Program Integrity and Improvement, 67125-67201 [2015-27145]
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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
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Federal Register / Vol. 80, No. 210 / Friday, October 30, 2015 / Rules and Regulations
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.
DEPARTMENT OF EDUCATION
34 CFR Part 668
RIN 1840–AD14
[Docket ID ED–2015–OPE–0020]
Program Integrity and Improvement
Office of Postsecondary
Education, Department of Education.
ACTION: Final regulations.
AGENCY:
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 § 668.164(e)(2)(vi) and
(f)(4)(iii) is required by September 1,
2016; § 668.164(d)(4)(i)(B)(2) by July 1,
2017; and § 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
SUMMARY:
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SUPPLEMENTARY INFORMATION:
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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.
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;
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-201505-18/pdf/2015-11917.pdf. We cite to the NRPM in
subsequent references as 80 FR at [page].
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• 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
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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
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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
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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 termbased 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-tocredit-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 higherfee 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
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
3 80
FR at 28506.
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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
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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
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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
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67129
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.
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
4 80
FR at 28497–28499.
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.
5 Public
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provide sufficient student choice
measures and protections and the
Department’s efforts would conflict with
those provisions.
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
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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.
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
10 80
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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.
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.
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 3011 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.
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]’’).
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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.
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Definitions (§ 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 § 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
(§ 668.162(c) and (d))
Comments: Several commenters
objected to the provision in § 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
§ 668.162(d)(1) and HCM2 refers to the
provisions in § 668.162(d)(2).
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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
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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
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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 § 668.164(h) or the
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provisions for books and supplies under
§ 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
§ 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 § 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
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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
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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 § 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 § 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
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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
(§ 668.163)
Comments: Under proposed
§ 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
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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 § 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 § 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
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institutions to make Perkins Loans has
ended, there is no need for investment
accounts.
Changes: None.
Comments: A commenter agreed with
our proposal in § 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 § 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 § 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 § 668.163(a)(2) and the
interest-bearing account requirements in
§ 668.163(c)(1) so they apply only to
institutions located in a State.
Disbursements During the Current
Payment Period (§ 668.164(b)(1))
Comments: Under proposed
§ 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 § 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 § 685.303 would be helpful.
Under § 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
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for completed payment periods in the
disbursement. This is the only
circumstance in § 685.303 that is an
exception to the general rule specified
in § 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
§ 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 (§ 668.164(b)(3))
Comments: Some commenters
objected to the proposal in
§ 668.164(b)(3) under which a thirdparty 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 § 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,
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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
§ 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.
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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 § 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 thirdparty 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
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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 § 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
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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 thirdparty 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
14 Available at https://ifap.ed.gov/ifap/
byAwardYear.jsp?type=fsahandbook&award
year=2015-2016.
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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 § 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 thirdparty servicer.
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 § 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-bycase 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
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under § 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
§ 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 (§ 668.164(c)(2))
Comments: Under proposed
§ 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.
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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
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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
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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
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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
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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)
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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 § 668.164(m),
which requires an institution to provide
a way for many students to obtain or
purchase required books and supplies
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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 § 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
§ 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
§ 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
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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 § 668.165(b) to use
title IV, HEA programs to pay for books
and supplies that it provides. We
remind institutions that under
§ 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
§ 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 (§ 668.164(c)(3) and
(4))
Comments: Proposed § 668.164(c)(3)
addresses the payment of prior year
charges with current year funds. One
commenter supported our proposal in
§ 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
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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 § 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 § 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 § 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
§ 668.164(c)(4) when institutional
charges were greater in one term
compared to another term, since Pell
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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 § 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 § 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
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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 § 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 noninstitutional 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 noninstitutional educational expenses.
Changes: We have revised
§ 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 § 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
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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 § 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
§ 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 § 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 § 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
§ 668.164(c)(5) does not affect the return
of title IV funds calculation under
§ 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
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charging students each payment period,
instead of upfront.
Changes: None
Direct Payments by the Secretary
(§ 668.164(d)(3))
Comments: Although proposed
§ 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 ‘‘upcoming’’ 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
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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
(§ 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-thirdparty-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
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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 thirdparty 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
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
15 80
FR at 28498.
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/wpcontent/uploads/2014/08/Campus_banking_
products_report.pdf (hereinafter referred to as
‘‘Consumers Union at [page number]’’).
16 Consumers
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institution and the student.’’ 17 The
relationship with a student typically
ends once the student is no longer
enrolled, and ‘‘the nature of this shortterm 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.
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.
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
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.
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.
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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
§ 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 § 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
§ 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 § 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 § 668.164(e)
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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 § 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 thirdparty 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 § 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 § 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
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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 thirdparty 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 thirdparty 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
§ 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 § 668.164(e) without effect.
Similarly, limiting the provisions of
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§ 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 § 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
§ 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 § 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 § 668.164(d)(4),
that account would not be required to
comply with the provisions of
§ 668.164(e). Therefore, if a third-party
servicer were concerned that all of its
general banking products would be
covered by § 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
§ 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
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67143
recipients at the institution would have
to comply with § 668.164(e).
Changes: We have amended
§ 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.
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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 thirdparty 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 § 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 § 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
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of account or how it may be opened,
arrangements sponsoring on-campus
facilities (e.g., stadium or building
naming rights), lease agreements for oncampus 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 § 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 § 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 § 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
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graduates at the end of that year.
Although the provisions of § 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 § 668.164(e).
We have added § 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
§ 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
(§ 668.164(f)(1)–(3))
Comments: A number of commenters
recommended that we apply the feerelated 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 (§ 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
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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 thirdparty 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
23 USPIRG
at 13.
Union at 5.
25 GAO at 15.
24 Consumers
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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.
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.
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,
26 80
FR at 28499.
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])’’.
27 Consumer
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67145
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 § 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
§ 668.164(f), but did not provide any
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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 highcost 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.
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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
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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
§ 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 accountopening 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.
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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 upto-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
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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 § 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 § 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
§ 668.164(f)(4); and are therefore
establishing a higher threshold of credit
balance recipients that would trigger the
requirements in § 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
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67147
play, drawing into question the benefit
of applying one or more of the
provisions at § 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 § 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 § 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
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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 § 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
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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
§ 668.164(f)(4)(iv)–(vi) and (f)(4)(viii).
We believe § 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
§ 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
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
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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.
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
§ 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
§ 668.164(f)(2) to specify that an
institution does not have to comply
with the requirements described in
§ 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
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.
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the requirements described in
§ 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
§ 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
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account access features as accounts that
are directly marketed to students for
purposes of § 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 § 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 § 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
§ 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 § 668.164(f).
Commenters also requested that we
incorporate the preamble discussion
from the NPRM into § 668.164(f) and
enumerate through regulation examples
of practices to which § 668.164 does not
apply.
Discussion: With respect to affinity
agreements, we are persuaded that the
proposed definition of cobranding
under § 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
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67149
specified under § 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
§ 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
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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 § 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 § 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 § 668.164(f)(3) and its
description of ‘‘direct marketing’’ for the
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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
§ 668.164(f)(3)(ii) to specify that a
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cobranded financial account or access
device is marketed directly if it is
marketed principally to enrolled
students. We have also added
§ 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 § 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 § 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 § 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
§ 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
§ 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
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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 § 668.164(f).
We have added paragraph
§ 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 (§ 668.164(d)(4))
Comments: Under proposed
§ 668.164(d)(4), if an institution has a T1
or T2 arrangement under § 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
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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 § 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
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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
§ 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, factbased, 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.
We agree that it is important for the
student to be given neutral information
about account choices. However, we do
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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,
§ 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
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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 institutionalsponsored 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 schoolsponsored 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
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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 institutionalsponsored 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
§ 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
§ 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
§ 668.164(d)(4)(i)(A)(5) to indicate that
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no option can be preselected in the
student choice process. We have also
added § 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 § 668.164(h)(2), using a
method specified in § 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 14day 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
§ 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
§ 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
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commonly assessed fees associated with
financial accounts described in
§ 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 § 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 consumerdeposit 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
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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 § 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
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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
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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
§ 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
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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 § 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
§ 668.164(e) and (f) when those parents
receive parent PLUS loan credit balance
funds.
Changes: We have removed the
references to ‘‘parents’’ in
§ 668.164(d)(4)(i). However, we retained
the reference to ‘‘parents’’ in
§ 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.
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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 § 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 § 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
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§ 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
§ 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 § 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 § 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 § 668.164(d)(4)
should apply only to domestic
institutions.
Changes: We have revised
§ 668.164(d)(4) to state that the student
choice provisions apply only to
institutions located in a State.
Comments: With respect to
§ 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
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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 (§ 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 checkcashing 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
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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
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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
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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 phaseout 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
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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
§ 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
(§ 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
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(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 thirdparty 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
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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
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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
33 OIG
at 19.
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account or consent from the student to
the opening of an account offered under
a T2 arrangement.
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 nondirectory information to disclose prior
to the student’s consent to opening the
account.
Changes: We have revised
§ 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
§ 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
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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
§ 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 (§ 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 thirdparty 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 thirdparty 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
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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 thirdparty 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
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
§ 668.164(e)(2)(i)(A) and
§ 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
34 80
FR 28504.
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’’).
35 Consumer
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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.
Changes: We have condensed the two
separate provisions regarding sending
and validating an access device into a
single provision. We also have revised
§ 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
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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
§ 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
(§ 668.164(d)(4)(i)(B)(2))
Comments: Several commenters
expressed concern that the disclosure
requirements in § 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
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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.
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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.
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
36 80
37 80
PO 00000
FR 28503.
FR 28503.
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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.
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 § 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
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39 GAO
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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
§ 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
(§ 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
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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
§ 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.
40 80
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67161
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.
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 AccountOpening Fee (§ 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.
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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 accountopening 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 § 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, storedvalue 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,
§ 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., §§ 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
§ 668.164(e)(2)(iv)(B)(1) and (f)(4)(x) to
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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 (§ 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
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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 feefree 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.
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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 outof-network ATMs, sometimes at $5 per
withdrawal.44
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
41 USPIRG
at 16.
at 17.
43 GAO at 22.
44 USPIRG at 17.
42 Ibid.
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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 surchargefree 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 costefficient 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.
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 wellintentioned, 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
45 GAO
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67163
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 innetwork ATM or branch office of the
account provider located in the town.
We believe that § 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-ofnetwork ATM fees, or if the institution
receives complaints about the number
and location of its ATMs (all indicators
that were cited in consumer and
46 The cost of providing such ATMs is discussed
in further detail in the Regulatory Impact Analysis
section of this preamble.
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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-ofnetwork 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
§ 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 surchargefree 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
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arrangements, we have revised
§ 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
(§ 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
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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.
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.
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
47 OIG
at 13.
at 20.
49 Ibid.
50 CFPB RFI.
51 GAO at 20.
52 USPIRG at 27.
48 GAO
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permissibility of a fee based on whether
a cost is ‘‘discriminatory.’’ Instead, we
have designed § 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
§ 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 (§ 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
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stated that the proposed fee limitation
ignores current regulatory procedures
(including Regulation E and Regulation
DD) that require accountholders to optin 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
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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 preapproved 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
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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.
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
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
53 80
FR 28508–28509.
FR at 28508.
55 Ibid.
title IV credit balance recipients
specifically.56
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
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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, forcepost transactions, stand-in processing,
batch processing, and offline
authorizations), it is permissible for an
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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
§ 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
(§ 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
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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
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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.
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 timebased structure of the proposed
provision is impractical for operational
reasons. We agree that tracking
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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
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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
§ 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
(§ 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.
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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.
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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
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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.
Changes: In § 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
(§ 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
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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
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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
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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
§ 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
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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
§ 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
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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 revenuesharing.
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
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
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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
§ 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 § 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 § 668.164(e)(2)(vii)(C) and
(f)(4)(iv)(C).
Submission of the URL for the Contract
and Summary to a Centralized Database
(§ 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 crossposted 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.
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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
§ 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 (§ 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
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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
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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
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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
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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
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67173
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 marketby-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
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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
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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
§ 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
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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, revenuesharing, 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
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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.
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
62 CFPB
RFI.
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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 § 668.164(e) and
(f) should apply only to domestic
institutions.
Changes: We have revised
§ 668.164(e)(1) and (f)(1) to apply only
to institutions located in a State.
Credit balances (§ 668.164(h))
Comments: A commenter noted that
proposed § 668.164(h) refers to ‘‘funds
credited to a student’s account,’’ and
suggested for clarity and consistency
with proposed § 668.161 that we change
this reference to ‘‘funds credited to a
student’s ledger account.’’
Discussion: We agree.
Changes: We have revised
§ 668.164(h) to include the phrase
‘‘student ledger account.’’
Retroactive Payments (§ 668.164(k))
Comment: Under proposed
§ 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 § 668.164(k)
would be subject to § 690.76(b). Under
§ 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 § 690.76(b) in
§ 668.164(k).
Changes: We have revised
§ 668.164(k) to state that a student’s
enrollment status for a retroactive
payment of a Pell Grant must be
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determined according to work already
completed, as required by 34 CFR
690.76(b).
Presumptive Credit Balances, Books and
Supplies (§ 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 § 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 § 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 needbased aid other than Pell Grant
recipients have limited resources to buy
books, students whose only title IV aid
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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 offcampus. 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
§ 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
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directly to the student if the student did
not begin attendance during the
payment period or period of enrollment.
Under § 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
(§ 668.165(b)(1))
Comments: A commenter stated that it
was inappropriate for the Department to
assert in the preamble for proposed
§ 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
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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 IVparticipating 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
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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
§ 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 § 668.164(c)(3)(ii)(A)—
the charges carried forward may be paid
by the title IV.
Finally, in the NPRM under
§ 668.165(b)(1)(ii) we erroneously cross
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referenced ‘‘§ 668.162(c)(2) or (d)(2).’’
These cross references should have
referred to ‘‘§ 668.162(c) or (d).’’
Changes: We have revised
§ 668.165(b)(1)(ii) to cross reference
§ 668.162(c) or (d).
Retaking Coursework (§ 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 § 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.
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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
(§ 668.8(k))
Comments: The majority of
commenters expressed strong support
for the proposal to streamline the
requirements governing clock-to-credithour 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
§ 668.8(k)(2) of the final regulations
published on October 29, 2010 were
unnecessary. Another commenter noted
that the provisions previously in
§ 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
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formulas contained in § 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 § 668.8(k) and (l), which
together contain the requirements that
must be met when certain programs are
offered in credit hours. In particular,
§ 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 § 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 § 668.8(l)(1), the
formula assumes that there is some
outside of class work; and with respect
to programs covered by § 668.8(l)(2), the
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formula specifies a minimum amount of
outside of class work required. When
these aspects of the formulas in
§ 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
§ 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
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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
§ 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 § 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
§ 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
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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
63 GAO
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
Chart 1: College Card Agreements by
Number of Schools and Number of
Students that Participate in Federal
Student Aid Programs.
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are most likely to receive a financial aid
payment (credit balance) due to the low
tuition and fees deducted from total aid
received.
Table 1: Percentage of Schools with
College Card Agreements by Sector and
Program Length, as of July 2013.
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
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
64 GAO
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
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currently exist for the number of
students who use accounts falling under
these college card agreements. However,
the GAO report found that public twoyear institutions represented almost half
of all schools that used college cards to
make financial aid payments.64
Students at public two-year institutions
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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
Federal Register / Vol. 80, No. 210 / Friday, October 30, 2015 / Rules and Regulations
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
67181
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
Arrangement between an institution and a financial institution under which financial
accounts are offered and marketed directly to students. Provisions related to
disclosure of contract data, ATM requirements, and the 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.
Not Applicable.
Defines T1 and T2 arrangements
between institutions and financial account providers.
§ 668.164 .....
Arrangement between an institution and a
third-party servicer that performs the functions of processing direct payments of title
IV funds on behalf of the institution and
that offers one or more financial accounts
to students.
Fee mitigation ................................
§ 668.164 .....
• Prohibits point-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 .........
§ 668.164 .....
Student choice process .................
§ 668.164 .....
Consent to open account ..............
§ 668.164 .....
Contract disclosure ........................
Contract evaluation .......................
§ 668.164 .....
§ 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.
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
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
Public disclosure of contracts governing arrangements and related cost information
Requires institutions to establish and evaluate T1 and T2 arrangements in light of the best
interests of students
Additional Provisions
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Secretary’s reservation of right .....
§ 668.164 .....
Retention of interest on accounts
holding title IV funds.
Retaking coursework .....................
§ 668.163 .....
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Confirms that the Secretary reserves the right to establish a method for directly paying
credit balances to student aid recipients.
Increases the amount of interest accrued in accounts holding title IV funds that non-Federal
entities are allowed to retain from $250 to $500 annually.
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.
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TABLE 2—SUMMARY OF THE MAJOR PROVISIONS OF THE REGULATIONS—Continued
Description of provision
Provision
Reg section
T1
Clock-to-credit hour conversion ....
§ 668.8(k)
and (l).
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-tocredit-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 thirdparty 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
T2
Eliminate § 668.8(k)(2) and (3), and make a conforming change in § 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.
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 oncampus 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 lessthan-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
institutions
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Sector
Public, 2-year ...........................................................................................................................................
Public, 4-year or above ...........................................................................................................................
Private for-profit, 4-year or above ...........................................................................................................
Private not-for-profit, 4-year or above .....................................................................................................
Private for-profit, 2-year ...........................................................................................................................
Private not-for-profit, 2-year .....................................................................................................................
Public, less-than 2-year ...........................................................................................................................
Private for-profit, less-than 2-year ...........................................................................................................
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912
625
195
1,297
212
97
20
32
30OCR3
Students with a
credit balance
1,972,035
540,461
181,530
97,071
19,436
3,699
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67183
NUMBER OF INSTITUTIONS AND STUDENTS WHO RECEIVED A CREDIT BALANCE—Continued
Number of
institutions
Sector
Students with a
credit balance
Private not-for-profit, less-than 2-year .....................................................................................................
10
132
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
institutions
Sector
Students with a
credit balance
Public, 2-year ...........................................................................................................................................
Public, 4-year or above ...........................................................................................................................
Private for-profit, 4-year or above ...........................................................................................................
Private not-for-profit, 4-year or above .....................................................................................................
Private for-profit, 2-year ...........................................................................................................................
Private not-for-profit, 2-year .....................................................................................................................
Public, less-than 2-year ...........................................................................................................................
Private for-profit, less-than 2-year ...........................................................................................................
Private not-for-profit, less-than 2-year .....................................................................................................
304
200
38
113
17
N/A
N/A
N/A
N/A
996,107
280,467
29,593
10,001
6,447
N/A
N/A
N/A
N/A
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
institutions
Sector
Students with a
credit balance
Public, 2-year ...........................................................................................................................................
Public, 4-year or above ...........................................................................................................................
Private not-for-profit, 4-year or above .....................................................................................................
36
70
54
135,108
56,066
68
Total ..................................................................................................................................................
160
191,242
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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 thirdparty servicers who currently do not
meet this requirement. A few
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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
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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
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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 nonstudents. 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
Table 6: Account Fees by Provider
Type
ACCOUNT FEES BY PROVIDER TYPE
College
cards
Fee
Large banks, general
checking accounts
$0
Out-of-network ATM Transaction ..............................................
PIN .............................................................................................
Overdraft ....................................................................................
Outgoing Wire Transfer .............................................................
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Monthly Maintenance ................................................................
$2–$3
$0–$0.50
$29–$36
$25-–$30
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
65 GAO
standard account: $6–$12 ...............................
student account: $0–$5.
$2–$2.50 ..........................................................
$0 .....................................................................
$34–$36 ...........................................................
$24–$30 ...........................................................
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,
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$0
$1
$0
$25
$15
which represented 64.3 percent of total
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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.
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-ofnetwork 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.
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
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.
67 Consumers Union at 16.
68 USPIRG at 32.
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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
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.
67185
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
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
69 Center for Responsible Lending, ‘‘Overdraft U.:
Student Bank Accounts Often Loaded with High
Overdraft Fees,’’ March 30, 2015.
70 U.S. Department of Education, National Center
for Education Statistics, 2011–12 National
Postsecondary Student Aid Study (NPSAS:12).
Benefits: Disclosure Provisions, Student
Choice, and Access to Funds
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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-credithour 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
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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
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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 notfor-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
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$21.2
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
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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
67187
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 ................................................................................................................................
Private NFP 4-year ......................................................................................................................
Private For-Profit 4-year ..............................................................................................................
Public 2-year ................................................................................................................................
Private NFP 2-year ......................................................................................................................
Private For-Profit 2-year ..............................................................................................................
Public less than 2-year ................................................................................................................
Private NFP less than 2-year ......................................................................................................
Private For-Profit less than 2-year ..............................................................................................
0
1,648
278
0
162
667
0
87
1,411
749
1,648
827
1,074
162
1,035
262
87
1,695
0
100
34
0
100
64
0
100
83
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
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.
The various provisions in the
regulations require disclosures by
TABLE 9—SUMMARY OF PAPERWORK REQUIREMENTS FOR SMALL ENTITIES
OMB
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Provision
Reg Section
Require institutions to establish an account selection process ...............
Compliance with T1 requirements: provide the 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 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 ........................................................................................
668.164(d)(4)
OMB 1845–0106
3,920
143,276
668.164e
OMB 1845–0106
6,710
245,251
668.164(f)
OMB 1845–0106
3,285
120,067
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TABLE 9—SUMMARY OF PAPERWORK REQUIREMENTS FOR SMALL ENTITIES—Continued
Reg Section
Provision
Total ..................................................................................................
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
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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
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OMB
control No.
........................
................................
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 § 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 § 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,
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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 oncampus 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
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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
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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 § 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
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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 surchargefree 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
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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
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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
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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
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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 § 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 § 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 thirdparty 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
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(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.
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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
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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 § 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
Information collection
OMB Control No. and estimated burden
[change in burden]
Estimated
costs
668.164–Disbursing
Funds.
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Regulatory section
The final regulations require institutions to establish an account selection process if the institution sends EFT payments to an account described in § 668.164(e) or (f).
Under § 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 § 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.
OMB 1845–0106 .....................................
This will be a revised collection. We estimate that the burden will increase by
1,109,649 hours..
$19,431,272
The total burden hours and change in
burden hours associated with each OMB
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Control number affected by these
regulations follows:
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Total proposed
burden hours
Control No.
Proposed change
in 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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the document published in the Federal
Register. Free Internet access to the
official edition of the Federal Register
and the Code of Federal Regulations is
available via the Federal Digital System
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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
1. The authority citation for part 668
is revised to read as follows:
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■
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.
2. Section 668.2 is amended by
revising the definition of ‘‘Full-time
student’’ in paragraph (b) to read as
follows:
■
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Jkt 238001
§ 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.
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(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 noncorrespondence coursework that meets
one-half of the institution’s requirement
for full-time students.
(Authority: 20 U.S.C. 1082 and 1088)
3. Section 668.8 is amended by
revising paragraphs (k) and (l) to read as
follows:
■
§ 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
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(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.
*
*
*
*
*
■ 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.
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§ 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 § 668.163(a)(1);
(iv) EFT (Electronic Funds Transfer)
means a transaction initiated
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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.
§ 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,
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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 § 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 § 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—
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(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
§ 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.
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§ 668.163
funds.
Maintaining and accounting for
(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
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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 interestbearing 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
§ 668.24.
§ 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.
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(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 thirdparty 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 § 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
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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
§ 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 § 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
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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
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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, factbased, 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
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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
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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, thirdparty 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;
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(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 upto-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
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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 thirdparty 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
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(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—
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(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-todate 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,
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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
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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—
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67199
(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
§ 668.22(a)(4) in accordance with the
provisions of § 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
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180 days after the date the institution
determines that the student withdrew,
as provided in § 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
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the Secretary before the end of this 45day 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
§ 668.165(b) for this purpose.
§ 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 postwithdrawal disbursement made in
accordance with § 668.22(a)(5), if an
institution credits a student’s account at
the institution with Direct Loan, Federal
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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.
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(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 § 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 § 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 § 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
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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.
§ 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
PO 00000
Frm 00077
Fmt 4701
Sfmt 9990
67201
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
§ 668.162(c) and (d), respectively.
§ 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
E:\FR\FM\30OCR3.SGM
30OCR3
Agencies
[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
[[Page 67126]]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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
[[Page 67128]]
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\
---------------------------------------------------------------------------
\3\ 80 FR at 28506.
---------------------------------------------------------------------------
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
[[Page 67129]]
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.
---------------------------------------------------------------------------
\4\ 80 FR at 28497-28499.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\10\ 80 FR at 28523.
---------------------------------------------------------------------------
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]'').
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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.
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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.
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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.
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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\
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\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.
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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.
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\67\ Consumers Union at 16.
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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\
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\68\ USPIRG at 32.
\69\ Center for Responsible Lending, ``Overdraft U.: Student
Bank Accounts Often Loaded with High Overdraft Fees,'' March 30,
2015.
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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\
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\70\ U.S. Department of Education, National Center for Education
Statistics, 2011-12 National Postsecondary Student Aid Study
(NPSAS:12).
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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]
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7% 3%
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Category