavoidable. The simplest iteration is 
force-post transactions (where a matching authorization is not received 
prior to the settlement of the transaction, often when a merchant 
authorizes a transaction but does not settle it with the issuer until a 
later date). An example of such a transaction would be if an 
accountholder has sufficient funds to charge a restaurant bill and the 
transaction is therefore approved, but the accountholder adds a tip 
after the transaction is approved that exceeds the remaining account 
balance; when the transaction processing is completed, the 
accountholder has a negative balance. The commenters stated that the 
financial account provider is unable to know of these circumstances at 
the point of the transaction is approved and thus cannot deny the 
initial transaction without overly onerous transaction-denial practices 
(e.g., denying a charge on a card if the remaining balance after the 
charge would be less than $50).
    These commenters identified three other types of situations where 
similar circumstances exist: Stand-in processing (where the amount 
charged cannot be determined due to a communication error between the 
account provider and the transaction processer but the parties have an 
agreement for a limited pre-approved charge amount); batch processing 
(when transactions are not approved in real time but are instead 
``batched'' and approved in 24-hour increments or a similar time 
period); and offline authorizations (where a communication error occurs 
in the merchant's system, the merchant nevertheless accepts the charge 
but the payment cannot be reconciled by the issuer or account provider 
at the moment of the transaction, so the accountholder's balance will 
not accurately reflect the balance or prevent future overdrafts). In 
all of these cases, the commenter noted, the overdraft is inadvertent 
on the part both of the account holder and the account provider, and a 
product of the operational realities of the payment processing system 
common to financial accounts. For the commenters' customers, no fees 
are charged to the accountholder for these overdrafts.
    The commenters noted that while we acknowledged these scenarios in 
the preamble to the NPRM, we did not create an exemption for these 
technical limitations. They encouraged the Department to create an 
exception for these limited, more technical overdrafts without changing 
the overall structure of the overdraft fee limitation, arguing that in 
the absence of such an exception they would not be able to offer 
accounts that already disallow overdrafts and related fees.
    Discussion: We appreciate the commenters who supported our decision 
to propose an overdraft fee limitation in the NPRM. As we explained in 
detail in the NPRM, there

[[Page 67166]]

are numerous reports that document the many dangers of overdraft fees, 
particularly to title IV recipients.\53\ These fees can quickly add up 
with little notice to the accountholder, can exceed some students' 
total credit balance, and are easily misinterpreted as a benefit when 
in fact a transaction can easily be denied at no cost to either the 
accountholder or account provider. We believe these concerns are 
further supported by the successful implementation of accounts such as 
those described by commenters that generally do not allow 
accountholders to overdraft and thus prevent the student from incurring 
multiple fees that can potentially cost hundreds of dollars.
---------------------------------------------------------------------------

    \53\ 80 FR 28508-28509.
---------------------------------------------------------------------------

    The facts supporting the overdraft fee limitation were not 
sufficiently rebutted by commenters who recommended that we eliminate 
the limitation. Contrary to commenters' arguments, we believe a 
financial institution that charges accountholders a fee that often far 
exceeds both the cost of the underlying transaction and the cost of 
providing the service itself is not providing a benefit, especially 
when the charge can be denied prior to a cost being incurred. The 
evidence that some account providers purposefully reorder transactions 
to maximize overdrafts fees helps persuade us that charging overdraft 
fees in general is simply a way to extract the maximum amount of fee 
revenue from accountholders, rather than serving as a benefit to 
accountholders.\54\
---------------------------------------------------------------------------

    \54\ 80 FR at 28508.
---------------------------------------------------------------------------

    While we acknowledged in the NPRM that, under other Federal 
regulations, an opt-in is required before overdraft charges are 
assessed, the research we cited \55\ demonstrating that individuals are 
easily misled into believing that overdraft ``protection'' actually 
prevents the account provider from charging overdrafts calls into 
serious question commenters' claim that we were disregarding the 
existing opt-in requirements as providing sufficient protection for 
title IV recipients. With respect to commenters' argument that 
overdraft fees are common in the banking market, given the general 
confusion about them, we think additional protection for title IV 
recipients is warranted in the interests of responsibly administering 
the title IV programs. Notwithstanding the prevalence of these charges, 
we detailed in the NPRM why overdraft charges are particularly 
dangerous for students and title IV credit balance recipients 
specifically.\56\
---------------------------------------------------------------------------

    \55\ Ibid.
    \56\ Ibid.
---------------------------------------------------------------------------

    With respect to commenters that stated it would be operationally 
difficult to apply the overdraft fee limitation to a subset of 
accountholders, where an institution and a financial account provider 
choose to voluntarily enter into a contract that gives rise to a T1 
arrangement but nevertheless regard this operational hurdle as 
impossible to overcome, we believe that one alternative would be to 
offer title IV recipients at the contracting institution a standalone 
bank account that complies with the requirements for T1 arrangements. 
For a further discussion of this issue, please refer to the discussion 
under the section discussion T1 arrangements generally.
    However, we decline to expand the overdraft provision to T2 
arrangements for the same reasons we are not expanding the other fee-
related provisions applicable to T1 arrangements. As we discuss in more 
detail in the other relevant sections of this preamble, we believe that 
expanding the fee provisions as commenters suggested would collapse the 
distinction between T1 and T2 arrangements and would not properly 
reflect the respective levels of control over the disbursement process 
and risk presented by different types of arrangements.
    With respect to commenters' questions regarding what types of 
practices are included in this overdraft limitation, the text of the 
regulations make clear that it is any transaction that causes the 
balance to be exceeded, whether completed at an ATM, online, or with a 
physical card or access device. However, it was not our intent to 
include bounced checks or inbound ACH debits (i.e., those authorized to 
a merchant and merchant's financial institution) as a part of this 
limitation because the consumer's institution is unable to decline such 
transactions when these transactions are initiated. On the other hand, 
we do not find this same distinction in the case of outbound ACH 
payments (i.e., bill payments in which the consumer provides 
authorization and instruction directly to his or her institution). In 
contrast to checks and inbound ACH, an account provider could deny an 
outbound ACH payment request before the transaction is submitted to the 
ACH network, regardless of whether the payment is a standalone request 
or recurring preauthorized payment.
    We appreciate the detailed comments laying out the specific 
circumstances under which overdrafts are unavoidable as an operational 
matter even for products that do not allow accountholders to overdraft. 
We are persuaded that there are circumstances outside the control of 
both the accountholder and financial institution in which inadvertently 
authorized overdrafts can occur. We also understand that these 
circumstances are relatively limited in nature, are all characterized 
by the fact that the overdraft cannot be preempted, and do not prevent 
the financial account provider from preempting the more typical and 
more harmful overdrafts that occur when the transaction exceeds the 
account balance at the time of authorization. Most importantly, 
accountholders are not charged a fee for these transactions. In these 
instances, the accountholder would be informed that they have exceeded 
the balance on their account when the student checks their account 
balance, the financial institution notifies the student (such as 
through text message), or when a subsequent transaction is rejected, 
and would therefore be quickly informed that additional funds should be 
deposited on the account without incurring a fee. Permitting these 
inadvertently authorized overdrafts would also allow the account 
provider to continue offering its present services. We are persuaded 
that it is reasonable and practical to allow for a limited set of 
circumstances in which accounts may exceed the remaining balance, but 
do not result in fees imposed on students. We were initially concerned 
that negative balances arising from inadvertently authorized overdrafts 
would result in inquiries and negative ratings on accountholders' 
credit bureau reports. However, following conversations with the CFPB, 
we believe these concerns are not sufficient to disallow this practice. 
Based on these conversations, we believe that credit bureau reporting 
would be unlikely, both because financial account providers would be 
unlikely to report them, and because accountholders, in most cases, 
would be able to easily replenish the negative balances on their 
accounts. Even in the event of credit bureau reporting, the amounts in 
question are so small that it would be relatively easy to cure such a 
negative report.
    For these reasons, we are establishing an exception for the 
overdraft limitation where, in the case of an inadvertently authorized 
overdraft (specifically, force-post transactions, stand-in processing, 
batch processing, and offline authorizations), it is permissible for an

[[Page 67167]]

account balance to be negative so long as the accountholder is not 
charged a fee for the inadvertently authorized overdraft.
    For accounts that are offered under a T1 arrangement, such accounts 
would have to be in compliance with the overdraft provision on or 
before the effective date of the final regulations. We also note that 
accounts offered under T1 arrangements would have to comply with this 
provision regardless of whether the student has already elected to 
receive an account with overdraft services.
    We believe the term ``credit card'' is sufficiently clear--the 
credit card prohibition has long been part of the cash management 
regulations and, to our knowledge, has not caused any confusion. For 
accounts that link a preexisting credit card or a credit card that is 
opened in a distinct process and that complies with existing credit 
card regulatory and statutory requirements, we do not believe that 
credit is being extended to the account offered under a T1 arrangement 
and therefore the overdraft limit is not at issue. In this 
circumstance, the credit is being offered under a distinct product and 
account that must comply with separate banking and credit card 
requirements.
    Changes: We have revised Sec.  668.164(e)(2)(v)(B) to allow for an 
inadvertently authorized overdraft where an accountholder has 
sufficient funds at the time of authorization but insufficient funds at 
the time of transaction processing, so long as no fee is charged to the 
student for the inadvertently authorized overdraft.

30-Day Free Access to Funds (Sec.  668.164(e)(2)(iii)(B)(4))

    Comments: The overwhelming majority of commenters objected to this 
provision for several reasons. Many commenters noted its broad 
application, which would effectively prohibit fees assessed to students 
for banking transactions that are unusual or not typically provided 
free of charge. Such transactions identified by commenters included, 
among others, wire transfers, bounced checks, replacement cards, and 
international transactions. These commenters noted that this broad 
application would allow students to use their accounts in irresponsible 
ways, would force account providers to cover costs not typically 
provided for free to the general market, and would increase costs to an 
extent that account providers would exit the student market.
    Several commenters argued that this provision would ultimately harm 
students. These commenters suggested that a 30-day window would provide 
strong incentives for students to spend their funds more quickly than 
they otherwise would, encouraging irresponsible spending at the expense 
of building good savings habits. These commenters also suggested that 
because such a provision is so at odds with normal banking practices, 
it would be counterproductive from a financial literacy standpoint 
because it would not paint a realistic picture of the banking options 
students will have upon graduation.
    Many commenters presented operational concerns about the 30-day fee 
restriction, arguing that tracking separate, perhaps overlapping 30-day 
timeframes for multiple disbursements would be overly complex and 
expensive. These commenters noted that some disbursements to financial 
accounts contain title IV funds, but others do not, or may contain a 
combination of Federal funds, State funds, and private or institutional 
funds. The commenters asserted that the difficulty associated with 
separately identifying and tracking a 30-day period associated with 
only certain disbursements vastly outweighs the benefits provided to 
the student. Some commenters also noted that for institutions that 
offer FWS funds or make multiple disbursements within a payment period, 
additional disbursements may occur more frequently than every 30 days. 
They noted that for these institutions and their title IV recipients, 
such a circumstance would effectively create a perpetual fee 
prohibition. They noted that this may have the unintended consequence 
of discouraging institutions from experimenting with methods involving 
multiple, smaller disbursements.
    Some commenters noted that the underlying purpose of this provision 
was to provide students a reasonable opportunity to access their title 
IV funds free of charge, and contended that by providing ATM access and 
banning POS fees and overdraft fees, the Department had already met 
that goal. These commenters also asserted that this provision in 
particular runs contrary to the Department's goal of allowing a 
reasonable fee structure to remain in place to support the continued 
viability of account offerings, as account providers generally incur 
some costs. A few commenters in particular recommended that as an 
alternative to the Department's proposal, students should have a method 
by which to access their funds without charge, and without regard to a 
time period.
    One commenter suggested that we expand the time period for access 
to funds for the entire payment period, to ensure that the student is 
able to withdraw their funds without fees at any time. Another 
commenter suggested that 30 days is too long and that the time frame 
should be changed to 14 days. Some commenters argued that this 
prohibition is necessary to ensure students have fee-free access to 
their accounts when it is most likely that title IV funds will be 
present. Other commenters noted that this provision would be less 
beneficial to the student than intended, because it assumes that the 
student knows and is able to keep track of when the 30-day window 
begins and ends. These commenters stated that students may incur fees, 
believing they are still protected when in fact the relevant time 
period has elapsed.
    Discussion: In our discussion of the 30-day fee restriction in the 
NPRM, we stated that ``[t]he 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 a reasonable opportunity to access 
their full title IV credit balance.'' \57\ We continue to believe that 
title IV recipients should have a reasonable opportunity to access 
their student aid funds without charge. This principle endures 
notwithstanding how common such a practice may be in the general 
banking market, because the HEA directs the Department to ensure that 
students are provided with the full amount of their Federal student 
aid. However, we are persuaded by the commenters' arguments that, for 
several reasons, the provision as proposed is too broad to achieve this 
objective.
---------------------------------------------------------------------------

    \57\ 80 FR 28509.
---------------------------------------------------------------------------

    Commenters correctly pointed out that, as proposed, the provision 
allows students to conduct unusual or ancillary transactions that would 
incur a fee under nearly all typical banking arrangements. Commenters 
are also correct that for some students and some institutions, multiple 
frequent disbursements would create a situation where an account 
provider is effectively prohibited from charging any fees at all. These 
outcomes are inconsistent with our intent. We acknowledged throughout 
the NPRM that we believe account providers delivering services beyond 
simple delivery of credit balances should be allowed to charge 
reasonable fees to provide student banking products.
    We are also persuaded that the time-based structure of the proposed 
provision is impractical for operational reasons. We agree that 
tracking

[[Page 67168]]

individual disbursements on an ongoing basis and logging multiple, 
perhaps overlapping time frames and matching such time periods with fee 
limitations would present an operational burden and costs in excess of 
the benefit it would provide to students. For these reasons and 
consistent with commenters' recommendations, we have decided to 
eliminate the 30-day time frame in this provision. We are also 
persuaded that the treatment should be adjusted in a way that does not 
preclude fee structures that are reasonable and that support continuing 
availability of accounts, without increased costs to students.
    Nonetheless, we continue to agree with the commenters who 
recommended that we provide a mechanism by which title IV recipients 
can have reasonable, fee-free access to their student aid. As an 
alternative to our proposed provision, we are instead requiring that 
under a T1 arrangement, students must be provided with convenient 
withdrawals to access the title IV funds in their account, up to the 
remaining balance in their account, in part and in full, at any time 
without charge for the withdrawal.
    From the student perspective, we believe this approach is an 
improvement. It maintains the overarching goal that aid recipients have 
fee-free access to withdraw their title IV funds, up to the remaining 
balance in the account. It relieves students and financial institutions 
of having to keep track of a 30-day period, limits confusion about why 
fees are charged at certain times but not others, and no longer forces 
students to spend or withdraw their funds more quickly than they might 
want or actually need to. It ensures that at any time, even more than 
30 days following a disbursement, a student can still have full access 
to his or her funds, up to the remaining balance in the account, 
without a fee charged for the withdrawal.
    From the perspective of financial account providers, we also 
believe this approach is an improvement. We believe it addresses all 
commenters' concerns, especially regarding the effective blanket 
prohibition on all fees and the operational burdens of having to track 
30-day windows for multiple disbursements and determine whether such 
disbursements trigger the requirement. Instead, providers will have to 
determine at least one method by which the aid recipient may withdraw 
or use his or her title IV funds, up the remaining balance in his or 
her account, in whole or in part, without charge. For example, a more 
traditional bank may find it more feasible to allow fee-free 
withdrawals from a local branch location. Another provider may instead 
allow unlimited fee-free withdrawals from in-network ATMs without daily 
or monthly withdrawal limits. This also limits the burden on financial 
account providers of having to track the source of the funds deposited 
into the account and determine whether those funds stem from title IV 
aid programs or originate from another source. The basis of the limit 
will be the total title IV dollars deposited--i.e., once a student has 
exhausted the amount of title IV funds in the account, the fee-free 
access requirement no longer exists. To the extent that financial 
account providers do not want or are unable to track the amount of each 
title IV deposit, they can continue to offer the withdrawal method(s) 
to accountholders. We believe that, in contrast to the proposed rule, 
continuing to offer the withdrawal method(s) represents a small 
marginal cost after establishing the withdrawal method(s) initially.
    This approach will also address commenters' concerns (addressed in 
the section of the preamble discussing ATM access) that limits on ATM 
withdrawals will limit the effectiveness of that provision. This 
provision would require that the provider either eliminate such 
withdrawal limits or provide another convenient method for students to 
access their title IV funds.
    Changes: We have revised Sec.  668.164(e)(2)(v)(C) to specify that 
under a T1 arrangement, an institution, third-party servicer, or third-
party servicer's associated financial institution must provide 
convenient access to title IV, HEA program funds in part and in full up 
to the account balance via domestic withdrawals and transfers without 
charge, during the student's entire period of enrollment following the 
date that such title IV, HEA program funds are deposited or transferred 
to the financial account.

Disclosure of the Full Contract (Sec.  668.164(e)(2)(vi), (e)(2)(viii), 
(f)(4)(iii), and (f)(4)(v))

    Comments: Many commenters supported the provision requiring 
institutions to post the full contract for T1 or T2 arrangements on 
their Web site, stating that the release of the contract would allow 
policymakers to analyze these agreements and help make sure that 
students are well-informed about their financial choices. One of these 
commenters also noted that this provision was likely to promote 
competition by encouraging new providers to enter the market.
    However, some commenters raised concerns about the provision. 
Several commenters noted that the posting of a lengthy legal document 
would do little to inform students about the arrangement between an 
institution and a third-party servicer or financial institution. 
Another commenter suggested that students already have enough 
information to make an informed decision, rendering the disclosure of 
the contract and summary unnecessary. Some commenters suggested that, 
rather than posting the full contract, we should consider simply 
requiring institutions to post a statement informing the public that an 
arrangement exists between the institution and third-party servicer or 
financial institution. Another commenter suggested that we require 
disclosure of the contract data only and not the publication of the 
full contract. One commenter also expressed concerns that this 
requirement may be duplicative of some State laws.
    Other commenters raised concerns about the effect the posting of 
the full contract may have on their business models. For example, some 
commenters argued that this requirement, even with the option to redact 
information regarding personal privacy, proprietary information 
technology, or the security of information technology or of physical 
facilities, would still require third-party servicers and financial 
institutions to disclose confidential business information that could 
damage competition in the marketplace. One commenter contended that the 
proposed allowable redactions did not allow third-party servicers or 
financial institutions to redact proprietary business information. 
Another commenter asserted that one unintended consequence of this 
could be that financial institutions would be less likely to enter into 
specialized deals with institutions. One commenter stated that the 
release of this information raises antitrust concerns that could 
conflict with the Federal Trade Commission's restrictions on price 
fixing.
    Discussion: We thank the commenters that expressed support for this 
provision on the grounds that increased transparency will help ensure 
that students are protected from abusive practices in the future. We 
agree that posting the full contract to an institution's Web site is 
necessary to ensure that these agreements are more beneficial to 
students in the future and that this requirement is likely to increase 
competition in the marketplace.

[[Page 67169]]

    We disagree with the commenters who stated that disclosure of the 
full contract would not help inform students about the terms and 
conditions of T1 and T2 arrangements. A common criticism of these 
agreements between institutions and financial institutions is the lack 
of transparency, and we believe that posting the full contract will 
allow all interested parties to review these agreements and ensure that 
the terms of T1 and T2 arrangements are fair for students.
    We also disagree with the commenters who stated that a summary of 
the contract would be sufficient for consumer information purposes. The 
contract data, while helpful, will not allow interested parties to view 
the agreement as a whole and will not be available at all institutions 
with T2 agreements. We are also concerned that the required disclosures 
in the summary alone will not allow students, researchers, and 
policymakers to understand the entire scope of the agreement. A summary 
by its nature is selective, and we do not agree that it would enhance 
competition or work to prevent abuse to allow those parties broad 
discretion to decide which terms will be made public and which will 
not.
    We disagree with the commenter who suggested that students already 
have enough information to make an informed decision. As stated 
elsewhere in this preamble, because these financial products are so 
specifically targeted to students, and because the title IV 
disbursement system creates unique consumer protection challenges, we 
believe that this additional disclosure, specific to the title IV 
context, is necessary.
    While we recognize that certain institutions are subject to very 
strict State ``sunshine'' laws that similar to these requirements, we 
note that not all institutions are subject to those laws, and that even 
where they apply, the difficulty interested parties face in attempting 
to access these contracts varies by institution. For the sake of 
consistency, we believe it best to ensure that these disclosures are 
adopted uniformly across all institutions that receive title IV aid and 
have T1 or T2 arrangements with third-party servicers or financial 
institutions.
    We disagree with the commenters who stated that disclosures of 
contracts with only specific information redacted would result in 
decreased competition. We continue to believe that disclosures of this 
type increase competition, and in the absence of very specific 
recommendations regarding other types of information that should be 
redacted from the contract posted to an institution's Web site, we have 
made no changes to the types of information that may be redacted from a 
contract.
    We disagree with the commenter who suggested adding proprietary 
business information to the list of allowable redactions as we believe 
that the reference to ``proprietary information technology'' addresses 
this concern in part. In addition, we believe that ``proprietary 
business information'' is too broad a term and that, if added, it could 
undermine our efforts to ensure transparency of T1 and T2 arrangements.
    While financial institutions may no longer enter into special or 
unique agreements with institutions, this is a decision that will lie 
with financial institutions. Financial institutions will have the 
option to decline to offer the same arrangement to every institution if 
they wish. However, we agree with the commenter who stated that posting 
these agreements may encourage new providers to enter the market. With 
more than one provider offering services to an institution, access to 
this information could allow new providers to offer more competitive 
deals to institutions.
    We also disagree that the posting of contracts governing T1 and T2 
arrangements could result in price fixing or antitrust concerns, 
especially since other Federal laws already require the disclosure of 
contracts for public review. For example, the Credit CARD Act of 2009 
requires institutions to ``publicly disclose any contract or other 
agreement made with a card issuer or creditor for the purpose of 
marketing a credit card.'' \58\ We also continue to believe that 
posting these agreements increases competition in the marketplace.
---------------------------------------------------------------------------

    \58\ 15 U.S. Code section 1650(f).
---------------------------------------------------------------------------

    Changes: In Sec.  668.164 (f)(4)(iii), we have removed the phrase 
``provide to the Secretary'' in order to clarify that institutions need 
only post the contracts to their Web sites and provide the URL to the 
Secretary for publication in the database. We have also clarified the 
regulatory language to state that institutions must comply with this 
requirement by September 1, 2016.

Disclosure of Contract Data (Sec.  668.164(e)(2)(v)(B)-(C) and 
(f)(4)(iii)(B)-(C))

    Comments: Many commenters expressed support for the publication of 
contract data, stating that it would be easier for students to 
understand than the full contract document and would act as an 
important source of consumer information. In addition, other commenters 
asked that we include additional information, such as: The duration of 
the contract, any benefits that the institution might accrue under the 
contract, any minimum usage requirements, the number of students 
receiving a disbursement, the amount of disbursed funds issued, and the 
frequency of each method of disbursement delivery.
    Many commenters expressed concerns about how institutions would 
calculate the data required in the disclosure. Specifically, commenters 
asked how institutions could calculate the number of accountholders and 
the mean and median of the actual costs incurred by those 
accountholders, especially in cases where a student opened a bank 
account before choosing to enroll in an institution. One commenter 
noted that universities do not typically track the costs of the 
accounts their students use. Other commenters stated that it would be 
difficult for financial institutions to know who is and is not a 
current student at an institution without a list of current students. 
These commenters also pointed out that this list would have to include 
personally identifiable information about those students in order to 
ensure that the calculations are accurate. Another commenter stated 
that tracking costs becomes even more difficult in cases where the 
accountholder has received a parent PLUS loan. One commenter also 
stated that calculating the mean and median costs would be impossible 
without defining which costs must be included in that calculation. 
Another commenter expressed concerns that inactive accounts or accounts 
that are used for short periods (such as a semester) could skew the 
data and that publishing fee information violates a student's privacy.
    Other commenters expressed concerns that the statistics disclosed 
may not be helpful. Specifically, one commenter stated that information 
about whether or not a school receives remuneration under the contract 
would not be likely to impact a student's decision whether or not to 
open a financial account. That same commenter, along with others, 
stated that the size of the student population, the differing needs of 
students at different types of institutions, and the behavior of 
accountholders could result in higher or lower fees, rather than 
reflect the behavior of a financial institution. One commenter stated 
that because these data only contain information about one account, 
they lack context for students to be able to evaluate the information 
most effectively. Other commenters stated

[[Page 67170]]

that these requirements may result in account providers offering fewer 
services to students in order to keep costs low. One commenter asked 
that we exempt an institution from this requirement if it can prove 
that the institution receives no form of compensation under the 
contract. Another commenter stated that publishing fee schedules did 
enough to ensure transparency for students. One commenter also 
suggested that the Department create a disclosure template that would 
summarize important details of a contract for students.
    Discussion: We thank the commenters who supported the release of 
contract data on the grounds that they would provide easily 
understandable information to students and families and appreciate the 
suggestions for additional data disclosure. However, we believe that 
the data we have identified would be the most useful information for 
students. We are also concerned that additional information may confuse 
students and families, diluting the effect of disclosing data at all.
    We disagree with the commenter who asked us to remove these 
requirements because institutions do not typically track this 
information and who concluded that compliance with this provision would 
be too difficult. While we believe that the parties will be able to 
design their T1 or T2 arrangement to allow a third-party servicer or 
financial institution to perform this type of tracking, we have chosen 
to exempt institutions from this requirement in cases where on average 
less than 500 students and five percent of the total number of students 
enrolled at an institution with a T2 arrangement receive a credit 
balance for reasons discussed earlier in this preamble. In response the 
commenter who asked whether previously opened accounts should be 
counted, we note that accounts that are not opened under a T1 or T2 
arrangement are not included in the contract data.
    We acknowledge the concerns about how to calculate the number of 
accountholders and mean and median costs associated with accounts 
offered under T1 and qualifying T2 arrangements. However, in a T1 
arrangement, the third-party servicer will know which accounts are 
opened under the student choice process and can communicate that 
information to the account provider (if the two are different 
entities), so that the account provider under a T1 arrangement will 
know which individuals and accounts to track for purposes of 
determining and disclosing this data. Institutions with a sufficient 
number of credit balance recipients and financial account providers 
entering into a T2 arrangement will need to include in their contracts 
a mechanism for meeting these requirements. For example, the terms of 
the contract may include requirements that the institution keep the 
account provider apprised of the names and addresses of its currently 
enrolled students, and the institution would include this sharing of 
directory information in the directory information policy it is 
required to publish under FERPA.
    We agree, in part, with the commenters who stated that it would be 
impossible for financial institutions to know that an accountholder is 
a student at an institution without sharing student information. 
However, we disagree that the information would have to include 
personally identifiable information that is protected under FERPA. The 
final regulations do not preclude sharing of directory information, as 
well as, for accounts offered under T1 arrangements, the sharing of the 
specified information necessary to authenticate the of students. 
Additional information may be shared with these account providers 
following the student's selection of the account in the student choice 
process, wherein an institution will know the students who chose to 
open an account offered under a T1 arrangement. In the case of T2 
arrangements, the institution may periodically provide to its partner 
financial institutions a list of currently enrolled students that 
includes directory information. We believe that student directory 
information will provide a financial institution with enough 
information to calculate contract data for enrolled students.
    We agree with the commenter who noted that tracking parent PLUS 
loans that are deposited into parent accounts would be particularly 
difficult. In response to these concerns, we have removed the 
references to parents in Sec.  668.164(e)(2)(vii)(C) and (f)(4)(iv)(C).
    We disagree with the commenter who stated that tracking the costs 
incurred under accounts offered under T1 or T2 arrangements will be 
impossible without a list of costs to be included. Because of the 
changing nature of the marketplace, we believe that it is best for all 
fees incurred by accountholders to be included in the contract data. 
While some accountholders may incur unusually high fees, this should be 
offset by a higher number of more moderate users; there is no basis for 
presuming this factor will unfairly affect one provider's accounts more 
than another. We also believe that if there are a high number of 
students incurring large amounts of fees and charges, it may be 
indicative of a larger issue at the institution that should be 
disclosed.
    We agree with the commenter who stated that inactive accounts or 
accounts open for a short time could skew the mean and median fees 
incurred. However, we believe that the changes to Sec.  668.164(e)(3) 
and (f)(5) stating that the requirements of this section, including the 
reporting requirements, cease to apply when the accountholder is no 
longer a student addresses the issue of inactive accounts.
    We do not agree that data from accounts opened for a short time are 
necessarily less relevant consumer information than those from accounts 
opened for a longer time period. For example, arrangements for some 
schools may serve otherwise unbanked students who attend an institution 
for a short period of time and then withdraw, closing their accounts in 
the process. It may be useful for such students to have data from 
students like them incorporated into the consumer information. There is 
no reason to regard that group of students as uniquely atypical.
    We agree with the commenter who stated that the publication of fee 
information in the form of contract data raises privacy concerns. In 
the final regulations, we require that an average of at least 500 title 
IV credit balance recipients or five percent of the total number of 
students enrolled at an institution with a T2 arrangement have to 
receive a credit balance during the three most recently completed award 
years for these requirements to apply. However, we acknowledge that 
disclosing annual cost information could present privacy and data 
validity issues in cases where a small number of students enrolled at 
an institution during an award year open an account offered under a T1 
or qualifying T2 arrangement. In these cases, the privacy of those 
students may be compromised because it may be possible to discern their 
identity or establish a picture of students' (or groups of students, 
such as low-income students) account behavior, especially if the mean 
and median fee figures were sufficiently divergent (suggesting a small 
number of students may be accruing particularly high levels of fees). 
In such cases, the validity of the data would also be at issue, given 
the small sample size.
    In the unlikely event that a small number of students open an 
account at an institution with a T1 or qualifying T2 arrangement, we 
exempt institutions from disclosing contract data in cases where fewer 
than 30 students have the account in question. We have chosen an

[[Page 67171]]

n-size of 30 to address privacy and data validity concerns consistent 
with other instances of a minimum n-size being used to ensure both the 
protection of students' privacy and the validity of the data presented, 
such as the calculation of cohort default rates. We do not believe 
that, with these changes, aggregated data present a threat to student 
privacy or data validity.
    We disagree with the commenter who opined that it is not useful to 
consumers to know whether or not the school receives remuneration under 
the contract. We believe that the knowing whether or not a school 
receives payment from a partnership with an account provider may well 
impact a student's decision to open a particular account. We believe 
this transparency will also dissuade institutions from using T1 and T2 
arrangements to profit at students' expense and shift the cost of 
disbursement of title IV funds to students. We note that consumer 
advocates and Federal negotiators emphasized the importance of these 
data,\59\ and commenters further stressed the need for this information 
in absence of a ban on the practice of revenue-sharing.
---------------------------------------------------------------------------

    \59\ 80 FR 28510.
---------------------------------------------------------------------------

    While we do agree with the commenter that students at different 
institutions may exhibit differing financial habits, resulting in 
higher fees, we also believe that the fees that students are charged to 
access their money reflect how well a third-party servicer or financial 
institution serves the student population, and how well an institution 
has analyzed students' best interests in entering into the arrangement. 
As a result, we feel that these disclosures are necessary for students 
and institutions to make financial choices that are consistent with the 
goals of the title IV programs. In addition, we believe that most 
interested parties will be able to take into account characteristics of 
the student body that may impact the data, such as socio-economic 
status or student background. For example, a community college 
researching these agreements will most likely look at data pertaining 
to other community colleges.
    We disagree with the commenter who contended that because the 
contract data only cover accounts offered under T1 and T2 arrangements, 
and not the other types of accounts a student may choose, the contract 
data will not be helpful consumer information. As we have stated 
elsewhere in this preamble, we believe that the preferential status 
that a third-party servicer or financial institution receives from a T1 
or T2 arrangement necessitates a higher standard of disclosure.
    While it is possible that these requirements could result in 
account providers offering fewer services to students in order to keep 
costs low, we do not believe that that this outcome negates the 
benefits of these disclosures. We continue to believe that these 
requirements will result in students choosing better accounts and 
accordingly being able to access more of their title IV funds.
    We disagree with the commenter who suggested that institutions that 
do not receive direct compensation as a result of their arrangements 
with third-party servicers and financial institutions should be exempt 
from these requirements. Because the benefits an institution receives 
are not always in the form of direct payments, and because a school-
sponsored account may be less than favorable to students even if the 
institution does not profit from it, it is important to ensure that all 
forms of remuneration and the effects of these arrangements on students 
are disclosed.
    We disagree with the commenter who stated that disclosing the fee 
schedules is enough to inform students of account terms and conditions. 
We continue to believe that disclosing the nature of the relationship 
between an institution and third-party servicer or financial 
institution is essential to ensure that students are both well-informed 
and not subject to abusive practices. We also continue to concur with 
the OIG on the point that institutions should be required ``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'' \60\ and have kept the informative data points that we 
proposed in the NPRM.\61\
---------------------------------------------------------------------------

    \60\ OIG at 15.
    \61\ 80 FR 28510.
---------------------------------------------------------------------------

    We agree that it is necessary for the Department to create a 
disclosure template for the contract data, and we will release that 
format at a later date. Standardizing the format of the contract data 
will not only improve the consistency and clarity of the disclosures, 
as suggested by commenters, but it will also enable third parties to 
more easily perform analyses on contract data. Specifically, 
standardizing the format will allow the contract data to be presented 
in a way that can be read by software and aggregated more quickly.
    Finally, while we feel that the contract data provide essential 
consumer information, we understand that it will take institutions and 
their third-party servicers or financial institutions time to implement 
these requirements, and we have chosen to delay implementation of this 
requirement until September 1, 2017.
    Changes: We have revised Sec.  668.164(e)(2)(vii) and (f)(4)(iv) to 
state that this requirement will not go into effect until September 1, 
2017. However, we note that institutions will still be expected to post 
the full contract to their Web sites by September 1, 2016, the 
effective date for the rest of the provisions of the regulations.
    We have also changed these provisions to state that the contract 
data must be disclosed in a format established by the Secretary; and 
that this requirement will not apply at institutions with T2 
arrangements where there are fewer than 500 title IV credit balance 
recipients and less than five percent of the total number of students 
enrolled at an institution receive a credit balance. In cases where 
fewer than 30 students have the account in question, an institution 
with either a T1 or T2 arrangement will be exempt from this 
requirement.
    We have also added Sec.  668.164(e)(3) and (f)(5), which state that 
the requirements of this section, including reporting requirements, no 
longer apply when the accountholder is no longer a student.
    We have also clarified the regulatory language to state that 
institutions must comply with this requirement by September 1, 2017.
    Finally, we have removed ``and parents'' from Sec.  
668.164(e)(2)(vii)(C) and (f)(4)(iv)(C).

Submission of the URL for the Contract and Summary to a Centralized 
Database (Sec.  668.164(e)(2)(viii) and (f)(4)(iii) and (v))

    Comments: Some commenters expressed concerns about posting contract 
data in an online database, stating that the information contains 
confidential or proprietary information. However, many commenters 
expressed support for maintaining a database of contract internet 
addresses for the sake of transparency. One commenter suggested that 
account providers should be required to send contract information to 
the database within 30 days of the regulations becoming effective and 
that the contracts should also be cross-posted to institutional Web 
sites. However, another commenter pointed out that the CFPB recently 
delayed implementation on requiring financial institutions to submit 
credit card agreements to a centralized database due to the 
administrative burden involved.

[[Page 67172]]

    Discussion: We disagree with the commenter who stated that a 
centralized database of URLs of contracts and their data could 
compromise confidential and proprietary information for reasons 
explained in the Disclosure of the Full Contract section of this 
preamble.
    We thank the commenters that expressed support for the database. 
While we do not yet have a target date for the creation of the 
database, we will require institutions to post to their institutional 
Web sites the full contracts by September 1, 2016 and the contract data 
by September 1, 2017. Soon after the system is created, we will require 
institutions to send us the URL for the contract and the contract data, 
and we will make this information available to the public.
    Changes: We have added the phrase ``accessible to the public'' to 
Sec.  668.164(e)(2)(viii) and (f)(4)(v) to clarify that the information 
in the database will be publically available. We have also changed the 
regulatory language to clarify that institutions with T2 arrangements 
where there are, on average, fewer than 500 title IV credit balance 
recipients, and less than five percent of the total number of students 
enrolled at an institution receive a credit balance will not be 
required to post account holder cost data, though they will still be 
required to post their full contracts and provide to the Department the 
URL where those contracts are posted. Similarly, an institution with 
either a T1 or T2 arrangement where fewer than 30 students have the 
account in question will be also not be required to post account holder 
cost data.

Best Financial Interests of Account Holders (Sec.  668.164(e)(2)(viii) 
and (f)(4)(vii))

    Comments: Commenters universally supported the principle that 
student accountholder interests should be paramount under T1 and T2 
arrangements, but there was disagreement about how to achieve this 
goal.
    Several commenters strongly supported the proposal that accounts 
offered under T1 or T2 arrangements not be inconsistent with the 
students' best financial interests. These commenters argued that it was 
a key mechanism to ensure that institutions place the interests of 
their students first; one commenter stated that this provision was the 
single most important regulatory change proposed in the NPRM. Some 
commenters supported this provision because, they argued, additional 
types of fees may be introduced in the future and this provision would 
continue to proactively provide student protections for fees or 
practices that are presently unknowable.
    However, many of these same commenters argued that the language 
proposed in the NPRM represents a weakened standard relative to the 
drafts discussed during negotiated rulemaking because those proposals 
included references to nonmonetary metrics such as customer service and 
because the language required that the terms offered to students be 
equal or superior to those offered in the general market, not simply 
that the terms not be worse than those offered in the general market; 
the commenters recommended incorporating these characteristics into the 
final regulation. Some commenters suggested that we expand this 
provision to account for considerations beyond financial ones--for 
example, customer service and account features. Other commenters 
recommended that the provision should require that contracts are 
established with the best interests of students as the primary 
consideration, not simply that the contract is not inconsistent with 
the best interests of students. These commenters argued that absent 
such a change, an institution could still select a proposal if it 
provided the most revenue to the institution, even if another proposal 
offered better rates for students. Other commenters argued that T1 and 
T2 arrangements should be held to a higher standard than prevailing 
market rates.
    Many commenters asserted that the proposed provisions were 
unnecessary, excessively vague, and did not provide objective standards 
against which account terms would be compared. These commenters argued 
that prevailing market rates varied in different parts of the country 
and for different institutions. Commenters also noted that the uncommon 
and unreasonable fees we highlighted in the NPRM were already 
prohibited and therefore additional protections were unworkable and 
unnecessary. Commenters also argued that termination on the basis of 
accountholder complaints was a vague standard--they questioned whether 
an official complaint process would be necessary or whether 
institutions would be permitted to discount frivolous complaints. One 
commenter recommended that we require a formal mechanism for collecting 
and reporting complaints. Another commenter recommended that we limit 
this provision to ``valid'' complaints. Commenters expressed concern 
that the lack of an objective standard for contract termination would 
allow institutions to terminate contracts for inconsequential reasons 
and, therefore, induce financial account providers to exit the college 
card market. Some of these commenters argued that the best interest 
provision be retained for contract formation but recommended we remove 
the remainder of the provision specifying how an institution would 
determine that students' best interests were not being met. Others 
strongly supported the continued inclusion of termination clauses to 
allow sufficient flexibility to address student complaints. One 
commenter noted that many institutions already include such clauses in 
their contracts with financial institutions.
    Another frequent comment regarding vagueness concerned the 
requirement that ``periodic'' institutional due diligence reviews be 
conducted. Commenters pointed out that fees were unlikely to change 
repeatedly or frequently and that the term periodic did not give 
institutions sufficient guidance regarding the timeframes of such 
reviews. Some commenters recommended that we specify a number of years 
for this period, and several noted that either two or three years would 
be a reasonable standard.
    Some commenters argued that institutions and financial account 
providers do not have the information or expertise necessary to 
determine whether the fees charged to accountholders are not excessive 
in light of prevailing market rates. These commenters argued that this 
puts a burden on institutions to evaluate a complex banking market to 
determine what types of fees are reasonable. One commenter argued that 
this provision would require schools act as de facto financial 
regulators.
    A commenter that served on the negotiated rulemaking committee as 
representative of financial institutions argued that this provision 
would not present an excessive burden because in many cases the 
financial account provider would assist the institution in securing the 
information necessary to enable the due diligence reviews. The 
commenter further noted that financial account providers produce 
extensive fee-related (and other) information as part of requests for 
proposals and institutions would therefore have extensive information 
about the rates and fees charged in the market. The commenter also 
noted the financial industry's expectation that the CFPB will release a 
scorecard that will further support this information gathering 
function.
    Other commenters argued that institutions are not in a position to 
objectively review the contracts to which they are a party. These

[[Page 67173]]

commenters noted that because institutions are receiving payment as a 
part of these contracts, the regulations should instead require that a 
neutral third party should review the contract to determine whether it 
is in the best financial interests of students.
    One commenter suggested that rather than requiring annual 
reporting, we require institutions demonstrate at the time the contract 
is established, and upon its renewal, that students are being charged 
reasonable fees and that the institutions disclose the payment amount 
they are receiving for the contract.
    Discussion: We appreciate the comments we received in support of 
this provision and agree that it is a vital element to ensure not only 
that students will receive sufficient protections to access their title 
IV aid at the time the regulations are published, but that the 
regulations continue to be effective in the future.
    We agree with commenters who noted that this provision is necessary 
to provide protections to title IV recipients in instances where their 
institutions enter into arrangements with financial account providers 
to offer accounts to those aid recipients. As we explained in the NPRM, 
we believe that the many examples cited by government and consumer 
reports demonstrated that institutions were frequently entering into 
arrangements where the interests of their students were not a 
consideration. Instead, title IV recipients were often subject to 
substandard account offerings so that institutions could save on the 
costs of administering the title IV, HEA programs or receive large 
lump-sum payments in consideration for the group of new customers 
offered to the financial account provider. These recipients were often 
unable to access their title IV funds without incurring onerous or 
uncommon account fees, had difficulty having their funds deposited into 
a preexisting account, or were not fully informed of the terms of the 
account the institution was promoting. For institutions that have a 
fiduciary duty to ensure the integrity of the student aid programs, we 
believe this outcome is unacceptable. This provision, along with the 
other regulatory changes we are making, will mitigate such practices.
    Equally important, however, is the point made by several commenters 
that this provision will provide student protections into the future. 
As was repeatedly noted during the negotiated rulemaking process, the 
financial products marketplace is a rapidly changing sector. In 
promulgating regulations that cover institutions choosing to enter into 
arrangements with financial account providers, we are aware that parts 
of these regulations could be rendered obsolete by virtue of these 
changes. For this reason rather than trying to predict future 
developments, we identified the most problematic practices identified 
by consumer groups and government entities. For future practices, which 
are difficult if not impossible to predict, this provision will provide 
assurance that institutions are still entering into and evaluating 
agreements with the best interests of their student accountholders.
    We disagree with commenters who argued that the provision as 
proposed represented a weaker standard than what was proposed at the 
close of negotiated rulemaking because it omitted from consideration 
nonfinancial factors such as customer service and account features. On 
the contrary, we believe that this change strengthens the rule. By 
narrowing the scope of what is actively considered to be an objective 
metric, we believe it will be more difficult to circumvent these 
requirements using difficult to measure alternatives as justification 
for charging students higher account fees. However, we agree that the 
proposed standard of ``not excessive'' in light of prevailing market 
rates is too weak. Instead, we agree that such fees should be 
``consistent with or below'' market rates--that is, roughly in line 
with rates charged in the general marketplace or below such rates.
    Furthermore, we believe that the fees charged in the general 
market, for the most part, represent a level of revenue that can 
support the offering of such products while providing a product that 
the public is willing to purchase. While some institutions may be able 
to negotiate better terms for their students--and the regulations 
permit them to do so--we decline to force institutions to secure such 
terms when it may not be within their power to do so. Some 
institutional characteristics may drive certain financial account 
providers to offer below-market rates to serve a loss-leader function 
and secure a lucrative future customer cohort, but we believe that not 
all institutions will be able to accomplish such terms. By setting a 
minimum permissible threshold for arrangements impacting title IV 
recipients and taxpayer funds under the regulations, we believe we have 
provided protections that represent a significant improvement over 
current practices at many institutions, where market pressures are not 
brought to bear because students often believe they have no alternative 
method for receiving title IV funds. If we amended the regulations to 
go beyond such protections, we are concerned that we would simply drive 
good actors from the market and deprive many students of account 
options.
    We disagree with commenters who argued that this provision must 
require that the best interests of students be the ``primary'' 
consideration in formalizing the arrangement. By enumerating a set of 
objective, measurable metrics by which the institution has to ensure 
that the best interests of students are being met, we believe the 
commenters' arguments will be addressed. Put simply, if the 
institution's sole consideration in entering into an arrangement is the 
fee revenue that will be generated by the contract, and such an 
arrangement results in fees that are not at or below market rates or 
that results in numerous student complaints, the institution will be in 
violation of this provision of the regulations. We believe this has the 
benefit of clarity for institutions and protections for title IV 
recipients.
    We disagree with commenters that the other fee limitations for T1 
arrangements render this provision redundant. Not only does the 
provision help protect students against similarly onerous, confusing, 
or usual fees that financial account providers could develop at some 
future point, it also protects students from being charged overly 
onerous and excessive fees that are not expressly prohibited under the 
regulations (e.g., a $100 monthly fee, which is plainly excessive, and 
an account feature clearly not in the best interests of students, in 
light of prevailing market rates).
    We also disagree with commenters who argued that the proposed 
standards are impracticable as a general matter. While commenters are 
correct to note that often prices and practices can vary from market to 
market, such differences are usually marginal. In contrast, the various 
consumer groups, government agencies, and numerous lawsuits were able 
to clearly delineate the types of practices and fees that were outside 
the mainstream of typical account providers. The regulations do not 
require institutions to conduct a market-by-market comparison of all 
the various fees that are charged. Rather, institutions are required to 
recognize, based on student complaints and the general practices of the 
market at large, whether the account provider is charging fees of a 
type or in an amount that is consistent with or lower than rates 
charged in the general market. As commenters noted, this responsibility 
will be aided significantly by the financial institutions through the

[[Page 67174]]

proposals they submit and by the upcoming release of the CFPB 
scorecard. While it was not explicitly mentioned by commenters, we also 
believe that the full contract disclosure and contract data, including 
mean and median annual costs to accountholders, will similarly aid in 
this function. As we noted in the preamble to the NPRM, when an 
institution discovered that the fees that were being charged to 
students exceeded prevailing market rates, it was able to successfully 
negotiate that provision out of its existing contract. As noted in a 
prior section, we have made the ``best interest'' provisions binding on 
institutions that have made T2 arrangements only if there are on 
average 500 or more credit balance recipients or credit balance 
recipients on average comprise five percent or more of total 
enrollment.
    We also disagree with commenters that argued institutions do not 
have the expertise to make the best interest and market rate 
determinations. Institutions enter into many contracts as a part of 
their operations. We trust that institutions that choose to voluntarily 
enter into these contracts have the expertise necessary to understand 
and evaluate the associated costs and benefits.
    We also believe that institutions with sufficient knowledge to 
contract with financial account providers for accounts to be offered to 
their title IV recipients have the ability to reasonably discern which 
complaints have merit and which are frivolous. The volume, nature, and 
severity of these complaints should inform institutions of whether 
renegotiation or termination of the contract is warranted under this 
provision. We also believe several avenues already exist to handle 
student complaints to their institutions and regulating a separate 
process would be duplicative. Again, we point to the example laid out 
in the preamble to the NPRM demonstrating that student complaints led 
to awareness at an institutional level that certain fees were 
excessive, and the institution was able to successfully renegotiate the 
contract to benefit of students. We reject the notion that an 
institution's contractual right to cancel a marketing arrangement for 
accounts that generate undue student complaints will dissuade 
responsible financial institutions from entering into the arrangement.
    We are persuaded that the requirement to conduct ``periodic'' 
reviews would benefit from additional specificity. While we used this 
term in our proposed rule to provide flexibility to institutions, the 
comments we received convinced us that institutions would prefer a 
concrete timeframe. For that reason, and because we agree with 
commenters who argued that fees are unlikely to change on an annual 
basis, we are accepted in the recommendation of several commenters to 
specify that due diligence reviews must occur at least every two years.
    We disagree with the commenter who suggested that we only require 
review of the contract at the time of contractual formation and upon 
its renewal. For contracts that are several years in length, this would 
not provide sufficient protection to title IV recipients in the event 
that fee structures change significantly or in situations where many 
student complaints have been received.
    Finally, we do not believe that independent oversight of each 
contract at its formation is either necessary or practicable. We trust 
that institutions will comply with the new regulations and ensure that 
the contracts in question are made with the best financial interests of 
accountholders in mind. In addition, as a reminder, the contracts that 
are governed by this provision will be posted on institutions' Web 
sites and will be available publicly in a Department database. To the 
extent that our program reviews find that the fees being charged to 
students are not consistent with or are higher than market rates or 
that institutions are not responsive to complaints, institutions will 
be subject to the enforcement actions associated with regulatory 
noncompliance.
    Changes: We have revised Sec.  668.164(e)(2)(viii) and (f)(4)(vii) 
to specify that due diligence reviews must be conducted at least every 
two years, rather than ``periodically,'' and that institutions 
conducting the reviews must consider whether fees imposed under the 
arrangement are, as a whole, consistent with or below prevailing market 
rates.

Miscellaneous Comments on Financial Account Provisions

    Comments: Several commenters asked the Department to restrict other 
common practices. For example, multiple commenters asked the Department 
to ban ``binding arbitration'' provisions on the grounds that they 
limit student access to the judicial system. Several commenters also 
asked that the Department ban revenue sharing, arguing that this 
practice presents a conflict of interest for institutions. One 
commenter requested that the Department ban T1 and T2 arrangements 
entirely.
    A number of commenters focused on the role of students in the 
financial aid disbursement process. Some commenters stated that 
students should be required to undergo more financial literacy 
education so they can better understand their options regarding 
financial accounts, and another stated that many students come to 
campus with little financial experience. One commenter noted that 
financial account providers often provide financial literacy training. 
One commenter noted that students often demand quick access to their 
title IV funds. Other commenters stated that some students may not have 
access to bank accounts due to minimum balance requirements, and that 
third-party servicers alleviate this concern. One commenter noted that 
because they offer their products to all students regardless of past 
banking behavior, they take on a higher risk than other financial 
institutions.
    Another commenter noted that these accounts exist to provide access 
to banking services to students, not to attract title IV funds. One 
commenter stated that the creation of a disbursement selection process 
and the fee restrictions for in-network ATMs, opening accounts, and 
point-of-sale fees alone would provide enough protection for students.
    One commenter stated that no student or parent should be charged a 
fee for the processing or delivery of title IV credit balances. Another 
suggested that the Department mandate a specific financial institution 
review process.
    Finally, one commenter asked that foreign institutions be 
completely exempt from the proposed regulations on the grounds that 
many foreign institutions have a small number of Americans in their 
student body and that overly proscriptive regulations could limit 
access to programs overseas.
    Discussion: We are not addressing the issues of binding 
arbitration, revenue-sharing, or outright banning T1 and T2 
arrangements in this rulemaking. We declined to add these issues to the 
agenda during negotiated rulemaking, because we concluded these topics 
would be best addressed in another context. Accordingly, we believe it 
is inappropriate to take up these issues at this stage in the 
rulemaking.
    While we agree with the commenters who stressed the importance of 
financial literacy education, this topic is outside the scope of this 
rulemaking effort. We note that nothing in the regulations limits the 
ability of institutions to offer financial counseling to students.
    We also believe that, as one commenter stated, because some new 
students have little financial experience, clear disclosures are all 
the more important to help them avoid

[[Page 67175]]

unnecessary charges. While students may demand quick access to their 
funds, that does not negate the role that institutions must play in 
ensuring that students receive their money safely and are not coerced 
into any particular option. To the commenter who noted that some 
students do not have access to banks because of minimum balance 
requirements, we note that the regulations do not ban T1 and T2 
arrangements, and the range of financial options for students without 
access to the banking system should remain unchanged by these 
regulations.
    We acknowledge that third-party servicers often take on more risk 
because they do not prescreen their customers. However, our regulations 
do not ban all fees outright, but rather limit abusive practices, 
certain fees that can cost students access to excessive amounts of 
their title IV dollars, and, indirectly, certain cost shifting.
    To the commenter who stated that these accounts do not exist to 
attract title IV funds, we disagree that these accounts can be fairly 
characterized as existing primarily to provide students with banking 
services generally, based on the proliferation of the accounts subject 
to these regulations among institutions having the highest percentage 
of credit balance recipients. Even if this were not the case, the fact 
is that these accounts do attract title IV funds as a result of their 
close affiliation with institutions. As stated in the NPRM, ``for many 
card providers, adoption rates were close to 50 percent of students; 
some providers' rates exceeded 80 percent.'' \62\ As a result, we 
believe that Departmental intervention is required to protect both 
students and their title IV funds from excessive charges. We also 
believe that, while the fee restrictions and establishment of a 
disbursement selection process are important, the required fee 
disclosures, posting of contracts and summaries, and provisions 
regarding the best interests of the students are equally important 
consumer protections for the reasons described in the NPRM and in the 
respective preamble sections of this document.
---------------------------------------------------------------------------

    \62\ CFPB RFI.
---------------------------------------------------------------------------

    We thank the commenter who suggested that the Department ban fees 
for the processing and delivery of financial aid. However, we believe 
that the ban on fees for opening an account addresses this concern. We 
also do not believe that mandating a specific institutional review 
process would be helpful for institutions as they work to comply with 
the new regulations. Instead, we believe that institutional flexibility 
will be most helpful as institutions decide how to comply moving 
forward.
    We agree that the requirements for these arrangements may be 
impractical for many foreign educational institutions wishing to 
provide timely processing of student loan funds. We recognize that both 
the foreign educational institutions and the students attending them 
often face problems that domestic institutions and their students do 
not--including potential visa problems. Thus, we agree that the 
provisions of Sec.  668.164(e) and (f) should apply only to domestic 
institutions.
    Changes: We have revised Sec.  668.164(e)(1) and (f)(1) to apply 
only to institutions located in a State.

Credit balances (Sec.  668.164(h))

    Comments: A commenter noted that proposed Sec.  668.164(h) refers 
to ``funds credited to a student's account,'' and suggested for clarity 
and consistency with proposed Sec.  668.161 that we change this 
reference to ``funds credited to a student's ledger account.''
    Discussion: We agree.
    Changes: We have revised Sec.  668.164(h) to include the phrase 
``student ledger account.''

Retroactive Payments (Sec.  668.164(k))

    Comment: Under proposed Sec.  668.164(k) an institution may make 
retroactive payments to students. One commenter noted that if the 
provisions in this section are subject to the requirements of 34 CFR 
690.76(b) of the Federal Pell Grant regulations, then a reference to 
the Pell regulations would be useful.
    Discussion: Yes, retroactive payments of Pell Grant funds under 
Sec.  668.164(k) would be subject to Sec.  690.76(b). Under Sec.  
690.76(b), when an institution pays Pell Grant funds in a lump sum for 
prior payment periods within the award year for which the student was 
eligible, but for which the student had not received payment, the 
student's enrollment status for those prior payment periods is 
determined according to work already completed. For example, if the 
student started such a prior payment period as a full-time student, but 
only completed work within that payment period as a half-time student, 
eligibility for that payment period would be based on the student's 
half-time status. Thus, we agree with the commenter that there should 
be a reference to Sec.  690.76(b) in Sec.  668.164(k).
    Changes: We have revised Sec.  668.164(k) to state that a student's 
enrollment status for a retroactive payment of a Pell Grant must be 
determined according to work already completed, as required by 34 CFR 
690.76(b).

Presumptive Credit Balances, Books and Supplies (Sec.  668.164(m))

    Comments: Several commenters were concerned that the Department did 
not explain in the NPRM why it was expanding the books and supplies 
provision in Sec.  668.164(m) to include not just Federal Pell Grant 
recipients but all title IV, HEA program recipients. Some of the 
commenters noted the Department's original stated intent in 2010 was to 
enable very needy students to purchase books and supplies at the 
beginning of the term or enrollment period and to prevent disbursement 
delays at some institutions from forcing very needy students to take 
out private loans to pay for books and supplies that would otherwise be 
paid for by Federal Pell Grant funds. Further, in response to public 
comment in 2010, the Department declined to expand the scope of the 
requirement to apply to students who are eligible for other title IV 
funds.
    One commenter explained that if an institution is required to 
advance funds to students during the first seven days of a payment 
period, but then cannot later show that the students began attendance 
during the payment period, under Sec.  668.21(a)(1) the institution 
would have to return those funds. The commenter opined that when the 
number of students for whom an institution must make provisions for 
books and supplies increases dramatically under the proposed 
regulation, the potential institutional liability increases 
accordingly.
    Another commenter stated that due to the lack of explanation of 
this change in the preamble to the proposed regulation, many interested 
parties may not have noticed the proposed expansion and therefore did 
not submit comments. Although the commenter noted the expansion was a 
significant change, the commenter did not object because the commenter 
stated that many institutions have already expanded the current 
requirement to most students. In addition, the commenter requested that 
the Department clarify in the final regulations whether first-time 
students who are subject to the 30-day delayed disbursement provisions 
for Direct Loans would be included or excluded from this provision.
    Another commenter agreed that because it is reasonable to assume 
that students who receive forms of need-based aid other than Pell Grant 
recipients have limited resources to buy books, students whose only 
title IV aid

[[Page 67176]]

is unsubsidized, or who only benefit from parent PLUS loans, should not 
be included in the provision. In addition, the commenter noted that 
many institutions make accommodations for students regardless of type 
of aid received, but that should be an institutional choice based on 
the best use of limited resources.
    One commenter stated that the institution pays credit balances to 
students beginning ten days before the start of a semester, thus 
providing students with access to funds for books and supplies 
purchases. In addition, the commenter stated that the proposed books 
and supplies provision would be limited to the on-campus bookstore for 
both legal and practical reasons, even though many students choose to 
purchase their books online or off-campus. The commenter concluded that 
this provision would be administratively burdensome, particularly when 
weighed against the limited benefit to students at that institution, 
and urged the Department to withdraw the proposal.
    Other commenters supported the proposed expansion, noting that that 
while Pell Grant eligible students are likely to need assistance for 
purchasing books and supplies, they are not the only students who need 
assistance. The commenters believed the proposed provision will ensure 
that title IV funding is made available to students to purchase 
required books and supplies to prepare them for academic success.
    Discussion: Although this provision was included in the regulations 
section of the NPRM, we inadvertently omitted discussing it in the 
preamble to the NPRM and apologize to the community for this oversight. 
We note that this provision was discussed during the negotiated 
rulemaking sessions preceding publication of the NPRM. The reason for 
expanding the provision to include all students who are eligible for 
title IV, HEA program funds is simple--we no longer hold the view that 
only the neediest students should benefit from having required books 
and supplies at the beginning of a term or payment period. As noted by 
some of the commenters, students who qualify for loans and other title 
IV aid also need assistance and we see no reason to deny assistance to 
those students.
    With regard to the comment that expanding the current books and 
supplies provision will dramatically increase the potential liability 
of an institution, we note that under Sec.  668.21(a)(1) and (2), an 
institution would have to return any title IV grant or loans funds that 
were credited to the student's ledger account or disbursed directly to 
the student if the student did not begin attendance during the payment 
period or period of enrollment. Under Sec.  668.164(m), an institution 
has until the seventh day of a payment period to provide a way for a 
student to obtain or purchase books and supplies, and if it does so, 
may wait that long to document that a student began attendance to 
mitigate liability concerns. Or, the institution may mitigate liability 
concerns stemming from providing title IV funds directly to a student 
to purchase books and supplies, by issuing a voucher to the student 
redeemable at a book store or establishing another way for the student 
to obtain books and supplies.
    With regard to students who are subject to the 30-day delayed 
disbursement provision under the Direct Loan Program, because an 
institution may not disburse those funds 10 days before the beginning 
of a payment period, those loan funds are not included in determining 
whether the student has a presumptive credit balance.
    In response to the commenter whose institution generally pays 
credit balances 10 days before the beginning a payment period, we note 
that the institution satisfies the books and supplies provision for 
students who receive those credit balances. This institution will still 
need to provide a way for the remaining students to obtain or purchase 
books and supplies, but the burden for doing so should be minimal in 
view of the institution's general credit balance practice.
    Changes: None.

Holding Credit Balances (Sec.  668.165(b)(1))

    Comments: A commenter stated that it was inappropriate for the 
Department to assert in the preamble for proposed Sec.  
668.165(b)(1)(ii) that when an institution obtains written 
authorization from a student or parent to hold title IV, HEA program 
funds on his or her behalf, the institution would be acting ``to 
circumvent the proposed requirement that it directly pay credit 
balances to students and parents.'' The commenter stated that any 
institution participating in the title IV, HEA programs--including an 
institution participating under the reimbursement payment method or the 
HCM payment method--must hold all title IV funds in trust for the 
intended student beneficiaries or the Secretary. The commenter argued 
that while the Department may justifiably prohibit an institution on 
HCM or reimbursement from holding credit balances under the current 
regulations where there is a demonstrated weakness in the institution's 
administrative capability that could put in jeopardy the institution's 
ability to act as a trustee of Federal funds, in other circumstances 
removing the ability of students to authorize institutions to hold a 
portion of their credit balance is an ill-targeted reform with negative 
consequences for students. Many students who affirmatively authorize 
institutions to hold a portion of their title IV credit balance do so 
as a means of managing those funds during an award year, consistent 
with the Department's original stated intent for permitting such 
authorizations. The commenter opined that restricting a student's 
ability to partner with an institution in this way unnecessarily limits 
the student's attempt to act as an informed, responsible consumer and 
undercuts the Department's ongoing efforts to encourage institutions to 
counsel and empower students to be responsible borrowers. Furthermore, 
the commenter stated that any concerns that the Department may have 
about an institution's administrative capability or financial 
responsibility that result in the institution being placed on an 
alternate payment method should not prevent students from reaping the 
full benefit of the title IV programs available to students enrolled at 
other title IV-participating institutions. As an alternative, the 
commenter suggested that the Department allow an institution placed on 
the reimbursement or HCM payment method to hold credit balance funds on 
behalf of students or parents if the institution holds those funds in 
escrow. Doing so would provide students the benefit currently available 
to budget their funds over the course of a payment period while 
ensuring that the institution acts as a responsible trustee of Federal 
funds.
    Another commenter objected to proposed requirement arguing that it 
would essentially remove an institutional authority to ``carry'' credit 
balances from one term to the next. For example, a student may receive 
a credit balance in his or her first payment period but owe a payment 
back to the institution in the second payment period when tuition is 
charged. The commenter stated that, as proposed, this requirement would 
remove the choice from students and parents who request to have their 
credit balances applied toward future educationally related charges 
instead of pocketing the overage, impacting students who potentially 
are the most fiscally responsible. With such a heightened focus on 
financial literacy and rising default rates in recent years, the

[[Page 67177]]

commenter believed the proposed rule would remove an important choice 
from responsible borrowers, thus restricting an institution from 
helping students and parents borrow responsibly to reduce indebtedness. 
For these reasons, the commenter suggested removing the proposed 
restriction and amending the regulations to provide that if a student 
or parent does not authorize an institution to hold Direct Loan funds, 
then the current provisions under Sec.  668.164(e)(1) and (2) would 
apply.
    Discussion: As we noted in the NPRM, and described more fully under 
the heading ``Paying credit balances under the reimbursement and 
heightened cash monitoring payment methods,'' the impetus for placing 
institutions on HCM or reimbursement payment methods, generally 
speaking, is material compliance or financial issues. We believe that 
institutions who have jeopardized or compromised their fiduciary duties 
under the title IV, HEA programs should not be allowed to handle or 
maintain title IV program funds any longer than needed and for no 
purpose other than making timely disbursements to students and parents. 
Although we do not discount the value of helping students properly 
budget their funds, that reason alone does not outweigh the risk that 
affected institutions will use Federal funds for other purposes or 
cease to be going concerns.
    With respect to the comment that an institution placed on an 
alternate payment method maintain credit balance funds in an escrow 
account, the commenter did not specify the controls that would need to 
be in place to ensure that the institution immediately transferred the 
funds to the escrow account or how an escrow agent or trusted third 
party would make those funds available to students. We believe the 
complexity in administering, monitoring, and later auditing an escrow 
arrangement, and the costs associated with these activities, is not 
warranted for this purpose.
    With regard to the comment that the prohibition on holding credit 
balances will remove the ability of an affected institution to carry 
credit balances from one term to the next, while we agree that is a 
consequence of this provision, we do not believe it will have the 
impact envisioned by the commenter because the institution will still 
be able to carry forward charges from one term to another term within 
the current year, as defined under Sec.  668.164(c)(3)(ii)(A)--the 
charges carried forward may be paid by the title IV.
    Finally, in the NPRM under Sec.  668.165(b)(1)(ii) we erroneously 
cross referenced ``Sec.  668.162(c)(2) or (d)(2).'' These cross 
references should have referred to ``Sec.  668.162(c) or (d).''
    Changes: We have revised Sec.  668.165(b)(1)(ii) to cross reference 
Sec.  668.162(c) or (d).

Retaking Coursework (Sec.  668.2)

    Comments: Many commenters supported our proposal to eliminate the 
provision in the current regulations that prohibits an institution from 
counting for enrollment purposes any course passed in a previous term 
of the program that the student is retaking due to having failed other 
coursework.
    One of the commenters specifically supported the applicability of 
the amended regulations to undergraduates, graduates, and professional 
students, because this change will be a benefit to students. The 
commenter asked the Department to clarify in the Federal Student Aid 
Handbook that the amended regulation applies to these groups of 
students because this is a change in policy that is not reflected in 
the regulations.
    Discussion: We thank the commenters for their support, and agree 
that amending the definition of full-time student in Sec.  668.2(b) 
will be beneficial for students who retake coursework.
    In regard to the commenter's recommendation that we clarify the 
applicability of the amended regulations to undergraduates, graduates, 
and professional students, we plan to update the Federal Student Aid 
Handbook, as well as all other applicable Departmental publications and 
Web sites, to reflect the changes to the retaking coursework provision 
after the final regulations become effective.
    Changes: None.
    Comments: One commenter disagreed with the Secretary's proposal to 
allow a student to receive title IV aid to retake a previously passed 
course. This commenter expressed concern about the availability of 
funding, and stated that a more reasonable approach would be for an 
institution to not charge students for courses that a student could 
bypass through a challenge process such as an exam.
    Discussion: In general, the regulations do not dictate whether a 
student may retake coursework in term-based programs, including 
repeating courses to achieve a higher grade. The regulations only apply 
to determining enrollment status for title IV, HEA program purposes. We 
allow an institution this flexibility as long as it does not use title 
IV program funds for repeated coursework where prohibited by the 
regulation.
    Moreover, the regulations do not limit an institution's ability to 
establish policies for title IV, HEA program purposes so long as those 
policies are not in conflict with title IV, HEA program requirements. 
An institution may, for example, allow a student to challenge, or 
``test out of,'' a course or courses. Title IV funds cannot be used to 
pay for any courses that a student ``tests out of''; and an institution 
may establish its own policies for these situations, including passing 
the costs of the tests on to the student. However, with respect to 
repeating coursework previously passed by a student in a term-based 
program, under the final regulations, a student may use title IV, HEA 
funds for retaking previously passed coursework, but only one time per 
course. For example, the student may need to retake a course to meet an 
academic standard for that particular course, such as a minimum grade. 
Additionally, a student may use title IV, HEA funds for retaking 
coursework if the student is required to retake the course because the 
student failed the course in a prior term.
    We believe the rule serves to prevent potential abuse from courses 
being retaken multiple times, while providing institutions sufficient 
flexibility to meet the needs of most students.
    Changes: None.

Clock-to-Credit-Hour Conversion (Sec.  668.8(k))

    Comments: The majority of commenters expressed strong support for 
the proposal to streamline the requirements governing clock-to-credit-
hour conversion, with one commenter thanking the Department for 
responding to the concerns that institutions have expressed since 
publication of the previous rules. Generally, the commenters stated 
that the simplification of the regulations proposed in the NPRM will 
reduce burden and be a positive change. One commenter also noted that 
since accrediting agencies are already required to review the 
assignment of credit hours under 34 CFR 600.2 and 602.24, the 
requirements outlined in Sec.  668.8(k)(2) of the final regulations 
published on October 29, 2010 were unnecessary. Another commenter noted 
that the provisions previously in Sec.  668.8(k)(2), which required 
some programs to be treated like clock hour programs for title IV 
purposes even after they were converted to credit hour programs, were 
confusing. This commenter further noted that those provisions 
interfered with State requirements relating to program delivery and 
that the current conversion

[[Page 67178]]

formulas contained in Sec.  668.8(l) are sufficient to ensure that 
clock hours are appropriately converted to credit hours.
    One commenter who supported the proposal stated that the Department 
should not remove the part of the current and familiar definition of a 
credit hour that is contained in 34 CFR 600.2, which equates one hour 
of classroom instruction and at least two hours of out-of-class student 
work per week (for 15 weeks, for example, for a semester credit).
    Discussion: We appreciate the overall support offered in the 
comments. With regard to the comment requesting that we keep the part 
of the current and familiar definition of a credit hour that is 
contained in 34 CFR 600.2, which equates one hour of classroom 
instruction and at least two hours of out-of-class student work per 
week (for 15 weeks, for example, for a semester credit), we note that 
we are not changing the definition of a credit hour in 34 CFR 600.2. 
However, in that definition of a credit hour, there is a reference to 
Sec.  668.8(k) and (l), which together contain the requirements that 
must be met when certain programs are offered in credit hours. In 
particular, Sec.  668.8(l) provides the formulas that must be used to 
determine how many clock hours of instruction each semester, trimester, 
and quarter credit hour must have for certain credit hour programs. The 
formulas in Sec.  668.8(l), for the educational programs covered by 
that section of the regulations, are used in lieu of the general 
definition of a credit hour found in 34 CFR 600.2. Those formulas are 
based on a comparison of the definitions of an academic year for credit 
hour and clock hour programs: A clock hour program requires 900 clock 
hours; and credit hour program requires either 24 semester or trimester 
credit hours or 36 quarter credit hours. Thus, 900 divided by 24 equals 
the 37.5 clock hours that are generally needed for a semester or 
trimester hour; and 900 divided by 36 equals the 25 clock hours that 
are generally needed for a quarter credit hour.
    This approach to the determination of what a credit hour consists 
of is somewhat different than the approach used in the definition of a 
credit hour in 34 CFR 600.2, and, thus, appears to result in a 
different number of clock hours associated with each credit hour than 
what would be the case if the definition of a credit hour in 34 CFR 
600.2 were used. However, with respect to programs covered by Sec.  
668.8(l)(1), the formula assumes that there is some outside of class 
work; and with respect to programs covered by Sec.  668.8(l)(2), the 
formula specifies a minimum amount of outside of class work required. 
When these aspects of the formulas in Sec.  668.8(l) are considered, it 
is assumed that the amount of work required for a student to earn a 
credit hour is roughly equal in all cases. Nevertheless, as stated 
above, the appropriate formula in Sec.  668.8(l) is what is used to 
determine the number of credit hours in a program covered by that 
section of the regulations in lieu of that part of the definition of a 
credit hour in 34 CFR 600.2 that specifies that each credit hour 
includes 1 hour of classroom work plus at least two hours of out of 
class work.
    Changes: None.

Implementation

    Comments: Several commenters requested a longer implementation 
period to give institutions time to comply with the new requirements.
    Commenters stated that certain requirements of the proposed 
regulations include many different components that present major 
obstacles for institutions and their partner financial institutions. 
For example, some of the key portions of the proposed regulations that 
commenters stated may be particularly difficult to implement by July 1, 
2016 include updating disclosure materials and network systems; 
identifying the major features and commonly assessed fees associated 
with all financial accounts described in paragraphs; posting contract 
data to the institution's Web site; revising agreements between 
institutions and financial institutions; ensuring convenient access to 
ATMs for students; reviewing agreements to make sure that they are in 
the best interests of the students, as defined in the regulations; 
updating the physical debit and campus cards to comply with 
requirements; and adopting new policies and procedures to ensure that 
title IV funds are delivered to students in compliance with the new 
requirements. Another commenter noted that other agencies frequently 
allow a longer implementation period, and suggested 24 months as a 
reasonable timeframe.
    Several commenters asked the Department to address how existing 
products and services will be affected by the regulations, and some 
commenters suggested that the regulations should only be applied 
prospectively to new T1 and T2 arrangements.
    Discussion: While we will not delay implementation of all of the 
final regulations, we agree that it may be difficult for institutions 
to implement certain components of the regulations by July 1, 2016. 
Consequently, we have chosen to delay implementation of the required 
disclosures identifying the major features and commonly assessed fees 
associated with all T1 and T2 financial accounts until July 1, 2017, to 
delay the posting of the contract until September 1, 2016, and to delay 
the posting of the contract data until September 1, 2017. We believe 
that institutions will be able to comply with the other requirements in 
the regulations by July 1, 2016.
    We disagree with the commenter that suggested that the regulations 
should apply only to T1 and T2 arrangements entered into after the 
effective date. T1 and T2 agreements are already a common practice at 
institutions, and we believe that enforcing these regulations uniformly 
across all institutions is the best way to protect title IV funds. 
Institutions will have the time required under the HEA's Master 
Calendar provision--until July 1, 2016--to take all necessary steps to 
conform their arrangements to the final regulations.
    Changes: We have revised Sec.  668.164(d)(4)(i)(B)(2) to specify 
that implementation of the required consumer disclosures will not be 
required until July 1, 2017. We have also revised Sec.  
668.164(e)(2)(vii) and (f)(4)(iv) to state that the posting of the 
contract data will not be required until September 1, 2017. We have 
revised Sec.  668.164(e)(2)(vi) and (f)(4)(iii) to state that the 
posting of the contract will not be required until September 1, 2016.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

Introduction

    As described in the NPRM, the Department is issuing the regulations 
in order to address a changing marketplace as it relates to financial 
aid disbursement by third-party servicers. In 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

[[Page 67179]]

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 final 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--
    (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. Reports from GAO, USPIRG, and OIG, 
among others, document the troubling practices that necessitated this 
regulatory action and affect a potentially large number of students.
    The ``Summary of Changes and Final Regulations'' briefly describes 
the changes the Department is making in the regulations. The 
regulations amend the cash management regulations, as well as address 
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 regulations for 
students, financial institutions, and postsecondary institutions. 
Specifically, the Department 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 final regulations would not have a significant net budget 
impact on the Federal government.
    Under ``Alternatives Considered'' the Department discusses other 
regulatory approaches we considered for key provisions of the 
regulations.
    Finally, the ``Final Regulatory Flexibility Analysis'' considers 
the effect of the regulations on small entities.

Need for Regulatory Action

    The Department's main goal in promulgating the regulations is to 
address major concerns regarding the rapidly changing financial aid 
marketplace wherein products are offered by financial institutions 
under agreements with institutions to students who receive title IV, 
HEA credit balances.
    Changes in the student financial aid marketplace make the final 
regulations necessary. As discussed in the NPRM, the number of 
institutions entering into these agreements continues to increase as 
these agreements help institutions save money on administrative costs 
that they would otherwise incur in disbursing title IV credit balances 
to students. These agreements have raised concerns over the practices 
employed by financial institutions and third-party servicers. Some of 
these troubling practices include an insistence on using 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 encouraging a proliferation of uncommon 
and confusing fees that are charged to aid recipients for accessing 
their funds. These practices, along with others discussed in the NPRM, 
reduce the amount of title IV aid available for educational expenses.
    As detailed in the NPRM, these practices are concerning because of 
the number of students impacted. While data on credit card agreements 
and credit balances are 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.\63\
---------------------------------------------------------------------------

    \63\ GAO at 9.
---------------------------------------------------------------------------

    Chart 1: College Card Agreements by Number of Schools and Number of 
Students that Participate in Federal Student Aid Programs.

[[Page 67180]]

[GRAPHIC] [TIFF OMITTED] TR30OC15.014

    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 with 6.5 percent at not-for-
profit schools and 3.5 percent at for-profit schools (see table [1]). 
Comprehensive data do not currently exist for the number of students 
who use accounts falling under these college card agreements. 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.\64\ Students at public two-year institutions are most 
likely to receive a financial aid payment (credit balance) due to the 
low tuition and fees deducted from total aid received.
---------------------------------------------------------------------------

    \64\ GAO at 9.
---------------------------------------------------------------------------

    Table 1: Percentage of Schools with College Card Agreements by 
Sector and Program Length, as of July 2013.
[GRAPHIC] [TIFF OMITTED] TR30OC15.015

    Based on the data available on the number of students affected by 
these college card agreements, the questionable practices of the 
providers, and the amount of Federal funds at stake, we believe that 
amending the regulations governing title IV student aid disbursement is 
warranted.

Summary of Changes and Final Regulations

    The final regulations are intended to ensure students have 
convenient access to their title IV, HEA program funds without charge, 
and are not led to believe they must open a particular financial 
account to receive their Federal student aid. As discussed in the 
Analysis of Comments and Changes section of this document, the 
Department considered over 200 comments on a variety of topics related 
to the proposed regulations. Significant changes made in response to 
the comments include:
    (1) Replacing the 30-day fee restriction with a provision requiring 
that students are provided at least one free mechanism to conveniently 
access their title IV, HEA program funds in full

[[Page 67181]]

or in part once the funds have been deposited or transferred to the 
financial account, up to the account balance;
    (2) Establishing a threshold for the 3 most recently completed 
award years, that students with a title IV credit balance represent an 
average of five percent or more of the students enrolled at the 
institution; or an average of 500 students enrolled at the institution 
have title IV, credit balances at an institution for several of the 
requirements relating to T2 arrangements to apply;
    (3) Exempting foreign locations from the requirement from the 
requirement of convenient ATM access; and
    (4) Eliminating the requirement that checks be listed on the 
student choice menu while still allowing students to affirmatively 
request a refund by check and allowing institutions to list a check as 
an option.
    We also 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 
regulations.

                           Table 2--Summary of the Major Provisions of the Regulations
----------------------------------------------------------------------------------------------------------------
                                                                          Description of provision
             Provision                    Reg section      -----------------------------------------------------
                                                                        T1                         T2
----------------------------------------------------------------------------------------------------------------
Defines T1 and T2 arrangements      Sec.   668.164........  Arrangement between an     Arrangement between an
 between institutions and                                    institution and a third-   institution and a
 financial account providers.                                party servicer that        financial institution
                                                             performs the functions     under which financial
                                                             of processing direct       accounts are offered and
                                                             payments of title IV       marketed directly to
                                                             funds on behalf of the     students. Provisions
                                                             institution and that       related to disclosure of
                                                             offers one or more         contract data, ATM
                                                             financial accounts to      requirements, and the
                                                             students.                  best interest provisions
                                                                                        apply only to those
                                                                                        institutions with at
                                                                                        least 5 percent of the
                                                                                        average enrollment for
                                                                                        the 3 most recently
                                                                                        completed award years or
                                                                                        an average of 500
                                                                                        students with a credit
                                                                                        balance for the 3 most
                                                                                        recently completed award
                                                                                        years. For the
                                                                                        calculation of the 5
                                                                                        percent threshold,
                                                                                        enrollment means
                                                                                        students enrolled at the
                                                                                        institution at any time
                                                                                        during the three most
                                                                                        recently completed award
                                                                                        years.
Fee mitigation....................  Sec.   668.164........   Prohibits point-  Not Applicable.
                                                             of-sale and overdraft
                                                             fees..
                                                             Requires at
                                                             least 1 convenient
                                                             mechanism for students
                                                             to access title IV, HEA
                                                             funds in full and in
                                                             part without charge.
----------------------------------------------------------------------------------------------------------------
                                                             Applicable to Entities with T1 and T2 Arrangements
----------------------------------------------------------------------------------------------------------------
Reasonable access to funds........  Sec.   668.164........    Requires reasonable access to fee-free ATMs or a
                                                                 surcharge-free ATM network. Applies only to
                                                                   institutions located in a State. For T2
                                                               arrangements, the threshold of 5 percent of the
                                                               average enrollment over the most recent 3 award
                                                                  years or an average of 500 credit balance
                                                                 recipients for the 3 most recent award years
                                                                                   applies.
Student choice process............  Sec.   668.164........  Requires institutions to establish a student choice
                                                             process that:
                                                             Prohibits institutions from requiring
                                                             students to open a specific financial account to
                                                             receive credit balances
                                                             Provides students a list of options for
                                                             receiving credit balance funds with each option
                                                             presented in a neutral manner
                                                             Lists pre-existing accounts as the first,
                                                             and most prominent, option, with no option
                                                             preselected
                                                             Establishes that aid recipients have the
                                                             right to receive funds to existing accounts
                                                             Ensures that electronic payments made to
                                                             pre-existing accounts are initiated as timely as
                                                             and are no more onerous than payments made to an
                                                             account on the list of options
Consent to open account...........  Sec.   668.164........  Student choice of the account or consent required to
                                                             open account before:
                                                             Providing information about student to
                                                             financial account provider
                                                             Sending access device to student
                                                             Associating student ID with a financial
                                                             account
Contract disclosure...............  Sec.   668.164........  Public disclosure of contracts governing
                                                             arrangements and related cost information
Contract evaluation...............  Sec.   668.164........  Requires institutions to establish and evaluate T1
                                                             and T2 arrangements in light of the best interests
                                                             of students
----------------------------------------------------------------------------------------------------------------
                                                                            Additional Provisions
----------------------------------------------------------------------------------------------------------------
Secretary's reservation of right..  Sec.   668.164........  Confirms that the Secretary reserves the right to
                                                             establish a method for directly paying credit
                                                             balances to student aid recipients.
Retention of interest on accounts   Sec.   668.163........  Increases the amount of interest accrued in accounts
 holding title IV funds.                                     holding title IV funds that non-Federal entities
                                                             are allowed to retain from $250 to $500 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.

[[Page 67182]]

 
Clock-to-credit hour conversion...  Sec.   668.8(k) and     Eliminate Sec.   668.8(k)(2) and (3), and make a
                                     (l).                    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

    As discussed in the NPRM, the expected effects of the final 
regulations include improved information and transparency to facilitate 
consumer choice of financial accounts for receiving title IV credit 
balance funds; reasonable access to title IV funds without fees; a 
redistribution of some costs 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. The parties that will 
experience the largest impacts are students, institutions, and the 
third-party servicers and financial institutions that have contractual 
relationships described as T1 and T2 arrangements in the final 
regulations.
Data and Methodology
    In an attempt to quantify some of the costs and to reduce the 
burden associated with the 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 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 does 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 regulations and to evaluate whether 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 Department's office of Federal Student Aid's 
National Student Loan Data System (NSLDS)) 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 used 
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. The data 
estimated a total 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 all of the four-year 
institutions had significant estimated numbers of students who received 
a credit balance, 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 [3]). 
The numbers of institutions and students who received a credit balance 
were lowest at the less-than-two-year institutions, which represented 
approximately 1.8 percent of institutions and under one percent of 
students who received a credit balance from the 3,400 institutions with 
both tuition and fee and financial aid data.
    Table 3: Number of Institutions and Students who Received a Credit 
Balance.

    Number of Institutions and Students who Received 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                 1,297              97,071
 or 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...........................

[[Page 67183]]

 
Private not-for-profit, less-                     10                 132
 than 2-year....................
                                 ---------------------------------------
    Total.......................               3,400           2,816,104
------------------------------------------------------------------------

    As several provisions of the regulations apply to institutions with 
T1 or T2 arrangements, we obtained from the CFPB a listing of 914 
institutions that were known to have card agreements with financial 
institutions and applied the same methodology described above to this 
subset of institutions. Of these 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 with the four-year institutions also having significant 
numbers (See Table [4]). The less-than-two-year institutions had 
inconclusive data. Again, this subset provided no additional 
information on a clear de minimis amount.
    Table 4: Students with a Credit Balance at Known Institutions that 
Have Card Agreements.

   Students with a Credit Balance at Known Institutions That 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                   113              10,001
 or 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-                    N/A                 N/A
 than 2-year....................
                                 ---------------------------------------
    Total.......................                 672           1,322,615
------------------------------------------------------------------------

    In a final analysis of the data, we took the subset and identified 
only those institutions that had what would be considered a T2 
arrangement under the final regulations. 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 [5]) and produced inconclusive results.
    Table 5: Students with a Credit Balance at Known Institutions that 
Have T2 Arrangements.

    Students With a Credit Balance at Known Institutions That 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                    54                  68
 or above.......................
                                 ---------------------------------------
    Total.......................                 160             191,242
------------------------------------------------------------------------

Costs
    As discussed in the Costs, Benefits, and Transfers section of the 
NPRM, the provisions related to T1 arrangements would require a 
servicer in a T1 arrangement to provide student accountholders with 
convenient access to a surcharge-free regional or national ATM network. 
This requirement has potential cost implications for third-party 
servicers who currently do not meet this requirement. A few commenters 
contended that we had failed to quantify such costs and stated that 
this could have a substantial financial burden on some banks.
    Some commenters suggested that the cost of installing and operating 
an ATM for one year could range from $20,000 to $40,000, and our market 
research found wide variations in cost based on the type, capacity, and 
condition of the ATMs. Used ATMs can be bought from wholesalers or on 
discount Web sites for less than $600 while many of the newer 
technologies cost between $4,000 and $10,000 per unit, not including 
the cost of installation. Furthermore, ATMs often cost upwards of $1000 
a month to maintain. As some commenters noted, there are also 
additional costs to operating ATMs, such as providing electricity to 
power the machines, as well as ensuring that the machines are in secure 
locations.
    If we assume a $25,000 cost to install and operate an ATM and apply 
that to the estimated 914 institutions with T1

[[Page 67184]]

or T2 arrangements, the estimated cost for one year of operation would 
be $22.9 million, with costs in subsequent years reduced to operating 
and maintenance costs of $12,000 annually for a total of approximately 
$11.0 million. However, this cost is a rough approximation as some 
institutions may have more than one location and several factors will 
mitigate those costs.
    First, as several commenters have noted, many financial 
institutions already have ATMs in place on campus and will not have to 
make any changes to comply with the reasonable access provision.
    Additionally, under the final regulations, institutions will be in 
compliance with the reasonable access provision applies if they provide 
sufficient access to an ATM given the student population at a given 
location. In the course of developing the final regulations, we 
examined the available data to see if a de minimis threshold could be 
determined and asked for feedback about such a threshold. Many 
commenters agreed that a threshold should be established, but there 
were no suggestions on a specific number. Based on this feedback, the 
Department established the sufficient access standard described above. 
We believe this approach strikes a reasonable balance between concerns 
regarding the cost of providing ATM access and the interests of 
students who need to access their funds through this mechanism. As this 
approach does not specify a threshold that applies across all 
institutional circumstances, the Department cannot specify the exact 
burden the reasonable access provision will place on institutions. For 
example, if institutions decided a threshold of 30 students with a 
credit balance merited the provision of an ATM at a location, the 
Department estimates that, for institutions in T1 or T2 arrangements, 
over 70 percent of locations representing over 95 percent of students 
with credit balances would be over that number when using an eight-
digit NSLDS school code as a proxy for location and the estimates of 
students with credit balances as described in the Data and Methodology 
section of this RIA. The revised provision relies on institutional 
knowledge of enrollment and location in determining the number of 
additional ATMS needed to satisfy the standard of convenient access, 
and, along with the preexisting access, will likely reduce the $22.9 
million in initial costs and $11.0 million in annual costs estimated 
above.
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 of this RIA, 10 million students (Chart 1) are at title IV-
participating schools where card agreements are prevalent. As described 
in the NPRM, data limitations and uncertainty about the student 
reaction to the information and options that will be part of the 
student choice menu under the final regulations present challenges in 
estimating the costs of the T2 arrangements. If students move away from 
products offered under T2 arrangements, providers may incur additional 
marketing expense or other costs to administer the accounts.
    Based on this feedback, the Department decided that institutions 
must meet a certain threshold to be subject to certain requirements 
relating to T2 arrangements including disclosure of the contract data, 
the ATM requirements, and the best interests sections. Institutions are 
subject to those requirements if five percent or more of the total 
number of students enrolled at the institution received at title IV 
credit balance, or the average number of credit balance recipients for 
the three most recently completed award years is 500 or more. For 
institutions that do not have significant percentage or numbers of 
students with a credit balance, the threshold for classification as a 
T2 arrangement will potentially provide some mitigation of the costs 
associated with T2 arrangements.
    Additional discussion of the costs of implementing and complying 
with these final regulations can be found in the Paperwork Reduction 
Act section of this document.
Transfers: Fee-Related Provisions Applicable to Institutions With T1 
Arrangements
    Institutions with T1 arrangements are required to mitigate fees 
that could be incurred by student aid recipients by prohibiting point-
of-sale fees and overdraft fees charged to students. Additionally, 
these institutions must ensure that students have convenient access 
through surcharge-free ATMs that are part of a national or regional ATM 
network. 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 [6]). However, college card fees were lower 
than alternative financial products, such as check-cashing 
services.\65\
---------------------------------------------------------------------------

    \65\ GAO at 18.
---------------------------------------------------------------------------

    Table 6: Account Fees by Provider Type

                                          Account Fees by Provider Type
----------------------------------------------------------------------------------------------------------------
                                                                 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

[[Page 67185]]

revenues for FY 2013.\66\ Not all of those fees are subject to the 
provisions of the final regulations, but the amount of student account 
revenue affected by the changes across the industry will be 
significant.
---------------------------------------------------------------------------

    \66\ Higher One Holdings, Inc. ``SEC Form 10-K,'' pages 41-42 
(2014), available at www.sec.gov/Archives/edgar/data/1486800/000148680014000018/one10k.htm.
---------------------------------------------------------------------------

    Along with being unable to determine the total amount of college 
card fees paid by students, student behavior is also unpredictable, and 
student response to the information about account options and costs 
will significantly contribute to the effect of the regulations. While 
it is assumed that consumers with appropriate information would make 
rational decisions, such as avoiding withdrawals from out-of-network 
ATMs or choosing debit transactions that require signatures rather than 
a PIN, some students may not make the optimal choices in managing their 
accounts. The Department does not have the distribution of students in 
accounts with specific fee arrangements, data on student usage 
patterns, or data on the responsiveness of students to the information 
that will be provided under the regulations, and therefore it is 
difficult for us to estimate the exact transfers that will occur when 
certain fees on student accounts are prohibited. Some analysis has been 
done on account usage that can be used to establish a range of possible 
effects of the regulations. In its August 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.\67\ This range of outcomes 
indicates how the distribution of students in accounts and the student 
response to account information disclosed under the regulations will 
help determine the fee revenue affected by the regulations.
---------------------------------------------------------------------------

    \67\ Consumers Union at 16.
---------------------------------------------------------------------------

    An additional analysis by U.S. PIRG included data on overdraft 
behavior by age range, with adults in the 18 to 25 age range having the 
highest incidence of paying overdraft fees--53.6 percent paying zero, 
21.5 percent paying $1 to $4, 10.3 percent paying $5 to $9, 7.9 percent 
paying $10 to $19, and 6.8 percent paying $20 or more for each 
overdrafts.\68\ While not all students will fall within this age range, 
given the high percentage that pays at least one overdraft fee and the 
amount of overdraft fees ranging from $25 to $38 when applied, the 
amount of money 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.\69\
---------------------------------------------------------------------------

    \68\ USPIRG at 32.
    \69\ 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 
regulations is the response of financial institutions and institutions. 
The fee provisions imposed on accounts offered pursuant to T1 
arrangements will have cost implications for affected servicers. One 
intent of the regulations is to allow students to access financial aid 
funds without burden from fees or other costs; however, the Department 
acknowledges that many of these servicers could restructure their 
accounts to earn some of those funds through fees not affected by the 
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.
Benefits: Disclosure Provisions, Student Choice, and Access to Funds
    As noted in the Summary of Changes and Final Regulations, 
institutions with T1 and T2 arrangements are subject to several 
provisions focused on increasing disclosure of information related to 
student accounts and emphasizing the availability of options for 
students to receive credit balances. 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 (NCES), 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 at a bank 
themselves (38.5 percent). The remaining 24.3 percent of students 
receive refunds by cashing refunds 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.\70\
---------------------------------------------------------------------------

    \70\ U.S. Department of Education, National Center for Education 
Statistics, 2011-12 National Postsecondary Student Aid Study 
(NPSAS:12).
---------------------------------------------------------------------------

    One of the largest benefits for students from the regulations is 
that students will have access to account disclosures and critical 
information to allow them to make informed decisions regarding the 
handling and distribution of their title IV funds. The fee and contract 
disclosures will help students and regulators determine whether the 
financial products marketed by financial institutions with 
relationships to their school are the best option for them. These 
disclosures will also help prevent students from being misled into 
believing that they must use those financial products.
    With respect to including the costs of books and supplies in 
tuition and fees, the Department has changed the ``best financial 
interest'' standard in the NPRM to allowing the inclusion under three 
circumstances. As described in the Analysis of Comments and Changes, 
those three circumstances are: (1) The institution has an arrangement 
with a book publisher or other entity that enables it to make those 
books or supplies available to students at or below competitive market 
rates (with an opt out provision for the student); (2) the books or 
supplies, including digital or electronic course materials, are not 
available elsewhere or accessible by students enrolled in that program 
from sources other than those provided or authorized by the 
institution; or (3) the institution demonstrates there is a compelling 
health or safety reason. These final regulations allow, but do not 
require, institutions to disclose the prices of books and other 
materials that they include as part of tuition and fees. We believe 
this revised treatment benefits students through the buying power of 
the school in cases where the school can source the materials for lower 
than market costs and the ability of the institution to provide digital 
and other materials that cannot be sourced elsewhere. If these three 
circumstances are not met, institutions would need authorization from 
the student to use title IV, HEA funds on books and supplies, and the 
student would have the ability to look at alternate providers for 
better value before providing such authorization.
    The regulations also help protect students from deceptive marketing 
practices aimed at encouraging them to do business with a particular 
financial institution. When students are not presented with clear 
choices or

[[Page 67186]]

information, they may be pushed into using financial accounts with 
higher fees and/or less access than other available options. The 
student choice provisions aid in the decision making process by 
allowing students who may have otherwise chosen a higher fee option to 
identify and choose accounts with lower fees. These students will save 
money and be able to use all or more of their title IV aid for expenses 
critical to their educational needs.
Other Benefits
    As discussed in the NPRM, the regulations provide other benefits 
for students and institutions. Institutions will benefit from being 
able to keep the first $500 in interest accrued on accounts holding 
title IV funds. Institutions and students will benefit from the 
retaking coursework regulations as students will be able to continue 
paying for educational costs with title IV aid. The clock-to-credit-
hour conversion regulations also will benefit institutions through 
simplification of regulations affecting institutional determinations 
relating to title IV eligibility.

Net Budget Impacts

    The final regulations are not estimated to 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 regulations require disclosures of institutional agreements 
with financial services providers through which students may opt to 
receive title IV credit balances, and restrict the fees students can be 
charged for accounts offered pursuant to T1 arrangements. Additionally, 
the proposed regulations make technical changes to subpart K cash 
management rules to reflect technological advances and improved 
disbursement practices. The regulations also 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 regulations eliminate the provision that prevents 
institutions from counting previously passed courses towards enrollment 
where the repetition is due to the student failing other coursework.
    The regulations affect the arrangements among institutions, 
students, and financial service providers, but are not expected to 
affect the volume of title IV aid disbursed or the repayment patterns 
of students, and therefore, we estimate no significant budget impact on 
title IV programs.

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 
[7], we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
these regulations.

 Table 7--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                                                7%              3%
------------------------------------------------------------------------
                Category                             Benefits
------------------------------------------------------------------------
Greater disclosure of arrangements
 between institutions and financial
 service providers and clearer
 disclosure of fees and conditions of
 student accounts.......................          Not Quantified.
------------------------------------------------------------------------
                Category                               Costs
------------------------------------------------------------------------
Costs of compliance with paperwork
 requirements.
------------------------------------------------------------------------
                Category                             Transfers
------------------------------------------------------------------------
                                                   $21.0           $21.2
------------------------------------------------------------------------

Final Regulatory Flexibility Act Analysis

    The final 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 
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 subject to the regulations 
are small, leading to the preparation of the following Final Regulatory 
Flexibility Act 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 also 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 is amending the cash management regulations under 
subpart K issued under the HEA to address a number of disturbing 
practices

[[Page 67187]]

identified by multiple government and consumer group reports. These 
reports indicate 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 suggesting that a 
particular financial account is required to receive student aid. The 
regulations also make changes to update subpart K consistent with 
contemporary disbursement practices. Finally, the final regulations 
update two additional, unrelated provisions of interest to students and 
institutions: revising the way previously passed coursework is treated 
for title IV eligibility purposes so that 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 concerning 
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 made a number of more minor changes throughout 
subpart K in the final regulations.

Description of and, Where Feasible, an Estimate of the Number of Small 
Entities to Which the Regulations Will Apply

    These final regulations would affect institutions, financial 
services providers that enter into certain arrangements with 
institutions, 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 number 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 not-for-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 [8] summarizes the distribution of small 
entities affected by the regulations by sector.

                                Table 8--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
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total.......................................................           4,253           7,539              56
----------------------------------------------------------------------------------------------------------------

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 Requirements 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record

    The various provisions in the regulations require disclosures by 
institutions as discussed in the Paperwork Reduction Act section of 
this preamble. Table [9] summarizes the estimated burden on small 
entities from the paperwork requirements associated with the final 
regulations.

                          Table 9--Summary of Paperwork Requirements for Small Entities
----------------------------------------------------------------------------------------------------------------
                  Provision                     Reg Section    OMB  control No.        Hours           Costs
----------------------------------------------------------------------------------------------------------------
Require institutions to establish an account   668.164(d)(4)       OMB 1845-0106           3,920         143,276
 selection process..........................
Compliance with T1 requirements: provide the        668.164e       OMB 1845-0106           6,710         245,251
 terms and conditions of the financial
 accounts; provide convenient access to
 ATMs; ensure accounts cannot be converted
 to a credit instrument; and disclose the
 contract, the mean and median costs
 incurred over the prior year, and the
 number of students with these financial
 accounts...................................
Compliance with T2 requirements: obtain           668.164(f)       OMB 1845-0106           3,285         120,067
 consent to open an account; provide terms
 and conditions; and disclose the contract,
 the number of students participating, and
 the mean and median actual costs for the
 prior year.................................
                                             -------------------------------------------------------------------

[[Page 67188]]

 
    Total...................................  ..............  ..................          13,915         508,593
----------------------------------------------------------------------------------------------------------------

Identification, to the Extent Practicable, of All Relevant Federal 
Regulations that May Duplicate, Overlap, or Conflict With the 
Regulations

    The final 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 the CFPB, for help in understanding Federal banking 
regulations and the Federal bank regulatory framework. 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, although the threshold of 500 
students with a credit balance for classification as a T2 arrangement 
and the sufficient access standard for ATMs at campus locations may 
have a greater effect on small entities.

Collection of Information

Assessment of Educational Impact

    In the NPRM we requested 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.
    Based on the response to the NPRM and on our review and further 
consideration of the regulations, we have determined that the final 
regulations do not require transmission of information that any other 
agency or authority of the United States gathers or makes available.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3507(d)) does 
not require a response to a collection of information unless it 
displays a valid OMB control number. We display the valid OMB control 
number assigned to this collection of information in the final 
regulations at the end of the affected sections of the regulations.
    Section 668.164 contains information collection requirements. Under 
the PRA, the Department has submitted a copy of this section, related 
forms, and the Information Collections Request (ICR) to the Office of 
Management and Budget (OMB) for its review.
    The OMB Control number associated with the final regulation is 
1845-0106.
Section 668.164 Disbursing Funds
    Requirements: Student choice.
    Under Sec.  668.164(d)(4)(i), an institution in a State that makes 
direct payments to a student by EFT and that chooses to enter into an 
arrangement described in Sec.  668.164(e) or (f), including an 
institution that uses a third-party servicer to make those payments, 
must establish a selection process under which the student chooses one 
of several options for receiving those payments. The institution must 
inform the student 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. The institution must ensure that the 
student's options for receiving direct payments are described and 
presented in a clear, fact-based, and neutral manner, and with no 
option preselected, except that the institution must prominently 
present as the first option, the financial account or access device 
associated with an existing account belonging to the student.
    The institution must ensure that initiating the EFT to a financial 
account or access device associated with an existing student financial 
account is as timely and no more onerous to the student as initiating 
the electronic transfer process to an account offered under a T1 or T2 
arrangement. The institution must allow the student to change his or 
her choice as to how direct payments are made, as long as the student 
provides the institution with written notice of the change within a 
reasonable amount of time. The institution must ensure that a student 
who does not make an affirmative selection of how direct payments are 
to be made is paid the full amount of the credit balance due consistent 
with the regulations. In describing the options, the institution must 
list and identify the major features and commonly assessed fees 
associated with all accounts offered under a T1 or T2 arrangement, as 
well as a URL for the terms and conditions of those accounts. For each 
account, if an institution by July 1, 2017 follows the format and 
content requirements specified by the Secretary in a notice published 
in the Federal Register, it will be in compliance with these 
requirements.
    Alternatively, an institution that does not offer accounts under a 
T1 or 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, issue a check, or disburse cash to the 
student.
    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 (according to FSA data) 
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

[[Page 67189]]

subset of institutions. Utilizing publically available sources and 
working with the CFPB, we identified 914 institutions that were known 
to have card agreements with financial institutions. The Department 
also had available through NSLDS and IPEDS tuition and fees and aid 
recipient data for 672 of these institutions. From the data for these 
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 card agreements, the NSLDS-IPEDS-CFPB 
data show that 685 institutions are public institutions. On average, we 
estimate the burden associated with developing and implementing the 
student choice options will increase by 20 hours per institution and 
therefore we estimate a total burden of 13,700 hours (685 institutions 
times 20 hours per institution) under OMB Control Number 1845-0106.
    Of the 914 institutions with card agreements, the NSLDS-IPEDS-CFPB 
data show that 154 institutions are private not-for-profit 
institutions. On average, we estimate the burden associated with 
developing and implementing the student choice options will increase by 
20 hours per institution and therefore we estimate a total burden of 
3,080 hours (154 institutions times 20 hours per institution) under OMB 
Control Number 1845-0106.
    Of the 914 institutions with card agreements, the NSLDS-IPEDS-CFPB 
data show that 75 are private for-profit institutions. On average, we 
estimate the burden associated with developing and implementing the 
student choice options will increase by 20 hours per institution and 
therefore we estimate a total burden of 1,500 hours (75 institutions 
times 20 hours per institution) under OMB Control Number 1845-0106.
    Overall, burden to institutions will increase by 18,280 hours (the 
sum of 13,700 hours, 3,080 hours, and 1,500 hours).
    The NSLDS-IPEDS-CFPB data indicate that 1,798,756 title IV 
recipients with credit balances for the 2013-14 award year will be 
impacted by this regulation. We estimate that each of the affected 
title IV recipients will 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 will 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 will 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 will 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 will increase by 593,590 
hours (the sum of 572,927 hours, 4,488 hours, and 16,175 hours).
    Requirements: T1 arrangements
    Under Sec.  668.164(e), a T1 arrangement exists when an institution 
in a State enters into 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, and the institution or third party servicer 
makes payments to one or more financial accounts that are offered to 
students under the contract, or to a financial account where 
information about the account is communicated directly to students by 
the third-party servicer or by the institution on behalf of or in 
conjunction with the third party servicer.
    An institution with a T1 arrangement must comply with the following 
requirements:
    1. The institution must ensure that the student's consent to open 
the financial account has been obtained before an access device, or any 
representation of an access device is sent to the student, or an access 
device that is provided to the student for institutional purposes, such 
as a student ID card, is validated, enabling the student to use the 
device to access a financial account. Before a student makes a 
selection of the financial account, the institution must not share with 
the third-party servicer under a T1 arrangement any information about 
the student, other than directory information under 34 CFR 99.3 that is 
disclosed pursuant to 34 CFR 99.31(a)(11) and 99.37, beyond a unique 
student identifier generated by the institution that does not include a 
Social Security number, in whole or in part; the disbursement amount; a 
password, PIN code, or other shared secret provided by the institution 
that is used to identify the student; or any additional items specified 
by the Secretary in a notice published in the Federal Register. Such 
information may be used solely for activities that support making 
direct payments of title IV, HEA program funds and not for any other 
purpose and cannot be shared with any other affiliate or entity for any 
other purpose.
    2. The institution must inform the student 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 has convenient 
access to the financial account through a surcharge-free national or 
regional ATM network. Those ATMs must be sufficient in number and 
housed and serviced such that the funds are reasonably available to the 
accountholder, including at the times the institution or its third-
party servicer makes direct payments into them. The institution must 
also ensure that students 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 
conducts point-of-sale transactions in a State; or for conducting any 
transaction on an ATM that belongs to the surcharge-free regional or 
national network.
    4. The institution must ensure that: The financial account or 
access device is not marketed or portrayed as, or converted into a 
credit card; no credit may be extended or associated with the financial 
account; and no fee is charged to the student for any transaction or 
withdrawal exceeding the balance on the card, except that a transaction 
that exceeds the balance on the card may be permitted only for 
inadvertently approved overdrafts as long as no fee is charged to the 
student for such overdraft.
    5. The institution, third-party servicer, or third-party servicer's 
associated financial institution must provide domestic withdrawals for 
a student accountholder to conveniently access title IV, HEA program 
funds in

[[Page 67190]]

part and in full, without charge, up to the account balance, following 
the date that such title IV, HEA program funds are deposited or 
transferred to the financial account.
    6. No later than September 1, 2016, the institution must disclose 
conspicuously on its Web site, and thereafter timely update, 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. No later than 
September 1, 2017, and then 60 days following the most recently 
completed award year thereafter, disclose conspicuously on its Web site 
in a format to be published by the Department: The total consideration, 
monetary and non-monetary, paid or received by the parties under the 
terms of the contract; the number of students who had active 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 active account holders. The institution must also 
annually provide to the Secretary a URL link to the agreement and the 
foregoing contract data for publication in a centralized database 
accessible to the public.
    7. The institution must ensure that the terms of the accounts 
offered under a T1 arrangement are not inconsistent with the best 
financial interests of the students opening them. The Secretary 
considers this requirement to be met if the institution documents that 
it conducts reasonable due diligence reviews at least every two years, 
to ascertain whether the fees imposed under the T1 arrangement are, 
considered as a whole, consistent with or lower than prevailing market 
rates; and all contracts for the marketing or offering of accounts 
under a T1 arrangement to the institution's students provide for 
termination of the arrangement at the discretion of the institution 
based on complaints received from students or a determination by the 
institution that the fees assessed under the account are not consistent 
with or are above prevailing market rates.
    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 accounts 
offered pursuant to T1 arrangements.
    9. The requirements of paragraph (e)(2) do not apply to a student 
no longer enrolled if there are no pending title IV disbursements 
pending for that students, except that the institution remains 
responsible for including in the disclosures required of it any data 
regarding a T1 account maintained by a student during the preceding 
award year and the fees the student incurred, regardless of whether the 
student is no longer enrolled at the time institution discloses the 
data.
    Burden Calculation: We expect that institutions with T1 or T2 
arrangements will have to modify their systems or procedures to ensure 
compliance with these regulations including to establish a consent 
process; provide account terms and conditions disclosures; and provide 
the disclosures, contract disclosures, and use and cost data after the 
end of the award year. In addition, it is likely that institutions will 
make other changes in order to conduct their 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 are not consistent with or 
lower than prevailing market rates.
    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 constitute T1 or T2 arrangements under 
the regulations, we determined that there are 541 public institutions 
with a T1 arrangement. We estimate that the changes necessitated by the 
requirements relating to T1 arrangements will 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 constitute T1 or T2 arrangements under 
the regulations, we determined that there are 80 private not-for-profit 
institutions with a T1 arrangement. We estimate that the changes 
necessitated by the requirements relating to T1 arrangements will 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 constitute T1 or T2 arrangements under 
the regulations, we determined that there are 75 private for-profit 
institutions with a T1 arrangement. We estimate that the changes 
necessitated by the requirements relating to T1 arrangements will 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 will increase by 38,280 
hours (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 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 will take 15 minutes (.25 hours) to 
read 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, the 
number of students who had financial accounts under the T1 arrangement 
for the most recently completed year, the mean and median costs 
incurred by account holders, and determine whether to provide their 
consent to the institution. Therefore, the additional burden on title 
IV recipients will 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 will take 15 minutes (.25 
hours) to read 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, the number of students who had financial accounts under 
the T1 arrangement for the most recently completed year, the mean and 
median costs incurred by account holders, and determine whether to 
provide their consent to the institution. Therefore, the additional 
burden on title IV recipients will 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 will take 15

[[Page 67191]]

minutes (.25 hours) to read 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, the number of students who had financial 
accounts under the T1 arrangement for the most recently completed year, 
the mean and median costs incurred by account holders, and determine 
whether to provide their consent to the institution. Therefore, the 
additional burden on title IV recipients will increase by 12,254 hours 
under OMB Control Number 1845-0106.
    Overall, burden to recipients will increase by 384,667 hours (the 
sum of 369,036 hours, 3,377 hours, and 12,254 hours).
    Requirements: T2 arrangements.
    Under Sec.  668.164(f), a T2 arrangement exists when an institution 
enters into 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. 
However, the institution does not have to comply with 
paragraphs(d)(1)(4) or (f)(4) and (5) if it had no credit balance 
recipients in one or more of the preceding three award years, nor with 
certain requirements in Sec.  668.164(f)(4) if it documents that, on 
average over the preceding three years, fewer than 500 students 
received a credit balance and credit balance recipients comprised less 
than five percent of enrollment. The Secretary considers that a 
financial account is marketed directly if the institution communicates 
information directly to its students about the financial account and 
how it may be opened; the financial account or access device is 
cobranded with the institution's name, logo, mascot, or other 
affiliation and marketed principally to students; or an access device 
that is provided to the student for institutional purposes, such as a 
student ID card, is validated, enabling the student to use the device 
to access a financial account.
    Under a T2 arrangement, the institution must comply with the 
following requirements:
    1. The institution must ensure that the student's consent to open 
the financial account is obtained before: The institution provides, or 
permits a third-party servicer to provide, any personally identifiable 
about the student to the financial institution or its agents other than 
directory information under 34 CFR 99.3 that is disclosed pursuant to 
34 CFR 99.31(a)(11) and 99.37; or an access device, or any 
representation of an access device, is sent to the student (except that 
an institution may send the student an access device that is a card 
provided to the student for institutional purposes, such as a student 
ID card, so long as the institution or financial institution obtains 
the student's consent before validating the device to enable the 
student to access the financial account).
    2. The institution must inform the student 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.
    3. No later than September 1, 2016, the institution must 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, will compromise personal privacy, 
proprietary information technology, or the security of information 
technology or of physical facilities, and must also provide to the 
Secretary the URL for the contract for publication in a centralized 
database accessible to the public, and must thereafter update the 
contract posted with any changes. No later than September 1, 2017, and 
thereafter no later than 60 days following the most recently completed 
award year thereafter, the institution must disclose conspicuously on 
its Web site in a format to be published by the Department the total 
consideration, monetary and non-monetary, paid or received by the 
parties under the terms of the contract; and, for any year in which the 
institution's enrolled students had open 30 or more financial accounts 
marketed under the T2 arrangement, the number of students 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 active account holders. The institution must 
ensure that the foregoing data is included on the URL provided to the 
Secretary disclosing the contract.
    4. If the institution is located in a State, it must ensure that 
the student accountholder can execute balance inquiries and access 
funds deposited in the financial accounts through surcharge-free in-
network ATMs sufficient in number and housed and serviced such that the 
funds are reasonably available to the accountholder, 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 accounts 
offered under a T2 arrangement are not inconsistent with the best 
financial interests of the students opening them. The Secretary 
considers this requirement to be met if the institution documents that 
it conducts reasonable due diligence reviews at least every two years, 
to ascertain whether the fees imposed under the accounts are, 
considered as a whole, consistent with or lower than prevailing market 
rates; and all contracts for the marketing or offering of the accounts 
to the institution's students provide for termination of the 
arrangement at the discretion of the institution based on complaints 
received from students or a determination by the institution that the 
fees assessed under the account are not consistent with or are above 
prevailing market rates.
    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 accounts 
offered under a T2 arrangement.
    8. The institution must ensure that students incur no cost for 
opening the account or initially receiving or validating an access 
device.
    9. If the institution enters into an agreement for the cobranding 
of a financial account but maintains that the account is not marketed 
principally to its enrolled students and is not otherwise marketed 
directly, the institution must retain the cobranding contract and other 
documentation it believes establishes this.
    10. The requirements of paragraph (f)(4) do not apply to a student 
no longer enrolled if there are no pending title IV disbursements 
pending for that students, except that the institution remains 
responsible for including in the disclosures required of it any data 
regarding a T2 account maintained by a student during the preceding 
award year and the fees the student incurred, regardless of whether the 
student is no longer enrolled at the time institution discloses the 
data.
    Burden calculation: Under the regulations, we estimate that an 
institution with a T2 arrangement will have to modify its systems or 
procedures to, among other things: establish a consent process; provide 
account terms and conditions disclosures; provide the required 
disclosures, contract disclosures, and

[[Page 67192]]

use and cost data within 60 days after the end of the award year. In 
addition, other changes may be required regarding how the institution 
will conduct its 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 inconsistent with or higher than prevailing 
market rates.
    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 these 7,539 institutions, according to NSLDS-IPEDS-CFPB data, 
144 are public institutions with T2 arrangements. We estimate that the 
changes necessitated by the requirements relating to T2 arrangements 
will add an additional 45 hours of burden per institution, increasing 
burden by 6,480 hours under OMB Control Number 1845-0106.
    Of the 7,539 institutions, according to NSLDS-IPEDS-CFPB data, 74 
are private not-for-profit institutions with T2 arrangements. We 
estimate that the changes necessitated by the requirements relating to 
T2 arrangements will add an additional 45 hours of burden per 
institution, increasing burden by 3,330 hours under OMB Control Number 
1845-0106.
    Of the 7,539 institutions, according to NSLDS-IPEDS-CFPB data, no 
private for-profit institutions where title IV recipients had credit 
balances have T2 arrangements.
    Overall, burden to institutions will 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 those recipients, the data showed that 259,997 were 
enrolled at public institutions. We estimate that, on average, each 
recipient will take 15 minutes (.25 hours) to read the institution's 
required disclosures and consent information and decide whether to 
provide consent or not. Therefore, the additional burden on title IV 
recipients will 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 will take 15 minutes (.25 hours) to read the 
institution's required disclosures and consent information and decide 
whether to provide consent or not. Therefore, the additional burden on 
title IV recipients will 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 title IV recipients will increase by 65,022 
hours (the sum of 64,999 hours and 23 hours).
    Collectively, the total increase in burden for Sec.  668.164 will 
be 1,109,649 hours under OMB Control Number 1845-0106.
    Consistent with the discussion above, the following chart describes 
the sections of the final regulations involving information 
collections, the information being collected, and the collections that 
the Department has submitted to OMB for approval, 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 final regulations require        OMB 1845-0106...........     $19,431,272
                                    institutions to establish an        This will be a revised
                                    account selection process if the     collection. We estimate
                                    institution sends EFT payments to    that the burden will
                                    an account described in Sec.         increase by 1,109,649
                                    668.164(e) or (f). Under Sec.        hours..
                                    668.164(e), when an institution
                                    enters into a T1 arrangement, the
                                    institution must, among other
                                    things, provide the terms and
                                    conditions of the financial
                                    accounts, provide convenient
                                    access to ATMs if the institution
                                    is located in a State, ensure the
                                    account cannot be converted to a
                                    credit instrument, disclose the
                                    details of the contract on 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 with these financial
                                    accounts. Under Sec.   668.164(f),
                                    when an institution enters into a
                                    T2 arrangement, the institution or
                                    financial account provider must,
                                    among other things, obtain consent
                                    to open an financial account or
                                    provide an access device that is
                                    cobranded with the institution's
                                    name, logo, mascot, or other
                                    affiliation and principally
                                    marketed to students, or a card or
                                    tool that is provided to the
                                    student for institutional purposes
                                    such as a student ID card that is
                                    linked to the financial account,
                                    and 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 these regulations follows:

[[Page 67193]]



------------------------------------------------------------------------
                                    Total proposed    Proposed change in
           Control No.               burden hours        burden hours
------------------------------------------------------------------------
1845-0106.......................           4,282,188         + 3,599,340
                                 ---------------------------------------
    Total.......................           4,282,188         = 3,599,340
------------------------------------------------------------------------

    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 program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
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document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
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(Catalog of Federal Domestic Assistance Number does not apply.)

List of Subjects in 34 CFR Part 668

    Colleges and universities, Consumer protection, Grant programs--
education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid.

    Dated: October 21, 2015.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary of 
Education amends 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 is revised to read as follows:

    Authority:  20 U.S.C. 1001-1003, 1070a, 1070g, 1085, 1087b, 
1087d, 1087e, 1088, 1091, 1092, 1094, 1099c, 1099c-1, 1221e-3, and 
3474, 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.

(Authority: 20 U.S.C. 1082 and 1088)


0
3. Section 668.8 is amended by revising paragraphs (k) and (l) 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--
    (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 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

[[Page 67194]]

    (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 a 
student 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, issues to a student 
an access device associated with a financial account, and agrees with 
the student 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; and
    (ix) Title IV, HEA programs means 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 20 CFR 
part 675, subpart B, 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 heightened 
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.
    (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 has 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--

[[Page 67195]]

    (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 paragraphs (b)(1) and (2) of this section, 
except that the institution's request may not exceed the amount of the 
disbursements the institution has 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 located in a State 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 located 
in a State 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. No later than 30 
days after the end 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)(5), 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(d)(4)(i) 
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 covered by 
that prior year, late, or retroactive disbursement.
    (3) At the time a disbursement is made to a student for a payment 
period, an institution must confirm that the student is eligible for 
the type and amount of title IV, HEA program funds identified by that 
disbursement. A third-party servicer is also responsible for confirming 
the student's eligibility if the institution engages the servicer to 
perform activities or transactions that lead to or support that 
disbursement. Those activities and transactions include but are not 
limited to--
    (i) Determining the type and amount of title IV, HEA program funds 
that a student is eligible to receive;
    (ii) Requesting funds under a payment method described in Sec.  
668.162; or
    (iii) Accounting for funds that are originated, requested, or 
disbursed, in reports or data submissions to the Secretary.
    (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

[[Page 67196]]

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) An institution may include the costs of books and supplies as 
part of tuition and fees under paragraph (c)(1)(i) of this section if 
--
    (i) The institution--
    (A) Has an arrangement with a book publisher or other entity that 
enables it to make those books or supplies available to students below 
competitive market rates;
    (B) Provides a way for a student to obtain those books and supplies 
by the seventh day of a payment period; and
    (C) Has a policy under which the student may opt out of the way the 
institution provides for the student to obtain books and supplies under 
this paragraph (c)(2). A student who opts out under this paragraph 
(c)(2) is considered to also opt out under paragraph (m)(3) of this 
section;
    (ii) The institution documents on a current basis that the books or 
supplies, including digital or electronic course materials, are not 
available elsewhere or accessible by students enrolled in that program 
from sources other than those provided or authorized by the 
institution; or
    (iii) The institution demonstrates there is a compelling health or 
safety reason.
    (3)(i) An institution may include in one or more payment periods 
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--
    (1) The current loan period for a student or parent who receives 
only a Direct Loan;
    (2) The current award year for a student who does not receive a 
Direct Loan but receives funds under any other title IV, HEA program; 
or
    (3) At the discretion of the institution, either the current loan 
period or the current award year if a student receives a Direct Loan 
and funds from any other title IV, HEA program.
    (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 unpaid 
allowable charges from any previous payment period in the current award 
year or current loan period for which the student was eligible for 
title IV, HEA program funds.
    (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 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) Direct payments. (1) 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 choice. (i) An institution located in a State that 
makes direct payments to a student by EFT and that enters 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 
chooses one of several options for receiving those payments.
    (A) In implementing its selection process, the institution must--
    (1) Inform the student 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 options for receiving direct payments 
are described and presented in a clear, fact-based, and neutral manner;
    (3) Ensure that initiating direct payments by EFT to a student's 
existing financial account is as timely and no more onerous to the 
student as initiating an EFT to an account provided under an 
arrangement described in paragraph (e) or (f) of this section;
    (4) Allow the student to change, at any time, his or her previously 
selected payment option, as long as the student provides the 
institution with written notice of the change within a reasonable time;
    (5) Ensure that no account option is preselected; and
    (6) Ensure that a student who does not make an affirmative 
selection is paid the full amount of the credit balance within the 
appropriate time-period specified in paragraph (h)(2) of this section, 
using a method specified in paragraph (d)(1) of this section.
    (B) In describing the options under its selection process, the 
institution--
    (1) Must present prominently as the first option, the financial 
account belonging to the student;
    (2) Must list and identify the major features and commonly assessed 
fees

[[Page 67197]]

associated with each financial account offered under the arrangements 
described in paragraphs (e) and (f) of this section, as well as a URL 
for the terms and conditions of each account. For each account, if an 
institution by July 1, 2017 follows the format, content, and update 
requirements specified by the Secretary in a notice published in the 
Federal Register following consultation with the Bureau of Consumer 
Financial Protection, it will be in compliance with the requirements of 
this paragraph with respect to the major features and assessed fees 
associated with the account; and
    (3) May provide, for the benefit of the student, 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.
    (ii) An institution that does not offer or use any financial 
accounts offered under paragraph (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--
    (i) An institution located in a State 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; and
    (ii) The institution or third-party servicer makes payments to--
    (A) One or more financial accounts that are offered to students 
under the contract;
    (B) A financial account where information about the account is 
communicated directly to students by the third-party servicer, or the 
institution on behalf of or in conjunction with the third-party 
servicer; or
    (C) A financial account where information about the account is 
communicated directly to students by an entity contracting with or 
affiliated with the third-party servicer.
    (2) Under a T1 arrangement, the institution must--
    (i) Ensure that the student's consent to open the financial account 
is obtained before an access device, or any representation of an access 
device, is sent to the student, except that an institution may send the 
student an access device that is a card provided to the student for 
institutional purposes, such as a student ID card, so long as the 
institution or financial institution obtains the student's consent 
before validating the device to enable the student to access the 
financial account;
    (ii) Ensure that any personally identifiable information about a 
student that is shared with the third-party servicer before the student 
makes a selection under paragraph (d)(4)(i) of this section--
    (A) Does not include information about the student, other than 
directory information under 34 CFR 99.3 that is disclosed pursuant to 
34 CFR 99.31(a)(11) and 99.37, beyond--
    (1) A unique student identifier generated by the institution that 
does not include a Social Security number, in whole or in part;
    (2) The disbursement amount;
    (3) A password, PIN code, or other shared secret provided by the 
institution that is used to identify the student; or
    (4) Any additional items specified by the Secretary in a notice 
published in the Federal Register;
    (B) Is used solely for activities that support making direct 
payments of title IV, HEA program funds and not for any other purpose; 
and
    (C) Is not shared with any other affiliate or entity except for the 
purpose described in paragraph (e)(2)(ii)(B) of this section;
    (iii) Inform the student of the terms and conditions of the 
financial account, as required under paragraph (d)(4)(i)(B)(2) of this 
section, before the financial account is opened;
    (iv) Ensure that the student--
    (A) Has convenient access to the funds in the financial account 
through a surcharge-free national or regional Automated Teller Machine 
(ATM) network that has ATMs sufficient in number and housed and 
serviced such that title IV funds are reasonably available to students, 
including at the times the institution or its third-party servicer 
makes direct payments into the financial accounts of those students;
    (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 a 
financial institution associated with the third-party servicer, when 
the student conducts point-of-sale transactions in a State; and
    (3) For conducting a balance inquiry or withdrawal of funds at an 
ATM in a State that belongs to the surcharge-free regional or national 
network;
    (v) Ensure that--
    (A) The financial account or access device is not marketed or 
portrayed as, or converted into, a credit card;
    (B) No credit is extended or associated with the financial account, 
and no fee is charged to the student for any transaction or withdrawal 
that exceeds the balance in the financial account or on the access 
device, except that a transaction or withdrawal that exceeds the 
balance may be permitted only for an inadvertently authorized 
overdraft, so long as no fee is charged to the student for such 
inadvertently authorized overdraft; and
    (C) The institution, third-party servicer, or third-party 
servicer's associated financial institution provides a student 
accountholder convenient access to title IV, HEA program funds in part 
and in full up to the account balance via domestic withdrawals and 
transfers without charge, during the student's entire period of 
enrollment following the date that such title IV, HEA program funds are 
deposited or transferred to the financial account;
    (vi) No later than September 1, 2016, and then no later than 60 
days following the most recently completed award year thereafter, 
disclose conspicuously on the institution's Web site the contract(s) 
establishing the T1 arrangement between the institution and third-party 
servicer or 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;
    (vii) No later than September 1, 2017, and then no later than 60 
days following the most recently completed award year thereafter, 
disclose conspicuously on the institution's Web site and in a format 
established by the Secretary--
    (A) 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
    (B) For any year in which the institution's enrolled students open 
30 or more financial accounts under the T1 arrangement, the number of 
students 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;
    (viii) Provide to the Secretary an up-to-date URL for the contract 
for publication in a centralized database accessible to the public;
    (ix) Ensure that the terms of the accounts offered pursuant to a T1 
arrangement are not inconsistent with the best financial interests of 
the students opening them. The Secretary

[[Page 67198]]

considers this requirement to be met if--
    (A) The institution documents that it conducts reasonable due 
diligence reviews at least every two years to ascertain whether the 
fees imposed under the T1 arrangement are, considered as a whole, 
consistent with or below prevailing market rates; and
    (B) All contracts for the marketing or offering of accounts 
pursuant to T1 arrangements to the institution's students make 
provision for termination of the arrangement by the institution based 
on complaints received from students or a determination by the 
institution under paragraph (e)(2)(ix)(A) of this section that the fees 
assessed under the T1 arrangement are not consistent with or are higher 
than prevailing market rates; and
    (x) 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.
    (3) Except for paragraphs (e)(2)(ii)(B) and (C) of this section, 
the requirements of paragraph (e)(2) of this section no longer apply to 
a student who has an account described under paragraph (e)(1) of this 
section when the student is no longer enrolled at the institution and 
there are no pending title IV disbursements for that student, except 
that nothing in this paragraph (e)(3) should be construed to limit the 
institution's responsibility to comply with paragraph (e)(2)(vii) of 
this section with respect to students enrolled during the award year 
for which the institution is reporting. To effectuate this provision, 
an institution may share information related to title IV recipients' 
enrollment status with the servicer or entity that is party to the 
arrangement.
    (f) Tier two arrangement. (1) In a Tier two (T2) arrangement, an 
institution located in a State 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 enrolled at the institution.
    (2) Under a T2 arrangement, an institution must--
    (i) Comply with the requirements described in paragraphs (d)(4)(i), 
(f)(4)(i) through (iii), (vii), and (ix) through (xi), and (f)(5) of 
this section if it has at least one student with a title IV credit 
balance in each of the three most recently completed award years, but 
has less than the number and percentage of students with credit 
balances as described in paragraphs (f)(2)(ii)(A) and (B) of this 
section; and
    (ii) Comply with the requirements specified in paragraphs 
(d)(4)(i), (f)(4), and (f)(5) of this section if, for the three most 
recently completed award years--
    (A) An average of 500 or more of its students had a title IV credit 
balance; or
    (B) An average of five percent or more of the students enrolled at 
the institution had a title IV credit balance. The institution 
calculates this percentage as follows:

The average number of students with credit balances for the three 
most recently completed award years
The average number of students enrolled at the institution at any 
time during the three most recently completed award years.

    (3) The Secretary considers that a financial account is marketed 
directly if--
    (i) The institution communicates information directly to its 
students about the financial account and how it may be opened;
    (ii) The financial account or access device is cobranded with the 
institution's name, logo, mascot, or other affiliation and is marketed 
principally to students at the institution; or
    (iii) A card or tool that is provided to the student for 
institutional purposes, such as a student ID card, is validated, 
enabling the student to use the device to access a financial account.
    (4) Under a T2 arrangement, the institution must--
    (i) Ensure that the student's consent to open the financial account 
has been obtained before--
    (A) The institution provides, or permits a third-party servicer to 
provide, any personally identifiable about the student to the financial 
institution or its agents, other than directory information under 34 
CFR 99.3 that is disclosed pursuant to 34 CFR 99.31(a)(11) and 99.37;
    (B) An access device, or any representation of an access device, is 
sent to the student, except that an institution may send the student an 
access device that is a card provided to the student for institutional 
purposes, such as a student ID card, so long as the institution or 
financial institution obtains the student's consent before validating 
the device to enable the student to access the financial account;
    (ii) Inform the student of the terms and conditions of the 
financial account as required under paragraph (d)(4)(i)(B)(2) of this 
section, before the financial account is opened;
    (iii) No later than September 1, 2016, and then no later than 60 
days following the most recently completed award year thereafter--
    (A) Disclose conspicuously on the institution's Web site 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; and
    (B) Provide to the Secretary an up-to-date URL for the contract for 
publication in a centralized database accessible to the public;
    (iv) No later than September 1, 2017, and then no later than 60 
days following the most recently completed award year thereafter, 
disclose conspicuously on the institution's Web site and in a format 
established by the Secretary--
    (A) 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
    (B) For any year in which the institution's enrolled students open 
30 or more financial accounts marketed under the T2 arrangement, the 
number of students 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;
    (v) Ensure that the items under paragraph (f)(4)(iv) of this 
section are posted at the URL that is sent to the Secretary under 
paragraph (f)(4)(iii)(B) of this section for publication in a 
centralized database accessible to the public;
    (vi) If the institution is located in a State, ensure that the 
student accountholder can execute balance inquiries and access funds 
deposited in the financial accounts through surcharge-free in-network 
ATMs sufficient in number and housed and serviced such that the funds 
are reasonably available to the accountholder, including at the times 
the institution or its third-party servicer makes direct payments into 
them;
    (vii) Ensure that the financial accounts are not marketed or 
portrayed as, or converted into, credit cards;
    (viii) Ensure that the terms of the accounts offered pursuant to a 
T2 arrangement are not inconsistent with the best financial interests 
of the students opening them. The Secretary considers this requirement 
to be met if--
    (A) The institution documents that it conducts reasonable due 
diligence reviews at least every two years to ascertain whether the 
fees imposed under the T2 arrangement are,

[[Page 67199]]

considered as a whole, consistent with or below prevailing market 
rates; and
    (B) All contracts for the marketing or offering of accounts 
pursuant to T2 arrangements to the institution's students make 
provision for termination of the arrangement by the institution based 
on complaints received from students or a determination by the 
institution under paragraph (f)(4)(viii)(A) of this section that the 
fees assessed under the T2 arrangement are not consistent with or are 
above prevailing market rates;
    (ix) 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
    (x) Ensure students incur no cost for opening the account or 
initially receiving or validating an access device.
    (xi) If the institution enters into an agreement for the cobranding 
of a financial account with the institution's name, logo, mascot, or 
other affiliation but maintains that the account is not marketed 
principally to its enrolled students and is not otherwise marketed 
directly within the meaning of paragraph (f)(3) of this section, the 
institution must retain the cobranding contract and other documentation 
it believes establishes that the account is not marketed directly to 
its enrolled students, including documentation that the cobranded 
financial account or access device is offered generally to the public.
    (xii) Institutions falling below the thresholds described in 
paragraph (f)(2) of this section are encouraged to comply voluntarily 
with the provisions of paragraphs (d)(4)(i), (f)(4), and (f)(5) of this 
section.
    (5) The requirements of paragraph (f)(4) of this section no longer 
apply with respect to a student who has an account described under 
paragraph (f)(1) of this section when the student is no longer enrolled 
at the institution and there are no pending title IV disbursements, 
except that nothing in this paragraph should be construed to limit the 
institution's responsibility to comply with paragraph (f)(4)(iv) of 
this section with respect to students enrolled during the award year 
for which the institution is reporting. To effectuate this provision, 
an institution may share information related to title IV recipients' 
enrollment status with the financial institution or entity that is 
party to the arrangement.
    (g) Ownership of financial accounts opened through outreach to an 
institution's students. Any financial account offered or marketed 
pursuant to an arrangement described in paragraph (e) or (f) of this 
section must meet the requirements of 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 ledger 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) Fourteen (14) days after the balance occurred if the credit 
balance occurred after the first day of class of a payment period; or
    (ii) Fourteen (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, 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)(5). This restriction does not apply 
if the institution is exempt from the 30-day delayed disbursement 
requirements under 34 CFR 685.303(b)(5)(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 (j), 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 (j)(4) of this section, a student who becomes ineligible, as 
described in paragraph (j)(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 in paragraph (j)(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

[[Page 67200]]

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 (j)(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)(5) 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)(5)(i)(A) or (B).
    (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. For Pell Grant payments under this paragraph (k), the 
student's enrollment status must be determined according to work 
already completed, as required by 34 CFR 690.76(b).
    (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 to the 
institution 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 (m). A student who 
opts out under this paragraph is considered to also opt out under 
paragraph (c)(2)(i)(C) of this section;
    (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)(1)(ii) 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, 
which are from unsubsidized loans, and which are from PLUS 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 or 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 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.

[[Page 67201]]

    (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 by this section 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) or (d), 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 a 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 on 
behalf of the student or the parent; 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. 2015-27145 Filed 10-29-15; 8:45 am]
BILLING CODE 4000-01-P