Vol. 80 Monday, 

No. 95 May 18, 2015 

Part III 

Department of Education 

34 CFR Part 668 

Program Integrity and Improvement; Proposed Rule 


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DEPARTMENT OF EDUCATION 

34 CFR Part 668 

[Docket ID ED–2015–OPE–0020] 

RIN 1840–AD14 

Program Integrity and Improvement 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Secretary proposes to 

amend the cash management regulations 

under subpart K and other sections of 

the Student Assistance General 

Provisions regulations issued under the 

Higher Education Act of 1965, as 

amended (HEA). These proposed 

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, these proposed regulations 

update other provisions in the cash 

management regulations under subpart 

K and otherwise amend the Student 

Assistance General Provisions. We also 

propose to clarify how previously 

passed coursework is treated for title IV 

eligibility purposes and streamline the 

requirements for converting clock hours 

to credit hours. 

DATES: We must receive your comments 

on or before July 2, 2015. 

ADDRESSES: Submit your comments 

through the Federal eRulemaking Portal 

or via postal mail, commercial delivery, 

or hand delivery. We will not accept 

comments submitted by fax or by email 

or those submitted after the comment 

period. To ensure that we do not receive 

duplicate copies, please submit your 

comments only once. In addition, please 

include the Docket ID at the top of your 

comments. 

If you are submitting comments 

electronically, we strongly encourage 

you to submit any comments or 

attachments in Microsoft Word format. 

If you must submit a comment in Adobe 

Portable Document Format (PDF), we 

strongly encourage you to convert the 

PDF to print-to-PDF format or to use 

some other commonly used searchable 

text format. Please do not submit the 

PDF in a scanned format. Using a printto-PDF format allows the Department to 

electronically search and copy certain 

portions of your submissions. 

• Federal eRulemaking Portal: Go to 

www.regulations.gov to submit your 

comments electronically. Information 

on using Regulations.gov, including 

instructions for accessing agency 

documents, submitting comments, and 

viewing the docket, is available on the 

site under ‘‘Are you new to the site?’’ 

• Postal Mail, Commercial Delivery, 

or Hand Delivery: The Department 

strongly encourages commenters to 

submit their comments electronically. 

However, if you mail or deliver your 

comments about the proposed 

regulations, address them to Jean-Didier 

Gaina, U.S. Department of Education, 

1990 K Street NW., Room 8055, 

Washington, DC 20006. 

Privacy Note: The Department’s 

policy is to make all comments received 

from members of the public available for 

public viewing in their entirety on the 

Federal eRulemaking Portal at 

www.regulations.gov. Therefore, 

commenters should be careful to 

include in their comments only 

information that they wish to make 

publicly available. 

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 Tony 

Gargano, U.S. Department of Education, 

1990 K Street NW., Room 8020, 

Washington, DC 20006–8502. 

Telephone: (202) 502–7519 or by email 

at: anthony.gargano@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: 

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. 

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 credit balances via 

a more convenient electronic means. 

However, as we describe in more detail 

elsewhere in this preamble, 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, many of 

the following practices were found: 

• Providers prioritizing 

disbursements to their own affiliated 

accounts over aid recipients’ preexisting 

bank accounts; 

• Providers and schools 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 

being 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 being charged 

onerous, confusing, or unavoidable fees 

in order to access their student aid 

funds or to otherwise use the account. 

As discussed in further detail under 

the heading ‘‘Fee provisions for T1 

accounts,’’ 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, 

that students are a captive audience 

subject to marketing from their 

institution, that the college card market 

is expanding, and given the concerns 

raised by existing practices, we believe 

regulatory action governing the 

disbursement of title IV, student aid is 

warranted. 

In addition, we include in the 

proposed regulations a number of minor 


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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 proposed 

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 proposed regulatory 

changes would result in more equitable 

treatment of student aid recipients. 

Summary of the Major Provisions of 

This Regulatory Action: 

The proposed regulations would— 

• Explicitly reserve the right for the 

Secretary 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) arrangement’’ and ‘‘tier two (T2) 

arrangement,’’ respectively; 

• Define a ‘‘T1 arrangement’’ as an 

arrangement between an institution and 

a third-party servicer that performs one 

or more of the functions associated with 

processing direct payments of title IV 

funds on behalf of the institution and 

that offers one or more financial 

accounts to students and parents; 

• 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 or their 

parents, with the regulatory 

consequences of T2 status to apply 

absent documentation from the 

institution that students or parents do 

not have credit balances at the 

institution; 

• Require institutions that have T1 or 

T2 arrangements to establish a student 

choice process that: Prohibits an 

institution from requiring students or 

parents to open an account into which 

their credit balances must be deposited; 

requires an institution to provide a list 

of account options that a student may 

choose from to receive credit balance 

funds, where each option is presented 

in a neutral manner and the student’s 

preexisting bank account is listed as the 

first, most prominent, and default 

option; and ensures electronic payments 

made to a student’s preexisting account 

are as timely as, and no more onerous, 

as payments deposited to an account 

made available pursuant to a T1 or T2 

arrangement; 

• Require that the institution obtain 

consent from the student or parent to 

open an account under a T1 or T2 

arrangement (1) before the institution 

shares personal information about that 

student or parent with the financial 

account provider, and (2) before the 

institution or account provider sends an 

access device to the student or parent or 

links the student’s ID card with 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, both 

prohibiting point-of-sale fees and 

overdraft fees charged to student and 

parent account holders, and providing 

students and parents with 30 days 

following a disbursement of title IV 

funds to access those funds without any 

fees; 

• Require that contracts governing T1 

or T2 arrangements and cost 

information related to those contracts 

are publicly disclosed; and 

• Require that institutions that have 

T1 or T2 arrangements establish and 

evaluate the contracts governing those 

arrangements in light of the best 

financial interests of students. 

The proposed regulations would 

also— 

• Allow an institution offering termbased programs to count, for enrollment 

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. 

Please refer to the Significant 

Proposed Regulations section of this 

preamble for a detailed discussion of the 

major provisions contained in the 

proposed regulations. 

Costs and Benefits: The benefits of 

these proposed regulations include 

providing information that will allow 

students and parents to make informed 

and beneficial decisions regarding the 

handling and distribution of their title 

IV funds. These disclosures will also 

help prevent students from being misled 

into believing that they are required to 

use a financial account or access device 

that has the apparent endorsement of 

their school. 

These proposed regulations would 

also benefit students by guaranteeing 

the right to receive their title IV credit 

balances at a financial institution and 

through an access device of their choice. 

Students who decide to choose accounts 

with lower fees, and who would have 

otherwise been steered toward a highercost account, will save money and be 

able to use more of their title IV aid for 

educational expenses. Students who 

open accounts covered by these 

regulations would benefit from having 

more surcharge-free ATMs from which 

to access their title IV credit balances. 

The proposed regulations also would 

help protect both students and parents 

from deceptive marketing practices 

aimed at encouraging them to do 

business with a particular financial 

institution in order to access title IV 

funds. 

There would be costs incurred by 

postsecondary and financial institutions 

under these proposed regulations. Some 

postsecondary institutions and financial 

institutions that do not choose to price 

their products competitively or that do 

not justify higher prices (with, for 

example, superior customer service, 

better account features, free banking 

services, the elimination of certain fees) 

could lose future customers as students 

or parents decide to use lower-cost 

accounts as a result of fee disclosures. 

The T1 arrangement fee provisions will 

also have cost implications for affected 

financial institutions and for 

institutions that currently receive freeor reduced-price title IV administrative 

services (or other remuneration), and 

will likely lower the revenue for schools 

when financial account providers’ 

ability to pass costs on to title IV 

recipients is limited under these 

regulations. Some of these costs will 

include performing due diligence 

reviews to ensure that contracts are 

made in the best interests of students, 

the costs of providing surcharge-free 

ATM network access, and the costs of 

presenting credit balance recipients 

with a list of neutral account options. 

Other costs would depend upon aid 

recipient behavior, and the Department 

expects that many financial account 

providers may earn less from their 

student accounts under the proposed 

regulations. The provisions regarding 

convenient access benefit students and 

could also have cost implications for 

some financial account providers and 

institutions. Financial account 

providers could have to deploy 

additional ATMs or pay fees to ATM 

network providers to comply with these 

proposed requirements. 

Some institutions with T1 or T2 

arrangements could incur costs when 

establishing a student choice process 

that would allow students to select 

among a list of available accounts into 

which title IV credit balances would be 

disbursed. Institutions would also likely 

incur some paperwork burden related to 


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making fee disclosures, and students 

would incur an additional paperwork 

burden when selecting an option for 

how to receive their credit balance from 

a list of options. 

Invitation to Comment: We invite you 

to submit comments regarding the 

proposed regulations. In particular, we 

request comment on: 

• Whether proposed methods for 

prorating institutional charges under 

§ 668.164(c)(5) are appropriate; 

• How an institution should disclose 

the costs of books and supplies that are 

included as part of tuition and fees 

under § 668.164(c)(2) and frequency of 

those disclosures; 

• Whether the option to receive a 

check should continue to be 

affirmatively offered to students as 

provided under proposed 

§ 668.164(d)(4)(i)(B)(4); 

• Whether there is a need to establish 

a minimum number of credit balance 

recipients at an institution before the 

institution must comply with the 

provisions of proposed § 668.164(f)(4); 

• Whether the personal information 

that an institution may provide before a 

student or parent consents to open a 

financial account, as provided under 

§ 668.164(e)(2)(i)(A) and (f)(4)(i)(A), is 

sufficient to meet the needs of a servicer 

or financial institution; 

• Whether the Department should 

take more proscriptive action than the 

one proposed in this NPRM to prevent 

abusive marketing practices with 

respect to institutional devices such as 

student IDs and associated financial 

accounts; 

• Whether 30 days following a 

disbursement is an appropriate 

timeframe to allow a title IV aid 

recipient an opportunity to reasonably 

access aid dollars free of charge as 

provided under proposed 

§ 668.164(e)(2)(iii)(B)(4); 

• Whether, as proposed in 

§ 668.164(e)(2)(vii) and (f)(4)(vii), it 

would be in the best financial interests 

of students to require institutions that 

have a T1 or T2 arrangement to 

periodically conduct reasonable due 

diligence reviews to ascertain whether 

the fees imposed under the arrangement 

are excessive; and 

• Whether the proposed regulations 

would require transmission of 

information that any other agency or 

authority of the United States gathers or 

makes available. 

Please refer to the relevant portions of 

the Significant Proposed Regulations 

section of this preamble for more detail 

on each of the issues for which we 

specifically request comment. 

To ensure that your comments have 

maximum effect in developing the final 

regulations, we urge you to identify 

clearly the specific section or sections of 

the proposed regulations that each of 

your comments addresses, and provide 

relevant information and data, as well as 

other supporting materials in the 

request for comment, even when there 

is no specific solicitation of data. We 

also urge you to arrange your comments 

in the same order as the proposed 

regulations. Please do not submit 

comments outside the scope of the 

specific proposals and proposed 

regulations in this notice of proposed 

rulemaking, as we are not required to 

respond to comments that are outside of 

the scope of the proposed rule. See 

ADDRESSES for instructions on how to 

submit comments. 

We invite you to assist us in 

complying with the specific 

requirements of Executive Orders 12866 

and 13563 and their overall requirement 

of reducing regulatory burden that 

might result from the proposed 

regulations. Please let us know of any 

further ways we could reduce potential 

costs or increase potential benefits 

while preserving the effective and 

efficient administration of the 

Department’s programs and activities. 

During and after the comment period, 

you may inspect all public comments 

about the proposed regulations by 

accessing Regulations.gov. You may also 

inspect the comments in person in room 

8055, 1990 K Street NW., Washington, 

DC, between 8:30 a.m. and 4 p.m., 

Washington, DC time, Monday through 

Friday of each week except Federal 

holidays. If you want to schedule time 

to inspect comments, please contact the 

person listed under FOR FURTHER

INFORMATION CONTACT. 

Assistance to Individuals with 

Disabilities in Reviewing the 

Rulemaking Record: On request, we will 

provide an appropriate accommodation 

or auxiliary aid to an individual with a 

disability who needs assistance to 

review the comments or other 

documents in the public rulemaking 

record for the proposed regulations. If 

you want to schedule an appointment 

for this type of accommodation or 

auxiliary aid, please contact the person 

listed under FOR FURTHER INFORMATION

CONTACT. 

Public Participation 

On May 1, 2012, we published a 

notice in the Federal Register (77 FR 

25658) announcing our intent to 

establish a negotiated rulemaking 

committee under section 492 of the HEA 

to develop proposed regulations 

designed to prevent fraud and otherwise 

ensure proper use of title IV Federal 

Student Aid program funds, especially 

within the context of current 

technologies. In particular, we 

announced our intent to propose 

regulations to address the use of debit 

cards and other banking products for 

disbursing title IV Federal Student Aid 

program funds, and to improve and 

streamline the campus-based Federal 

Student Aid programs. On April 16, 

2013, we published a notice in the 

Federal Register (78 FR 2247), which 

we corrected on April 30, 2013 (78 FR 

25235), announcing additional topics 

for consideration for action by a 

negotiated rulemaking committee. The 

following topics for consideration were 

identified: Cash management of funds 

provided under the title IV Federal 

Student Aid programs; State 

authorization for programs offered 

through distance education or 

correspondence education; State 

authorization for foreign locations of 

institutions located in a State; clock-tocredit-hour conversion; gainful 

employment; changes to the campus 

safety and security reporting 

requirements in the Clery Act made by 

the Violence Against Women Act; and 

the definition of ‘‘adverse credit’’ for 

borrowers in the Federal Direct PLUS 

Loan program. 

In that notice, we announced three 

public hearings at which interested 

parties could comment on the topics 

suggested by the Department and could 

suggest additional topics for 

consideration for action by a negotiated 

rulemaking committee. We also invited 

parties unable to attend a public hearing 

to submit written comments on the 

additional topics and to submit other 

topics for consideration. On May 13, 

2013, we announced in the Federal 

Register (78 FR 27880) the addition of 

a fourth hearing. The hearings were held 

on May 21, 2013, in Washington, DC; 

May 23, 2013, in Minneapolis, 

Minnesota; May 30, 2013, in San 

Francisco, California; and June 4, 2013, 

in Atlanta, Georgia. Transcripts from the 

public hearings are available at http://

www2.ed.gov/policy/highered/reg/

hearulemaking/2012/index.html. 

Written comments submitted in 

response to the April 16, 2013, notice 

may be viewed through the Federal 

eRulemaking Portal at 

www.regulations.gov, within docket ID 

ED–2012–OPE–0008. You can link to 

the ED–2012–OPE–0008 docket as a 

related docket inside the ED–2013– 

OPE–0124 docket associated with this 

notice of proposed rulemaking. 

Alternatively, individuals can enter 

docket ID ED–2012–OPE–0008 in the 

search box to locate the appropriate 

docket. Instructions for finding 


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comments are also available on the site 

under ‘‘How to Use Regulations.gov’’ in 

the Help section. 

Negotiated Rulemaking 

Section 492 of the HEA, 20 U.S.C. 

1098a, requires the Secretary to obtain 

public involvement in the development 

of proposed regulations affecting 

programs authorized by title IV of the 

HEA. After obtaining advice and 

recommendations from the public, 

including individuals and 

representatives of groups involved in 

the title IV, HEA programs, in most 

cases the Secretary must subject the 

proposed regulations to a negotiated 

rulemaking process. If negotiators reach 

consensus on the proposed regulations, 

the Department agrees to publish 

without alteration a defined group of 

regulations on which the negotiators 

reached consensus unless the Secretary 

reopens the process or provides a 

written explanation to the participants 

stating why the Secretary has decided to 

depart from the agreement reached 

during negotiations. Further information 

on the negotiated rulemaking process 

can be found at: http://www2.ed.gov/

policy/highered/reg/hearulemaking/

hea08/neg-reg-faq.html. 

On November 20, 2013, we published 

a notice in the Federal Register (78 FR 

69612) announcing our intent to 

establish a negotiated rulemaking 

committee to prepare proposed 

regulations to address program integrity 

and improvement issues for the Federal 

Student Aid programs authorized under 

title IV of the HEA. That notice set forth 

a schedule for the committee meetings 

and requested nominations for 

individual negotiators to serve on the 

negotiating committee. 

The Department sought negotiators to 

represent the following groups: 

Students; legal assistance organizations 

that represent students; consumer 

advocacy organizations; State higher 

education executive officers; State 

attorneys general and other appropriate 

State officials; business and industry; 

institutions of higher education eligible 

to receive Federal assistance under title 

III, parts A, B, and F and title V of the 

HEA, which include Historically Black 

Colleges and Universities (HBCUs), 

Hispanic-Serving Institutions, American 

Indian Tribally Controlled Colleges and 

Universities, Alaska Native and Native 

Hawaiian-Serving Institutions, 

Predominantly Black Institutions, and 

other institutions with a substantial 

enrollment of needy students as defined 

in title III of the HEA; two-year public 

institutions of higher education; fouryear public institutions of higher 

education; private, non-profit 

institutions of higher education; private, 

for-profit institutions of higher 

education; regional accrediting agencies; 

national accrediting agencies; 

specialized accrediting agencies; 

financial aid administrators at 

postsecondary institutions; business 

officers and bursars at postsecondary 

institutions; admissions officers at 

postsecondary institutions; institutional 

third-party servicers who perform 

functions related to the title IV Federal 

Student Aid programs (including 

collection agencies); State approval 

agencies; and lenders, community 

banks, and credit unions. The 

Department considered the nominations 

submitted by the public and chose 

negotiators who would represent the 

various constituencies. 

The negotiating committee included 

the following members: 

Chris Lindstrom, U.S. Public Interest 

Research Group, and Maxwell John Love 

(alternate), United States Student 

Association, representing students. 

Whitney Barkley, Mississippi Center for 

Justice, and Toby Merrill (alternate), Project 

on Predatory Student Lending, The Legal 

Services Center, Harvard Law School, 

representing legal assistance organizations 

that represent students. 

Suzanne Martindale, Consumers Union, 

representing consumer advocacy 

organizations. 

Carolyn Fast, Consumer Frauds and 

Protection Bureau, New York Attorney 

General’s Office, and Jenny Wojewoda 

(alternate), Massachusetts Attorney General’s 

Office, representing State attorneys general 

and other appropriate State officials. 

David Sheridan, School of International & 

Public Affairs, Columbia University in the 

City of New York, and Paula Luff (alternate), 

DePaul University, representing financial aid 

administrators. 

Gloria Kobus, Youngstown State 

University, and Joan Piscitello (alternate), 

Iowa State University, representing business 

officers and bursars at postsecondary 

institutions. 

David Swinton, Benedict College, and 

George French (alternate), Miles College, 

representing minority serving institutions. 

Brad Hardison, Santa Barbara City College, 

and Melissa Gregory (alternate), Montgomery 

College, representing two-year public 

institutions. 

Chuck Knepfle, Clemson University, and J. 

Goodlett McDaniel (alternate), George Mason 

University, representing four-year public 

institutions. 

Elizabeth Hicks, Massachusetts Institute of 

Technology, and Joe Weglarz (alternate), 

Marist College, representing private, nonprofit institutions. 

Deborah Bushway, Capella University, and 

Valerie Mendelsohn (alternate), American 

Career College, representing private, forprofit institutions. 

Casey McGuane, Higher One, and Bill 

Norwood (alternate), Heartland Payment 

Systems, representing institutional thirdparty servicers. 

Russ Poulin, WICHE Cooperative for 

Educational Technologies, and Marshall Hill 

(alternate), National Council for State 

Authorization Reciprocity Agreements, 

representing distance education providers. 

Dan Toughey, TouchNet, and Michael 

Gradisher (alternate), Pearson Embanet, 

representing business and industry. 

Paul Kundert, University of Wisconsin 

Credit Union, and Tom Levandowski 

(alternate), Wells Fargo Bank Law 

Department, Consumer Lending & Corporate 

Regulatory Division, representing lenders, 

community banks, and credit unions. 

Leah Matthews, Distance Education and 

Training Council, and Elizabeth Sibolski 

(alternate), Middle States Commission on 

Higher Education, representing accrediting 

agencies. 

Carney McCullough, U.S. Department of 

Education, representing the Department. 

Pamela Moran, U.S. Department of 

Education, representing the Department. 

The negotiated rulemaking committee 

met to develop proposed regulations on 

February 19–21, 2014, March 26–28, 

2014, and April 23–25, 2014. During the 

March session, the Department 

proposed adding a negotiated 

rulemaking session to the schedule to 

give the negotiators more time to 

consider the issues and reach consensus 

on proposed regulatory language. The 

negotiators agreed to add a fourth and 

final session. On April 11, 2014, we 

published in the Federal Register (79 

FR 20139) a notice announcing the 

addition of a fourth session. That final 

session was held on May 19–20, 2014. 

At its first meeting, the negotiating 

committee reached agreement on its 

protocols and proposed agenda. These 

protocols provided, among other things, 

that the committee would operate by 

consensus. Consensus means that there 

must be no dissent by any member in 

order for the committee to have reached 

agreement. Under the protocols, if the 

committee reached a final consensus on 

all issues, the Department would use the 

consensus-based language in its 

proposed regulations. Furthermore, the 

Department would not alter the 

consensus-based language of its 

proposed regulations unless the 

Department reopened the negotiated 

rulemaking process or provided a 

written explanation to the committee 

members regarding why it decided to 

depart from that language. 

During the first meeting, the 

negotiating committee agreed to 

negotiate an agenda of six issues related 

to student financial aid. These six issues 

were: Clock-to-credit-hour conversion; 

State authorization of distance 

education; State authorization of foreign 

locations of domestic institutions; cash 

management; retaking coursework; and 

PLUS loan adverse credit history. Under 

the protocols, a final consensus would 


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1USPIRG. ‘‘The Campus Debit Card Trap.’’ [Pages 

4–5] (2012), available at www.uspirg.org/sites/pirg/ 

files/reports/thecampusdebitcardtrap_may2012_

uspef.pdf. With subsequent references ‘‘USPIRG at 

[page number].’’ 

2Public Law 111–24. 

have to include consensus on all six 

issues. 

During the meeting, the Department 

explained that it planned to include the 

proposed regulations that would be 

published after completion of the 

negotiated rulemaking process in two 

separate notices of proposed rulemaking 

(NPRMs). One NPRM would contain the 

proposed regulations regarding the 

definition of adverse credit history for 

PLUS loans. The second NPRM would 

contain the remaining topics. The 

Department has already published an 

NPRM and final regulations regarding 

the PLUS loan issues. This NPRM 

addresses the remaining issues, except 

for State authorization of distance 

education and State authorization of 

foreign locations of domestic 

institutions. While the Department 

continues to examine these two issues 

and work with the higher education 

community to explore how to address 

these important topics, we do not want 

those deliberations to delay the 

publication of regulations necessary to 

address cash management, clock-tocredit-hour conversion, and retaking 

coursework. For more information on 

the negotiated rulemaking sessions, 

please visit: http://www2.ed.gov/policy/ 

highered/reg/hearulemaking/2012/

programintegrity.html#info. 

Summary of Proposed Changes 

The proposed regulations would— 

• Establish and modify the 

definitions of key terms applicable to 

subpart K; 

• Remove outdated references to 

programs no longer authorized, 

especially with respect to the Federal 

Family Education Loan (FFEL) program; 

• Require that an institution exercise 

the level of care and diligence required 

of a fiduciary with regard to managing 

title IV, HEA program funds; 

• Remove the reference to the just-intime payment method, and rename the 

‘‘cash monitoring payment method’’ as 

the ‘‘heightened cash monitoring 

payment method’’; 

• Require institutions placed on the 

reimbursement or heightened cash 

monitoring payment methods to credit a 

student ledger account for the amount of 

title IV funds the student is eligible to 

receive, and pay any credit balance due 

to that student before seeking 

reimbursement from the Department; 

• Require institutions to maintain 

title IV funds in an insured depository 

account consistent with guidance issued 

by OMB on December 26, 2013, codified 

at 2 CFR chapter I, 200, et al., Uniform 

Administrative Requirements, Cost 

Principles, and Audit Requirements for 

Federal Awards; 

• Provide that, with limited 

exceptions, an institution must disburse 

during a payment period the amount of 

title IV funds that a student or parent is 

eligible to receive for that payment 

period; 

• Provide that an institution may 

credit a student’s ledger account to pay 

for allowable charges associated with a 

payment period; 

• Provide that an institution may 

include the cost of books and supplies 

as part of tuition and fees; 

• 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,’’ respectively; 

• Define a ‘‘T1 arrangement’’ as an 

arrangement between an institution and 

a third-party servicer that performs one 

or more of the functions associated with 

processing direct payments of title IV 

funds on behalf of the institution and 

that offers one or more financial 

accounts to students and parents; 

• 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 or their 

parents, with the regulatory 

consequences of T2 status to apply 

absent documentation from the 

institution that students or parents do 

not have credit balances at the 

institution; 

• Require institutions that have T1 or 

T2 arrangements to establish a student 

choice process that: Prohibits an 

institution from requiring students or 

parents to open a certain account into 

which their credit balances are 

deposited; requires an institution to 

provide a list of account options that a 

student may choose from to receive 

credit balance funds, where each option 

is presented in a neutral manner and the 

student’s preexisting bank account is 

listed as the first, most prominent, and 

default option; and ensures electronic 

payments made to a student’s 

preexisting account are as timely as, and 

no more onerous to the student than, 

payments deposited to an account made 

available pursuant to a T1 or T2 

arrangement; 

• Require that the institution obtain 

consent from the student or parent to 

open an account under a T1 or T2 

arrangement (1) before the institution 

shares personal information about that 

student or parent with the financial 

account provider, and (2) before the 

institution or provider sends an access 

device to the student or parent or links 

the student’s ID card with a financial 

account; 

• Mitigate fees incurred by student 

aid recipients by requiring reasonable 

access to surcharge-free ATMs, and, for 

accounts offered under a T1 

arrangement, both prohibiting point-ofsale fees and overdraft fees charged to 

students and parents, and providing 

students and parents with 30 days 

following a disbursement of title IV 

funds to access those funds without any 

fees; 

• Require that contracts governing T1 

or T2 arrangements and cost 

information related to those contracts 

are publicly disclosed; 

• Require that institutions that have 

T1 or T2 arrangements establish and 

evaluate the contracts governing those 

arrangements in light of the best 

financial interests of students; and 

• Prohibit an institution under the 

reimbursement or heightened cash 

monitoring payment methods from 

holding credit balance funds on behalf 

of a student or parent. The proposed 

regulations would also— 

• Allow an institution offering termbased programs to count, for enrollment 

purposes, courses a student is retaking 

that the student previously passed, up 

to one repetition per course; 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. 

Significant Proposed Regulations 

Background 

Over the past several years, a 

confluence of factors has significantly 

altered the landscape of financial 

products offered to students on college 

campuses. 

In 2009, due largely to concerns 

raised by consumer advocates and 

students related to the marketing 

practices and financial incentives 

contained in contractual relationships 

between institutions and credit card 

providers,1 Congress passed, and the 

President signed, the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (CARD Act).2

The CARD Act made a number of 

significant changes to the consumer 

protections available to college students 


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3United States Government Accountability 

Office. ‘‘College Debit Cards: Actions Needed to 

Address ATM Access, Student Choice, and 

Transparency.’’ [Page 32] (2014), available at 

www.gao.gov/assets/670/660919.pdf. With 

subsequent references ‘‘GAO at [page number].’’ 

4Center on Budget and Policy Priorities. ‘‘Recent 

Deep State Higher Education Cuts May Harm 

Students and the Economy for Years to Come.’’ 

[Page 13](2013), available at: www.cbpp.org/files/3- 

19-13sfp.pdf. 

5USPIRG at 5. 

6Consumers Union. ‘‘Campus Banking Products: 

College Students Face Hurdles to Accessing Clear 

Information and Accounts that Meet Their Needs.’’ 

[Page 1](2014), available at: consumersunion.org/

wp-content/uploads/2014/08/Campus_banking_

products_report.pdf. With subsequent references 

‘‘Consumers Union at [page number].’’ 

7Consumer Financial Protection Bureau 

presentation. ‘‘Perspectives on Financial Products 

Marketed to College Students.’’ [Page 5] (2014), 

available at: www2.ed.gov/policy/highered/reg/

hearulemaking/2014/pii2-cfpb-presentation.pdf. 

With subsequent references ‘‘CFPB Presentation at 

[Page number].’’ 

8Office 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].’’ 

9Committee on Education and Labor. ‘‘House 

Report Accompanying HR 4137, the College 

Opportunity and Affordability Act of 2007.’’ [Page 

240] (2007), available at https://www.congress.gov/ 

110/crpt/hrpt500/CRPT-110hrpt500.pdf. 

10 GAO at 12. 11 GAO at 1. 12 Ibid. at 8. 13 Ibid. 14USPIRG at 11. 15 GAO at 10. 16 GAO at 12. 17USPIRG at 6. 

by authorizing new rules to curtail 

overzealous credit card marketing 

practices on campus, impose 

transparency requirements (the contract 

must be annually sent to the Consumer 

Financial Protection Bureau (CFPB)), 

ban ‘‘free’’ gifts for signing up for an 

account, and require consumers under 

the age of 21 to show ability to pay or 

get a co-signer in order to get a credit 

card.3

A second product widely offered to 

students was a recommended or 

‘‘preferred’’ student loan. In 2007, thenAttorney General for New York Andrew 

Cuomo led an investigation into 

financial incentives provided to colleges 

for steering students into certain types 

of student loans. As a result, Congress, 

as a part of the Higher Education 

Opportunity Act of 2008, banned gifts 

and revenue sharing as part of the socalled ‘‘preferred lender list’’ reforms. In 

2010, Congress passed the President’s 

student loan reform, moving to a 100 

percent Direct Loan program for Federal 

student loans. 

Finally, over the past several years, 

States have made significant cuts to 

higher education funding, resulting in 

budget shortfalls that have fostered an 

environment of tuition increases and 

other measures shifting costs to students 

which has coincided with the 

proliferation of college debit and 

prepaid card agreements between 

institutions and financial account 

providers.4

The combination of funding cuts and 

limitations on cost-shifting to students 

through the CARD Act and preferred 

lender list reforms has created an 

environment where some colleges are 

increasingly searching for revenueincreasing strategies, especially those 

that can be borne by students. This has 

led to what the United States Public 

Interest Research Group (USPIRG) 

referred to as ‘‘the next financial frontier 

for banks and financial firms’’ that 

affects students, especially those 

receiving aid—the proliferation of 

marketing of campus debit and prepaid 

cards to students in exchange for 

monetary benefits to schools, often in 

the form of significant remuneration or 

the low- or no-cost administration of 

financial aid disbursement services.5

Consumers Union stated ‘‘as regulations 

around the marketing of private student 

loans and school-branded credit cards 

have tightened in recent years, financial 

firms have increasingly marketed 

campus banking products to colleges, 

universities, and their students.’’ 6 CFPB 

has recognized this market 

transformation as well, stating that, 

‘‘financial product marketing 

partnerships have shifted from credit 

cards and student loans to student 

checking, debit, and prepaid card 

products.’’ 7 Schools officials have 

admitted that ‘‘outsourcing eliminated a 

school process that consumed 

significant resources, which has been 

especially important in recent years as 

schools have faced difficult fiscal 

conditions and staffing reductions.’’ 8

Credit Balances 

As the House report on the Higher 

Education Opportunity Act of 2008 

stated, ‘‘[t]he nation’s financial aid 

system exists for a single purpose: To 

serve students and their families.’’ 9 The 

title IV, HEA programs, most 

prominently Pell Grants and Direct 

Loans, are designed to help students pay 

for the costs of attending college. 

The amount of Federal financial aid 

awarded to students and parents is 

determined, in part, on the basis of an 

enrolled student’s cost of attendance. 

This includes charges typically paid 

directly to the school (such as tuition, 

fees, and on-campus room and board), 

as well as other costs such as books and 

supplies, housing, transportation, and 

dependent care. Typically, an 

institution applies the total amount of a 

student’s aid against institutional 

charges, then releases a ‘‘credit balance’’ 

to the student in cases where the 

amount of aid exceeds the amount of 

charges. 

When we refer to a credit balance in 

this document, we are referring to the 

remaining amount of title IV aid after all 

allowable charges, including tuition and 

fees, have been paid to the institution. 

At lower cost institutions, like 

community colleges, that enroll lowerincome and historically 

underrepresented students, a higher 

percentage of students receive credit 

balances.10

The College Banking Market 

In the past several years, especially in 

light of tightening budgets and fewer 

revenue-generating credit card 

partnerships and student loans, ‘‘a 

growing number of schools have begun 

offering banking products to their 

students in the form of debit and 

prepaid cards issued through 

agreements with financial services 

providers.’’ 11 The Government 

Accountability Office (GAO) found that 

about 11 percent of colleges and 

universities participating in the Federal 

Student Aid programs had agreements 

with financial account providers.12

While this percentage is relatively low, 

the size of the institutions that have 

such agreements are generally large; 

specifically, about 40 percent of all 

postsecondary students are enrolled in 

institutions with these agreements, 

although not all students at such 

institutions use the cards.13 14

The agreements are more typical at 

public institutions—29 percent of 

public schools had such agreements, 

compared to 6.5 percent of nonprofit 

not-for-profit schools and 3.5 percent of 

for-profit schools.15 Almost half of all 

schools that use college-affiliated debit 

or prepaid cards to disburse financial 

aid and other payments to students are 

community colleges.16 According to a 

USPIRG analysis, ‘‘32 of the 50 largest 

public 4-year universities and 26 of the 

[largest] 50 community colleges’’ had a 

campus debit or prepaid card contract 

with a bank or financial firm.17

As these agreements have begun to 

proliferate, one provider in particular 

has become the predominant actor in 

the market. ‘‘As of July 2013, one 

provider, Higher One Holdings, Inc., 

held about a 57 percent share of the 

college card market, as measured by 

number of agreements between schools 

and card providers, as well as number 

of students at schools with agreements,’’ 


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18 GAO at 13. 19Consumers Union at 4. 20 GAO at 13. 21Consumers Union at 10. 22National Association of College and University 

Business Officers. ‘‘Student Refunds and Personal 

Banking at Colleges and Universities.’’ [Page 1] 

(2014), available at www.nacubo.org/Documents/

BusinessPolicyAreas/NACUBOSURVEY.pdf. With 

subsequent references ‘‘NACUBO at [Page 

number].’’ 

23NACUBO at 2. 

24The statutory authority cited in the following 

paragraphs is relevant to all of the current 

regulations and proposed regulations described in 

this preamble except where otherwise noted. 

according to a GAO analysis.18 This 

represents more than 800 campuses that 

use its services to disburse aid dollars.19

The balance of the market is comprised 

mainly of seven other bank and 

nonbank providers, including U.S. 

Bank, Citibank, PNC, and Wells 

Fargo.20 21

According to a National Association 

of College and University Business 

Officers (NACUBO) survey polling 

roughly 400 institutional respondents, 

‘‘19 [percent] of surveyed institutions 

offer a credit balance on a stored value 

or debit card, 58 [percent] offer an 

[electronic funds transfer (EFT)] to a 

student’s preexisting bank account, and 

10 [percent] offer an EFT to a bank 

account at a school-selected bank or 

vendor.’’ 22 The survey found that ‘‘26 

[percent] [of institutions] reported that 

they contract with a third-party vendor 

to process credit balance refunds; a 

third of those that do not are 

considering doing so in the future.’’ 23

Troubling Practices 

The proliferation of these agreements 

has coincided with a number of 

troubling practices that were first 

reported by USPIRG and reiterated and 

expanded upon in reports from GAO, 

the Department’s Office of Inspector 

General (OIG), Consumers Union, and in 

inquiries from members of Congress. 

These practices have also resulted in 

adverse legal actions, especially against 

the largest financial account provider, 

Higher One. Each practice is discussed 

in detail in the relevant section of the 

preamble. 

These reports made several 

recommendations, which include: 

Ensuring timely delivery of credit 

balances to students regardless of 

account sponsorship; providing a 

meaningful choice of how to receive 

title IV dollars, especially when a 

student has a preexisting bank or 

prepaid account; clarifying the nature of 

implied institutional endorsement of 

certain accounts; ensuring that private 

student information is not released prior 

to receiving students’ consent to do so; 

providing neutral account disclosures to 

enable students to make informed 

choices about account selection; and 

giving aid recipients the ability to access 

their student aid balances conveniently 

and without onerous, confusing, or 

unavoidable fees. 

In view of the reports from consumer 

groups and government organizations, 

the feedback we received from the 

public through hearings and negotiated 

rulemaking, and after meeting with staff 

from the FDIC, Office of the Comptroller 

of the Currency and Bureau of the Fiscal 

Service at the U.S. Department of the 

Treasury (Treasury), and CFPB, we 

believe it is critical to address the 

troubling practices arising from college 

card agreements. Moreover, given the 

number of students affected by these 

agreements, the amount of taxpayerfunded title IV aid at stake, and the 

expanding breadth of the college card 

market, we believe this regulatory action 

is necessary. The provisions in this 

NPRM regulate institutions and thirdparty servicers that administer the title 

IV, HEA programs, and do not regulate 

banking entities. To the extent that these 

regulations have a material impact on 

financial account providers, they do so 

indirectly and only for those providers 

that choose to engage with institutions 

that disburse title IV credit balances 

electronically. 

Other Provisions 

We are proposing a number of more 

minor changes in subpart K related to 

the management of title IV, HEA 

program funds generally. In addition, 

we have also removed outdated cross 

references and references to programs 

that are no longer authorized, the most 

prominent of which is the FFEL 

program. 

There are two additional issues that 

were raised as part of the program 

integrity and improvement negotiated 

rulemaking that are addressed in the 

proposed regulations: (1) Retaking 

coursework and (2) clock-to-credit-hour 

conversion rules. These issues, which 

are distinct from the cash management 

topics that comprise the majority of the 

proposed regulations, are discussed in 

the final portion of this preamble. 

We discuss substantive issues under 

the sections of the regulations to which 

they pertain. Generally, we do not 

address regulatory provisions that are 

technical or otherwise minor in effect. 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

Statutory Authority 24

Section 401(e) of the HEA, regarding 

Pell Grants, provides 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.’’ 

It adds 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. . . .’’ 

Section 401(a)(1) of the HEA provides 

that the Secretary shall pay ‘‘to each 

institution such sums as may be 

necessary to pay each eligible student 

. . . a Pell Grant.’’ It also provides for 

the Department to pay institutions the 

necessary sums prior to the start of each 

payment period; but, in addition, 

authorizes the Secretary to ‘‘determine[ 

] and publish in the Federal Register 

with an opportunity for comment, an 

alternative payment system that 

provides payments to institutions in an 

accurate and timely manner, except that 

this sentence shall not be construed to 

limit the authority of the Secretary to 

place an institution on a reimbursement 

system of payment.’’ 

Section 452(c) of the HEA, regarding 

Direct Loans, states that loan funds 

‘‘shall be paid and delivered to an 

institution by the Secretary prior to the 

beginning of the payment period 

established by the Secretary in a manner 

that is consistent with payment and 

delivery of Federal Pell Grants. . . .’’ 

Section 487 of the HEA requires, as a 

prerequisite to title IV participation, that 

an otherwise eligible institution enter 

into a program participation agreement 

with the Secretary conditioning its 

initial and continuing participation 

upon compliance with requirements 

that, among other things, the institution 

‘‘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 

it ‘‘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.’’ 

The HEA also contains numerous 

provisions to ensure that students 

receive the title IV awards for which 

they are eligible for under the statute. 

For example, section 401(f)(1) of the 

HEA provides that ‘‘Each student 

financial aid administrator [at each 

institution] shall . . . (C) make the 

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 


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25 61 FR 60603 (November 29, 1996). 

26 72 FR 62028 (November 1, 2007). 

27 59 FR 22441 (April 29, 1994). 

28As discussed elsewhere, the CFPB has 

proposed amending its definition of ‘‘access 

device’’ at 12 CFR 1005.2 to include prepaid 

accounts, but a final rule has not yet been issued. 

29Section 19(b)(1)(A) of the Federal Reserve Act. 

30 Kundert and Levandowski. Memo to 

Negotiated Rulemaking Committee. [Page 2] (2014), 

available at www2.ed.gov/policy/highered/reg/

hearulemaking/2014/pii2-kl4- 

draftlanguagechgs.pdf. 

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)(3) of the 

HEA requires Direct Loan program 

participation agreements to provide that 

the institution ‘‘accepts responsibility 

and financial liability stemming from its 

failure to perform its functions pursuant 

to the agreement.’’ 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.’’ 

Under section 455(a)(1) of the HEA, 

the Secretary may prescribe such 

regulations as may be necessary to carry 

out the purposes of the Direct Loan 

program, including regulations 

applicable to third-party servicers and 

for the assessment against such servicers 

of liabilities for program violations of 

the program regulations against such 

servicers, to establish minimum 

standards with respect to sound 

management and accountability of those 

the Direct Loan programs. 

More broadly, 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. 

The Department has consistently 

interpreted the HEA as authorizing 

regulation of the matters addressed in 

the proposed regulations,25 including 

the 2007 cash management 

regulations 26 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.27

Definitions (§ 668.161(a)) 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

Definitions (§ 668.161(a)) 

Current Regulations: Section 

668.161(a) provides definitions for key 

terms used in subpart K of the General 

Provisions Regulations. It does not 

currently include definitions for the 

terms ‘‘access device,’’ ‘‘depository 

account,’’ ‘‘electronic funds transfer,’’ 

‘‘financial account,’’ ‘‘financial 

institution,’’ ‘‘or a ‘‘student ledger 

account.’’ 

Access Device 

Proposed Regulations: We propose to 

add the term ‘‘access device’’ to 

§ 668.161(a) and define an access device 

as ‘‘a card, code, or other means of 

access to a financial account, or any 

combination thereof, that may be used 

by the student or parent to initiate 

electronic fund transfers.’’ 

Reasons: The proposed definition of 

‘‘access device’’ borrows from the 

definition of the term in Consumer 

Financial Protection Bureau regulations 

at 12 CFR 1005.2(a)(1), except that we 

propose to substitute ‘‘financial 

account’’ for ‘‘consumer account,’’ and 

‘‘student or parent’’ for ‘‘consumer.’’ 

The inclusion of ‘‘financial account,’’ 

which would be a defined term under 

these proposed regulations, not only 

tailors the definition of ‘‘access device’’ 

to the current context, but, like the 

definition of ‘‘financial account,’’ is 

inclusive, and therefore, unlike current 

CFPB rules, includes all prepaid card 

accounts.28 Our intent is to capture all 

types of access devices to all types of 

accounts into which a student or parent 

may wish to deposit his or her title IV 

credit balance. 

Furthermore, the proposed definition 

of ‘‘access device’’ has the advantage of 

providing a concise way of referring to 

the different types of current and future 

tools students could use to access their 

financial accounts. During negotiated 

rulemaking, negotiators expressed 

concerns that our current terminology 

might not include new technologies 

students could use to access their funds. 

Since technology in this field is 

advancing rapidly, we were also 

concerned that the terminology could 

become outdated unless it referred to 

financial tools broadly. To address these 

concerns, the proposals that we 

circulated during negotiated rulemaking 

referred to ‘‘access devices’’ in 

conjunction with a prepaid card or debit 

card. However, to simplify the 

regulations, we simply define and use 

the term access device to mean both 

prepaid cards and debit cards. It is our 

intent to include new technologies in 

this definition, such as digital wallets 

and other technological advances that 

may emerge, so that we do not need to 

amend the regulations by listing the 

specific types of tools students may use 

to access their accounts. 

Depository Account 

Proposed Regulations: We propose to 

add the term ‘‘depository account’’ and 

to define it as ‘‘an account at a 

depository institution described in 12 

U.S.C. 461(b)(1)(A),29 or an account 

maintained by a foreign institution at a 

comparable depository institution that 

meets the requirements of 

§ 668.163(a)(1).’’ 

Reasons: If used alone in these 

proposed regulations, the term 

‘‘account’’ could refer to a student’s or 

parent’s account at a financial 

institution, a student’s account at an 

institution of higher education, or an 

institutional bank account into which 

the Secretary transfers title IV funds. For 

clarity, we qualify the term to 

differentiate these uses. The term 

‘‘depository account’’ refers to an 

account maintained by the institution 

into which the Secretary deposits title 

IV funds requested by the school. 

During the second session of 

negotiations, some of the non-Federal 

negotiators suggested including the term 

‘‘depository account’’ to clarify that an 

account does not need to be held at an 

institution organized as a ‘‘bank.’’ 30 We 

agreed with these negotiators, and 

added this definition to clarify that we 

are referring accounts held at banks, 

credit unions, and other institutions that 

meet the statutory definition of a 

‘‘depository institution.’’ The proposal 

in these regulations contains the same 

definition that was presented during the 

fourth session of negotiations. 

EFT (Electronic Funds Transfer (EFT)) 

Proposed Regulations: We propose to 

add the term ‘‘EFT’’ and to define it as 

‘‘a transaction initiated electronically 

instructing the crediting or debiting of a 

financial account, or an institution’s 

depository account. For purposes of 


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28492 Federal Register / Vol. 80, No. 95 / Monday, May 18, 2015 / Proposed Rules 

31 31 CFR 210.5 includes requirements for 

accounts into which Federal payments are made 

and includes provisions relating to account 

insurance and compliance with the Electronic 

Funds Transfer Act, among other requirements. 

32The term ‘‘sweep’’ as customarily used in the 

financial services sector refers to the practice of 

automatically transferring funds in excess of a 

preset amount into an account or other investment 

vehicle with the potential to earn a higher rate of 

return. This practice is designed to earn higher 

returns on otherwise idle funds, but may subject 

those funds to a higher risk of investment loss. 

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.’’ 

Reasons: In general, the Department is 

required to make payments by EFT. See 

31 CFR 208.1. For purposes of that 

requirement, the definition of EFT is 

‘‘any transfer of funds, other than a 

transaction originated by cash, check, or 

similar paper instrument, that is 

initiated through an electronic terminal, 

telephone, computer, or magnetic tape, 

for the purpose of ordering, instructing, 

or authorizing a financial institution to 

debit or credit an account,’’ and it 

provides a non-exhaustive list of the 

types of transactions covered, including, 

but not limited to, Automated Clearing 

House transactions. See 31 CFR 208.2(f). 

The proposed definition adopts 31 CFR 

208.2(f) for purposes of transactions 

initiated by the Secretary, but in order 

to facilitate compliance with other 

applicable Treasury regulations, 

including 31 CFR 210.5,31 authorizes 

only Automated Clearing House 

transactions for payments initiated by or 

on behalf of institutions. 

Financial Account 

Proposed Regulations: We propose to 

add the term ‘‘financial account’’ and to 

define a financial account as ‘‘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.’’ 

Reasons: Instead of delineating all of 

the different account types of accounts 

that a student or parent may open to 

receive title IV, HEA program funds, we 

believe that using a single term 

simplifies the regulations. 

Financial Institution 

Proposed Regulations: We propose to 

add the term ‘‘financial institution’’ and 

to define it as ‘‘a bank, savings 

association, credit union, or any other 

person or entity that directly or 

indirectly holds a financial account 

belonging to a student or parent that 

issues an access device associated with 

a financial account and agrees with a 

student or parent to provide EFT 

services.’’ 

Reasons: By defining this term, we 

will clarify that when we refer to a 

‘‘financial institution,’’ we mean the 

entity or entities that directly or 

indirectly hold, offer or manage the 

student’s or parent’s Title IV funds. The 

term is used in proposed § 668.164(d), 

(e) and (f) to refer to the entity or entities 

that enter into card agreements with 

postsecondary institutions and hold the 

title IV funds of students and parents 

who open accounts offered under T1 or 

T2 arrangements. 

Student Ledger Account 

Proposed Regulations: We propose to 

add the term ‘‘student ledger account’’ 

and to define a student ledger account 

as ‘‘a bookkeeping account maintained 

by an institution to record the financial 

transactions pertaining to a student’s 

enrollment at the institution.’’ 

Reasons: As discussed previously, we 

qualify the term ‘‘account’’ to refer to its 

intended use. For this definition we 

refer to student accounts maintained on 

the institution’s books reflecting the 

institution’s charges and the students’ 

payments. We note that crediting the 

student’s ledger account marks the date 

on which a disbursement is made and 

in cases where the ledger account is 

credited on or after the first day of class, 

marks the beginning of the 14-day 

period for paying credit balances 

specified in § 668.164(h)(2). 

Federal Interest in Title IV, HEA 

Program Funds and Standard of 

Conduct (§ 668.161(b)–(c)) 

Current Regulations: Current 

§ 668.161(b) provides that title IV, HEA 

program funds received by an 

institution are held in trust for the 

intended student beneficiaries, the 

Secretary, or lender or guaranty agency 

under the FFEL programs. The 

institution, as a trustee of Federal funds, 

may not use or hypothecate title IV, 

HEA program funds for any other 

purpose. 

Under current § 668.163(e), an 

institution must exercise the level of 

care and diligence required of a 

fiduciary with regard to maintaining 

and investing title IV, HEA program 

funds. 

Proposed Regulations: Proposed 

§ 668.161(b) removes the reference to a 

lender or guaranty agency under the 

FFEL programs and provides that an 

institution may not engage in any 

practice that risks the loss of title IV, 

HEA program funds. 

We relocate the current standard of 

conduct provisions in § 668.163(e) to 

proposed § 668.161(c), and revise 

§ 668.161(b) of these regulations to 

specify that an institution must exercise 

the level of care and diligence required 

of a fiduciary with regard to managing 

title IV, HEA program funds. 

Reasons: Currently, institutions that 

seek to maximize the earnings on funds 

that would otherwise remain idle in one 

or more of their operating or depository 

accounts enter into arrangements where 

all or part of the funds in those accounts 

are swept overnight into savings 

accounts, money market mutual funds, 

or other securities. While it is outside of 

the scope of these regulations to limit 

how an institution chooses to invest or 

manage its own funds, we do not 

believe that an institution should sweep 

title IV, HEA program funds.32 So, to the 

extent that an institution’s operating or 

depository accounts contain title IV, 

HEA program funds, the institution 

must ensure that those funds are not 

swept or otherwise placed at risk of 

financial loss. By removing the 

provision for investing title IV funds, 

and prohibiting practices that risk loss 

of those funds, the Department intends 

to preclude risky management practices, 

including sweeps containing title IV 

funds. 

We acknowledge that some sweep 

accounts are relatively risk free; 

however, other sweep accounts or 

investment vehicles may subject funds 

to losses, liens, or other attachments. 

Although we could attempt to 

differentiate between the two or define 

a safe investment account, we see no 

reason to do so. Under the current 

§ 668.163(c)(4) that governs interestbearing accounts, an institution must 

return to the Secretary any interest 

earnings over $250. Under proposed 

§ 668.163(c), an institution must return 

any interest earnings over $500. 

Therefore, unlike the situation where an 

institution invests its own funds, there 

is no incentive to maximize earnings 

because the amount of earnings that an 

institution may retain is insignificant. 

As a trustee of Federal funds, the 

institution must ensure that all of the 

title IV, HEA program funds it receives 

from the Secretary remain 

unencumbered and delivered timely to 

students and parents that qualify for 

those funds. 

We believe that relocating the 

standard of conduct provisions to the 

scope and institutional responsibility 

section of the proposed regulations is 

appropriate because an institution must 

exercise the level of care and diligence 


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required of a fiduciary in managing title 

IV, HEA program funds under these 

proposed regulations. 

Payment Methods Generally (§ 668.162) 

Current Regulations: Current 

§ 668.162(a) specifies that the Secretary 

may provide title IV, HEA program 

funds to an institution under one of the 

following payment methods: Advance, 

reimbursement, just-in-time, or cash 

monitoring. Section 668.162(c) 

describes the just-in-time payment 

method. 

Under § 668.166(a)(2), the provisions 

governing excess cash do not apply to 

an institution that receives title IV, HEA 

program funds under the just-in-time 

payment method. 

Proposed Regulations: Proposed 

§ 668.162(a) removes the reference to 

the just-in-time payment method, and 

changes the name of the cash 

monitoring payment method to the 

‘‘heightened cash monitoring payment 

method.’’ We are also proposing to 

remove current § 668.162(c), which 

describes the just-in-time payment 

method. In addition, we propose to 

make a corresponding change to the 

excess cash regulations in § 668.166(a) 

by removing the reference to the just-intime payment method. 

Reasons: Other than a few institutions 

that last piloted the just-in-time 

payment method in 2010, the 

Department does not use this payment 

method, and does not intend to do so 

because the advance payment method, 

as currently implemented, is sufficient 

to meet institutional and Department 

needs. 

Reimbursement and Cash Monitoring 

Payment Methods (§ 668.162(c)–(d)) 

Current Regulations: Current 

§ 668.162(d)(1) specifies that under the 

reimbursement payment method an 

institution must first make 

disbursements to students and parents 

for the amount those students and 

parents are eligible to receive under the 

Federal Pell Grant, TEACH Grant, Direct 

Loan, and campus-based programs 

before the institution may seek 

reimbursement from the Secretary for 

those disbursements. The Secretary 

considers an institution to have made a 

disbursement once it has credited the 

student’s account or paid the student or 

parent directly with its own funds. 

Paragraphs (d)(2) through (d)(4) of this 

section describe the procedures an 

institution must follow and the 

documentation the institution must 

provide in submitting a reimbursement 

request, as well as the conditions the 

documentation must satisfy to support 

the request. 

Similarly, the current provisions 

governing the cash monitoring payment 

method under § 668.162(e) specify that 

an institution must first make 

disbursements to students and parents 

for the amount of title IV, HEA program 

funds those students and parents are 

eligible to receive before the institution 

seeks reimbursement from the Secretary 

for those funds. Under paragraph (e)(2) 

of this section, an institution seeks 

reimbursement by following the 

procedures under the reimbursement 

payment method, except that the 

Secretary may modify the 

documentation requirements and review 

procedures used to approve the 

reimbursement request. 

Current § 668.164(e) requires that 

whenever the amount of title IV, HEA 

program funds credited to a student’s 

account exceeds the amount of tuition 

and fees, room and board, and other 

authorized charges assessed the student, 

the institution must pay the resulting 

credit balance directly to the student or 

parent within a 14-day timeframe. 

Proposed Regulations: Proposed 

§ 668.162(c) specifies that an institution 

must first credit a student’s ledger 

account for the amount of title IV, HEA 

program funds the student or parent is 

eligible to receive, and pay the amount 

of any credit balance due under 

proposed § 668.164(h), before the 

institution seeks reimbursement from 

the Secretary for those funds. In 

addition, proposed § 668.164(c)(3) 

requires an institution to submit, with 

its request for reimbursement, 

documentation that the institution paid 

directly to students or parents any credit 

balances that were due under proposed 

§ 668.164(h). 

Similarly, under the heightened cash 

monitoring payment method in 

proposed § 668.162(d), an institution 

must first credit a student’s ledger 

account for the amount of title IV, HEA 

program funds the student or parent is 

eligible to receive, and pay any credit 

balance due under proposed 

§ 668.164(h), before the institution seeks 

reimbursement from the Secretary for 

those funds. 

Reasons: The credit balance 

provisions in the current regulations 

and these proposed regulations specify 

a 14-day timeframe within which an 

institution must pay a credit balance 

directly to a student or parent. The 14- 

day timeframe applies regardless of the 

payment method under which the 

Secretary provides title IV, HEA 

program funds to an institution. 

However, under the reimbursement and 

heightened cash monitoring payment 

methods, an institution must first pay 

title IV, HEA program funds for the 

amount that a student or parent is 

eligible to receive before the institution 

seeks reimbursement from the 

Department for those funds. Therefore, 

the institution may not include in its 

reimbursement request any student or 

parent for whom a credit balance was 

due but not yet paid. In the context of 

a program review, audit, or other 

enforcement action, the issue of whether 

the institution complied with the 14-day 

timeframe depends on the date the 

institution credits the student’s ledger 

account with title IV, HEA program 

funds and the date it pays the credit 

balance; however, for seeking 

reimbursement, it does not matter when 

the credit balance was paid, only that it 

was paid. 

The current provisions under which 

the Department determines whether to 

approve a reimbursement request do not 

specify that an institution must submit 

documentation showing that it paid the 

credit balances that are due to students 

and parents. These proposed regulations 

make explicit that an institution placed 

on the reimbursement payment method 

or heightened cash monitoring payment 

method under § 668.162(d)(2) must 

demonstrate in accordance with 

procedures established by the Secretary 

that it paid directly to students and 

parents the credit balances that are 

included in its request for 

reimbursement before the Department 

will consider that request. For an 

institution placed on the heightened 

cash monitoring payment method under 

§ 668.162(b)(1), the institution must 

maintain documentation showing that it 

paid any required credit balances 

directly to students and parents before 

it initiates a request for funds that 

includes those students and parents. 

Maintaining Title IV, HEA Program 

Funds in an Institutional Depository 

Account (§ 668.163(a)) 

Current Regulations: Current 

§ 668.163(a)(1) specifies that an 

institution must maintain title IV, HEA 

program funds in a bank or investment 

account that is Federally insured or 

secured by collateral of value reasonably 

equivalent to the amount of those funds. 

Proposed Regulations: Proposed 

§ 668.163(a)(1) requires an institution to 

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 

National Credit Union Administration 

(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 


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33We note that under section 461(b)(1) of the 

HEA, the authority for schools to make a Federal 

Perkins Loan ended on September 30, 2014, with 

an automatic one-year extension pursuant to section 

422(a) of the General Education Provisions Act. 

Absent congressional action, the program will be 

wound down, and the Department will provide 

instructions to institutions currently participating 

in the program as to, for example, the disposition 

of Perkins Loan Program revolving funds. 

Secretary may approve a depository 

account designated by the foreign 

institution. 

Reasons: We do not see any value in 

continuing to allow institutions located 

in a State to maintain title IV, HEA 

program funds in non-insured accounts. 

As discussed more fully under the 

heading ‘‘Interest-bearing accounts’’ this 

proposal is consistent with OMB 

guidance in 2 CFR 200.305(b)(7)(ii), 

which provides that ‘‘advance payments 

of Federal funds must be deposited and 

maintained in insured accounts 

whenever possible.’’ In view of the 

rigorous regulatory requirements that 

financial institutions must satisfy before 

their depository accounts are insured by 

the FDIC or NCUA, and the FDIC and 

NCUA oversight over those financial 

institutions, we believe this requirement 

will help ensure that Federal funds are 

not put at undue risk of loss. 

In addition, because the current 

regulations do not address the accounts 

into which foreign institutions must 

maintain Direct Loan program funds, we 

propose to apply the same requirements, 

to the extent possible, to those 

institutions—a depository account that 

is insured by the FDIC, NCUA, or by an 

equivalent agency of the government 

where the institution is located. We 

recognize, however, that there may be 

instances where there is no equivalent 

agency, so these proposed regulations 

would permit the Secretary to approve 

a bank account designated by the 

foreign institution. 

Interest-Bearing Bank Account 

(§ 668.163(c)) 

Current Regulations: Current 

§ 668.163(c)(1) requires an institution to 

maintain the fund described in 

§ 674.8(a) of the Federal Perkins Loan 

program regulations (the Fund) in an 

interest-bearing bank account or 

investment account consisting 

predominately of low-risk, incomeproducing securities, such as obligations 

issued or guaranteed by the United 

States.33 Any interest or income earned 

on Federal Perkins Loan funds are 

retained by the institution as part of the 

Fund. Under paragraph (c)(3) of this 

section, an institution does not have to 

maintain other title IV, HEA program 

funds in an interest-bearing account if 

(1) the institution drew down less than 

$3 million in the prior award year and 

anticipates that it will not draw down 

more than that amount in the current 

award year, (2) the institution 

demonstrates by its cash management 

practices that it will not earn over $250 

on those funds during the award year, 

or (3) the institution requests funds 

under the just-in-time payment method. 

In addition, except for interest earned 

on Federal Perkins Loan funds and 

retained in the Fund, an institution may 

keep up to $250 in interest earnings, but 

must remit to the Secretary by June 30 

of the award year any interest earnings 

over $250. 

Proposed Regulations: Proposed 

§ 668.163(c) adopts by reference the 

guidance in 2 CFR part 200, issued by 

OMB on December 26, 2013, entitled 

Uniform Administrative Requirements, 

Cost Principles, and Audit 

Requirements for Federal Awards. 

Section 200.305(b)(8) states: 

(8) The non-Federal entity must 

maintain advance payments of Federal 

awards in interest-bearing accounts, 

unless the following apply. 

(i) The non-Federal entity receives 

less than $120,000 in Federal awards 

per year. 

(ii) The best reasonably available 

interest-bearing account would not be 

expected to earn interest in excess of 

$500 per year on Federal cash balances. 

(iii) The depository would require an 

average or minimum balance so high 

that it would not be feasible within the 

expected Federal and non-Federal cash 

resources. 

(iv) A foreign government or banking 

system prohibits or precludes interestbearing accounts. 

Section 200.305(b)(9) states: 

(9) Interest earned on Federal advance 

payments deposited in interest-bearing 

accounts must be remitted annually to 

the Department of Health and Human 

Services, Payment Management System, 

Rockville, MD 20852. Interest amounts 

up to $500 per year may be retained by 

the non-Federal entity for 

administrative expenses. 

Reasons: The current interest-bearing 

account provisions were largely based 

on OMB guidance in effect at the time 

we published the initial cash 

management regulations in November 

1996. These proposed regulations are 

consistent with updated OMB guidance. 

Disbursements by Payment Period 

(§ 668.164(b)) 

Current Regulations: In general, 

current § 668.164(b)(1) and (2) provide 

that, except for paying a student under 

the Federal Work Study (FWS) program, 

an institution must disburse title IV, 

HEA program funds on a paymentperiod basis. More specifically, unless 

any of the disbursement provisions 

governing the Direct Loan program now 

found under 34 CFR 685.303(d) apply, 

or the institution chooses to make more 

than one disbursement in a payment 

period for Federal Perkins Loan, Federal 

Pell Grant, the institution must disburse 

the title IV, HEA program funds that a 

student or parent is eligible to receive at 

least once each payment period. 

Current § 668.164(b)(3) provides that 

except for late disbursements, an 

institution may disburse title IV, HEA 

program funds to a student or parent for 

a payment period only if the student is 

enrolled for classes for that payment 

period and is eligible to receive those 

funds. 

Under § 668.2, a third-party servicer is 

defined as an organization, person, or 

State that enters into a contract with an 

eligible institution to administer any 

aspect of the institution’s participation 

in any title IV, HEA program. This 

includes performing any function 

required by statute or regulation, or any 

arrangement, agreement, or limitation 

entered into under the authority of 

statutes applicable to title IV of the 

HEA, such as, but not limited to, e.g., 

receiving, disbursing, or delivering title 

IV, HEA program funds, preparing and 

certifying requests for funds under the 

advance or reimbursement payment 

methods, determining student eligibility 

and related activities, preparing 

applications, and other functions noted 

in paragraph (i) of the definition. 

Current § 668.25 provides, in part, 

that in a contract with an institution, a 

third-party servicer must (1) comply 

with all statutory provisions of or 

applicable to title IV of the HEA, and all 

regulatory provisions prescribed under 

that statutory authority; (2) report to the 

OIG for investigation any information 

indicating there is a reasonable cause to 

believe that the institution may have 

engaged in fraud or other criminal 

misconduct in connection with 

administering the title IV, HEA 

programs, (3) be jointly and severally 

liable with the institution to the 

Secretary for any violation by the 

servicer of any statutory or regulatory 

provision of or applicable to title IV of 

the HEA, and (4) if the servicer 

disburses title IV, HEA program funds to 

a student, confirm the eligibility of the 

student before making that 

disbursement, where the confirmation 

must include but is not limited to any 

applicable information contained in the 

records required under § 668.24. 

Proposed Regulations: Proposed 

§ 668.164(b)(1) and (2) specify that, 

except for paying a student under the 

FWS program, for making prior-year, 


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late, or retroactive disbursements, or 

unless any of the disbursement 

provisions governing the Direct Loan 

program now found under 34 CFR 

685.303(d) apply, an institution must 

disburse during a payment period the 

amount of title IV, HEA program funds 

that an enrolled student, or the student’s 

parent, is eligible to receive for that 

payment period. 

Proposed § 668.164(b)(3) provides that 

at the time that a disbursement is made 

for a payment period, the institution, 

along with the third-party servicer 

engaged by the institution to draw down 

title IV, HEA program funds or 

otherwise perform activities leading to 

or supporting that disbursement, must 

confirm that the student is enrolled at 

the institution, and that the student, or 

the student’s parent, is eligible for that 

disbursement. 

Reasons: We wish to clarify the 

current requirement that, except for the 

cited circumstances, an institution must 

disburse title IV, HEA program funds on 

a payment-period basis by specifying 

that the institution must disburse during 

a payment period all of the funds that 

a student or parent is eligible to receive 

for that payment period. This 

requirement, along with the proposed 

provisions under § 668.164(c) and (h) 

that require an institution to credit a 

student’s ledger account to pay only for 

charges associated with a payment 

period, helps ensure that students and 

parents receive their credit balance 

funds on a timely basis. 

In program reviews of several 

institutions and third-party servicers, 

the Department found that neither the 

institution nor the servicer confirmed 

that students were eligible to receive 

title IV, HEA program funds before 

disbursements were made to those 

students. Under the contracts between 

these institutions and servicers, the 

servicers would perform a wide range of 

activities on behalf of the institutions 

including packaging aid awards, 

drawing down or requesting title IV 

funds, accounting for funds, and 

submitting data or reports to the 

Department. However, the contracts 

used the phrases ‘‘make arrangements 

for disbursements,’’ ‘‘intercept 

disbursement requests,’’ and ‘‘process 

awards including [the] preparation of 

disbursement journals’’ to apparently 

refer to a process where the servicer 

would provide the institution a list of 

the students and the amounts of their 

aid awards, and the institution would 

then credit the students’ ledger accounts 

for those amounts, presumably after 

confirming the eligibility of those 

students. But those confirmations were 

either not performed or not performed 

adequately, in part, because the 

procedures under which the institution 

was expected to confirm the eligibility 

of its students were lacking or not 

documented. Nevertheless, the servicers 

accepted at face value that the 

institution confirmed eligibility when it 

disbursed title IV, HEA program funds 

by crediting the students’ ledger 

accounts, and reported those 

disbursements to the Department as 

valid payments made to those students. 

The Department finds it incongruous 

that a servicer who essentially controls 

the entire process for making awards to 

students would carve out in its contract 

with an institution the most 

fundamental aspect of the administering 

the title IV aid programs—that 

disbursements are made only to eligible 

students. Nevertheless, because the 

third-party servicer is bound by the 

same provisions that apply to an 

institution, the servicer must carry out 

its contracted activities in a manner 

keeping with a fiduciary under the title 

IV, HEA programs. In this regard, the 

servicer cannot feign ignorance over 

what the institution did or did not do 

in confirming eligibility. To the extent 

that the servicer relies on information 

provided by the institution that leads to 

or supports a disbursement, is used in 

determining the amount of funds to 

draw down for eligible students, or 

subsequently used for reporting valid 

disbursements to the Department, the 

servicer, along with the institution, is 

responsible for the veracity of that 

information. In the program reviews, the 

findings could have been ameliorated if 

the parties established and agreed to a 

documented process under which the 

institution would confirm eligibility and 

the servicer would verify periodically 

that the confirmations were made in 

accordance with that process. 

We wish to emphasize that our 

proposed language holding an 

institution and its third-party servicer 

responsible for confirming a student’s 

eligibility is not new policy or a change 

in policy—it merely emphasizes current 

requirements and reiterates institutional 

and servicer responsibilities. 

Crediting a Student’s Ledger Account 

(§ 668.164(c), (h)) 

Current Regulations: Under current 

§ 668.164(d), an institution may, 

without obtaining the student’s or 

parent’s authorization, use title IV, HEA 

program funds to credit a student’s 

account at the institution to satisfy (1) 

current year charges for tuition and fees 

and, if the student contracts with the 

institution for those services, for room 

and board, and (2) prior year charges for 

tuition, fees, room, or board. In 

addition, if the institution obtains the 

student’s or parent’s authorization, it 

may credit the student’s account with 

title IV, HEA program funds to satisfy 

other current year and prior-year 

educational charges incurred by the 

student at the institution. However, 

§ 668.164(d)(2) limits the amount of 

current year title IV, HEA program 

funds that may be used to satisfy prioryear charges to $200. 

Current § 668.164(e) provides that 

whenever an institution disburses title 

IV, HEA program funds by crediting a 

student’s account and the total amount 

of those funds exceeds the amount of 

tuition and fees, room and board, and 

other authorized charges the institution 

assessed the student, the institution 

must pay the resulting credit balance 

directly to the student or parent as soon 

as possible but no later than (1) 14 days 

after the balance occurred, if the credit 

balance occurred after the first day of 

class of a payment period, or (2) 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. 

Proposed Regulations: Proposed 

§ 668.164(c)(1) specifies that 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 (1) the 

amount of tuition, fees, and 

institutionally-provided room and board 

charges assessed the student for the 

payment period, or the prorated amount 

of those charges if the institution debits 

the student’s ledger account for more 

than charges associated with the 

payment period, and (2) the costs 

incurred by the student for the payment 

period for purchasing book, supplies, 

and other educationally-related goods 

and services provided by the institution 

for which the institution obtains the 

student’s or parent’s authorization. 

Proposed § 668.164(c)(2) provides 

that, if an institution includes the cost 

of books and supplies as part of the 

amount it charges for tuition and fees, 

the institution must disclose those costs 

separately and explain why including 

them is in the student’s best financial 

interests. 

Proposed § 668.164(c)(3) specifies that 

an institution may include, in a 

payment period for the current year, 

prior-year charges of not more than $200 

for (1) tuition, fees, and institutionallyprovided room and board without 

obtaining a student’s or parent’s 

authorization, and (2) educationally 

related goods and services provided by 

the institution for which the institution 

obtains the student’s or parent’s 


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34 During negotiations, non-Federal negotiators 

cited various examples of these types of materials, 

especially in cases where uniformity was required 

for learning or safety and health reasons, such as 

the type of instruments used in a cosmetology or 

culinary program. 

authorization. The ‘‘current year’’ is 

defined as the current loan period for a 

student or parent who receives a Direct 

Loan, or the current award year for a 

student who does not receive a Direct 

Loan. A ‘‘prior year’’ is defined as any 

loan period or award year prior to the 

current loan period or award year, as 

applicable. 

Under proposed § 668.164(c)(4), an 

institution may include in the current 

payment period allowable charges 

stemming from any previous payment 

period in the current year for which the 

student is eligible, if the student was not 

already paid for that previous payment 

period. 

If an institution debits a student’s 

ledger account for the entire cost of a 

program or otherwise debits the ledger 

account for more than the charges 

associated with the payment period, 

proposed § 668.164(c)(5) requires the 

institution to determine the prorated 

amount of charges for the payment 

period by (1) for a program that has 

substantially equal payment periods, 

dividing the total amount of 

institutional charges for the program by 

the number of payment periods in the 

program, or (2) for any other program, 

dividing the number of credit or clock 

hours the student enrolls in or is 

expected to complete 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. 

Under proposed § 668.164(h)(1), a 

title IV, HEA program 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 of allowable 

charges associated with that payment 

period. Proposed § 668.164(h)(2) 

maintains the same 14-day credit 

balance payment timeframes as the 

current regulations. 

Reasons: By prorating institutional 

charges to the amount associated with a 

payment period, and specifying that a 

credit balance occurs whenever the 

amount of title IV, HEA program funds 

exceeds the prorated amount of charges, 

the Department aims to correct a 

situation where credit balance funds 

that would be used to pay for living 

expenses and other education-related 

costs are not paid to the student or 

parent until after the first payment 

period. For example, a student who 

attends an institution that charges 

$8,000 for a year-long program (which 

includes two payment periods) receives 

$5,000 of title IV, HEA program funds 

per payment period, or $10,000 per 

year. Currently the institution may debit 

the student’s ledger account for $8,000 

in the first payment period, the full cost 

of the program, and then credit the 

account for only $5,000, the amount of 

title IV, HEA program funds the student 

is eligible to receive for the first 

payment period. The student would not 

receive a credit balance until several 

months later when the institution 

credits the student’s ledger account 

during the second payment period with 

another $5,000, because only at that 

point the total amount of title IV, HEA 

program funds exceed institutional 

charges (by $2,000). Under this 

proposal, the institution would only be 

able to charge a prorated amount of 

$4,000 during each payment period, so 

the student or parent would receive a 

credit balance of $1,000 during the first 

payment period and another $1,000 

during the second payment period. In 

this example, the prorated amount of 

institutional charges associated with a 

payment period is $4,000 (the total 

amount of institutional charges of 

$8,000 is divided by two, the number of 

payment periods in the program). We 

note that the vast majority of 

institutions, particularly those that are 

term-based, already charge on a term or 

payment period basis, so this proposed 

change in the regulations will have no 

impact on those institutions. The 

Department seeks comment on whether 

the proposed methods for prorating 

institutional charges under 

§ 668.164(c)(5) are appropriate. 

With regard to the definitions in 

proposed § 668.164(c)(3), we seek to 

codify in regulations the meaning of the 

terms ‘‘current year’’ and ‘‘prior year’’ 

that were previously used in guidance 

issued on September 8, 2009, in Dear 

Colleague Letter GEN–09–11. 

In cases where institutions include 

the costs of required books and supplies 

as part of the total amount of tuition and 

fee charges, relevant information about 

those materials and the cost charged by 

institutions for those materials is not 

frequently provided to students. This 

practice effectively prevents students 

from purchasing required materials 

elsewhere for a lower price. For this 

reason, and based on findings by State 

attorneys general that some institutions 

required students to purchase books and 

supplies directly from them at grossly 

inflated prices, we proposed during 

negotiated rulemaking to prohibit 

institutions from including books and 

supplies as part of tuition and fees. 

However, some of the non-Federal 

negotiators noted that institutions are 

increasingly developing course-specific 

or course-embedded materials for 

pedagogical or safety reasons.34 The 

negotiators argued that because these 

materials are part and parcel of the 

course, they would typically not be 

available as separate items in the public 

domain. For this reason, the nonFederal negotiators believed the 

Department’s proposal would dampen 

innovative or safety-related efforts by 

institutions. 

The Department is persuaded there 

are valid reasons for including some 

books and supplies as part of tuition 

and fees. While we acknowledge that 

course-embedded materials blur the 

distinction between tuition and fees and 

books and supplies, we continue to 

believe that where required books and 

supplies are separate items available for 

purchase in the marketplace, those 

books and supplies should generally not 

be included as part of tuition and fees. 

Indeed, section 472 of the HEA, 

regarding ‘‘costs of attendance,’’ treats 

books and supplies as separate from 

tuition and fees; and under other 

provisions (e.g., section 401(e) of the 

HEA), payments made by crediting the 

student’s account are limited to tuition 

and fees and room and board, absent 

student consent. However, under the 

proposed regulations, an institution may 

include the costs of books and supplies 

as part of tuition and fees only if it 

separately discloses the costs of those 

items and explains why including them 

is in the student’s best financial interest; 

that is, the institution is providing the 

books and supplies at or below market 

costs, or providing materials not 

otherwise generally available for 

purchase by the public. To the extent 

that an institution includes courseembedded materials as part of tuition 

and fees, the institution must separately 

disclose the cost of accessing those 

materials and explain why it is in the 

student’s best financial interest to do so. 

For example, an institution may 

disclose that it charges students a $100 

fee for accessing course material that 

replaces a book that typically sells for 

$400. We specifically invite comment 

on how and when an institution should 

make these disclosures. 

Payments by the Secretary 

(§ 668.164(d)(3)) 

Current Regulations: Under current 

§ 668.164(a)(1), an institution is 

responsible for disbursing title IV, HEA 

program funds to a student or parent, 


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35These sections appear in the proposed 

regulations after § 668.164(d)(4), which primarily 

discusses direct payments made pursuant to a 

student choice process established for institutions 

with T1 or T2 arrangements. We have elected to 

discuss § 668.164(e)(1) and § 668.164(f)(1)–(3) first, 

to detail what T1 and T2 arrangements are and our 

reasons for designating them as such. We believe 

ordering the preamble in this way will make the 

discussion of § 668.164(d)(4) easier to understand. 

including paying a credit balance 

directly to the student or parent. 

Proposed Regulations: Proposed 

§ 668.164(d)(3) specifies that the 

Secretary may pay directly to students 

and parents any credit balances due 

under § 668.164(h), and the 

disbursement of title IV funds (up to the 

credit balance amount) for books and 

supplies under § 668.164(m), using an 

alternative method established or 

authorized by the Secretary and 

published in the Federal Register. 

Alternative methods include making 

direct payments to prepaid or debit 

cards sponsored by the Department or 

another Federal agency. 

Reasons: We recognize the growing 

popularity of electronic banking as 

evidenced by the increasing numbers of 

students and their parents who receive 

their title IV, HEA credit balances via 

direct deposit to their financial 

accounts. We are also aware that a 

number of government benefits are 

distributed to recipients via prepaid 

government debit cards. For example, 

Treasury’s Direct Express® prepaid 

debit card program is used to distribute 

Social Security and other Federal 

benefits to over 5 million beneficiaries. 

At this time, the Department is not 

establishing a debit or prepaid card for 

direct payments of title IV, HEA funds; 

however, we will continue to explore 

whether such a card would be beneficial 

to students and parents. If the use of a 

government-issued debit or prepaid card 

shows the potential of savings in costs 

and other efficiencies for students, their 

parents, and the government, the 

Secretary may wish to establish such a 

card and make it available for the direct 

payments of title IV, HEA credit 

balances. 

Designation as a Tier One (T1) 

Arrangement or a Tier Two (T2) 

Arrangement (§ 668.164(e)(1) and 

§ 668.164(f)(1)–(3)) 35

Current Regulations: Current 

§ 668.164(c)(3) states that an institution 

may 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 disbursement of 

title IV, HEA program funds to students. 

If the institution opens a bank account 

on behalf of a student or parent, 

establishes a process the student or 

parent follows to open a bank account, 

or similarly assists the student or parent 

in opening a bank account, the 

institution must comply with the bank 

account provisions specified in 

§ 668.164(c)(2)(i) through (vii). 

Proposed Regulations: The provisions 

of § 668.164(d)(4), (e), and (f) apply to 

arrangements between an institution 

and a third-party servicer, and between 

an institution and a financial 

institution. 

Proposed § 668.164(e)(1) specifies that 

in a 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. 

Proposed § 668.164(f)(1) specifies that 

in a T2 arrangement, an institution 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 or 

their parents. 

Proposed § 668.164(f)(2) provides that 

the Secretary presumes that title IV, 

HEA program funds are deposited or 

transferred into the financial accounts 

offered and marketed under 

§ 668.164(f)(1). However, the institution 

does not have to comply with the 

requirements described in 

§ 668.164(f)(4) if it documents that, for 

the most recently completed award year, 

no student or parent received a credit 

balance. 

Proposed § 668.164(f)(3) explains that 

a financial account is ‘‘directly 

marketed to students and their parents’’ 

in three situations: (1) The institution 

communicates information directly to 

its students or their parents about the 

financial account and how it may be 

opened; (2) the financial account or 

access device is co-branded with the 

institution’s name, logo, mascot, or 

other affiliation; and (3) a card or tool 

that is provided to the student or parent 

for institutional purposes, such as a 

student ID card, is linked with the 

financial account or access device. 

Reasons: Over the past several years, 

institutions of higher education have 

entered into arrangements with 

financial institutions and nonbank 

entities to offer students a variety of 

debit and prepaid cards to receive title 

IV credit balance disbursements. 

Institutions have also begun to rely on 

third-party servicers to handle the 

administrative operations of their aid 

disbursement processes. In many cases, 

these third-party servicers provide both 

student financial and institutional 

administrative services. The institution 

benefits from these arrangements, either 

in the form of remuneration, receiving 

reduced-price or free administrative 

services, or in reduced institutional 

costs. 

As the incidence of these types of 

agreements has increased, so too has the 

scrutiny of the practices associated with 

them. In the past few years, USPIRG, 

Consumers Union, GAO, and OIG have 

conducted reviews into the college card 

marketplace and released reports 

detailing their findings and 

recommendations. A number of the 

findings in these reports are troubling, 

and the reports lay out 

recommendations for Department action 

that are explained in more fully in each 

of the relevant sections of this preamble, 

along with explanations of the 

provisions designed to address these 

findings. This section discusses a 

threshold issue—the types of 

arrangements that are subject to the 

proposed regulations. 

During negotiated rulemaking, the 

committee spent a significant amount of 

time trying to identify which financial 

accounts would be considered 

‘‘sponsored,’’ or endorsed by the 

institution. After multiple negotiating 

sessions, the Department’s final 

proposal in the negotiations included 

the term ‘‘sponsored account,’’ which 

was defined as an account, access 

device, card (including student ID), or 

other tool that: 

(1) Is specified or included in a 

contract between the institution and an 

entity, 

(2) Is offered to a student (or parent) 

enrolled at the institution, and 

(3) May be used by the student (or 

parent) to receive title IV funds. 

This definition encompasses a variety 

of possible accounts. While the student 

advocates supported this definition, 

banking sector representatives opposed 

the definition, arguing that it was (1) 

overly broad and applicable to accounts 

that are outside the scope of the 

Department’s interest in regulating the 

delivery of title IV aid, and (2) too vague 

as to what which accounts would fall 

under the definition. We acknowledge 

the concerns raised by banking industry 

representatives, so have tailored the 

proposed rules based on the 

circumstances in which the troubling 

practices have occurred. 

In describing the questionable 

practices of the college card market, a 

consensus emerged from the consumer 


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36Consumers Union at 5. 

37 Ibid. 

38USPIRG at 13. 

39 Ibid. 

40USPIRG at 13. 

41 Ibid. 

42NACUBO at 2. 

43OIG at 5. 

44 Ibid. at 7. 

45 Ibid. at 5. 

46 GAO at 24. 

47FDIC. ‘‘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. With subsequent references ‘‘FDIC at 

[page number].’’ 

48 GAO at 25. 

49Consumers Union at 5. 

50 GAO at 15. 

and government reports: 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. 

Banks and credit unions have an 

incentive to create long-term 

relationships with college students—a 

potentially lucrative future cohort—at 

the time when those students have not 

yet established a relationship with a 

bank.36 Banks may not necessarily rely 

on short-term fee income when 

providing products to students, because 

banks may be seeking to establish a 

customer base that will be profitable 

over the long term when those students 

secure mortgages, auto loans, or other 

types of consumer credit. 

Other financial institutions, 

including, but not necessarily limited 

to, non-bank firms (such as third-party 

servicers), ‘‘may have different 

incentives for pursuing relationships 

with students.’’ 37 These entities have a 

different type of business model, and 

are more likely to ‘‘seek to partner with 

schools to provide fee-based services to 

both the institution and the student.’’ 38

This is primarily a relationship with the 

student that 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.’’ 39

As a result, there has been a 

proliferation of uncommon, difficult to 

understand, and oftentimes 

unreasonable fees assessed by such 

providers against accounts with credit 

balances. Moreover, by their nature as 

servicers handling the duties of the 

institutions, they ‘‘can take over all 

aspects of the disbursement process 

from schools.’’ 40 As a result, these 

third-party servicers can determine the 

way that the college card is portrayed to 

students, establish different timeframes 

for electronic delivery of credit balances 

based on how the student electronically 

receives funds, and access personal 

student information for targeted 

marketing purposes. 

Ordinarily, an institution’s incentive 

to agree to assessing high fees against 

students might be offset by its interest 

in protecting its students from the loss 

of significant financial assistance. 

However, colleges also have strong 

incentives to establish arrangements 

that provide for fee revenue (which 

ultimately benefits the institution in the 

form of remuneration or reduced-cost 

services from the third-party servicer). 

‘‘Schools are searching for ways to make 

their services more cost effective and 

increase revenues,’’ and one 

increasingly common way of reducing 

costs is by hiring a third-party servicer 

to handle the administration of the 

student aid disbursement process.41

Institutions have stated that employing 

a third-party servicer provides a more 

efficient credit balance delivery method 

than delivering checks; they have also 

acknowledged that, ‘‘during difficult 

budget times, this option was cost 

effective.’’ 42 By valuing agreements that 

are more likely to prioritize short-term 

fee-based revenue, many institutions 

have created a situation where the best 

financial interests of students may not 

be the primary consideration. 

These incentive structures have led to 

a number of troubling practices. OIG 

found that schools relinquished 

‘‘significant control’’ over the title IV aid 

disbursement process and relied on 

servicer compliance to meet title IV 

regulations. ‘‘However, the 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.’’ 43 OIG also 

determined that, after student identifiers 

and credit balance disbursement figures 

were provided to servicers, ‘‘the schools 

did not adequately oversee the servicers’ 

activities to ensure that policies were 

followed, continued to be in the best 

interests of students, and complied with 

program requirements.’’ 44 OIG 

determined that ‘‘the Department 

should take action to better ensure that 

student interests are served when 

schools use servicers to deliver credit 

balances.’’ 45

Third-party servicers’ practices have 

also led to legal action. In August 2012, 

FDIC announced settlements with 

Higher One and one of its former bank 

partners, Bancorp Bank, after alleging 

‘‘unfair and deceptive practices’’ 

relating to the manner in which it 

charged fees and other practices. 

Specifically, the FDIC alleged that the 

two firms violated the Federal Trade 

Commission Act by ‘‘charging student 

account holders multiple insufficient 

funds fees from a single transaction; 

allowing accounts to remain in 

overdrawn status for long periods and 

allowing these insufficient funds fees to 

continue accruing; and collecting the 

fees from subsequent deposits to the 

students’ accounts, typically funds for 

tuition and other college expenses.’’ 46 47

Furthermore, in November 2013, Higher 

One announced it had agreed in 

principle to settle a class action lawsuit 

for $15 million. In that action, student 

plaintiffs claimed that Higher One 

misled them ‘‘by marketing its debit 

card as schools’ preferred method for 

making financial aid and other 

payments, improperly steered them into 

depositing funds into Higher One 

accounts, and charged excessive and 

inadequately disclosed ATM and PIN 

fees.’’ Higher One and its banking 

partners (Bancorp Bank and Wright 

Express Financial Services Corporation) 

that were named as co-defendants 

disclaimed wrongdoing.48

We believe that absent targeted 

provisions addressing specific concerns, 

and especially because students are a 

captive audience to institutional 

marketing, students will continue to be 

subject to the troubling practices 

identified by government agencies and 

consumer groups. For these reasons, we 

propose to designate as ‘‘tier 1’’ those 

arrangements between an institution 

and 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 for the institution, and 

offers accounts to students and parents. 

Institutions entering into such 

arrangements would be responsible for 

ensuring that accounts offered by thirdparty servicers comply with both the fee 

requirements and disclosure 

requirements of the regulations. 

As explained above, in contrast to 

third-party servicers, traditional 

financial institutions and entities that 

offer financial accounts through a 

financial institution that do not engage 

in third-party servicing functions have 

stronger incentives to provide studentfriendly accounts and convince students 

to become long-term customers.49 Many 

such providers of student bank accounts 

or campus cards do not charge fees 

‘‘higher than those associated with other 

banking products available to 

students.’’ 50 While financial 

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51 GAO at 9. 

52OIG at 11. 

53USPIRG at 21. 

54 GAO at 26. 

55USPIRG at 21. 

56 GAO at 27. 

57CFPB presentation at 14–15. 

58 GAO at 12. 

59 Ibid. 

60Consumer Financial Protection Bureau, 

Request for Information Regarding Financial 

Products to Students Enrolled in Institutions of 

Higher Education (Feb. 2013). With subsequent 

references ‘‘CFPB RFI.’’ 

61 Ibid. 

62This approach reserves an opportunity for an 

institution having a financial aid history at odds 

with the presumption to avoid applicability of the 

restrictions that would otherwise apply under 

§ 668.164(f)(4). The institution would need to 

maintain its documentation for use in the event of 

an audit or program review. 

party servicer role were cited in some 

instances, practices by those firms are 

generally not as troubling, the 

agreements generally impose fewer fees 

on students, and, in some cases, 

students actually receive better-thanmarket rates on such accounts. Based on 

these findings, in the proposed 

regulations, the fee-related provisions 

for T1 arrangements do not extend to 

arrangements not involving a third-party 

servicer. 

However, arrangements between 

institutions and financial institutions 

that are not third-party servicers are not 

without the potential for harm to 

students. The biggest concern involving 

these accounts is that the apparent 

institutional endorsement of a particular 

financial account has the potential to 

lead aid recipients to believe that the 

account in question is required for aid 

receipt, has been competitively bid and 

negotiated by the school, or, at a 

minimum, represents a good deal 

because it has been endorsed by the 

institution. 

There are multiple ways institutions 

convey this impression to students. 

The most obvious way this occurs is 

with student IDs. In one-third of schools 

surveyed by GAO, student IDs, which 

are distributed to all students, have the 

capacity to be activated as either a debit 

or prepaid card.51 While activating the 

financial functions of the card is not 

required, the card itself typically is. In 

the most troubling circumstances, 

students are led to believe that 

activating the financial functions is 

required.52 Even in cases where this 

does not occur, students still must carry 

a student ID that is effectively an 

institutionally-sponsored advertisement 

for the financial provider and may 

misunderstand which functions are 

required.53

More general co-branding can cause 

similar confusion. ‘‘Schools can appear 

to implicitly or explicitly endorse their 

college cards, by virtue of the 

relationship with the provider and cobranding of the card. Many students 

trust their schools and, as a result, may 

view co-branding as an endorsement 

and an indication their school has 

negotiated the best terms for them.’’ 54

USPIRG echoed this concern, stating 

that, ‘‘Many students trust their schools 

and often think of co-branding as an 

endorsement. This causes many 

students to drop their guard, expecting 

their school has negotiated the best deal 

for them.’’ 55

Finally, when schools convey the 

information about a contracted-for 

financial account directly to students, 

students listen. ‘‘Card providers and 

schools market college cards directly to 

students through various methods, 

including mailings, on-campus 

presentations, and co-branded Web 

sites. Some card providers offer 

marketing assistance or materials to 

schools. For example, one provider told 

us it prefers assisting the school in 

developing messages, because students 

pay more attention to the information if 

it comes from the schools.’’ 56

These direct marketing methods 

appear to be especially effective. As 

Rohit Chopra, Student Loan 

Ombudsman at the CFPB, stated in his 

presentation to the negotiated 

rulemaking committee, ‘‘If a certain 

financial product where the school has 

a financial interest is chosen as the 

‘default’ choice or implies endorsement 

of the school, this can lead to 

mismatched incentives . . . [and] 

school incentives may impact financial 

product adoption rates.’’ 57

As GAO has recognized, there are no 

comprehensive data on the number of 

students who elect to receive their 

credit balances on a college card. 

However, ‘‘the largest provider reported 

that overall, 43 percent of students 

receiving financial aid payments at its 

client schools opened debit 

accounts.’’ 58 Furthermore, GAO found 

that take-up rates ranged from 20 to 75 

percent of participating students at 

schools that were examined.59 CFPB, in 

its request for information relating to 

college cards, similarly found that 

adoption rates in such circumstances 

were high.60 For many card providers, 

adoption rates were close to 50 percent 

of students; some providers’ rates 

exceeded 80 percent.61 At a minimum, 

these adoption rates demonstrate that 

the method of direct marketing 

employed by institutions, their 

associated financial institutions, and 

third-party servicers is particularly 

effective, but also suggest that students 

may misunderstand that receiving their 

financial aid this way is optional. 

Because institutions are currently not 

explicitly required to put student and 

parent interests first in negotiating their 

marketing agreements, the financial 

accounts marketed may not have 

particularly favorable terms or be 

particularly convenient for students and 

parents. 

On the other hand, 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. 

Where such circumstances exist, the 

integrity of the title IV programs is not 

at issue. 

For this reason, we are limiting our 

oversight of T2 arrangements to 

institutions at which students and 

parents subject to these direct marketing 

tactics are expected to receive credit 

balances. Under this approach, if an 

institution documents that none of its 

students or parents received a credit 

balance in the most recently completed 

award year, it does not have to comply 

with the restrictions in § 668.164(f) that 

otherwise apply to financial accounts 

offered under a T2 arrangement. This 

approach is appropriate because it 

allows for the identification of 

arrangements where no credit balances 

are expected, while at the same 

recognizing the remarkable effectiveness 

of the marketing campaigns in general 

and the immediate need of students and 

parents for a place in which to have title 

IV credit balances deposited.62

We invite comment on whether there 

is a need to establish a minimum 

threshold of credit balance recipients at 

an institution before that institution’s 

arrangement would implicate the T2 

provisions. We are seeking feedback to 

determine whether a threshold would 

be needed to balance burden on 

institutions and financial institutions 

against the benefits to students of 

proposed § 668.164. If a threshold is 

recommended, we are requesting data 

and analysis supporting the number 

chosen. 

For the reasons discussed in the 

preceding paragraphs, we propose to 

limit the definition of ‘‘T2 

arrangements’’ to arrangements where 

students receive credit balances and are 


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63Examples of this include: A recommendation of 

a particular account offering to students or mailing, 

emailing, or otherwise directly conveying 

information about an account to students pursuant 

to the contract between the institution and financial 

institution. 

64To the extent that T2 arrangements permit 

students to open the accounts outside of the 

institution’s student choice process, our 

conversations with banking regulators have 

convinced us that, in view of the lesser degree of 

access to student information these T2 providers 

have, existing banking regulations should suffice in 

providing adequate disclosure of account terms to 

parents and students opening financial accounts in 

the traditional manner. For students that do so, they 

would elect to receive the disbursement to their 

newly-existing account. For students that do not 

open an account in this more traditional manner 

and instead select the account from the student 

choice menu, these disclosures would be required 

to be given to students as part of the student choice 

menu. 65Consumers Union at 11–12. 

subject to direct marketing, either in the 

form of marketing from the school,63 or 

through the implied or direct 

endorsement of the product via a cobranding of a card or the ability to link 

an account to a student ID. We 

emphasize that these proposed 

regulations govern postsecondary 

institutions and their arrangements with 

financial institutions; these limitations 

narrow the scope of the regulatory 

requirements to these specific 

arrangements. As discussed previously, 

the concerns related to these accounts 

are not as significant as those involving 

third-party servicers. Instead, the 

proposed requirements relating to T2 

arrangements are designed to improve 

the information available to students 

and parents so they understand their 

options. The proposed requirements 

include contractual disclosures and 

information related to average account 

holder costs; and for any account listed 

on the institution’s list of credit balance 

receipt options, disclosure of the 

accounts fees and terms in an easily 

understandable format.64 We believe 

these disclosure requirements will 

enable financial providers and 

institutions with the best financial 

interests of students in mind to continue 

offering accounts that are studentfriendly and will not result in the loss 

to aid recipients of critical Federal 

student aid dollars. 

For purposes of clarifying what types 

of contracts fall under the purview of 

these proposed regulations, we are also 

providing the following examples of 

circumstances which are neither T1 nor 

T2 arrangements and therefore would 

not be subject to these proposed 

regulations if finalized as proposed in 

this NPRM: 

• General marketing of a financial 

institution that does not specify the 

kind of account or how it may be 

opened (i.e., not direct marketing 

described under § 668.164(f)(3)); 

• Sponsorship of on-campus facilities 

with financial institution branding that 

does not promote particular accounts; 

• A lease permitting the operation of 

an on-campus branch or on-campus 

ATMs; or 

• A list of area financial institutions 

recommended generally to students for 

informational purposes rather than 

being provided pursuant to a contract 

with the institution. 

Finally, many agreements between 

institutions and financial account 

providers, including those agreements 

with monetary benefits for the school, 

are not clearly disclosed to the 

consumer or the public. We believe that 

requiring the disclosure of information 

relating to the costs to students and 

benefits provided to schools will 

encourage market competition. 

In sum, we believe that the troubling 

practices described in various reports 

and manifested in legal actions 

demands a regulatory response ensuring 

student aid recipients are afforded 

sufficient protections and taxpayer 

dollars are not put at risk of loss to 

unreasonable fee-based charges. We 

believe the most prudent approach is to 

establish a set of regulatory 

requirements based on the level of risk 

to students and taxpayers represented 

by the type of arrangement between an 

institution and a third-party servicer or 

financial institution. Due to the 

numerous findings and 

recommendations of consumer and 

government reports, legal action taken 

against the predominant third-party 

servicer in the industry, and because 

third-party servicers have significant 

control over the disbursement process, 

we have determined a higher level of 

regulatory scrutiny over third-party 

servicer arrangements is appropriate. 

Because student financial accounts 

offered by financial institutions (and 

entities that offer financial accounts 

through a financial institution) that are 

not third-party servicers do not present 

as much of a risk to students, we do not 

believe the same level of scrutiny is 

necessary for the arrangements between 

institutions and such entities (based in 

part on the work Consumers Union did 

to evaluate student financial account 

offerings 65). However, arrangements 

with these financial institutions that 

directly market their products to 

students are not without risk to students 

and title IV, HEA program funds. By 

bearing the imprimatur of the school, 

these providers can circumvent the 

normal channels of informed consumer 

choice and have special access to 

potential customers that distorts the 

market. Consequently, where the 

financial account is endorsed or 

otherwise directly marketed by the 

institution, the institution must inform 

students of the fees in a clear, easy-tounderstand disclosure format. We 

believe that ensuring students receive 

clear information about the financial 

account will enable them to make a 

better choice based on the costs and 

benefits of the individual account, 

rather than the appearance of an 

institutional endorsement or a 

misapprehension about whether the 

account is a prerequisite for receiving 

Federal student aid. 

We believe this regulatory framework 

will provide a measured and effective 

level of consumer protection for those 

accounts that present the greatest risk to 

title IV recipients. We also believe the 

disclosure requirements will provide 

incentives for institutions and financial 

institutions to ensure that the financial 

products marketed are fair to aid 

recipients. Finally, the recommended 

delineations between types of 

arrangements are likely to improve 

clarity relative to the proposed 

definitions advanced during 

negotiations, while ensuring the 

regulatory requirements are tailored to 

address the problems identified by 

consumer groups and government 

agencies. 

Student or parent choice 

(§ 668.164(d)(4)) 

Current Regulations: Current 

§ 668.164(c)(1) permits an institution to 

pay title IV, HEA program funds directly 

to a student or parent by (1) releasing a 

check, (2) issuing a check via mail or inperson pickup, (3) initiating an EFT, or 

(4) dispensing cash. These methods of 

payment may be used in situations 

when an institution pays a student (or 

parent) his or her entire disbursement 

directly, or, more often, when a credit 

balance occurs after the institution 

credits the student’s account to cover 

the cost of tuition and fees, room and 

board, and other authorized 

educationally-related institutional 

charges. 

Current § 668.164(c)(3) permits an 

institution to establish a policy 

requiring its students to provide bank 

account information or open an account 

at a bank of their choosing, but requires 

the institution to disburse funds via 

check or cash if the student does not 

provide this information in a timely 

manner. 

Current § 668.164(c)(3) also requires 

that, if the institution opens a bank 

account on behalf of a student or parent 


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66The Department intends to separately seek 

public comment on the manner and substance of 

these disclosures when publishing them in the 

Federal Register. 67 GAO at 34. 68 GAO at 35. 

69USPIRG at 25. 

70OIG at 12. 

71Consumers Union at 2. 

72 Ibid. at 20. 

73CFPB. ’’Reminder: Accessing your scholarships 

and student loan funds.’’ [Page 1](2013), available 

at www.consumerfinance.gov/blog/reminderaccessing-your-scholarships-and-student-loanfunds/. 

or assists the student or parent in 

opening a bank account, the institution 

must obtain in writing affirmative 

consent from the student or parent to 

open that account and inform the 

student or parent of the terms and 

conditions associated with accepting 

and using the account before it is 

opened. 

Proposed Regulations: We propose to 

modify the regulations governing direct 

payments in two ways. Under proposed 

§ 668.164(d)(4)(i), an institution that 

enters into an arrangement described in 

§ 668.164(e) or § 668.164(f) (i.e., uses an 

account offered pursuant to a T1 or T2 

arrangement), must establish a selection 

process under which the student or 

parent chooses one of several options 

for receiving those payments. 

Alternatively, an institution that does 

not use an account offered pursuant to 

a T1 or T2 arrangement may make direct 

payments to an existing account 

designated by the student or parent, 

issue a check, or disburse cash to the 

student or parent without establishing a 

selection process. 

For institutions required to establish a 

student choice process, the proposed 

regulations would establish four 

requirements under proposed 

§ 668.164(d)(4)(i)(A) that must be met in 

implementing the process. 

First, the institution must inform the 

student or parent in writing that he or 

she is not required to open or obtain a 

specific financial account or activate an 

access device offered by a specific 

financial institution in order to receive 

title IV funds. Second, the institution 

must ensure that the options listed are 

presented in a clear, fact-based, and 

neutral manner, except for listing a 

student or parent’s preexisting account 

as the first, most prominent, and default 

option. Third, the institution must 

ensure that initiating direct payments 

electronically to an existing account is 

treated equivalently to initiating direct 

payments to an account offered 

pursuant to a T1 or T2 arrangement. 

Fourth, the institution must allow the 

student or parent the option to change 

his or her account preference with 

reasonable written notice. 

In addition, the proposed regulations 

in § 668.164(d)(4)(i)(B) would provide 

four provisions governing the 

description of account options under 

the student choice process. First, the 

institution must present, prominently 

and as the first and default option, the 

ability to receive funds in the student’s 

or parent’s existing account. Second, the 

institution must list and identify the 

major features and commonly assessed 

fees associated with all accounts offered 

pursuant to a T1 or T2 arrangement. 

(Using a format published by the 

Secretary in the Federal Register 

following consultation with CFPB 

would constitute compliance with this 

provision under the proposed 

regulations.66) Third, the institution 

may, at its discretion, provide 

information about other available 

financial accounts (that are not offered 

pursuant to a T1 or T2 arrangement) that 

are insured by the FDIC or NCUA. 

Finally, the institution must list issuing 

a check as an option for a student or 

parent to receive payments. 

Reasons: Throughout the course of 

public hearings and negotiated 

rulemaking, and in the 

recommendations from consumer 

advocates and in government reports, 

there was near universal agreement that 

students and parents must be given the 

opportunity to make an informed choice 

regarding how they will receive their 

title IV funds. Negotiators representing 

students, State attorneys general, 

consumer advocates, institutions, and 

the banking sector agreed that (1) 

students should be given clear and 

neutral advice on the account terms 

prior to opening an account; (2) students 

must not be compelled to open a 

particular account; and (3) institutions 

should not favor one particular account 

to the detriment of others. As stated in 

the GAO report, ‘‘financial markets 

function best when consumers are fully 

informed about financial products and 

how to choose among them, and 

NACUBO has recommended that 

schools present students with 

information about their college cards in 

a neutral fashion.’’ 67 It is with these 

principles in mind that we propose to 

revise § 668.164(d)(4) to ensure that 

students and parents have the 

opportunity to make an informed choice 

regarding the account that best meets 

their needs. 

We believe students and parents 

should be able to choose the account in 

which they receive their funds, and that, 

if students and parents are presented 

with options, those options should be 

presented in a clear and fact-based 

manner. This was a recommendation 

echoed by every group that has closely 

examined college card arrangements. 

GAO recommended that we develop 

regulations requiring that ‘‘objective and 

neutral information’’ be provided to 

students and parents regarding options 

for receiving Federal student aid 

payments.68 USPIRG, in its report on 

college cards, included a similar 

recommendation, stating that ‘‘students 

should have an unbiased choice of 

where to bank,’’ and should be ‘‘clearly 

informed of their ability to use their 

own existing bank account.’’ 69 OIG 

recommended that we ‘‘develop 

regulations that require servicers to 

provide objective and neutral 

information to students on the available 

delivery options.’’ 70 Consumers Union 

recommended that we ‘‘require schools 

to present financial aid disbursement 

options in a clear and neutral manner, 

so that students can easily set up an 

electronic fund transfer to an existing 

account to receive their funds’’ 71 and 

that ‘‘when a student is making a 

disbursement selection, she can easily 

and conveniently select direct deposit to 

an existing account in order to receive 

funds.’’ 72 We agree with these 

recommendations, and the overarching 

purpose of the requirements enumerated 

in proposed § 668.164(d)(4) is to ensure 

that these recommendations are carried 

out. 

We also believe that signing up for a 

financial account promoted or offered 

by the school should not be a 

prerequisite of receiving title IV aid. For 

those students with a preexisting bank 

account, we think it should be easy and 

straightforward to select their existing 

account for receipt of title IV funds. The 

fact that students or parents have an 

existing account implies that they have 

already exercised some measure of 

informed consumer choice; and our 

requirement that such an option be 

listed first, most prominently, and as the 

default choice, will ensure that students 

are not misled to believe that choosing 

an existing account is discouraged or 

will result in delays. 

CFPB has recommended that, as a 

general matter, students receive their 

financial aid via direct deposit to an 

existing bank account.73 Many school 

officials interviewed by GAO also 

acknowledge that college cards may not 

be the best option for many students, 

especially those who need more 

comprehensive products or who already 

have an existing account. In fact, 

students attempting to maintain both a 

college card and an existing account 

may ‘‘find it costly or inconvenient to 


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74 GAO at 25. 

75CFPB Presentation at 8. 

76USPIRG at 20. 

77Board of Governors Of The Federal Reserve 

System, ‘‘Order to Cease and Desist and Order of 

Assessment of a Civil Money Penalty Issued Upon 

Consent Pursuant To the Federal Deposit Insurance 

Act and the Illinois Banking Act, As Amended.’’ 

July 1, 2014, available at: www.federalreserve.gov/ 

newsevents/press/enforcement/enf20140701b1.pdf. 

78 GAO at 28. 

79 Ibid. 

80USPIRG at 21. 

81OIG at 9. 

82 GAO at 28. 

83USPIRG at 22. 

84 GAO at 27. 

85USPIRG at 22–23. 

86 GAO at 28. 

87USPIRG at 22. 

88 Ibid. at 17. 

89OIG at 9. 

90 Ibid. at 5. 

91 Ibid. at 19. 

92 GAO at 27. 

manage both accounts concurrently.’’ 74

Furthermore, the argument advanced by 

some financial account providers, that 

many students are unable to qualify for 

a bank account, is inconsistent with 

statements made by the CFPB, which 

has stated that ‘‘very few students are 

unable to obtain a bank account.’’ 75 For 

these reasons, our proposed regulations 

allow students and parents to select an 

existing account easily. 

More disturbing are the practices 

employed by some financial account 

providers that seem to eliminate, or at 

best hamper, the ability of students to 

choose a product that is best for them. 

The reports produced by GAO, OIG, 

CFPB, Consumers Union, and USPIRG 

all describe troubling practices and the 

lack of legitimate choice in the student 

financial products marketplace. These 

reports describe situations where these 

providers did not give students any 

choice as to how they receive credit 

balances, or where the choice was 

deceptive.76 The Federal Reserve Board 

in 2014 issued a consent order to cease 

and desist and a civil money penalty 

assessment against Cole Taylor Bank for 

deceptive practices engaged in by the 

bank and its agent Higher One that 

violated section 5 of the Federal Trade 

Commission Act.77 These practices were 

consistent with the findings in the 

reports discussed throughout this 

preamble. 

In another case, GAO found a school 

that was not only recommending its 

card over direct deposit to students’ 

existing accounts, but also providing 

guidance to its students on how to 

switch from their existing accounts to 

the card option.78 This finding was 

further reinforced in public comments 

received by CFPB, in which students 

stated that they ‘‘felt pressured to sign 

up for college cards and that this 

pressure could convince uninformed 

students that ‘the provider was the only 

choice.’ ’’ 79

Some financial institutions and thirdparty service providers apparently work 

to create the impression that their 

product is required or a preferred option 

for receiving student aid funds. In many 

cases, financial institutions use access 

to private student information to send 

university-branded mailings or a 

financial access device before students 

have made a disbursement selection, or 

even arrived on campus, which may 

lead the students to believe that the 

account has already been established on 

their behalf.80 For example, OIG found 

that Higher One typically sends a debit 

card with the student’s name on it, 

along with instructions to sign up using 

a Higher One Web site, which allowed 

Higher One to attempt to persuade 

students that signing up with that 

account was the easiest method for 

receiving credit balances throughout the 

selection process.81 FDIC staff told the 

GAO that existing practices give 

students the impression that selecting 

the college card is a ‘‘requirement to 

receive their funds.’’ 82 USPIRG reports 

that, in the worst cases, some schools 

simply mandate that all funds be 

disbursed into an account preselected 

by the institution.83

A school implying that specific 

accounts are preferred or required is not 

the only way student choice is limited. 

Some providers create an environment 

where the provider’s preferred account 

offering is a de facto requirement 

because of the way funds are disbursed. 

One example of this is to create 

circumstances (or at least the 

appearance of such circumstances) 

where receiving disbursement via a nonpreferred electronic method will require 

additional steps or time. Some providers 

allow students to select the preferred 

account immediately, but selecting the 

student’s own account requires 

additional steps, instructions, or 

documentation.84 Others allow students 

to select the preferred account offering 

online, but require students selecting a 

different option to fax hand-written 

forms.85 One provider claimed that 

these additional steps are ‘‘an antifraud 

measure,’’ but GAO was told by the 

industry organization that oversees 

payment processing that such measures 

are unnecessary and the account 

selection process can be achieved 

equally well online.86

Even if additional steps are not 

required, some providers set up barriers 

by informing students that a deposit to 

an existing account will take additional 

time, and that selecting the preferred 

account will get students their money 

the fastest.87 For students who depend 

on the timely delivery of their credit 

balances to pay for off-campus housing, 

books, or dependent care, this 

additional time can often be enough to 

force students to select the provider’s 

account. For example, one student told 

USPIRG that he was effectively forced to 

select a preferred account ‘‘even though 

he wanted to use his own account 

because he cannot wait the extra [three] 

to [four] days for a wire to his own bank 

account.’’ 88

Finally, providers that are third-party 

servicers have frequently used their 

advantaged access to student 

information to market and persuade 

students to select their debit card over 

other delivery options.89 These 

practices have included collection of 

student data incidental to the delivery 

of credit balances.90 Furthermore, 

student data have often been provided 

to these servicers before a student has 

selected an account, regardless of 

whether the student ever ultimately 

received financial aid.91

Due to these troubling and 

widespread practices, we believe 

institutions should clearly inform 

students and parents of their options for 

receiving their title IV credit balance 

funds. Further, we believe these 

findings demonstrate that there is no 

reasonable explanation for delaying 

direct deposit to a student’s existing 

account or requiring additional 

documentation or verification and 

forces students to choose the provider’s 

preferred accounts to get timely access 

to student aid. Finally, we believe that 

after an aid recipient has selected a 

particular financial account—and has 

had experience with that account, he or 

she should be afforded the opportunity 

by the school to change that selection 

with reasonable written notice and that 

initial selection of an account should 

not force a student to use it indefinitely. 

In addition, we are also concerned 

about the type of information students 

receive about their choices. While some 

schools present students with unbiased 

options for receiving their credit 

balances, GAO found instances where 

options for receiving payments ‘‘were 

not presented to students in a clear or 

neutral fashion,’’ and in fact encouraged 

students to choose the college card over 

other options.92 Many schools rely on 

the materials provided by financial 

account providers in describing account 

options, which present providers’ 


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93USPIRG at 20. 

94 Ibid. 

95 GAO at 29. 

96 Ibid. 

97 Ibid. at 35. 

98USPIRG at 21. 

99OIG at 13. 

100USPIRG at 21. 

101 Ibid. at 28. 

102 GAO at 35. 

103CFPB. ‘‘Prepaid Accounts Under the 

Electronic Fund Transfer Act (Regulation E) and the 

Truth in Lending Act (Regulation Z).’’ [Page 2] 

(2014), available at www.gpo.gov/fdsys/pkg/FR2014-12-23/pdf/2014-27286.pdf. With subsequent 

references ‘‘CFPB NPRM at [page number].’’ 

104CFPB NPRM 49. 

105 Ibid. 

106 Ibid. at 68. 

accounts in a complimentary way.93 As 

a result, the site students use to select 

their method of payment often states 

that a particular account is the 

‘‘preferred choice,’’ rather than 

neutrally.94

FDIC staff told GAO that ‘‘requiring a 

clear and conspicuous affirmative 

statement that students have a choice 

could enhance student awareness of 

options.’’ 95 NACUBO, the organization 

that represents school business officers, 

recommends that schools provide ‘‘a fair 

explanation of services [without] 

misleading, biased, or aggressive 

marketing schemes.’’ 96 GAO also 

recommended that we require that 

‘‘schools and financial account 

providers present students with 

objective and neutral information on 

their options for receiving federal 

student aid payments.’’ 97 We agree with 

these recommendations, and believe 

that our requirements will help ensure 

that students receive unbiased 

information. 

USPIRG argued that if students are 

not informed of the account terms in a 

clear and easily-understandable manner, 

they will be unable to make an informed 

choice as to the account that best meets 

their needs.98 OIG agreed on this point, 

recommending that schools help 

students understand the fees that they 

are subject to if they select the servicer’s 

debit card.99 We believe that our 

requirements for neutral and objective 

disclosures address these 

recommendations. 

The importance of objective, neutral, 

and easily understandable disclosures is 

highlighted by the concerns of 

consumer advocates regarding fee 

disclosures. For example, a common 

complaint among consumer advocates is 

that students or parents may be 

surprised when they are charged fees 

that they may not have expected, such 

as the 50 cent PIN fee charged by some 

servicers. According to USPIRG, 

‘‘[s]tudent consumers may have built in 

assumptions about the product and its 

fee structures and costs. . . . [T]hey are 

likely to think that a debit card is a debit 

card and won’t discern the key 

differences.’’ 100 Furthermore, USPIRG 

advises students that ‘‘[b]anks may 

insert additional or surprising fees into 

the small print that could cost 

[students], such as a fee for not using 

[an] account.’’ 101 To address this 

problem, GAO recommended that the 

Secretary should ‘‘[i]n consultation with 

CFPB, develop requirements that 

schools and college card providers 

present students with objective and 

neutral information on their options for 

receiving federal student aid 

payments.’’ 102

Since the release of the USPIRG and 

GAO reports, CFPB has issued an NPRM 

that proposes to create short form 

disclosures for prepaid accounts. These 

short form disclosures would highlight 

‘‘key fees that [CFPB] believes are most 

important for consumers to know about. 

. . .’’ 103 CFPB further noted that the 

‘‘short form’s design . . . will 

prominently present key fees, and create 

a visual hierarchy of information that 

will more effectively draw [a] 

consumer’s attention to a prepaid 

account product’s key terms’’ 104 and 

that the design of the short form ‘‘will 

increase the likelihood that consumers 

will engage with the disclosure.’’ 105

To help students and parents obtain 

objective, neutral, and easily 

understandable information about their 

options, we propose to work with CFPB 

to ensure that students and parents 

receive fee information prior to 

acquiring an account by adding these 

disclosures to the selection process in a 

format similar to the disclosures CFPB 

has proposed. We agree with CFPB that 

receiving disclosures prior to the 

acquisition of an account would ‘‘ensure 

that the features of the prepaid accounts 

are fully, accurately, and effectively 

disclosed to consumers in a manner that 

permits consumers to understand the 

costs, benefits, and risks associated with 

the account,’’ 106 and we have chosen to 

adopt the same disclosure timeline for 

accounts offered under T1 and T2 

arrangements. 

Because the proposed disclosures in 

CFPB’s NPRM are designed for prepaid 

accounts, and the financial accounts 

under T1 and T2 arrangements may be 

either prepaid accounts or traditional 

checking accounts, and because the 

model forms address certain fees not 

permitted under this NPRM to be 

assessed against students or parents 

opening financial accounts offered 

under a T1 arrangement, we will likely 

be unable to use the exact format of the 

short form disclosure proposed in 

CFPB’s NPRM. In addition, CFPB may 

alter the requirements for its short form 

disclosures while we are in the process 

of developing final cash management 

regulations. For these reasons, instead of 

adopting the short form disclosures 

described in the CFPB NPRM at this 

time, we plan to develop consumerfriendly disclosures in close 

consultation with CFPB and to release 

the format for those disclosures in a 

Federal Register notice following the 

publication of our final regulations. 

Finally, in our proposed regulations, 

we allow schools to provide information 

to students about other accounts not 

offered pursuant to a T1 or T2 

arrangement because we do not want 

the student choice provisions to prevent 

schools from making good faith attempts 

to inform students of convenient 

banking options. The proposed 

regulations also allow students to 

continue to receive funds via a check 

because many institutions believe that a 

disbursement option via non-electronic 

means best serves their students. We 

invite comment as to whether the option 

to receive a check should continue to be 

affirmatively offered to students, 

although we note here that offering a 

check will continue to be allowed in the 

event students fail to make a choice on 

how to receive their credit balance. 

One of the most critical aspects of this 

rulemaking is ensuring that students are 

truly able to easily receive their title IV 

funds in an account of their choosing. 

We believe that the requirements of 

proposed § 668.164(d)(4) would address 

the numerous problems with the 

existing account selection process and 

provide students the opportunity to 

choose their account, while still 

allowing institutions the opportunity to 

offer students a variety of options. 

Consent Prior To Disclosing a Student’s 

or Parent’s Information, Sending an 

Access Device, or Associating or 

Opening an Account (§ 668.164(e)(2)(i) 

and (f)(4)(i)) 

Current Regulations: Current 

§ 668.164(c)(3)(i) states that in cases 

where the institution opens a bank 

account on behalf of a student or parent, 

establishes a process the student or 

parent follows to open a bank account, 

or similarly assists the student or parent 

in opening a bank account, the 

institution must obtain in writing 

affirmative consent from the student or 

parent to open that account. 

Proposed Regulations: Proposed 

§ 668.164(e)(2)(i)(A) and (f)(4)(i)(A) 

require that an institution obtain 

consent to open an account under a T1 


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107USPIRG at 21. 

108OIG at 19. 

109 Ibid. 

110 Kundert, Levandowski, McGuane, and 

Norwood. Memo to Negotiated Rulemaking 

Committee. [Page 12] (2014), available at 

www2.ed.gov/policy/highered/reg/hearulemaking/

2014/pii4-cashmgmt-klmn-050114.pdf. With 

subsequent reference ‘‘Kundert, Levandowski, 

McGuane, and Norwood May 1, 2014 Memo [page 

number].’’ 

111USPIRG at 21. 

112 Ibid. 

113McGuane. Memo to Negotiated Rulemaking 

Committee. [Page 5] (2014), available at 

www2.ed.gov/policy/highered/reg/hearulemaking/

2014/pii3-caseymcguane-cashmgmt-040214.pdf. 

or T2 arrangement from the student or 

parent before sharing any information 

about the student or parent, other than 

name, address, and email address, with 

the third-party servicer or financial 

institution marketing or offering the 

financial account. 

Proposed § 668.164(e)(2)(i)(B) and 

(f)(4)(i)(B) require that an institution 

obtain a student’s or parent’s consent to 

open a financial account before an 

access device, or any representation of 

an access device, is sent to the student 

or parent. 

Proposed § 668.164(e)(2)(i)(C) and 

(f)(4)(i)(C) require that an institution 

obtain consent from the student or 

parent before a card or tool provided to 

the student or parent for institutional 

purposes, such as a student ID card, is 

linked with a financial account. 

Reasons: 

Disclosing a Student’s or Parent’s 

Information 

In its report, USPIRG raised concerns 

regarding third-party servicers and 

financial institutions using their access 

to personal information to market 

financial accounts to students.107 OIG 

stated that the information provided by 

institutions to financial account 

providers was often extensive and could 

include a student’s photo, full name, 

physical address, birthdate, student ID 

number, phone number, email address, 

and gender.108 OIG further stated that, 

in some cases, the information being 

provided was ‘‘optional . . . and 

therefore not needed to complete the 

credit balance delivery’’ and that ‘‘[a]s 

optional information, it did not serve a 

legitimate educational purpose . . . 

.’’ 109 In response to these findings, and 

in an effort to prevent marketing abuses, 

we initially proposed to the negotiating 

committee regulations that banned 

institutions from sharing any 

information about the student or parent 

with a financial institution or a thirdparty servicer until a student or parent 

affirmatively consented to open an 

account. 

While some negotiators also had 

concerns regarding the use of a student 

or parent’s personally identifiable 

information in marketing or opening 

financial accounts, others expressed 

concerns that third-party servicers 

would be unable to perform their duties 

without data provided by institutions. 

In response, we revised our proposal to 

state that an institution may not share 

with the entity (e.g., a third-party 

servicer, financial institution, or other 

person) any information about the 

student or parent until the student or 

parent makes a selection regarding how 

they choose to receive direct payments. 

Prior to the final session, negotiators 

representing third-party servicers and 

financial institutions continued to 

express concerns that this draft language 

would prohibit third-party servicers 

from performing their duties and stated 

that, at minimum, servicers would 

require a student or parent’s permanent 

address, delivery address (if different), 

date of birth, partial Social Security 

number or tax ID number, student ID 

number, cryptographic information, 

unique identifier(s), phone number, 

email address, secure alternatives to 

email messaging, gender, photos, 

password or other unique item only 

known by the student, and confirmation 

that the student is to receive a title IV 

credit balance disbursement and the 

amount of such disbursement.110 We 

were not presented with evidence that 

all of these items were needed, so we 

proposed a draft that prohibited 

institutions from sharing any 

information with third-party servicers or 

financial institutions other than the 

student’s or parent’s name, address, and 

email address until the student or 

parent selected an option for receiving 

direct payments of financial aid. 

In this proposal, we maintain our 

position that the only information that 

an institution may initially share with a 

third-party servicer or financial 

institution is the student’s or parent’s 

name, address, and email address. This 

limitation on sharing personal 

information applies to both T1 and T2 

arrangements. While we appreciate the 

concerns of the negotiators for thirdparty servicers and financial 

institutions, we disagree that extensive 

personal information is necessary for a 

third-party servicer or financial 

institution before a student or parent 

gives consent to open an account. 

However, the institution may provide 

additional information after the student 

or parent consents to open the account. 

To clarify our position, we have also 

amended the language to require that in 

order to share more than this basic 

contact information with a servicer or 

financial institution, a student or parent 

must provide consent to actually open 

an account, rather than simply select an 

option for receiving direct payments of 

financial aid. 

We believe that the proposed 

language strikes a balance between the 

need for a third-party servicer to be able 

to perform its duties, a financial 

institution to make its financial 

accounts available to students and 

parents, and the privacy of an 

individual’s personal information. We 

invite comment on whether the personal 

information that an institution may 

provide before a student or parent 

consents to open a financial account in 

our proposed regulations is sufficient to 

meet the needs of a servicer or financial 

institution. 

Sending an Access Device 

USPIRG stated that ‘‘[o]ften, the 

disbursement card is mailed to the 

student before he or she has made a 

disbursement selection’’ 111 and that, in 

conjunction with other aggressive 

marketing tactics, this can ‘‘set the 

expectation that the school has already 

set up the bank account for the student 

and that they don’t have a choice.’’ 112

We share the concerns regarding 

manipulation and potentially deceptive 

marketing practices detailed by USPIRG. 

As a result of those concerns and in 

response to the suggestions of 

negotiators at the first session of 

negotiated rulemaking, we originally 

proposed provisions that would allow 

an institution to send a debit card, 

prepaid card, or access device 

associated with the account to a student 

or parent only if the student or parent 

specifically requests it after providing 

consent to open an account. While some 

negotiators supported our position that 

a student or parent should have to 

request a card, others expressed 

concerns that ‘‘[p]rohibiting [an] 

institution from sending an unactivated 

debit or similar card to a student 

interferes with the student’s access to 

[t]itle IV funds . . . .’’ 113

In this NPRM, we have modified the 

approach we initially took in the 

negotiations by removing the 

requirement for the student or parent to 

specifically request the card, while 

retaining a requirement that the student 

or parent consent to opening the 

account before the card is sent by an 

institution, third party servicer, or an 

associated financial institution. Though 

we understand that the requirement to 

obtain consent to open a financial 

account before sending an access device 


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114 GAO at 9. 

115The intent of the proposed regulations is that 

the requirement for an ATM to be located on or near 

each location applies to each location or branch 

approved as part of the institution’s application for 

eligibility under 34 CFR 600.10, or required to be 

reported to or approved by the Department under 

34 CFR 600.20(c)(1), 600.20(c)(3), 600.21(a)(2), or 

600.21(a)(3). 

to a student or parent may slow the 

speed with which a student or parent 

could access his or her credit balance, 

we believe that requiring that consent be 

obtained initially helps to dispel the 

implication that the access device and 

its associated financial account are 

required by the institution. We also 

believe it reinforces the notion that 

choosing to use the access device and its 

associated account is, in fact, a choice. 

This provision does not apply to cards 

or devices distributed for institutional 

purposes that can also serve as access 

devices if activated, such as student 

identification cards; those institutional 

cards or devices are addressed next. 

Associating a Card or Device With a 

Financial Account 

According to the GAO’s report, in 

cases where student IDs can also be 

electronically linked with financial 

accounts, ‘‘either the school or the card 

provider issues student ID cards to all 

students. Students then can choose 

whether to have their ID card also serve 

as a debit or prepaid card.’’ 114

In our initial draft of the proposed 

regulations presented at the second 

session of negotiations, we proposed 

banning access devices from bearing the 

institution’s logo or mascot, or 

otherwise implying an affiliation with 

the institution. According to negotiators, 

this would have prevented student IDs 

or similar institutional devices from 

being electronically linked to financial 

accounts that are controlled by outside 

entities. In response to those concerns, 

subsequent drafts contained provisions 

requiring consent to open an account 

that are very similar to the provisions 

contained in these proposed regulations. 

We note that if an institution chooses 

to allow this functionality on products 

used for institutional purposes, the 

institution, third-party servicer, or 

financial institution is required to 

obtain consent from the student or 

parent to open the financial account. 

The proposed language in 

§ 668.164(e)(2)(i)(C) and (f)(4)(i)(C) does 

not prohibit an institution or third-party 

servicer from distributing a student ID 

that is fully functional for institutional 

purposes and that contains an inactive 

device or other inactive means of using 

the card to access a linkable financial 

account. However, before activating this 

financial capability, electronically 

linking, or otherwise associating the ID 

card with the financial account, the 

institution must first secure consent to 

open the financial account from the 

student or parent. We believe this is a 

balanced approach that will not 

constrain institutional functions for 

which these cards may be necessary, but 

will ensure that students or parents 

make an affirmative decision before an 

account is effectively activated on their 

behalf. 

While we believe that this provision 

allows students the option to obtain a 

multipurpose device while also 

improving consumer protections around 

student IDs and similar products, we 

have concerns about allowing devices 

distributed for institutional purposes to 

become associated with financial 

accounts. Because of these concerns, we 

are open to further suggestions from the 

public on how to prevent coercive 

marketing practices with respect to 

institutional devices such as student IDs 

and associated financial accounts. 

Disclosure of Account Information 

((§ 668.164(e)(2)(ii) and 

§ 668.164(f)(4)(ii)) 

Current Regulations: Under current 

§ 668.164(c)(3)(ii), in cases where the 

institution opens a bank account on 

behalf of a student or parent, establishes 

a process the student or parent follows 

to open a bank account, or similarly 

assists the student or parent in opening 

a bank account, the institution must, 

before the account is opened, inform the 

student or parent of the terms and 

conditions associated with accepting 

and using the account. 

Proposed Regulations: Under 

proposed § 668.164(e)(2)(ii) and 

(f)(4)(ii), institutions must inform the 

student or parent of the terms and 

conditions of the financial account, as 

required under § 668.164(d)(4)(i)(B)(2), 

before the financial account is opened. 

Reasons: For clarity and to ensure that 

the regulatory requirements for 

institutions that have a T1 or T2 

arrangement are comprehensively listed 

in the relevant section of the proposed 

regulations, we have cross-referenced 

the requirements of 

§ 668.164(d)(4)(i)(B)(2) in 

§ 668.164(e)(2)(ii) and (f)(4)(ii), 

respectively. Section 

668.164(d)(4)(i)(B)(2) requires that 

institutions list and identify the major 

features and commonly assessed fees 

associated with all accounts described 

in § 668.164(e) and (f), as well as a 

Universal Resource Locator (URL) for 

the terms and conditions of those 

accounts. For each account, if an 

institution follows the format and 

content requirements specified by the 

Secretary in a notice published in the 

Federal Register following consultation 

with the CFPB, it will be in compliance 

with this requirement with respect to 

the major features and assessed fees 

associated with the account. For 

discussion of this issue, please refer to 

the ‘‘Clear and neutral information’’ 

section of § 668.164(d) of the preamble. 

Fee Provisions for T1 Accounts 

(§ 668.164(e)(2)(iii)–(iv)) 

Current Regulations: Current 

§ 668.164(c)(3)(iv) states that, if an 

institution opens, establishes a process 

the student or parent follows to open, or 

similarly assists a student or parent in 

opening a bank account, the institution 

must ensure that the student or parent 

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. 

Current § 668.164(c)(3)(v) states that 

institutions must ensure that the student 

has convenient access to a branch office 

of the bank or an ATM of the bank in 

which the account was opened (or an 

ATM of another bank), so that the 

student does not incur any cost in 

making cash withdrawals from that 

office or these ATMs. This branch office 

or these ATMs must be located on the 

institution’s campus, in institutionally 

owned or operated facilities, or, 

consistent with the meaning of the term 

‘‘public property’’ as defined in 

§ 668.46(a), immediately adjacent to and 

accessible from the campus. 

Current § 668.164(c)(3)(vi) requires 

that institutions ensure that the debit 

card, stored-value card, ATM card, or 

other device can be widely used. For 

example, the institution may not limit 

the use of the card or device to 

particular vendors. 

Finally, current § 668.164(c)(3)(vii) 

requires that institutions not market or 

portray the account, card, or device as 

a credit card or credit instrument, or 

subsequently convert the account, card, 

or device to a credit card or credit 

instrument. 

Proposed Regulations: Proposed 

§ 668.164(e)(2)(iii)(A) maintains the 

existing requirement that institutions 

ensure students have ‘‘convenient 

access’’ to accounts offered pursuant to 

a T1 arrangement but specifies that 

convenient access includes access 

through a regional or national ATM 

network with ATMs located on or near 

each location of the institution.115 We 

propose that convenient access also 

includes access to a sufficient number of 


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116 GAO at 1. 

117 Ibid. at 4. 

118USPIRG at 15. 

119OIG at 4. 

120 GAO at 23–24. 

121USPIRG at 3. 

122OIG at 14. 

123 GAO at 15. 

ATMs that are located and maintained 

in a manner such that funds are 

reasonably available from them, 

including at the times the institution or 

its third-party servicer makes direct 

payments into the student and parent 

financial accounts. Proposed 

§ 668.164(e)(2)(iii)(B)(3) requires that 

the institution ensure that students and 

parents do not incur any cost for 

conducting any transaction at such an 

ATM. 

Proposed § 668.164(e)(2)(iii)(B)(1) 

maintains, for accounts offered pursuant 

to a T1 arrangement, the current 

requirement that an institution must 

ensure that students and parents incur 

no cost for opening the account or 

initially receiving an access device. 

Proposed § 668.164(e)(2)(iii)(B)(2) 

specifies that an institution must ensure 

that a student or parent who opens a 

financial account offered pursuant to a 

T1 arrangement does not incur a cost 

assessed by the institution, third-party 

servicer, or third-party servicer’s 

associated financial institution when 

the student or parent conducts a pointof-sale transaction. 

Proposed § 668.164(e)(2)(iii)(B)(4) 

requires that an institution ensure that 

a student or parent does not incur a cost 

initiated by the institution, its thirdparty servicer, or the third-party 

servicer’s associated financial 

institution for at least 30 days following 

the date that title IV funds are deposited 

or transferred into the financial account 

offered pursuant to a T1 arrangement. 

Proposed § 668.164(e)(2)(iv) maintains 

the current requirement that an 

institution ensure that the financial 

account or access device is not marketed 

or portrayed as a credit card, and would 

further specify that the card not be 

converted to a credit instrument and 

that no fee is charged to the student or 

parent for any transaction that exceeds 

the balance on the card, regardless of 

whether the full amount of the 

transaction is established at the time the 

transaction is authorized by the 

financial institution. 

Reasons: Over the past several years, 

a growing group of consumer advocates, 

higher education stakeholders, 

government agencies, and Members of 

Congress have raised concerns about the 

incidence, type, and frequency of fees 

assessed on cards offered to students 

under agreements with third parties to 

receive their title IV credit balances.116

The majority of funds paid to students 

are credit balance disbursements of title 

IV student aid, which is ‘‘intended to 

help students pay for nonschool items 

related to their education.’’ 117 As 

USPIRG has stated, the amount of fees 

assessed to student aid recipients under 

these agreements is especially critical 

because not only are these funds 

taxpayer-provided, but ‘‘students 

receiving grant aid, such as the Pell 

grant, are mostly low-income students 

with a high level of need. Students 

taking out federal loans are primarily 

from low and moderate income 

backgrounds, paying interest on those 

funds.’’ 118

As noted previously, due to a number 

of factors, including changes made by 

the CARD Act and decreasing State 

support for higher education, to mitigate 

the cost and burden of disbursing title 

IV funds schools have increasingly 

opted to contract with third-party 

servicers. While institutions have saved 

money by outsourcing administrative 

functions, those savings may have been 

transferred as costs to students through 

fees that reduce their title IV aid 

balances. Indeed, Higher One has stated 

that about 50 percent of its $180 million 

in revenues for the year that ended 

December 31, 2011, came from account 

activity fees associated with one of its 

account offerings.119

There is also evidence that some 

students are incurring unreasonably 

high fees associated with these account 

offerings. Public comment the 

Department received in anticipation of 

the negotiated rulemaking sessions 

indicated that fees were unnecessarily 

high and reduced student aid intended 

to address costs of attendance. Staff 

from the FDIC have reported that some 

students have ‘‘complained of paying 

aggregate fees ranging from hundreds of 

dollars to more than $1,000,’’ 120 and 

even isolated cases of high levels of fees 

can completely compromise the balance 

of funds intended to cover educationally 

related expenses. These and similar 

reports, including the legal actions 

resulting from third-party servicer 

behavior, have led groups like 

Consumers Union and USPIRG to 

recommend the total elimination of fees 

for campus cards.121

During negotiated rulemaking, the 

Department’s proposals on the subject of 

allowable fees in particular generated 

significant disagreement among 

negotiators. Student representatives 

voiced support for the Department’s 

approach prohibiting most fees, and 

asked that debit card ‘‘swipe’’ fees also 

be prohibited from being charged under 

institutional agreements with outside 

parties. Other negotiators disagreed with 

prohibitions on fees—particularly the 

provision requiring unlimited 

reimbursement to students for ATM 

surcharges. These negotiators stated that 

prohibiting institutions from allowing 

fees to be charged to students would 

ultimately be counterproductive 

because it would prevent providers from 

recovering their costs and drive them 

from the market. Consequently, 

institutions would be forced to adopt 

less efficient, more costly processes for 

making payments to students and these 

less efficient processes would affect 

students through tuition increases that 

would be more onerous to students than 

paying account fees set at fair market 

rates. 

In sum, most negotiators expressed a 

preference for a framework that would: 

(1) Allow a reasonable fee structure to 

remain in place, (2) not favor direct 

deposit to the point of preventing a 

student from selecting a more favorable 

sponsored account, and (3) present a 

clear set of options to allow students to 

make an informed choice. 

The Department is sympathetic to the 

position advocated by consumer 

advocates and students. The intent of 

title IV student aid is to give students 

the financial assistance necessary to 

help pay for their postsecondary 

education. The greater the number and 

amount of fees, the less money students 

will have to pay for educationally 

related expenses such as housing, 

books, supplies, and childcare. Title IV 

grant recipients are typically lowincome individuals and these fees will 

disproportionately impact low-income 

students. 

However, even financial accounts 

available to the general public are not 

truly free, and fees can often be difficult 

to avoid entirely. As OIG stated, 

‘‘students who choose to receive their 

title IV funds by check or direct deposit 

to an existing account might incur fees 

or other costs to access and spend the 

funds once they have been delivered. 

Students who have their funds 

transferred to an existing bank account 

are subject to the fees charged by their 

financial institution based on account 

activity, whereas students who choose 

to receive their funds by check may 

incur check-cashing fees.’’ 122

Furthermore, many of the providers of 

campus cards do not charge fees ‘‘higher 

than those associated with other 

banking products available to 

students,’’ 123 though as explained 

previously, certain providers are more 


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124Consumers Union at 1. 

125 GAO at 35. 

126 Ibid. at 21. 

127USPIRG at 16. 

128 Ibid. at 17. 

129 GAO at 22. 

130USPIRG 17. 

131 GAO at 21. 

132 Ibid. at 22. 

133 Ibid. at 20. 

134OIG at 13. 

135 GAO at 20. 

136 Ibid. 

137CFPB RFI. 

138 GAO at 20. 

139Consumers Union at 11. 

likely to do so, and have shown 

evidence of doing so, resulting in our 

differing treatment of T1 and T2 

arrangements. 

Perhaps the most disturbing aspects 

about fees charged to students are the 

complexity, obscurity, and confusing 

nature of certain fees that are charged. 

We believe that certain practices 

employed by institutional third party 

servicers are inconsistent with normal 

banking practices, or have damaging 

consequences to Federal student aid 

recipients, or both. We believe that 

absent targeted provisions addressing 

specific fee-related issues, students and 

parents that are offered financial 

accounts under T1 arrangements will 

continue to be subject to the alarming 

practices identified by government 

agencies and consumer groups that led 

to this rulemaking effort. 

Under this approach, the Department 

is not prohibiting a financial institution 

from charging any particular fee; only 

that the contract negotiated by the 

institution and the servicer prohibit 

certain fees from being passed on or 

assessed to recipients of title IV aid who 

open accounts under a T1 arrangement. 

The institution and servicer would, as a 

part of normal contractual negotiations, 

bargain between themselves for services 

provided in full appreciation of the true 

costs being borne by all parties, 

including the costs to the servicer and 

its associated financial institutions of 

complying with these regulatory 

provisions. Under title IV, the cost of 

paying students is a responsibility 

incident to the administration of the 

programs which the HEA entrusts to 

institutions. We believe this is an 

appropriate remedy for the 

acknowledged cost-shifting from 

institutions to students of title IV 

disbursement services. 

ATM Access 

Current regulations require 

institutions to ensure that students have 

‘‘convenient access’’ to their title IV 

funds through ATMs. GAO, OIG, 

USPIRG, and Consumers Union (among 

others) have recommended that the 

Department more clearly define 

convenient access, so that students 

‘‘have meaningful ways to access their 

financial aid at no cost.’’ 124 125 Most 

financial institutions associate their 

debit or prepaid card to a regional or 

national ATM network, providing a 

level of convenience attributable largely 

to the total number of ATMs; for 

transactions on that network, there are 

no surcharges.126

However, the same level of access is 

not typically provided by third-party 

servicers, or their associated financial 

institutions. For example, according to 

USPIRG, Higher One is responsible for 

disbursing title IV funds for about 520 

schools, but with 700 ATMs in 

service,127 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. According to 

USPIRG and GAO, 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,128 or causing dozens of students to 

line up to withdraw their money.129

Aside from the security concerns 

associated with large groups of students 

withdrawing hundreds of dollars in 

cash at a single location, the lack of 

available surcharge-free ATMs can lead 

to unnecessary fees charged to students. 

When lines are long or ATMs run out 

of money, students are forced to incur 

out-of-network ATM fees, often at $5 

per withdrawal.130 These fees can 

quickly add up, especially for students 

who make multiple smaller withdrawals 

to carefully manage their funds on a 

tight budget.131

As noted previously, 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 

otherwise restrict surcharge-free access 

to a single ATM provide broader 

network coverage for a flat monthly 

fee,132 indicating that such an approach 

is workable given existing market 

conditions. To help ensure reasonable 

access, ATMs located on campus must 

be sufficient in number and reasonably 

accessible, as determined and 

documented by the institution. 

Negotiators representing both servicers 

and the banking industry agreed that 

access to a surcharge-free network of 

ATMs was a common feature of most 

banking products, and a feasible 

approach to providing convenient 

access to funds. For these reasons, the 

proposed regulations require that 

accounts offered pursuant to a T1 

arrangement provide access to such a 

network, enabling students and parents 

exercising ordinary care to have 

reasonable access to their student aid 

dollars. 

Point-of-Sale Transaction Fees 

One of the more troubling fees 

assessed to students by third party 

servicers is what is known as a ‘‘pointof-sale swipe’’ fee or ‘‘PIN debit’’ fee 

(hereafter referred to as a PoS fee). This 

fee is distinct from the interchange fee 

charged to merchants on a per-sale basis 

as a charge for the service of fulfilling 

the credit card or debit card payment 

request. Instead, the PoS fee is charged 

to students by the institution’s financial 

account provider as a surcharge for 

selecting the ‘‘debit’’ function and 

entering a PIN to complete a purchase, 

and charges no such surcharge for 

selecting the ‘‘credit’’ function and 

signing for their transaction. Each PoS 

fee is typically small—usually about 

$0.50 133—but is objectionable for three 

reasons. 

First, because most student cards are 

marketed or portrayed as a debit card or 

having functionality similar to a debit 

card, students are likely to believe that 

selecting the ‘‘debit’’ option is required 

to complete the transaction.134 135 They 

are unlikely to recognize that while the 

‘‘debit’’ option results in a charge, the 

‘‘credit’’ function does not. 

Second, the PoS fee is excessive. The 

fee is assessed each time the student 

uses the card. Since one-third of all 

such transactions are for less than $15, 

the PoS fees are high relative to the cost 

of the purchase and can add up quickly 

with repeated charges.136 Public 

comments to CFPB on financial 

products offered to students specifically 

reiterated these concerns.137

Third, PoS fees are uncommon 

outside of the third-party servicer realm. 

GAO found that ‘‘no basic or student 

account that we reviewed for 

comparison purposes charged a 

transaction fee for using the account’s 

debit card.’’ 138 Consumers Union, in a 

review of the banking products made 

available to students, found that PoS 

fees were atypical in the market—only 

two of the 16 products surveyed 

employed such a fee.139 This makes 

such a fee unexpected and difficult for 

students to both anticipate and estimate 

when comparing prospective account 

options. It also suggests that some thirdparty servicers, by imposing onerous 


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140 GAO at 24. 

141USPIRG at 33. 

142 Ibid. at 27. 

143OIG at 14. 

144Center for Responsible Lending, ‘‘State of 

Lending: High-Cost Overdraft Practices.’’ [Page 2] 

(2013), available at www.responsiblelending.org/

state-of-lending/reports/8-Overdrafts.pdf. With 

subsequent references ‘‘Center for Responsible 

Lending at [page number].’’ 

145Center for Responsible Lending at 3. 

146Consumer Financial Protection Bureau. 

‘‘Study of Prepaid Account Agreements.’’ [Page 25] 

(2014), available at files.consumerfinance.gov/f/

201411_cfpb_study-of-prepaid-accountagreements.pdf. 

147CFPB. ‘‘Prepared Remarks, CFPB Roundtable 

on Overdraft Practices.’’ (2012), available at 

www.consumerfinance.gov/speeches/preparedremarks-by-richard-cordray-at-the-cfpb-roundtableon-overdraft-practices/). 

148CFPB. ‘‘CFPB Student of Overdraft Programs: 

A White Paper of Initial Findings.’’ [Page 61] (2013), 

available at files.consumerfinance.gov/f/201306_

cfpb_whitepaper_overdraft-practices.pdf. With 

subsequent references ‘‘CFPB White Paper at [page 

number].’’ 

149CFPB White Paper at 38. 

150Center for Responsible Lending at 13. 

151USPIRG at 32. 

152Center for Responsible Lending. ‘‘Banks 

Collect Overdraft Opt-ins through Misleading 

Marketing.’’ [Page 2] (2011), available at 

www.responsiblelending.org/overdraft-loans/policylegislation/regulators/banks-misleadingmarketing.html). 

153Center for Responsible Lending. ‘‘Consumers 

Want Informed Choice on Overdraft Fees and 

Banking Options.’’[Page 1] (2008), available at 

www.responsiblelending.org/overdraft-loans/

research-analysis/final-caravan-survey-4-16-08.pdf. 

154The Pew Center on the States, Safe Checking 

in the Electronic Age. (2012). Overdraft America: 

Confusion and Concern about Bank Practices. [Page 

2] (2012), available at www.pewtrusts.org/∼/media/ 

legacy/uploadedfiles/pcs_assets/2012/

SCIBOverdraft20America1pdf.pdf. 

155Center for Responsible Lending at 3. 

156USPIRG at 33. 

157Center for Responsible Lending at 7. 

158OIG at 13. 

159FDIC at 1. 

160USPIRG at 26. 

161Center for Responsible Lending at 11. 

account terms, seek to take advantage of 

the unique position they occupy in 

administering title IV programs to put 

onerous terms in place, especially at the 

expense of often young and 

inexperienced students. 

Third-party servicers and institutional 

officials told GAO, and reiterated during 

negotiations, that adjustment of student 

behavior can limit these charges: 

‘‘students can avoid fees in some cases 

by choosing to authorize debit 

transactions using a signature rather 

than a PIN. . . .’’ 140 However, it 

appears that the purpose of these 

charges is to encourage students to 

utilize the ‘‘credit’’ function when 

charging a transaction because the 

financial provider realizes a higher 

interchange fee when a debit card 

transaction is processed with a 

signature.141 Again, however, regular 

accounts provided in the general 

banking market do not assess this fee.142

PoS fees have been actively identified 

as harmful to students in multiple 

reports because they are atypical, 

opaque, difficult for students to 

anticipate and compare with other 

account offerings, and are often 

disproportionate to the amount of the 

underlying financial transaction. Most 

importantly, it is feasible for schools 

and their third-party servicers to 

negotiate the terms of a contract such 

that any cost is not passed on to account 

holders. Indeed, that is precisely what 

was accomplished at one institution 

when students became aware of the 

charge and relayed their complaints to 

the institution’s administration.143

Overdraft Fees 

Overdraft fees are more common in 

the general banking market. Overdraft 

fees (sometimes also referred to as 

overdraft protection, transaction denial 

fees, or insufficient funds charges, 

among other designations) are assessed 

when an account holder attempts to 

charge a purchase on a card or other 

access device in excess of the 

outstanding balance of the account. 

Historically, such fees were ‘‘ad hoc 

courtesies banks would occasionally 

provide customers; they were never 

intended to become a routinely 

administered, extremely high-cost credit 

product.’’ 144 However, as these charges 

have become somewhat more common, 

more banks are allowing overdrafts and 

charging a fee, rather than denying the 

charge at the moment of attempted 

transaction.145

Nevertheless, these fees are not 

widely imposed across all sectors. 

CFPB’s study of the prepaid card market 

indicated that of all prepaid card 

agreements surveyed, more than 95 

percent did not extend overdraft service 

to their cards, indicating that not only 

is it possible to remove such 

‘‘protection’’ from a device or account, 

but it is already a widespread practice 

in this market segment.146 And the 

imposition of these fees by some 

providers does not imply a lack of harm 

to the account holder: CFPB has found 

that the imposition of these fees by 

some providers has the ‘‘capacity to 

inflict serious economic harm.’’ 147

CFPB has also determined that many 

consumers incur a significant amount of 

overdraft fees and that even those with 

‘‘moderate’’ overdraft usage may pay 

hundreds of dollars annually.148

Specifically, those who ‘‘frequently’’ 

overdraft and whose debit cards lost 

such functionality saved more than 

$450 annually compared to those who 

continued to receive overdraft 

services,149 an amount that on its own 

would exhaust many students’ entire 

credit balances. Communities of color, 

seniors, young adults, and military 

families may also be particularly 

susceptible to overdraft fees.150

The Federal Reserve has adjusted the 

overdraft fee to an ‘‘opt-in’’ service; 

however, consumers are likely to 

misunderstand information given to 

them on such processes and whether 

these ‘‘protections’’ are in their best 

interests.151 152 Furthermore, ‘‘a large 

majority of consumers’’ prefer that 

banks decline debit card overdrafts 

rather than approve them in exchange 

for the typical fee.153 154

A number of practices around 

overdrafts are troubling and are likely to 

result in students incurring excessive 

fees to access their financial aid funds. 

Typically, the cost of the overdraft fee 

itself is as much as twice the underlying 

charge. The reasons for this are difficult 

to discern, especially because the 

banking provider can deny the 

transaction at no cost, rather than 

extending credit to the account 

holder.155 In addition to the overdraft 

fee itself, some banks charge for 

negative account balances—so the fee is 

initially incurred at the time of the 

charge and then additional fees are 

charged for days or weeks thereafter.156

One particularly troubling practice is 

the purposeful reordering of 

transactions to prioritize the charges 

that will place a customer’s account in 

overdraft status. Then, each subsequent 

(and typically smaller) transaction 

incurs results in additional charges.157

Additionally, in 2012, Higher One 

settled a lawsuit with the FDIC, agreeing 

to return more than $10 million to 

students for account overcharges, 

including charging students multiple 

nonsufficient funds (NSF) fees for the 

same transaction.158 159

As detailed above, the overdraft fees 

present the potential for significant 

costs and harm to students, especially 

because students are often among those 

most vulnerable to incurring such 

charges. However, in most cases, the 

remedy for such harm is simple and is 

already practiced by the vast majority of 

prepaid card providers. The financial 

institution has the opportunity to refuse 

the charge sought to be authorized.160 161

We understand that in limited 

circumstances there is a potential for a 

card issuer to be faced with, for 

example, a gratuity that exceeds the 

balance on the card even though the 

account contained sufficient funds to 

pay the initial charge when authorized, 


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162USPIRG at 25. 

163Fast and Wojewoda. Memo to Negotiated 

Rulemaking Committee. [Page 3] (2014), available at 

www2.ed.gov/policy/highered/reg/hearulemaking/

2014/pii2-fast1-cashmgmt.pdf. 

164 Kundert, Levandowski, McGuane, and 

Norwood May 1,2014 Memo at 11. 

165NACUBO at 3. 

166 Ibid. at 4. 

but the draft regulations would not 

create any exception to the ban on 

overdraft fees to address such situations. 

Instead, the proposed regulations would 

leave the card issuer responsible for 

placing such limits on its authorization 

process that it may believe necessary, if 

any, to address these situations, rather 

than permitting imposition of 

insufficient funds fees that deplete 

students’ and parents’ title IV credit 

balances. We believe deficiencies in the 

authorization process should not trigger 

a fee assessed to a student, though we 

acknowledge that the student is 

responsible for paying any balance due. 

30 Days Free Access to Funds 

As explained above, we recognize 

that, generally, institutions will charge 

account holders some fees, either on a 

regular basis or in response to specific 

behaviors. We have sought to address 

the three specific types of fees based on 

the impediments they pose for students 

seeking access to the title IV aid to 

which the students are entitled. We 

believe that these three types of fees are 

particularly onerous, difficult to 

understand and anticipate, or 

uncommon. The unifying characteristic 

of the proposed regulations addressing 

these specific fees is to give students a 

reasonable opportunity to access their 

full title IV credit balance refund— 

which is statutorily determined as the 

amount intended to provide the means 

by which to pay for the costs of 

attending the institution. The 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 and parents a 

reasonable opportunity to access their 

full title IV credit balance. 

As recommended by USPIRG, we 

believe aid recipients should 

particularly be able to access their title 

IV funds during the period immediately 

following disbursement, when they are 

most likely to need funds to cover 

educationally related expenses, without 

charge.162 We emphasize that this is not 

a blanket prohibition on fees of any kind 

being assessed to the account. For 

example, if a student uses an out-ofnetwork ATM, a servicer or its 

associated financial institution may not 

have control over a fee assessed by the 

owner of that ATM. Instead, this 

provision only prevents a student from 

incurring a cost initiated by the servicer 

or its associated financial institution. 

During negotiations, many non-Federal 

negotiators agreed that a fixed period of 

time following the disbursement of 

funds was an acceptable compromise, 

giving students a reasonable 

opportunity to receive their title IV 

funds; the use of the account after that 

period would then be subject to fees as 

a cost of using the account. We 

specifically invite comment on whether 

30 days following a disbursement is an 

appropriate timeframe to allow a title IV 

aid recipient an opportunity to 

reasonably access aid dollars free of 

charge. 

Finally, we emphasize that we do not 

intend these fee provisions to 

discourage institutions from negotiating 

even more favorable arrangements that 

provide students and parents with better 

account terms. We believe that 

institutions should use their 

considerable negotiating leverage to get 

the most favorable offerings on behalf of 

those they serve. 

Disclosure of Contracts for T1 and T2 

Arrangements ((§ 668.164(e)(2)(v) and 

(§ 668.164(f)(4)(iii)) 

Current Regulations: None. 

Proposed Regulations: In both 

§ 668.164(e)(2)(v)(A) and 

§ 668.164(f)(4)(iii)(A), we propose to 

amend our regulations to state that, 

under both T1 and T2 arrangements, no 

later than 60 days after the most 

recently completed award year, an 

institution must provide to the Secretary 

and disclose conspicuously on the 

institution’s Web site the contract 

between the institution and financial 

institution (or, with respect to paragraph 

(e)(2)(v)(A), its third-party servicer) 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. 

Reasons: Throughout the process of 

developing these proposed regulations, 

outside parties informed us that a major 

problem with studying the impact of 

college financial agreements is the lack 

of transparency surrounding those 

agreements. As a result, USPIRG, GAO, 

Consumers Union, and NACUBO have 

all recommended that these agreements 

or contracts be made available to the 

public. 

During negotiated rulemaking, several 

negotiators urged the Department to 

‘‘issue regulations that require schools 

to publically disclose the terms of such 

arrangements, as well as the method and 

criteria used by the school in selecting 

the partner financial services 

company.’’ 163 Because we agreed, we 

presented draft language to the 

negotiators containing provisions 

requiring an institution to post the 

contract on its Web site. 

However, not all negotiators agreed 

with the Department’s position that the 

full contract should be available on the 

institution’s Web site. Negotiators 

representing financial institutions and 

third-party servicers argued that 

‘‘disclosure of [the] contract documents 

would potentially damage competition 

by making public critical proprietary 

information, and would create security 

concerns where, as is often the case, a 

servicer’s technical system 

specifications and processes were 

appended to or otherwise included in 

the contract document.’’ 164 These 

negotiators also reasoned that a 

summary of the terms would be 

sufficient to achieve the transparency 

that negotiators representing students, 

consumer advocates, and State attorneys 

general desired. 

While we are sensitive to the concerns 

raised by third-party servicers and 

financial institutions, there is evidence 

that releasing the complete contract 

would not result in the negative 

outcomes cited. In a 2012 NACUBO 

survey, 55 percent of the responding 

institutions that contracted with a thirdparty vendor indicated that their 

agreements are publically available, and 

that these agreements are most likely 

accessible through public records 

requests (39 percent) or by written 

request to a specific office on campus 

(33 percent).165 As for institutions with 

banking agreements, ‘‘[t]he details of 

agreements between banks and 

institutions are publicly available at 69 

percent of participating institutions, 

with contract documents accessible 

through written request to a specified 

campus department or office (46 

percent) or through an official public 

records request (26 percent).’’ 166

Although this survey was only sent to 

2,036 institutions with 412 responding, 

we believe it makes the important point 

that institutions are already releasing 

contracts without damaging 

consequences. Given that third-party 

servicers and financial institutions 

continue to contract with institutions 

that make their agreements available to 

the public in various ways, we believe 

that disclosing those agreements is not 

harmful and is likely to enhance rather 

than inhibit competition. 


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167 GAO at 23. 

168Consumers Union at 20. 

169OIG at 15. 

170Lindstrom and Martindale. ‘‘Memo to 

Negotiated Rulemaking Committee.’’ [Page 2] 

(2014), available at http://www2.ed.gov/policy/

highered/reg/hearulemaking/2014/pii3-lind-martcashmgmt-040214.pdf. With subsequent references 

‘‘Lindstrom and Martindale April 2 Memo at [page 

number].’’ 

171Lindstrom. Memo to Negotiated Rulemaking 

Committee. [Page 2] (2014), available at 

www2.ed.gov/policy/highered/reg/hearulemaking/

2012/programintegrity.html. With subsequent 

references ‘‘Lindstrom April 22, 2014 Memo [page 

number].’’ 

172Consumers Union at 20. 

173USPIRG at 30. 

However, to address the concerns 

raised by third-party servicers and 

financial institutions, our proposed 

regulations, like the final proposal 

distributed during negotiated 

rulemaking, would create an exemption 

for any provision of the contract that 

would compromise personal privacy, 

proprietary information technology, or 

the security of information technology 

or of physical facilities and would 

permit the parties to the contract to 

redact such information. We believe that 

exempting these provisions from public 

disclosure will safeguard proprietary 

and security-related information while 

also creating the transparency that many 

advocates have called for. 

Disclosure of Contract Summaries for 

T1 and T2 Arrangements 

(§ 668.164(e)(2)(v)(B), (e)(2)(v)(C), 

(f)(4)(iii)(B), and (f)(4)(iii)(C)) 

Current Regulations: None. 

Proposed Regulations: In 

§ 668.164(e)(2)(v)(B), 

§ 668.164(e)(2)(v)(C), 

§ 668.164(f)(4)(iii)(B), and 

§ 668.164(f)(4)(iii)(C), we propose to 

amend our regulations to state that, 

under a T1 or T2 arrangement, no later 

than 60 days after the most recently 

completed award year, an institution 

must provide to the Secretary and 

disclose conspicuously on its Web site 

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, the number of students 

and parents 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. 

Reasons: Complicating the issue of 

the lack of transparency regarding 

agreements between third-party 

servicers or financial institutions and 

institutions is the fact that, as referenced 

in the GAO report, ‘‘. . . little 

information is available on the 

frequency with which students incur 

ATM, PIN, and other fees, and the total 

amount of college card fees paid by 

students is unknown.’’ 167 Additionally, 

in an August 2014 report, Consumers 

Union stated that ‘‘[s]ummaries of key 

contract provisions, including fees and 

revenue-sharing agreements, should be 

prominently and publicly disclosed on 

school Web sites.’’ 168 Furthermore, OIG 

recommended that the Department 

‘‘[d]evelop regulations that require 

schools 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.’’ 169

During negotiations, non-Federal 

negotiators representing students and 

State attorneys general also encouraged 

the Department to add a provision 

requiring the release of a summary of 

the contract and ‘‘include in the 

summary form the fees imposed on 

sponsored accounts, the actual 

payments made in connection with the 

agreement, and the value of in-kind 

services provided to schools by thirdparty providers.’’ 170 Many negotiators 

also argued that, in many cases, a 

summary of the terms of the contract 

and the fees that a student or parent 

incurred could be more useful to 

individual consumers than the release 

of the full contract, and there was little 

contention over the idea that a summary 

of the contract could be released. 

As a result of these discussions, the 

final draft of the Department’s proposal 

circulated at the fourth session 

contained a provision that would have 

required the disclosure of a contract 

summary. This latter draft would have 

required institutions to disclose the 

name of the financial institution offering 

the account and the third-party servicer 

or other parties involved in opening or 

enabling the account; whether the 

contract or arrangement provided for 

revenue sharing or royalty payments, 

and, if so, the nature and amount of that 

compensation; whether the account was 

a checking account, prepaid debit card, 

or other type of account; any fees or 

charges associated with the account; the 

number of allowable out-of-network 

surcharge-free ATM transactions; the 

network of surcharge-free ATMs 

available, indicating all the names 

associated with the network, the 

approximate number of available ATMs 

in that network both nationally and 

locally, and the number and location of 

surcharge-free ATMs on campus (if any) 

and their hours of accessibility, and a 

publicly accessible online ATM locator 

to search for in-network ATMs; and the 

total number of students and parents 

with an account and the average amount 

of fees paid by students and parents 

who had the account during the most 

recently completed award year or 

twelve-month period. 

However, to reduce burden on 

institutions, we propose in these 

regulations that an institution must only 

provide to the Secretary, with respect to 

a contract summary provided under a 

T1 or T2 arrangement: 

• 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; 

• The number of students and parents 

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. 

We believe that these proposed 

disclosures address the transparency 

issues raised by GAO, OIG, and others 

since the key information most 

commonly called for by advocates will 

now be available to the public, as well 

as the full contract, except for the 

redactions allowed, none of which 

concern consumer information. 

Publication of Contracts and Contract 

Summaries in a Centralized Database 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 664.164(e)(2)(vi) and § 664.164(f)(4)(iv) 

require institutions to submit the URL of 

the Web page where the contracts and 

contract summaries are posted to the 

Secretary. The Secretary will then make 

those URLs publicly available. 

Reasons: During negotiated 

rulemaking, non-Federal negotiators 

argued that ‘‘transparency through 

centrally collecting the contracts is 

necessary to ensure compliance issues, 

to empower colleges to negotiate even 

better deals for students over time, and 

to track trends that may elude the 

individual consumer.’’ 171 Consumers 

Union has also called for the submission 

of ‘‘full campus banking contracts and 

the accompanying summaries to the 

Department for collection in a publiclyaccessible central database,’’ 172 and 

USPIRG has stated that contracts with 

third-party servicers ‘‘should always be 

publically available in an easily 

accessible database.’’ 173 We agree with 

the non-Federal negotiators, Consumers 

Union, and USPIRG regarding the 

importance of a centralized database 

containing each institution’s URL where 

contracts and their summaries are 

posted, and we have added this 

provision to the proposed regulations. 


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174 GAO at 29. 

175OIG at 5. 

176 Ibid. at 14. 

177 Ibid. 

178USPIRG at 24. 

179NACUBO at 2. 

180Fast and Wojewoda.’’ Memo to Negotiated 

Rulemaking Committee.’’ [Page 1] (2014), available 

at www2.ed.gov/policy/highered/reg/

hearulemaking/2014/pii3-fast-cashmgmt04022014.pdf. With subsequent references ‘‘Fast 

and Wojewoda April 2 Memo [page number].’’ 

181 Ibid. 

Best Financial Interests of Account 

Holders (§ 668.164(e)(2)(vi)–(vii) and 

§ 668.164(f)(4)(vi)–(vii)) 

Current Regulations: Current 

§ 668.82(a) states that a participating 

institution or a third-party servicer that 

contracts with that institution acts in 

the nature of a fiduciary in the 

administration of the title IV, HEA 

programs. To participate in any title IV, 

HEA program, the institution or its 

servicer must at all times act with the 

competency and integrity necessary to 

qualify as a fiduciary. 

Current § 668.14(b)(4) requires that a 

school establish and maintain such 

administrative and fiscal procedures 

and records as may be necessary to 

ensure proper and efficient 

administration of funds received from 

the Secretary or from students under the 

title IV, HEA programs. 

Proposed Regulations: Proposed 

§ 668.164(e)(2)(vi) and § 668.164(f)(4)(vi) 

would require institutions that have a 

T1 or T2 arrangement to ensure that the 

terms of accounts offered under such 

arrangements are not inconsistent with 

the best financial interests of the 

students and parents opening them. To 

comply with this provision, an 

institution would be required to meet 

three requirements: (1) It must 

document that it periodically conducts 

reasonable due diligence reviews to 

ascertain whether the fees imposed 

under the arrangement are, considered 

as a whole, not excessive in light of 

prevailing market rates; (2) it must 

ensure that all contracts for the 

marketing or offering of accounts to the 

institution’s students or parents, 

pursuant to a T1 or T2 arrangement, 

provide that the institution may 

terminate the arrangement based on 

complaints received or a determination 

that the fees imposed under the 

arrangement are excessive; and (3) it 

must take affirmative steps, including 

contractual arrangements if necessary, 

to ensure the requirements of proposed 

§ 668.164 are met. 

Reasons: The preceding sections of 

the preamble discussion have 

documented a wide range of troubling 

practices by some institutions and their 

associated financial entities. However, 

the practices themselves are not the 

only disturbing aspect of the 

proliferation of campus card 

agreements—so too are the motivations 

that have led to the agreements, 

especially given the role of institutions 

as the conduits for payment of Federal 

funds awarded to students. 

The GAO stated that it remains 

concerned that benefits to institutions, 

especially in the form of contractual 

remuneration, may ‘‘motivate schools to 

encourage the use of college cards or 

potentially choose the arrangement that 

provides the schools the most revenue 

rather than one that provides students 

the best terms.’’ 174 We believe that a 

school entering into such arrangements 

should not be prohibited from realizing 

benefits; however, the pursuit of any 

such benefits must be subordinate to 

serving the best financial interests of the 

students and parents opening the 

accounts. Absent a requirement for 

schools to negotiate with the best 

interests of students in mind, we believe 

that agreements between institutions 

and servicers pose potential conflicts of 

interest that could encourage 

institutions to prioritize revenue or 

other benefits ‘‘at the expense of student 

interests.’’ 175

The failure on the part of some 

institutions to negotiate arrangements 

that serve the best financial interests of 

the students opening the accounts is 

troubling. At the institutions it 

reviewed, OIG found that officials did 

not even attempt to negotiate better 

terms on behalf of their students and 

instead accepted the preexisting fee 

schedules offered by the financial 

account providers. In justifying this 

approach, officials stated that they felt 

a student’s relationship with a financial 

institution was separate from the 

relationship with the institution.176

Considering the practices identified in 

the student and parent choice section of 

the preamble and given the fact that 

many students assume that the cobranding of an access device implies an 

institutional endorsement, we think this 

‘‘separate relationship’’ presumption is 

incorrect. Choosing not to negotiate on 

behalf of students while enjoying the 

remuneration from financial account 

providers takes advantage of the 

institution’s position as a conduit for 

Federal payments to the benefit of the 

institution and the financial institution, 

and at the expense of inexperienced 

students’ and contrary to the 

institution’s fiduciary role. 

We are confident that postsecondary 

institutions can negotiate appropriate 

terms on behalf of their students, 

especially for products intended to be 

marketed to title IV recipients. Indeed, 

one of the institutions reviewed by OIG 

that initially declined to negotiate better 

terms on behalf of its students later did 

so after receiving numerous student 

complaints about PoS fees; after 

negotiations, the school was able to 

successfully eliminate PoS fees for 

students.177

This institution’s experience helps to 

substantiate USPIRG’s argument that 

colleges have an advantageous 

negotiating position because they 

control access to a lucrative student 

market—and they therefore have the 

ability to negotiate on behalf of their 

students.178 In a NACUBO survey 

released following the USPIRG report, 

about 77 percent of institutions said 

they do consider fees when selecting 

their vendor and about 60 percent said 

they use a competitive bidding 

process.179 While this is not a universal 

practice (and indeed, its absence on 

some campuses may explain the 

different fees students at various 

institutions face), the relatively high 

proportion of institutions that engage in 

a competitive bidding process would 

indicate that this is a practice all 

institutions could engage in with little 

additional burden. 

Finally, in an effort to address this 

problem during negotiated rulemaking, 

negotiators representing State attorneys 

general submitted a proposal to require 

‘‘institutions to base decisions to enter 

into such arrangements solely on 

consideration of the best interest of 

students,’’ 180 believing that this ‘‘would 

help to address possible unforeseen 

changes in the industry by ensuring that 

no matter what financial services or 

products are offered, schools place 

students’ best interests above the 

schools’ interests.’’ 181 We agree, but we 

also believe that institutions need and 

deserve guidance as to what is expected 

of them under such a standard. In that 

regard, the proposed regulations would 

require institutions to conduct, at 

reasonable intervals, a due diligence 

review of the fees assessed at reasonable 

intervals, while leaving flexibility as to 

the particular types and amounts of 

charges entailed as long as the account 

is competitive in its financial terms 

overall. The proposed regulations are 

also designed to remove contractual 

impediments to ensure that 

arrangements serve the best financial 

interests of student account holders. 

Specifically, they would ensure an 

opportunity for early termination of an 

arrangement where the financial 

institution has failed to provide a 


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competitive fee structure or has 

otherwise provoked substantial 

complaints from student and parent 

account holders. The proposed 

regulations are also designed to prevent 

the wholesale delegation of institutional 

responsibilities to contractors, so that 

institutions remain accountable. We 

believe that regulations requiring 

institutions to consider the best 

financial interests of students when 

evaluating their T1 and T2 arrangements 

can serve as a useful tool in eliminating 

many troubling practices. We invite 

comment on the methods proposed to 

evaluate whether a T1 or T2 

arrangement is or remains in the best 

financial interests of students and invite 

comment on alternative methods that 

accomplish this objective. 

Ownership of Student or Parent 

Financial Accounts ((§ 668.164(g)) 

Current Regulations: None. 

Proposed Regulations: The proposed 

regulations would require institutions 

that offer financial accounts offered 

pursuant to T1 or T2 arrangements to 

ensure that those financial accounts 

meet the requirements of either 31 CFR 

210.5(a) or (b)(5), as applicable. 

Reasons: The cross-referenced 

Treasury regulations require that an 

Automated Clearing House ‘‘federal 

payment,’’ defined in such a way as to 

include payment by EFT of title IV 

funds to parents and students, be 

deposited in a deposit account that is 

either in the name of the recipient, or, 

if the recipient accesses the funds by 

prepaid card, meets the following 

requirements: 

(A) The account is held at an insured 

financial institution; 

(B) The account is set up to meet the 

requirements for deposit insurance 

under 12 CFR part 330, or share 

insurance in accordance with 12 CFR 

part 745, such that the funds accessible 

through the card are insured for the 

benefit of the parent or student by the 

Federal Deposit Insurance Corporation 

or the National Credit Union Share 

Insurance Fund; 

(C) The account is not attached to a 

line of credit or loan agreement under 

which repayment from the account is 

triggered upon delivery of the Federal 

payments; and 

(D) The issuer of the card complies 

with all of the requirements, and 

provides the holder of the card with all 

of the consumer protections, that apply 

to a payroll card account under the rules 

implementing the Electronic Fund 

Transfer Act, as amended. 

While the requirements under 31 CFR 

210.5 pertain specifically to federal 

payments made through the Automated 

Clearing House network, we believe that 

to ensure such protections are extended 

to students, they should apply to all 

financial accounts an institution 

includes in its student choice process 

under proposed paragraph § 668.164(d). 

Retroactive Payments (§ 668.164(k)) 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 668.164(k) provides that if an 

institution did not make a disbursement 

to a student who was enrolled and 

eligible for a payment period the 

student completed in the current year or 

loan period (for example, because of an 

administrative delay or a delay in 

processing or receiving the student’s 

ISIR), the institution may make the 

disbursement to the student for a 

payment period in the current year or 

loan period. 

Reasons: A student should receive all 

the title IV, HEA program funds he or 

she is eligible to receive for the current 

year or loan period, despite any delays 

in disbursing those funds to the student. 

These provisions codify in regulations 

existing Department and institutional 

practices. 

Student or Parent Authorizations 

(§ 668.165) 

Current Regulations: Current 

§ 668.165(b)(1)(ii) provides that the 

Secretary may prohibit an institution 

from obtaining a student’s or parent’s 

authorization to hold credit balance 

funds if the institution receives title IV, 

HEA program funds under the 

reimbursement or cash monitoring 

payment methods. With the student’s or 

parent’s written authorization, an 

institution that is not prohibited from 

holding credit balance funds may issue 

a stored-value card or other similar 

device that allows the student or parent 

to access those funds at his or her 

discretion to pay for educationally 

related expenses. 

Proposed Regulations: Proposed 

§ 668.165(b)(1)(ii) specifies that when 

the Secretary provides title IV, HEA 

program funds to an institution placed 

on the reimbursement payment method 

or the heightened cash monitoring 

payment method described in 

§ 668.162(c)(2) or § 668.162(d)(2), 

respectively, the institution may not 

hold credit balance funds. 

Reasons: As discussed more fully 

under the heading ‘‘Reimbursement and 

cash monitoring payment methods,’’ an 

institution that receives title IV, HEA 

program funds under the reimbursement 

or heightened cash monitoring payment 

method must show that it paid any 

credit balances due to students and 

parents before the Department approves 

the institution’s request for 

reimbursement. Because the Department 

typically places an institution on 

reimbursement or heightened cash 

monitoring for material financial or 

compliance issues, we do not believe it 

is appropriate to allow that institution 

to circumvent the requirement that it 

directly pay credit balances to students 

and parents by obtaining authorizations 

to hold those credit balance funds. We 

note that this is prohibition would 

apply uniformly to all affected 

institutions, rather than only those 

institutions notified by the Secretary. 

Severability (§ 668.167) 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 668.167 would make clear that, if any 

part of the proposed regulations is held 

invalid by a court, the remainder would 

still be in effect. 

Reasons: We believe that each of the 

proposed provisions discussed in this 

preamble serves one or more important, 

related, but distinct, purposes. Each of 

the requirements provides value to 

students, prospective students, and their 

families, to the public, taxpayers, and 

the Government, and to institutions 

separate from, and in addition to, the 

value provided by the other 

requirements. To best serve these 

purposes, we would include this 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

Retaking Coursework (§ 668.2) 

Current Regulations: The definition of 

‘‘full-time student’’ in current § 668.2 

allows repeated coursework to count 

towards a student’s enrollment status in 

a term-based program, but does not 

allow an institution to include either 

more than one repetition of a previously 

passed course or any repetition of 

previously passed coursework due to a 

student’s failure of other coursework. 

Proposed Regulations: Proposed 

§ 668.2 would eliminate the provision in 

the current regulations that prohibits an 

institution from counting for enrollment 

purposes any courses that a student 

previously passed if the student retakes 

those courses in the same term in which 

the student repeats a failed course. The 

proposed regulation would apply to 

undergraduate, graduate, and 

professional students. 

Reasons: On October 29, 2010, we 

published in the Federal Register final 

regulations (75 FR 66832), which 


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included the definition of ‘‘full-time 

student’’ described above. After we 

published these regulations, institutions 

with medical, dental, and other similar 

graduate or professional programs asked 

whether the limitations on repeated 

coursework applied to programs above 

the undergraduate level, noting that 

students enrolled in these program were 

often required to repeat the coursework 

for an entire term if they failed just one 

course in that term. They also pointed 

out that students in these programs are 

only eligible for unsubsidized loans and 

that denying Federal aid to these 

students while they were repeating all 

coursework in the term would result in 

students relying on less desirable 

private education loans or withdrawing 

from these programs. 

During the negotiated rulemaking 

process, some non-Federal negotiators 

recommended the Department clarify 

existing regulations for repeating 

coursework and supported limiting the 

applicability of the regulations to 

undergraduate students only. However, 

other non-Federal negotiators were 

concerned that, due to the high 

standards some graduate schools impose 

on their students, the limitations on 

retaking coursework should apply to 

graduate students as well. Based upon 

these discussions and the 

recommendations of some of the nonFederal negotiators, the Department 

proposed to allow an institution to 

count all of the coursework for a 

student, at all program levels, who is 

enrolled in a program using an 

integrated curriculum that requires a 

student who failed one course to retake 

both the failed course and all previously 

passed coursework to academically 

progress in the program. The current 

prohibition against counting more than 

one repetition of a previously passed 

course would remain. 

The Department also clarified that the 

revised regulation would apply to 

undergraduate, graduate, and 

professional students. 

The Department received tentative 

agreement from all members of the 

negotiating committee on the proposed 

changes to the regulations. 

Clock-to-Credit Hour Conversion 

(§ 668.8(k)) 

Current Regulations: Under 

§ 668.8(k)(1), certain undergraduate 

educational institutions are required to 

use a specified clock-to-credit hour 

formula to determine the number of 

credit hours in a program. However, 

even if a program is offered in credit 

hours and the number of credit hours in 

the program is determined in 

accordance with the conversion formula 

in § 668.8(l), the program must still be 

treated as a clock hour program for title 

IV, HEA purposes under § 668.8(k)(2) if 

(1) it is required to measure student 

progress in clock hours to receive State 

or Federal approval or licensure to offer 

the program, or for graduates to apply 

for licensure or the authorization to 

practice the occupation that the student 

is intending to pursue, (2) the credit 

hours in the program do not comply 

with the definition of a ‘‘credit hour’’ in 

34 CFR 600.2, or (3) the institution does 

not offer all the underlying clock hours 

that are the basis for the credit hours 

and generally requires attendance in the 

clock hours that are the basis for the 

credit hours awarded. 

Under § 668.8(k)(3), the Federal and 

State approval provisions in 

§ 668.8(k)(2)(i) that make a program a 

clock hour program do not apply if the 

program has a State or Federal approval 

or licensure requirement that a limited 

component of the program must include 

a practicum, internship, or clinical 

experience that is required to be 

measured in clock hours. 

Proposed Regulations: We are 

proposing to eliminate §§ 668.8(k)(2) 

and (k)(3), and to 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. 

Reasons: The Department has 

received many questions regarding the 

clock/credit hour regulations, 

particularly as they relate to State 

requirements. We do not wish or intend 

to interfere with State requirements 

relating to program delivery or the 

number of credit or clock hours a State 

recognizes or requires for its purposes. 

For title IV, HEA program purposes, we 

believe that the conversion formula 

alone is sufficient to ensure that clock 

hours are appropriately converted to 

credit hours without regard to any State 

requirement or role in approving or 

licensing a program. In addition, 

eliminating these provisions simplifies 

the regulations. The negotiators reached 

tentative agreement on the regulatory 

language in § 668.8(k), as well as on the 

conforming change in proposed 

§ 668.8(l). 

Executive Orders 12866 and 13563 

Regulatory Impact Analysis 

Introduction 

As more colleges and universities 

enter into agreements with financial 

institutions and third-party servicers to 

assist in the disbursement of financial 

aid to students, we believe it is 

necessary to address the troubling 

practices discussed more fully in the 

preamble. Concerns regarding the 

marketing strategies, lack of 

transparency, and financial incentives 

contained in contractual relationships 

between colleges and universities and 

financial institutions have arisen as 

colleges adopt new strategies to save 

costs. We propose to amend the current 

cash management regulations to address 

this changing marketplace. By 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 

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 proposed 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— 


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182 GAO at 9. 

(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. 

The ‘‘Summary of Proposed 

Regulations’’ briefly describes the 

amended changes the Department is 

proposing in these regulations. The 

proposed regulations amend the cash 

management regulations, along with two 

issues unrelated to cash management: 

Retaking coursework and clock-tocredit-hour conversion. 

The ‘‘Discussion of Costs, Benefits, 

and Transfers’’ section considers the 

cost and benefit implications of the 

proposed regulations for students, 

parents, financial institutions, and 

postsecondary institutions. Specifically, 

we considered the costs and benefits of 

interest-bearing bank accounts, accounts 

offered under T1 and T2 arrangements, 

retaking coursework, and clock-tocredit-hour conversion. 

Under ‘‘Net Budget Impacts,’’ the 

Department presents its estimate that 

the proposed regulations would not 

have a significant net budget impact on 

the Federal government. 

In ‘‘Alternatives Considered,’’ we 

describe other approaches the 

Department considered for key 

provisions of the proposed regulations, 

including prohibiting an institution 

from including books and supplies as 

part of tuition and fees; requiring an 

institution to obtain consent to open an 

account before sharing the student’s or 

parent’s information with a servicer; 

allowing an institution to send a debit 

card, prepaid card, or access device 

associated with the account to a student 

or parent only after the student or 

parent specifically requests it after 

providing consent to open an account; 

and additional disclosures relating to 

contracts between postsecondary 

institutions and financial institutions. 

Finally, the ‘‘Initial Regulatory 

Flexibility Analysis’’ considers the 

effect of the proposed regulations on 

small entities. 

Need for Regulatory Action 

Executive Order 12866 emphasizes 

that ‘‘Federal agencies should 

promulgate only such regulations as are 

required by law, are necessary to 

interpret the law, or are made necessary 

by compelling public need, such as 

material failures of private markets to 

protect or improve the health and safety 

of the public, the environment, or the 

well-being of the American people.’’ In 

this case, there is indeed a compelling 

public need for regulation. The 

Department’s main goal in promulgating 

the proposed regulations is to address 

major concerns regarding the rapidly 

changing financial aid marketplace 

wherein financial products are offered 

to students who receive title IV, HEA 

credit balances. 

Several changes in the student 

financial aid marketplace make the 

proposed regulations necessary. The 

number of institutions entering into 

these agreements continues to increase. 

For institutions, these agreements save 

money on administrative costs that they 

would otherwise incur in disbursing 

title IV credit balances to students. 

While a convenient option, we are 

concerned about some of the practices 

employed by financial institutions and 

third-party servicers in connection with 

these agreements. Some of these 

practices include requiring or giving 

preference to 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 imposing 

uncommon and confusing fees on aid 

recipients accessing their funds. These 

practices, along with others discussed in 

the preamble, reduce the amount of title 

IV aid available for educational 

expenses. 

These practices are particularly 

disturbing because of the number of 

students impacted. While data on credit 

card agreements and credit balances is 

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.182


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183 Ibid. at 10. 184 Ibid. 

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 

to not-for-profit schools with 6.5 percent 

and for-profit schools with 3.5 percent 

(see table [1]). Comprehensive data do 

not currently exist for the number of 

students who choose to enroll in a 

college card. 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.184 Public two-year 

institutions’ students are most likely to 

receive a financial aid payment (credit 

balance) due to the low tuition and fees 

deducted from total aid received. 


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185 Ibid. at 11. 

Given the number of students affected 

by college card agreements, according to 

the data available, the questionable 

practices of the providers, and the 

amount of Federal funds at stake, we 

believe amending the regulations 

governing title IV student aid 

disbursement is warranted. We welcome 

public comments on comprehensive 

data sources or data sources on financial 

institutions and third-party servicers 

that may be available for further 

analysis. 

Summary of Proposed Regulations 

The Department proposes to amend 

the cash management regulations under 

subpart K and other sections of the 

Student Assistance General Provisions 

regulations issued under the HEA. The 

proposed regulations are intended to 

ensure students have convenient access 

to their title IV, HEA program funds, do 

not incur unreasonable and uncommon 

financial account fees for accessing 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 proposed 

regulations update other provisions in 

the cash management regulations under 

subpart K and otherwise amend the 

Student Assistance General Provisions. 

We also propose to 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 proposed 

regulations. 

Provision Reg section 

Description of provision 

T1 T2 

Defines T1 and T2 arrangements between 

institutions and financial account providers.

§ 668.164(e) .........................

§ 668.164(f) ..........................

Arrangement between an institution and a third-party servicer 

that performs one or more of 

the functions associated with 

processing direct payments of 

title IV funds on behalf of the 

institution and that offers one 

or more financial accounts to 

students and parents.

Arrangement between an institution and a financial institution 

or an entity allied with a financial institution under which financial accounts are offered 

and marketed directly to students or their parents. 

Fee mitigation ............................................ § 668.164(e)(2)(iii)(B)(2) .......

§ 668.164(e)(2)(iv) ................

Prohibits point-of-sale and overdraft fees.Not Applicable. 


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Applicable to Entities with T1 or T2 Arrangements 

Reasonable access to funds ............. § 668.164(c)(3) ......................

§ 668.164(e)(2)(iii)(A) ............

Requires reasonable access to surcharge-free ATMs or a surcharge-free 

ATM network. 

Student choice process ..................... § 668.164(d)(4)(i) .................. Requires institutions to establish a student choice process that: 

• Prohibits institution from requiring students or parents to open a 

specific financial account to receive credit balances. 

• Provides the student a list of options for receiving credit balance 

funds with each option presented in a neutral manner. 

• Lists pre-existing accounts as the first, most prominent, and default option. 

• Establishes that an aid recipient has the right to receive funds to 

pre-existing accounts. 

• Specifies that electronic payments made to pre-existing accounts 

are as timely as and no more onerous than payments made to another account on the list of options. 

Consent to open account .................. § 668.164(e)(2)(i) and (f)(4)(i) Student or parental consent required to open account and before: 

• Providing information about student or parent to financial account 

provider. 

• Sending access device to student or parent. 

• Associating student ID with a financial account. 

Contract disclosure ............................ § 668.164(e)(2)(V)(A) ............

§ 668.164(f)(4)(iii)(A) .............

Public disclosure of contracts governing arrangements and related cost 

information. 

Contract interpretation ....................... ............................................... 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 ......... ............................................... 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 

holding title IV funds.

§ 668.163 .............................. Increases from $250 to $500 the amount of interest accrued in accounts 

holding title IV funds non-Federal entities are allowed to retain annually. 

Retaking coursework ......................... § 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. 

Clock-to-credit-hour conversion ......... § 668.8(k) .............................. Eliminates § 668.8(k)(2) and (k)(3) and makes 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. 

Discussion of Costs, Benefits, and 

Transfers 

We expect the effects of the proposed 

regulations would 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, a transfer of some types of 

fee income 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. Students, institutions, and 

third-party servicers and the financial 

institutions that have contractual 

relationships described as T1 and T2 

arrangements would be most affected by 

the proposed regulations. 

Data and Methodology 

In an attempt to quantify some of the 

costs and to reduce the burden 

associated with the proposed 

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 proposed 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 do 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 proposed regulations and 

to evaluate whether, in order to reduce 

burden, 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 National Student 

Loan Data System (NSLDS) of the 

Department’s Office of Federal Student 

Aid (FSA)) 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, instate, 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 then used the number of 


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186Based on information available at financial 

institution Web sites including: 

http://www.higheronecard.com/landing/start.jsp 

https://www.pnc.com/en/personal-banking/

banking/student-banking.html 

https://www.usbank.com/student-banking/

campus-partners/index.html 

http://na.enroll.citiprepaid.com/login/

logindisplay.do 

http://www.siue.edu/bursar/CitiFeeSched.shtml 

http://www.broward.edu/financialaid/Pages/

Refund-Information.aspx 

http://www.citibank.com/transactionservices/

home/public_sector/higher_edu/docs/maricopa_

case_study.pdf 

http://fsucard.fsu.edu/suntrust-banking 

http://www.southwestgatech.edu/Content/

Default/6/1700/0/financial-aid/swgtc-preloadedfinancial-aid-debit-card.html 

http://www.tcfbank.com/account_campusbanking_disclosure.aspx. 

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. 

Based on our data, we estimated that 

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 

we estimated that that there was a 

significant number of students who 

received a credit balance at all of the 

four-year institutions, 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 [2]). The number of 

students who received a credit balance 

was lowest at the less-than two-year 

institutions, which represented 

approximately 1.8 percent of 

institutions and under 1 percent of 

students who received a credit balance 

from the 3,400 institutions with both 

tuition and fee and financial aid data. 

TABLE 2—NUMBER OF INSTITUTIONS AND STUDENTS WITH A CREDIT BALANCE

Sector Number of 

institutions 

Students with a 

credit balance 

Public, 2-year ............................................................................................................................................... 912 1,972,035 

Public, 4-year or above ............................................................................................................................... 625 540,461 

Private for-profit, 4-year or above ............................................................................................................... 195 181,530 

Private not-for-profit, 4-year or above ......................................................................................................... 1,297 97,071 

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-year ............................................................................................................... 32 863 

Private not-for-profit, less-than 2-year ......................................................................................................... 10 132 

Total ...................................................................................................................................................... 3,400 2,816,104 

As several provisions of the proposed 

regulations apply to institutions with T1 

or T2 arrangements, utilizing publically 

available sources and working with 

CFPB, we identified a listing of 

institutions that were known to have 

card agreements with financial 

institutions and applied the same 

methodology described above to this 

subset of institutions.186 Of these known 

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, and the 

four-year institutions also had 

significant numbers (See Table [3]). The 

less-than two-year institutions had 

inconclusive data. Again, this subset 

provided no additional information on a 

clear de minimis amount. 

TABLE 3—STUDENTS WITH A CREDIT BALANCE AT INSTITUTIONS KNOWN TO HAVE CARD AGREEMENTS

Sector Number of 

institutions 

Students with a 

credit balance 

Public, 2-year ............................................................................................................................................... 304 996,107 

Public, 4-year or above ............................................................................................................................... 200 280,467 

Private for-profit, 4-year or above ............................................................................................................... 38 29,593 

Private not-for-profit, 4-year or above ......................................................................................................... 113 10,001 

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-year ............................................................................................................... N/A N/A 

Private not-for-profit, less-than 2-year ......................................................................................................... N/A N/A 

Total ...................................................................................................................................................... 672 1,322,615 


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187 Ibid. at 18. 

188 Ibid. at 19. 

189Higher One Holdings, Inc. ‘‘SEC Form 10–K.’’ 

[Pages 41–42] (2014), available at www.sec.gov/

Archives/edgar/data/1486800/

000148680014000018/one10k.htm. 

In a final attempt to analyze the data, 

the Department took the subset and 

identified only those institutions that 

had a T2 arrangement. 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 [4]) and 

produced inconclusive results on a 

threshold to reduce burden. 

TABLE 4—STUDENTS WITH A CREDIT BALANCE AT INSTITUTIONS KNOWN TO HAVE T2 ARRANGEMENTS

Sector Number of 

institutions 

Students with a 

credit balance 

Public, 2-year ............................................................................................................................................... 36 135,108 

Public, 4-year or above ............................................................................................................................... 70 56,066 

Private not-for-profit, 4-year or above ......................................................................................................... 54 68 

Total ...................................................................................................................................................... 160 191,242 

As described in the Data and 

Methodology section, we analyzed the 

available data to determine if we could 

identify a clear percentage threshold or 

minimum number of students who had 

a credit balance before the proposed 

regulations relating to T2 arrangements 

would apply. We believed that applying 

a threshold amount would reduce the 

burden on institutions where small 

percentages of students received a credit 

balance. However, we could not 

conclusively identify a clear cut-off 

amount as the data was evenly 

distributed in each of the datasets and 

subsets we analyzed. We request 

comment on whether we should 

establish a de minimis amount and, if 

so, what that amount should be, 

supporting data, and how this amount 

should be established. 

We also reviewed reports related to 

campus card use for information on 

affected students and their account 

usage patterns. The GAO, USPIRG, and 

Consumers Union, among others, have 

analyzed the issue of student accounts 

and the use of college cards. Results 

from those reports that were used in the 

Department’s calculations are noted in 

the discussion of specific provisions 

throughout this section. 

Fee-Related Provisions Applicable to 

Institutions With T1 Arrangements 

Institutions with T1 arrangements are 

required to mitigate fees incurred by 

student aid recipients by prohibiting 

PoS and overdraft fees charged to 

students and parents. Additionally, 

these institutions must ensure that 

students have surcharge-free access to a 

national or regional ATM network that 

has ATMs on or near each campus of 

the institution. 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 [5]). However, 

college card fees were lower than 

alternative financial products, such as 

check-cashing services.187

TABLE 5—ACCOUNT FEES BY PROVIDER TYPE 188

Fee College cards Large banks, general checking accounts Credit unions 

Monthly Maintenance .............................................. $0 standard account: $6–$12 .....................................

student account: $0–$5 ..........................................

$0 

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 

revenues for FY 2013.189 Not all of those 

fees would be subject to the provisions 

of the proposed regulations, but the 

amount of student account revenue 

across the industry affected by the 

proposed changes would be significant. 

In addition to the uncertainty 

regarding the total amount of college 

card fees paid by students, consumer 

behavior is unpredictable, and the 

responses of students and parents to the 

proposed disclosures about account 

options and costs will significantly 

contribute to the effect of the proposed 

regulations. While it is assumed that 

consumers with appropriate information 

will make rational decisions, such as 

avoiding fees imposed on withdrawals 

from out-of-network ATMs or debit 

transactions that require a PIN rather 

than a signature, some students may not 

make the optimal choices in managing 

their accounts. We do not have data on 

the distribution of students in accounts 

with specific fee arrangements, student 

usage patterns, or the responsiveness of 

students to the information that would 

be provided under the proposed 

regulations, and therefore it is difficult 

to estimate the exact transfers that 

would occur if certain fees on student 

accounts were prohibited. However, 

there is some third-party analysis of 

account usage that can be used to 

establish a range of possible effects of 

the proposed regulations. In its August 


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190Consumers Union at 16. 

191 Ibid. 

192Center for Responsible Lending, ‘‘Overdraft U.: 

Student Bank Accounts Often Loaded with High 

Overdraft Fees’’, March 30, 2015. 

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.190 This range of 

outcomes demonstrates how the 

distribution of students in accounts and 

the student response to account 

information disclosed under the 

proposed regulations would affect the 

fee revenue transfers under the 

proposed regulations. 

An additional analysis by U.S. PIRG 

included data on overdraft behavior by 

age range with adults in the 18–25 age 

range having the highest incidence of 

paying overdraft fees with 53.6% paying 

zero, 21.5 percent paying 1 to 4, 10.3 

percent paying 5–9, 7.9 percent paying 

10 to 19, and 6.8 percent paying 20 or 

more overdraft fees.191 While not all 

students will fall within this age range, 

given the high percentage of adults in 

this age range that pays at least one 

overdraft fee and the amount of 

overdraft fees ranging from $25 to $38 

when applied, the revenue 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.192

Another element that complicates the 

analysis of the effects of the proposed 

regulations is the response of financial 

institutions and institutions. The 

proposed fee limitations relating to T1 

arrangements would have cost 

implications for affected servicers. One 

purpose of the proposed regulations is 

to allow students to access financial aid 

funds without burden from fees or other 

costs; however we acknowledge that 

many third-party servicers in T1 

arrangements could restructure their 

accounts to earn some of those funds 

through fees that would not be affected 

by the proposed 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. 

Disclosure Provisions and Student 

Choice 

As noted in the Summary of Proposed 

Regulations section, under the proposed 

regulations, institutions with T1 and T2 

arrangements would be subject to 

several provisions designed to increase 

the disclosure of information related to 

student accounts and emphasize the 

availability of options for students to 

receive credit balances. We believe this 

access to account disclosures and other 

critical information would allow 

students and parents to make informed 

decisions regarding the handling and 

distribution of their title IV funds. The 

fee and contract disclosures would help 

students and parents determine whether 

the financial products marketed by 

financial institutions with relationships 

to their school are the best option for 

them. These disclosures would also 

help prevent students from being misled 

into believing that they must use those 

financial products. 

Furthermore, the proposed 

regulations would require institutions to 

disclose the prices of books and other 

materials that they include as part of 

tuition and fees. We believe this will 

encourage schools to make one of two 

student-friendly changes: For schools 

that cannot justify including the price of 

books and supplies in tuition charges 

because it is not in students’ best 

financial interest, students and parents 

will be able to compare prices to 

determine if there are other, more 

economically viable options available 

and buy materials available in the 

marketplace. Alternatively, students 

benefit from the buying power of the 

school in cases where the school can 

source the materials for lower-thanmarket costs. 

The proposed regulations would also 

help protect both students and parents 

from deceptive marketing practices 

aimed at encouraging them to do 

business with a particular financial 

institution without presenting options. 

When students are not presented with 

clear choices or information, they may 

be pushed into using financial accounts 

with higher fees or less access than 

other options available to them. By 

requiring clear and neutral disclosures 

to students and parents, the student 

choice provisions would aid students 

and parents in identifying accounts with 

lower fees. Students who select 

accounts with lower fees would save 

money and be able to use all or more of 

their title IV aid for expenses critical to 

their educational needs. 

Reasonable Access to Funds 

As noted in the discussion of fee 

provisions related to T1 arrangements, 

under the proposed regulations, a thirdparty servicer with a T1 arrangement 

would have additional obligations with 

respect to the requirement that it 

provide students with convenient access 

to surcharge free regional or national 

ATM network. As under the current 

regulations, financial institutions must 

provide students convenient access to 

in-network ATMs. The proposed 

regulations would clarify that 

‘‘convenient access’’ means ATMs are 

sufficient in number at each of the 

institution’s locations such that funds 

are reasonably available from them. The 

provisions specifying what constitutes 

‘‘convenient access’’ are designed for 

the benefit of students and could have 

cost implications for some third-party 

servicers and financial institutions. 

These servicers/financial institutions 

could have to deploy new ATMs or pay 

to be associated with a surcharge-free 

ATM network to meet these 

requirements. Students who open 

accounts under a T1 or T2 arrangement 

would benefit from having more 

surcharge-free ATMs from which to 

access their title IV credit balances. 

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 section, 10 

million students (Chart 1) are at title IV 

participating schools where card 

agreements are prevalent. While some 

information is available about these 

agreements, it is insufficient to support 

a comprehensive analysis on the costs of 

the proposed regulations. We do not 

have data on the total number of 

institutions with card agreements with 

financial institutions or the details of 

those agreements. There is also a lack of 

data on the total number of students 

who receive credit balances and in what 

form those students receive that aid. 

Beyond the data limitations, 

forecasting the future behavior of 

students under the proposed regulations 

also presents another challenge in 

estimating costs. 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, 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 check at 


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193U.S. Department of Education, National Center 

for Education Statistics, 2011–12 National 

Postsecondary Student Aid Study (NPSAS:12). 

a bank themselves (38.5 percent). The 

remaining 24.3 percent of students 

receive refunds by cashing the check 

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.193 While 

direct marketing affects the choices a 

student might make, we lack data on 

predicting whether students would 

move away from those marketed 

accounts if all options were clearly 

presented to them. Consequently, 

quantifying the costs of the proposed 

regulations is difficult. 

Cash Management Provisions 

Interest earned on Federal advance 

payments deposited in interest-bearing 

accounts must be remitted annually. 

The proposed regulations would 

increase the amount allowed to be 

retained by non-Federal entities for 

administrative expenses from $250 to 

$500. By doing so, some institutions 

would see a minor benefit from being 

able to keep the first $500 in interest 

accrued on accounts holding title IV 

funds. Other updates to subpart K 

reflect technological changes and 

current practices in managing title IV 

funds. 

Retaking Coursework 

The proposed regulations would 

eliminate provisions that prevent 

institutions from counting previously 

passed courses towards enrollment 

where the repetition is due to the 

student failing other coursework. This 

change would benefit a limited number 

of undergraduate, graduate, and 

professional students. Students in these 

circumstances would no longer be 

denied title IV aid and therefore would 

be less likely to drop out or need less 

desirable private education loans to 

continue their coursework. Institutions 

and students would benefit as students 

would be able to continue paying for 

educational costs with title IV aid. 

Clock-to-Credit-Hour Conversion 

By streamlining the clock-to-credithour conversion provisions, institutions 

would benefit from the simplification of 

regulations affecting institutional 

determinations relating to title IV 

eligibility. 

Net Budget Impacts 

We estimate that the proposed 

regulations would not 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 proposed regulations would 

require institutions to disclose 

agreements with financial services 

providers through which students may 

opt to receive title IV credit balances, 

and restrict the fees students could be 

charged for accounts offered pursuant to 

T1 arrangements. Additionally, the 

proposed regulations would make 

technical changes to subpart K cash 

management rules to reflect 

technological advances and improved 

disbursement practices. The proposed 

regulations also would simplify the 

clock-to-credit-hour conversion for title 

IV purposes by eliminating the reference 

to any State requirement or role in 

approving or licensing a program. 

Finally, the proposed regulations would 

eliminate the provision that prevents 

institutions from counting previously 

passed courses towards enrollment 

where the repetition is due to the 

student failing other coursework. 

Although the proposed regulations 

would affect the arrangements among 

institutions, students, and financial 

service providers, they are not expected 

to affect the volume of title IV aid 

disbursed or the repayment patterns of 

students, and therefore, no significant 

budget impact on title IV programs is 

estimated. 

We welcome comments on the 

estimates provided and will consider 

them in developing the RIA for the final 

regulations. 

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 [6], we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of these proposed 

regulations. 

TABLE [6]—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

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 

7% discount rate 3% discount rate 

Costs of compliance with paperwork requirements ........................................................................................ $21.0 $21.2. 

Category Transfers 

Alternatives Considered 

As part of the development of the 

proposed regulations, the Department 

reviewed and considered various 

internal proposals, as well as proposals 

from non-Federal negotiators. In the 

following paragraphs we summarize the 

major proposals that we considered but 

ultimately declined to incorporate in the 

proposed regulations. 

The Department initially considered 

prohibiting institutions from including 

books and supplies as part of tuition 

and fees. However, some of the nonFederal negotiators argued that 

institutions, for pedagogical or safety 

reasons, are increasingly developing 

course-specific or course-embedded 

materials that students must access and 

purchase from the school and that those 

materials should be included in tuition 


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and fees. After a thorough discussion, 

the Department decided against a total 

prohibition on including books and 

supplies as part of tuition and fees, and 

agreed to a compromise position that 

would still benefit students, allow 

institutional flexibility when materials 

are integral to the course, and hold 

institutions accountable through cost 

transparency. 

The Department initially proposed to 

the negotiated rulemaking committee 

regulations that would have prevented 

institutions from sharing with a servicer 

any information about a student or 

parent until the student or parent 

affirmatively consented to open an 

account. Because the proposals 

considered during negotiated 

rulemaking did not separate T1 and T2 

arrangements, the ban on information 

sharing would have affected both thirdparty servicers and financial 

institutions. 

After multiple negotiation sessions 

and working with non-Federal 

negotiators representing third-party 

servicers, we elected to permit the 

sharing of only limited information— 

name, address, and email address— 

prior to receiving student or parent 

consent to open an account. We have 

also decided to apply the limitation to 

both T1 and T2 arrangements, under 

definitions more focused than those 

proposed to the negotiated rulemaking 

committee. 

To clarify our position, we have also 

altered our phrasing to require that a 

student or parent must provide consent 

to actually open an account, rather than 

simply select an option for receiving 

direct payments of financial aid before 

more than this basic contact information 

with a third-party servicer or financial 

institution. 

After the first negotiated rulemaking 

session, we proposed provisions that 

would allow an institution to send a 

debit card, prepaid card, or access 

device associated with the account to a 

student or parent only after the student 

or parent specifically requests it after 

providing consent to open an account. 

We modified this initial approach by 

removing the requirement for the 

student or parent to specifically request 

the card while retaining a requirement 

that the student or parent consent to 

opening the account before the card is 

sent. While we understand that the 

requirement to obtain consent to open a 

financial account before sending an 

access device to a student or parent may 

slow the speed with which a student or 

parent could access his or her credit 

balance, we believe that requiring 

student or parent consent to an account 

first helps to dispel the implication that 

the access device and its associated 

financial account are required by the 

institution. We also believe it reinforces 

the notion that use of the access device 

and its associated account is, in fact, a 

choice. 

We also considered several proposals 

regarding the disclosure of the contracts 

between institutions of higher education 

and financial institutions, along with 

contract summaries, as described in 

other parts of the preamble. However, to 

reduce burden on institutions, we 

propose that an institution must only 

provide to the Secretary, with respect to 

a contract for a T1 or T2 arrangement, 

the following information: 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; 

the number of students and parents 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. 

Initial Regulatory Flexibility Act 

Analysis 

The proposed regulations will affect 

institutions that participate in the title 

IV, HEA programs, financial 

institutions, and individual borrowers. 

The U.S. Small Business Administration 

(SBA) Size Standards define ‘‘for-profit 

institutions’’ as ‘‘small businesses’’ if 

they are independently owned and 

operated and not dominant in their field 

of operation with total annual revenue 

below $7,000,000. The SBA Size 

Standards define ‘‘not-for-profit 

institutions’’ as ‘‘small organizations’’ if 

they are independently owned and 

operated and not dominant in their field 

of operation, or as ‘‘small entities’’ if 

they are institutions controlled by 

governmental entities with populations 

below 50,000. The revenues involved in 

the sector that would be affected by the 

proposed regulations, and the 

concentration of ownership of 

institutions by private owners or public 

systems, means that the number of title 

IV, HEA eligible institutions that are 

small entities would be limited but for 

the fact that the not-for-profit entities fit 

within the definition of a ‘‘small 

organization’’ regardless of revenue. 

Given the definitions above, several of 

the entities that would be subject to the 

proposed regulations are small, leading 

to the preparation of the following 

Initial Regulatory Flexibility Analysis. 

Description of the Reasons That Action 

by the Agency Is Being Considered 

Over the past several years, a number 

of changes have occurred in the student 

financial products marketplace and in 

budgets of postsecondary institutions 

that have led to a proliferation of 

agreements between postsecondary 

institutions and ‘‘college card’’ 

providers. These cards, usually in the 

form of debit or prepaid cards and 

sometimes cobranded with the 

institution’s logo or combined with 

student IDs, are marketed to students as 

a way to receive their title IV credit 

balances via more convenient electronic 

means. However, a number of 

government and consumer group reports 

have 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 proposes to amend the 

cash management regulations under 

subpart K and other sections of the 

Student Assistance General Provisions 

regulations issued under the HEA, to 

address the findings in multiple 

government and consumer group reports 

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 indicating that a 

particular financial account is required 

to receive student aid. The proposed 

regulations also make a number of 

changes to update subpart K consistent 

with contemporary disbursement 

practices. Finally, the proposed 

regulations update two additional, 

unrelated provisions: Revising the way 

previously passed coursework is treated 

for title IV eligibility purposes so 

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 troubling 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 

proposed a number of more minor 

changes throughout subpart K. 


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Description of and, Where Feasible, an 

Estimate of the Number of Small 

Entities to Which the Proposed 

Regulations Would Apply 

The proposed regulations would 

affect institutions, financial services 

providers, 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 portion 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 

non-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 [7] 

summarizes the distribution of small 

entities affected by the proposed 

regulation by sector. 

TABLE [7]—DISTRIBUTION OF SMALL ENTITIES BY SECTOR

Small entity Total % 

Public 4-year .............................................................................................................. 0 749 0 

Private NFP 4-year .................................................................................................... 1,648 1,648 100 

Private For-Profit 4-year ............................................................................................ 278 827 34

Public 2-year .............................................................................................................. 0 1,074 0 

Private NFP 2-year .................................................................................................... 162 162 100 

Private For-Profit 2-year ............................................................................................ 667 1,035 64 

Public less than 2-year .............................................................................................. 0 262 0 

Private NFP less than 2-year .................................................................................... 87 87 100 

Private For-Profit less than 2-year ............................................................................ 1,411 1,695 83 

Total .................................................................................................................... 4,253 7,539 56 

The Secretary invites comments from 

small entities as to whether they believe 

the proposed changes would have a 

significant economic impact on them 

and, if so, requests evidence to support 

that belief. 

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 Requirement and the Type of 

Professional Skills Necessary for 

Preparation of the Report or Record 

The various provisions in the 

proposed regulations require disclosures 

by institutions as discussed in the 

Paperwork Reduction Act section of this 

preamble. Table [8] summarizes the 

estimated burden on small entities from 

the paperwork requirements associated 

with the proposed regulations. 

TABLE [8]—SUMMARY OF PAPERWORK REQUIREMENTS FOR SMALL ENTITIES

Provision Reg section OMB control 

No. Hours Costs 

Require institutions to establish an account selection process ....................... 668.164(d)(4) 1845–0106 3,920 143,276 

Compliance with T1 requirements: Provide the terms and conditions of the 

financial accounts, provide convenient access to ATMs, cannot be converted to a credit instrument, must disclose the contract, must disclose 

the mean and median costs incurred over the prior year as well as the 

number of students and parents with these financial accounts .................. 668.164e 1845–0106 6,710 245,251 

Compliance with T2 requirements: Must obtain consent to open an account, 

provide terms and conditions, disclose the contract, the number of students and parents participating, the mean and median actual costs for 

the prior year ................................................................................................ 668.164(f) 1845–0106 3,330 121,712 

Total .......................................................................................................... 13,960 510,238 

Identification, to the Extent Practicable, 

of All Relevant Federal Regulations 

That May Duplicate, Overlap, or 

Conflict With the Proposed Regulations 

The proposed 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 CFPB, for 

help in understanding Federal banking 

regulations and the Federal bank 

regulatory framework. We believe 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. 

Paperwork Reduction Act of 1995 

As part of its continuing effort to 

reduce paperwork and respondent 


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burden, the Department provides the 

general public and Federal agencies 

with an opportunity to comment on 

proposed and continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3506(c)(2)(A)). This helps 

ensure that: The public understands the 

Department’s collection instructions, 

respondents can provide the requested 

data in the desired format, reporting 

burden (time and financial resources) is 

minimized, collection instruments are 

clearly understood, and the Department 

can properly assess the impact of 

collection requirements on respondents. 

The table at the end of this section 

summarizes the estimated burden on 

small entities, primarily institutions and 

applicants, arising from the paperwork 

associated with the proposed 

regulations. 

Section 668.164 contains information 

collections requirements. Under the 

PRA, the Department has submitted a 

copy of this section, and an Information 

Collections Request (ICR) to OMB for its 

review. 

A Federal agency may not conduct or 

sponsor a collection of information 

unless OMB approves the collection 

under the PRA and the corresponding 

information collection instrument 

displays a currently valid OMB control 

number. Notwithstanding any other 

provision of law, no person is required 

to comply with, or is subject to penalty 

for failure to comply with, a collection 

of information if the collection 

instrument does not display a currently 

valid OMB control number. 

In the final regulations, we will 

display the control numbers assigned by 

OMB to any information collection 

requirements proposed in this NPRM 

and adopted in the final regulations. 

Discussion 

Section 668.164 Disbursing Funds 

Requirements: Student and parent 

choice. 

Under proposed § 668.164(d)(4)(i), an 

institution that makes direct payments 

to a student or parent by EFT and that 

chooses to enter into an arrangement 

described in § 668.164(e) or § 668.164(f), 

must establish a selection process under 

which the student or parent chooses one 

of several options for receiving those 

payments. Alternatively, an institution 

that does not offer accounts under a Tier 

1 (T1) or Tier 2 (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 or parent, 

issue a check, or disburse cash to the 

student or parent. 

For institutions required to establish a 

student choice process under proposed 

§ 668.164(d)(4)(i), the proposed 

regulations would establish 

requirements that must be met in 

implementing the process. 

The institution must inform the 

student or parent in writing that he or 

she is not required to open or obtain a 

specific financial account or access 

device in order to receive title IV funds. 

The institution must ensure that the 

options listed are presented in a clear, 

fact-based, and neutral manner (except 

that a pre-existing account must be 

listed as the first, most prominent, and 

default option). The institution must 

ensure that initiating direct payments 

electronically to an existing account is 

as timely as, and no more onerous than 

initiating direct payments to an account 

offered pursuant to a T1 or T2 

arrangement. The institution must allow 

the student or parent the option to 

change his or her account preference 

with reasonable written notice. 

In addition to these requirements for 

establishing a student choice process, 

the proposed regulations under 

§ 668.164(d)(4)(i)(B) contain the 

following provisions governing the 

description of account options under 

the student choice process. 

The institution must present, 

prominently and as the first and default 

option, the ability to receive funds in a 

student’s or parent’s pre-existing 

financial account or pre-existing access 

device. The institution must list and 

identify the major features and 

commonly assessed fees associated with 

all accounts offered pursuant to a T1 or 

T2 arrangement (using a format 

published by the Secretary in the 

Federal Register which would 

constitute compliance with this 

provision under the proposed 

regulations), as well as a Universal 

Resource Locator (URL) linked to the 

terms and conditions of these accounts. 

Finally, the institution must list issuing 

a check as an option for a student or 

parent to receive payments. 

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 

(from FSA) 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 indistrict, 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 

subset of institutions. Utilizing 

publically available sources and 

working with the CFPB the Department 

identified a listing of institutions that 

were known to have card agreements 

with financial institutions from CFPB. If 

commenters have other sources for the 

number of institutions with these 

financial agreements, we invite them to 

provide those sources for our 

examination. The Department’s NSLDS 

data, when combined with the IPED’s 

data and the CFPB data the list of 

institutions that were known to have 

agreements (NSLDS–IPEDS–CFPB) had 

tuition and fees and aid recipient data 

for 672 of the 914 institutions identified 

by CFPB. From the data for 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 

arrangements, the NSLDS–IPEDS–CFPB 

data show that 685 institutions would 

be public institutions. On average, we 

estimate the burden associated with 

developing and implementing the 

proposed student and parent choice 

options would increase by 20 hours per 

institution and therefore total burden of 

13,700 hours (685 institutions times 20 

hours per institution) under OMB 

Control Number 1845–0106. 

Of the 914 institutions with financial 

arrangements, the NSLDS–IPEDS–CFPB 

data show that 154 institutions would 

be private not-for-profit institutions. On 

average, we estimate the burden 

associated with developing and 

implementing the student and parent 

choice options would increase by 20 


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hours per institution and therefore total 

burden of 3,080 hours (154 institutions 

times 20 hours per institution) under 

OMB Control Number 1845–0106. 

Of the 914 institutions with 

arrangements, the NSLDS–IPEDS–CFPB 

data show that 75 would be private forprofit institutions. On average, we 

estimate the burden associated with 

developing and implementing the 

student and parent choice options 

would increase by 20 hours per 

institution and therefore total burden of 

1,500 hours (75 institutions times 20 

hours per institution) under OMB 

Control Number 1845–0106. 

Overall, burden to institutions would 

increase by 18,280 hours (the sum of 

13,700 hours, 3,080 hours, and 1,500 

hours). 

The NSLDS–IPEDS–CFPB data 

indicates that 1,798,756 title IV 

recipients with credit balances for the 

2013–14 award year would be impacted 

by this proposed regulation. We 

estimate that each of the affected title IV 

recipients would take, on average, 20 

minutes (.33 hours) to review the 

options presented by the institution or 

their third-party servicer and to make 

their selection. 

Of the total number of title IV 

recipients with a credit balance, the data 

show that 1,736,141 recipients were 

enrolled in public institutions. On 

average, each recipient would 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 

would 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 

would 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 

would increase by 593,590 hours (the 

sum of 572,927 hours, 4,488 hours, and 

16,175 hours). 

Requirements: T1 Arrangements 

Under the proposed regulations in 

§ 668.164(e), when an institution enters 

into a contract with a third-party 

servicer under which the servicer 

performs the functions of 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, this would 

be considered a T1 arrangement 

between the institution and the thirdparty servicer. 

Under a T1 arrangement the 

institution must comply with the 

following requirements: 

1. The institution must obtain the 

student’s or parent’s consent to open the 

financial account before the institution 

provides any information about the 

student or parent, except for name, 

address, and email address, to the thirdparty servicer, the financial institution 

at which the financial account’s funds 

would be deposited, or the agents of 

either an access device, or and before 

any representation of an access device, 

is sent to the student or parent; and 

before a card or tool provided to the 

student or parent for institutional 

purposes, such as a student ID card, is 

associated with the financial account; 

2. The institution must inform the 

student or parent 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 or parent has convenient access 

to the financial account through 

surcharge-free national or regional ATM 

network that has ATMs located on or 

near each location of the institution, and 

that those ATMs are sufficient in 

number and housed and serviced such 

that the funds are reasonably available 

from them, including at the times the 

institution or its third-party servicer 

makes direct payments into them. The 

institution must also ensure that 

students and parents 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 or parent 

conducts point-of-sale transactions; or 

for conducting any transaction on an 

ATM that belongs to the regional or 

national network; 

4. The institution must ensure that 

students and parents do not incur a 

charge initiated by the institution, thirdparty servicer, or associated financial 

institution on behalf of the third-party 

servicer for at least 30 days following 

the date that title IV, HEA program 

funds are deposited or transferred to the 

financial account; 

5. The institution must ensure that the 

financial account or access device is not 

marketed or portrayed as, or converted 

into a credit card; that the financial 

account or access device is not marketed 

or portrayed as, or converted into a 

credit instrument, that no credit may be 

extended or associated with the 

account, and that any transaction 

exceeding the balance on the card must 

be denied without charging the student 

or parent any fee for such denial; 

6. No later than 60 days after the most 

recently completed award year, the 

institution must provide to the Secretary 

and 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, would 

compromise personal privacy, 

proprietary information technology, or 

the security of information technology 

or of physical facilities; the total 

consideration, monetary and nonmonetary, paid or received by the 

parties under the terms of the contract, 

as well as the number of students and 

parents 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; 

and to annually provide a URL linking 

from the institution’s Web site to the 

agreement and provide basic 

information about the agreement; 

7. The institution must ensure that the 

terms of the T1 financial accounts are 

not inconsistent with the best financial 

interests of the students and parents 

opening them. The Secretary considers 

this requirement to be met if the 

institution documents that it 

periodically conducts reasonable due 

diligence reviews to ascertain whether 

the fees imposed under the T1 

arrangement are, considered as a whole, 

excessive, in light of prevailing market 

rates; and all contracts for the marketing 

or offering of T1 accounts to the 

institution’s students or parents provide 

for termination of the arrangement at the 

discretion of the institution based on 

complaints received from students or 

parents or a determination by the 

institution that the fees assessed under 

the T1 account are excessive; 


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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 T1 financial accounts offered. 

Burden Calculation: 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 would be considered 

either T1 and T2 arrangements under 

the proposed regulations, the data 

indicate that there were 541 public 

institutions with a T1 arrangement. We 

expect that these institutions would 

have to modify their systems or 

procedures to ensure compliance with 

these proposed regulations including, 

but not limited to, establish a consent 

process; provide account terms and 

conditions disclosures; ensure 

compliance with the 30-day prohibition 

for charges made to an account 

following the date that title IV, HEA 

program funds are deposited or 

transferred into the account; provide the 

proposed disclosures, contract 

disclosures, and use and cost data 

within 60 days after the end of the 

award year. In addition, it is likely that 

institutions would make other changes 

in order to conduct their proposed 

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 excessive. We 

estimate that the changes required by 

the proposed regulations would 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 would be 

considered either T1 and T2 

arrangements under the proposed 

regulations, the data indicate that there 

were 80 private not-for-profit 

institutions with a T1 arrangement. We 

expect that these institutions would 

have to modify their systems or 

procedures to ensure compliance with 

these proposed regulations. Specifically, 

we expect that modifications would be 

required including, but not limited to: 

The establishment of a consent process; 

provide account terms and conditions 

disclosures; ensure compliance with the 

30-day prohibition on charges made to 

an account following the date that title 

IV, HEA program funds are deposited or 

transferred into the account; and 

provide the proposed disclosures, 

contract disclosures, and use and cost 

data within 60 days after the end of the 

award year. In addition, other 

modifications would likely be needed 

with regard to how the institutions plan 

to conduct their proposed 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 excessive. We estimate 

that the changes required by the 

proposed regulations would 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 would be 

considered either T1 and T2 

arrangements under the proposed 

regulations, the data indicate that there 

were 75 private for-profit institutions 

with a T1 arrangement. We expect that 

institutions would have to modify their 

systems or procedures to ensure 

compliance with these proposed 

regulations. Specifically, we expect that 

modifications would be required 

including, but not limited to: The 

establishment of a consent process; 

provide account terms and condition 

disclosures; ensure compliance with the 

30-day prohibition for charges made to 

an account following the date that title 

IV, HEA program funds are deposited or 

transferred into the account; and 

provide the proposed disclosures, 

contract disclosures, and use and cost 

data within 60 days after the end of the 

award year. In addition, it is likely that 

institutions would make other changes 

regarding how they will conduct their 

proposed periodic due diligence and 

updating of third-party contracts to 

allow for termination of the contract 

based upon student complaints or the 

institution’s assessment that third-party 

fees have become excessive. We 

estimate that the changes required by 

the proposed regulations would 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 

would increase by 38,280 (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 at the 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 would take 15 

minutes (.25 hours) to read the 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, 

along with the number of students and 

parents who had financial accounts 

under the T1 arrangement for the most 

recent completed year, the mean and 

median costs incurred by account 

holders, and whether to provide their 

consent to the institution. Therefore, the 

additional burden on title IV recipients 

would 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 would take 15 

minutes (.25 hours) to read the 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, 

along with the number of students and 

parents who had financial accounts 

under the T1 arrangement for the most 

recent completed year, the mean and 

median costs incurred by account 

holders, and whether to provide their 

consent to the institution. Therefore, the 

additional burden on title IV recipients 

would 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 would take 15 

minutes (.25 hours) to read the 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, 

along with the number of students and 

parents who had financial accounts 

under the T1 arrangement for the most 

recent completed year, the mean and 

median costs incurred by account 

holders, and whether to provide their 

consent to the institution. Therefore, the 

additional burden on title IV recipients 

would increase by 12,254 hours under 

OMB Control Number 1845–0106. 

Overall, burden to recipients would 

increase by 384,667 hours (the sum of 


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369,036 hours, 3,377 hours, and 12,254 

hours). 

Requirements: T2 Arrangements 

Under the proposed regulations in 

§ 668.164(f), when an institution enters 

into a contract with a financial 

institution under which financial 

accounts, into which title IV, HEA 

program funds will be transferred or 

deposited, are offered and marketed 

directly to students or their parents, the 

agreement would be considered a T2 

arrangement. The Secretary considers 

that title IV, HEA program funds would 

be transferred or deposited into 

financial accounts that are offered under 

a contract between an institution and a 

financial institution if students or 

parents that receive credit balance funds 

are subject to the direct marketing. The 

Secretary considers that a financial 

account is marketed directly if the 

institution communicates information 

directly to its students or their parents 

about the financial account and how it 

may be opened; the financial account or 

access device is co-branded with the 

institution’s name, logo, mascot, or 

other affiliation; or a card or tool that is 

provided to the student or parent for 

institutional purposes, such as a student 

ID card, is linked with the financial 

account or access device. 

Under a T2 arrangement, the 

institution must comply with the 

following requirements: 

1. The institution must obtain the 

student’s or parent’s consent to open the 

financial account before the institution 

provides, or permits a third-party 

servicer to provide, any information 

about the student or parent, except for 

name, address, and email address, to the 

financial institution or its agents; and 

before an institution provides any 

access device, or any representation of 

an access device, is sent to the student 

or parent; and before a card or tool 

provided to the student or parent for 

institutional purposes, such as a student 

ID card, is linked to the financial 

account; 

2. The institution must inform the 

student or parent 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 if the institution includes the 

financial account in its student choice 

process under proposed paragraph (d); 

3. No later than 60 days after the most 

recently completed award year, the 

institution must provide to the Secretary 

and 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, would 

compromise personal privacy, 

proprietary information technology, or 

the security of information technology 

or of physical facilities; as well as, the 

total consideration, monetary and nonmonetary, paid or received by the 

parties under the terms of the contract; 

and the number of students and parents 

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; 

4. The institution must ensure that the 

funds deposited in the financial 

accounts are accessible through 

surcharge free in-network ATMs 

convenient to each of the institution’s 

locations, and that those ATMs are 

sufficient in number and housed and 

serviced such that the funds are 

reasonably available from them, 

including at the times the institution or 

its third-party servicer makes direct 

payments into them; 

5. The institution must ensure that the 

financial accounts are not marketed or 

portrayed as or converted into credit 

cards. 

6. The institution must ensure that the 

terms of the T2 financial accounts are 

not inconsistent with the best financial 

interests of the students and parents 

opening them. The Secretary considers 

this requirement to be met if the 

institution documents that it 

periodically conducts reasonable due 

diligence reviews to ascertain whether 

the fees imposed under the T2 financial 

account are, considered as a whole, 

excessive, in light of prevailing market 

rates; and all contracts for the marketing 

or offering of T2 accounts to the 

institution’s students or parents provide 

for termination of the arrangement at the 

discretion of the institution based on 

complaints received from students or 

parents or a determination by the 

institution under (B) that the fees 

assessed under the T2 account are 

excessive; 

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 T2 financial accounts offered. 

Burden calculation: 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 the total number of 7,539 

institutions in the 2013–14 award year, 

the NSLDS–IPEDS–CFPB data showed 

that there would be 144 public 

institutions with T2 arrangements. 

Under these proposed regulations, we 

estimate that an institutions would have 

to modify its systems or procedures to 

ensure compliance with these proposed 

regulation regulations by, among other 

things, including, but not limited to, 

establish a consent process; provide 

account terms and conditions 

disclosures; ensure compliance with the 

30-day prohibition for charges made to 

an account following the date that title 

IV, HEA program funds are deposited or 

transferred into the account; as well as 

provide the proposed disclosures, 

contract disclosures, and use and cost 

data within 60 days after the end of the 

award year. In addition, other changes 

regarding how the institution will to 

conduct its proposed 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 excessive. We estimate 

that the changes required by the 

proposed regulations would add an 

additional 45 hours of burden per 

institution, increasing burden by 6,480 

hours under OMB Control Number 

1845–0106. 

Of the total number of 7,539 

institutions, the NSLDS–IPEDS–CFPB 

data showed that there would be 74 

private not-for-profit institutions that 

had a T2 arrangement. We estimate that 

an institutions would have to modify its 

systems or procedures to ensure 

compliance with these proposed 

regulation including, but not limited to, 

establish a consent process; provide 

account terms and condition 

disclosures; ensure compliance with the 

30-day prohibition for charges made to 

an account following the date that title 

IV, HEA program funds are deposited or 

transferred into the account; as well as 

provide the proposed disclosures, 

contract disclosures, and use and cost 

data within 60 days after the end of the 

award year. In addition, other changes 

regarding how the institution will 

conduct its proposed 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 excessive. We estimate 

that the changes required by the 

proposed regulations would add an 

additional 45 hours of burden per 

institution, increasing burden by 3,330 

hours under OMB Control Number 

1845–0106. 

Of the total number of 7,539 

institutions, the NSLDS–IPEDS–CFPB 


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data showed that there would be 0 

private for-profit institutions where title 

IV recipients had credit balances had a 

T2 arrangement. 

Overall, burden to institutions would 

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 

that number of recipients, the data 

showed that 259,997 were enrolled at 

public institutions. We estimate that, on 

average, each recipient would take 15 

minutes (.25 hours) to read the 

institution’s consent information and 

decide whether to provide it or not. 

Therefore, the additional burden on title 

IV recipients would 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 would take 15 

minutes (.25 hours) to read the 

institution’s consent information and 

decide whether to provide it or not. 

Therefore, the additional burden on title 

IV recipients would 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 institutions would 

increase by 65,022 hours (the sum of 

64,999 hours and 23 hours). 

Collectively, the total increase in 

burden for § 668.164 would be 

1,109,649 hours under OMB Control 

Number 1845–0106. 

Consistent with the discussion above, 

the following chart describes the 

sections of the proposed regulations 

involving information collections, the 

information being collected, and the 

collections that the Department will 

submit to OMB for approval and public 

comment under the PRA, 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

Regulatory section Information collection 

OMB control No. and estimated burden 

(change in burden) 

Estimated 

costs 

668.164–Disbursing Funds ..... The proposed regulations would require institutions to establish a account selection process if the institution prefers to 

send EFT payments to an account described in proposed 

§§ 668.164(e) and (f).

OMB 1845–0106; This would 

be a revised collection. We 

estimate that the burden 

would increase by 

1,109,649 hours.

$19,431,272 

Under proposed § 668.164(e), when an institution enters into 

a contract with a third-party servicer to make direct payments of title IV, HEA program funds as a T1 arrangement, the institution must meet certain requirements that 

include, but are not limited to, provide the terms and conditions of the financial accounts, provide convenient access 

to ATMs, cannot be converted to a credit instrument, must 

disclose the details of the contract with the public via 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 and parents with these financial accounts. 

Under proposed § 668.164(f), when an institution enters into 

a contract or marketing agreement with a financial institution under which title IV, HEA program funds would be 

transferred or deposited and are directly offered or marketed to students and their parents as a T2 arrangement, 

the institution must meet certain requirements that include 

but are not limited to, obtaining consent to open an financial account or access device that is co-branded with the 

institution’s name, logo, mascot, or other affiliation, or a 

card or tool that is provided to the student or parent for institutional purposes such as a student ID card that is 

linked to the financial account, provide the terms and conditions of the account, disclose the contract between the 

institution and the financial institution. 

The total burden hours and change in 

burden hours associated with each OMB 

Control number affected by the 

proposed regulations follows: 

Control 

number 

Total proposed 

burden hours 

Proposed 

change in 

burden hours 

1845–0106 4,282,188 + 3,599,340 

Control 

number 

Total proposed 

burden hours 

Proposed 

change in 

burden hours 

Total ...... 4,282,188 = 3,599,340 

We have prepared an Information 

Collection Request (ICR) for these 

information collection requirements. If 

you want to review and comment on the 

ICR, please follow the instructions in 

the ADDRESSES section of this notice. 

Note: The Office of Information and 

Regulatory Affairs in the Office of 

Management and Budget (OMB), and the 

Department of Education review all 

comments posted at www.regulations.gov. 

In preparing your comments, you may 

want to review the ICR in by using the 


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Federal Register / Vol. 80, No. 95 / Monday, May 18, 2015 / Proposed Rules 28529 

Docket ID number specified in this 

notice. This proposed collection is 

identified as proposed collection OMB 

1845–0106. 

We consider your comments on this 

proposed collection of information in— 

• Deciding whether the proposed 

collection is necessary for the proper 

performance of our functions, including 

whether the information will have 

practical use; 

• Evaluating the accuracy of our 

estimate of the burden of the proposed 

collection, including the validity of our 

methodology and assumptions; 

• Enhancing the quality, usefulness, 

and clarity of the information we 

collect; and 

• Minimizing the burden on those 

who must respond. This includes 

exploring the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques. 

Between 30 and 60 days after 

publication of this document in the 

Federal Register, OMB is required to 

make a decision concerning the 

collection of information contained in 

these proposed regulations. Therefore, 

to ensure that OMB gives your 

comments full consideration, it is 

important that OMB receives your 

comments by June 17, 2015. This does 

not affect the deadline for your 

comments to us on the proposed 

regulations. 

If your comments relate to the ICR for 

these proposed regulations, please 

specify the Docket ID number and 

indicate ‘‘Information Collection 

Comments’’ on the top of your 

comments. 

Intergovernmental Review 

These programs are not subject to 

Executive Order 12372 and the 

regulations in 34 CFR part 79. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, the Secretary 

particularly requests 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. 

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 person listed under FOR

FURTHER INFORMATION CONTACT. 

Electronic Access to This Document: 

The official version of this document is 

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 

at: www.gpo.gov/fdsys. At this site you 

can view this document, as well as all 

other documents of this Department 

published in the Federal Register, in 

text or Adobe Portable Document 

Format (PDF). To use PDF you must 

have Adobe Acrobat Reader, which is 

available free at the site. 

You may also access documents of the 

Department published in the Federal 

Register by using the article search 

feature at: www.federalregister.gov. 

Specifically, through the advanced 

search feature at this site, you can limit 

your search to documents published by 

the Department. 

List of Subjects in 34 CFR Part 668 

Administrative practice and 

procedure, Aliens, Colleges and 

universities, Consumer protection, 

Grant programs—education, Loan 

programs—education, Reporting and 

recordkeeping requirements, Selective 

Service System, Student aid, Vocational 

education. 

Dated: May 13, 2015. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary of Education 

proposes to amend 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 

continues to read as follows: 

Authority: 20 U.S.C. 1070g, 1091, and 

1094, unless otherwise noted. 

■ 2. Section 668.2 is amended by 

revising the definition of full-time 

student in paragraph (b) to read as 

follows: 

§ 668.2 General definitions. 

* * * * * 

(b) * * * 

Full-time student: An enrolled 

student who is carrying a full-time 

academic workload, as determined by 

the institution, under a standard 

applicable to all students enrolled in a 

particular educational program. The 

student’s workload may include any 

combination of courses, work, research, 

or special studies that the institution 

considers sufficient to classify the 

student as a full-time student. For a 

term-based program, the student’s 

workload may include repeating any 

coursework previously taken in the 

program but may not include more than 

one repetition of a previously passed 

course. However, for an undergraduate 

student, an institution’s minimum 

standard must equal or exceed one of 

the following minimum requirements: 

(1) For a program that measures 

progress in credit hours and uses 

standard terms (semesters, trimesters, or 

quarters), 12 semester hours or 12 

quarter hours per academic term. 

(2) For a program that measures 

progress in credit hours and does not 

use terms, 24 semester hours or 36 

quarter hours over the weeks of 

instructional time in the academic year, 

or the prorated equivalent if the 

program is less than one academic year. 

(3) For a program that measures 

progress in credit hours and uses 

nonstandard terms (terms other than 

semesters, trimesters or quarters) the 

number of credits determined by— 

(i) Dividing the number of weeks of 

instructional time in the term by the 

number of weeks of instructional time 

in the program’s academic year; and 

(ii) Multiplying the fraction 

determined under paragraph (3)(i) of 

this definition by the number of credit 

hours in the program’s academic year. 

(4) For a program that measures 

progress in clock hours, 24 clock hours 

per week. 

(5) A series of courses or seminars 

that equals 12 semester hours or 12 

quarter hours in a maximum of 18 

weeks. 

(6) The work portion of a cooperative 

education program in which the amount 

of work performed is equivalent to the 

academic workload of a full-time 

student. 

(7) For correspondence coursework, a 

full-time course load must be— 

(i) Commensurate with the full-time 

definitions listed in paragraphs (1) 

through (6) of this definition; and 

(ii) At least one-half of the coursework 

must be made up of noncorrespondence coursework that meets 

one-half of the institution’s requirement 

for full-time students. 

■ 3. In § 668.8, paragraphs (k) and (l) are 

revised 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— 


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(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 of 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 

(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. 

§ 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 the student or 

parent 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 

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 or parent 

that issues an access device associated 

with a financial account and agrees with 

a student or parent 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; 

(ix) Title IV, HEA programs include 

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 subpart B 

of the FWS regulations, 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, 

the Secretary may provide funds to an 

institution under the advance payment 

method, reimbursement payment 

method, or 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. 


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(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 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— 

(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 paragraph (b)(1) 

and (2) of this section, except that the 

institution’s request may not exceed the 

amount of the disbursements the 

institution 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. 

§ 668.163 Maintaining and accounting for 

funds. 

(a)(1) Institutional depository account. 

An institution must maintain title IV, 

HEA program funds in a depository 

account. For an institution located in a 

State, the depository account must be 

insured by the FDIC or NCUA. For a 

foreign institution, the depository 

account may be insured by the FDIC or 

NCUA, or by an equivalent agency of 

the government of the country in which 

the institution is located. If there is no 

equivalent agency, the Secretary may 

approve a depository account 

designated by the foreign institution. 

(2) For each depository account that 

includes title IV, HEA program funds, 

an institution must clearly identify that 

title IV, HEA program funds are 

maintained in that account by— 

(i) Including in the name of each 

depository account the phrase ‘‘Federal 

Funds’’; or 

(ii)(A) Notifying the depository 

institution that the depository account 

contains title IV, HEA program funds 

that are held in trust and retaining a 

record of that notice; and 

(B) Except for a public institution 

located in a State or a foreign 

institution, filing with the appropriate 

State or municipal government entity a 

UCC–1 statement disclosing that the 

depository account contains Federal 

funds and maintaining a copy of that 

statement. 

(b) Separate depository account. The 

Secretary may require an institution to 

maintain title IV, HEA program funds in 

a separate depository account that 

contains no other funds if the Secretary 

determines that the institution failed to 

comply with— 

(1) The requirements in this subpart; 

(2) The recordkeeping and reporting 

requirements in subpart B of this part; 

or 

(3) Applicable program regulations. 

(c) Interest-bearing depository 

account. (1) An institution is required to 

maintain its title IV, HEA program funds 

in an interest-bearing depository 

account, except as provided in 2 CFR 

200.305(b)(8). 

(2) Any interest earned on Federal 

Perkins Loan program funds is retained 

by the institution as provided under 34 

CFR 674.8(a). 

(3) An institution may keep the initial 

$500 in interest it earns during the 

award year on other title IV, HEA 

program funds it maintains in 

accordance with paragraph (c)(1) of this 

section. By June 30 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. 

(2)(i) For a Direct Loan for which the 

student is subject to the delayed 

disbursement requirements under 34 

CFR 685.303(b)(4), 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 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 


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covered by that prior year, late, or 

retroactive disbursement. 

(3) At the time that a disbursement is 

made for a payment period, the 

institution, along with the third-party 

servicer engaged by the institution to 

draw down title IV, HEA program funds 

or otherwise perform activities leading 

to or supporting that disbursement, 

must confirm that the student is 

enrolled at the institution, and that the 

student, or the student’s parent, is 

eligible for that disbursement. 

(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 

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) If an institution includes the cost 

of books and supplies as part of tuition 

and fees under paragraph (c)(1)(i) of this 

section, it must separately disclose 

those costs and explain why including 

them is in the best financial interests of 

students. 

(3)(i) An institution may include in 

one payment period 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 the current 

loan period for any student or parent 

who received a Direct Loan, or the 

current award year for any student who 

did not receive a Direct Loan; and 

(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 allowable 

charges stemming from any 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 previous 

payment period. 

(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 the 

student enrolls in, or is expected to 

complete, 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)(1) Direct payments. Except as 

provided under paragraph (d)(3) of this 

section, an institution makes a direct 

payment— 

(i) To a student, for the amount of the 

title IV, HEA program funds that a 

student is eligible to receive, including 

Direct PLUS Loan funds that the 

student’s parent authorized the student 

to receive, by— 

(A) Initiating an EFT of that amount 

to the student’s financial account; 

(B) Issuing a check for that amount 

payable to, and requiring the 

endorsement of, the student; or 

(C) Dispensing cash for which the 

institution obtains a receipt signed by 

the student; 

(ii) To a parent, for the amount of the 

Direct PLUS Loan funds that a parent 

does not authorize the student to 

receive, by— 

(A) Initiating an EFT of that amount 

to the parent’s financial account; 

(B) Issuing a check for that amount 

payable to and requiring the 

endorsement of the parent; or 

(C) Dispensing cash for which the 

institution obtains a receipt signed by 

the parent. 

(2) Issuing a check. An institution 

issues a check on the date that it— 

(i) Mails the check to the student or 

parent; or 

(ii) Notifies the student or parent that 

the check is available for immediate 

pick-up at a specified location at the 

institution. The institution may hold the 

check for no longer than 21 days after 

the date it notifies the student or parent. 

If the student or parent does not pick up 

the check, the institution must 

immediately mail the check to the 

student or parent, pay the student or 

parent directly by other means, or return 

the funds to the appropriate title IV, 

HEA program. 

(3) Payments by the Secretary. The 

Secretary may pay title IV, HEA credit 

balances under paragraphs (h) and (m) 

of this section directly to a student or 

parent using a method established or 

authorized by the Secretary and 

published in the Federal Register. 

(4) Student or parent choice. (i) An 

institution that makes direct payments 

to a student or parent by EFT and that 

chooses to enter 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 or 

parent chooses one of several options 

for receiving those payments. 

(A) In implementing its selection 

process, the institution must— 

(1) Inform the student or parent 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 or 

parent’s options for receiving direct 

payments are described and presented 

in a clear, fact-based, and, except as 

provided in paragraph (d)(4)(i)(B)(1) of 

this section, neutral manner; 

(3) Ensure that initiating direct 

payments electronically to a financial 

account or access device associated with 

an existing student or parent financial 

account is as timely and no more 

onerous to the student or parent as 

initiating direct payments to an account 

described in paragraph (e) or (f) of this 

section; and 

(4) Allow the student or parent the 

option to change, at any time, his or her 

choice as to how direct payments are 

made, as long as the student or parent 

provides the institution with written 

notice of the change within a reasonable 

time. 

(B) In describing the options under its 

selection process, the institution— 

(1) Must present prominently as the 

first and default option, the financial 

account or access device associated with 

an existing financial account belonging 

to the student or parent; 

(2) Must list and identify the major 

features and commonly assessed fees 

associated with all financial accounts 

described in paragraphs (e) and (f) of 

this section, as well as a Universal 

Resource Locator (URL) for the terms 

and conditions of those accounts. For 

each account, if an institution follows 

the format and content requirements 

specified by the Secretary in a notice 

published in the Federal Register 

following consultation with the CFPB, it 


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will be in compliance with this 

requirement with respect to the major 

features and assessed fees associated 

with the account; 

(3) May provide 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, for the benefit of the 

student or parent; and 

(4) Must include issuing a check as an 

option for a student or parent to receive 

payments. 

(ii) An institution that does not offer 

or use any financial accounts described 

in paragraphs (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, 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. 

(2) Under a T1 arrangement, the 

institution must— 

(i) Obtain the student’s or parent’s 

consent to open the financial account 

before— 

(A) The institution provides any 

information about the student or parent, 

except for name, address, and email 

address, to the third-party servicer, to 

the financial institution at which the 

financial account’s funds would be 

deposited, or the agents of either; 

(B) An access device, or any 

representation of an access device, is 

sent to the student or parent; or 

(C) A card or tool provided to the 

student or parent for institutional 

purposes, such as a student ID card, is 

linked to the financial account; 

(ii) Inform the student or parent of the 

terms and conditions of the financial 

account, as required under 

§ 668.164(d)(4)(i)(B)(2), before the 

financial account is opened; 

(iii) Ensure that the student or 

parent— 

(A) Has convenient access to the 

financial account through a surchargefree national or regional ATM network 

that has ATMs located on or near each 

location of the institution, and that 

those ATMs are sufficient in number 

and housed and serviced such that the 

funds are reasonably available from 

them, including at the times the 

institution or its third-party servicer 

makes direct payments into the student 

or parent financial accounts; 

(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 third-party servicer’s 

associated financial institution when 

the student or parent conducts point-ofsale transactions; 

(3) For conducting any transaction on 

an ATM that belongs to the surcharge 

free regional or national network; and 

(4) For a charge initiated by the 

institution, third-party servicer, or thirdparty servicer’s associated financial 

institution for at least 30 days following 

the date that title IV, HEA program 

funds are deposited or transferred to the 

financial account; 

(iv) Ensure that— 

(A) The financial account or access 

device is not marketed or portrayed as 

or converted into a credit card; and 

(B) No credit may be extended or 

associated with the financial account, 

and that no fee is charged to the student 

or parent for any transaction that 

exceeds the balance on the card, 

regardless of whether the full amount of 

the transaction is established at the time 

the transaction is authorized by the 

financial institution; 

(v) No later than 60 days after the 

most recently completed award year 

disclose conspicuously on the 

institution’s Web site— 

(A) The contract(s) establishing the T1 

arrangement between the institution and 

third-party servicer and financial 

institution acting on behalf of the thirdparty 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; 

(B) 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 

(C) The number of students and 

parents 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; 

(vi) Annually provide to the Secretary 

the URL for the items under paragraph 

(e)(2)(v) of this section for publication in 

a centralized database; 

(vii) Ensure that the terms of the 

accounts offered pursuant to a T1 

arrangement are not inconsistent with 

the best financial interests of the 

students and parents opening them. The 

Secretary considers this requirement to 

be met if— 

(A) The institution documents that it 

periodically conducts reasonable due 

diligence reviews to ascertain whether 

the fees imposed under the T1 

arrangement are, considered as a whole, 

not excessive in light of prevailing 

market rates; and 

(B) All contracts for the marketing or 

offering of accounts pursuant to T1 

arrangements to the institution’s 

students or parents make provision for 

termination of the arrangement by the 

institution based on complaints 

received from students or parents or a 

determination by the institution under 

paragraph (e)(2)(vi)(A) of this section 

that the fees assessed under the T1 

arrangement are excessive; and 

(viii) 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. 

(f) Tier two arrangement. (1) In a Tier 

two (T2) arrangement, an institution 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 or 

their parents. 

(2) The Secretary presumes that title 

IV, HEA program funds are deposited or 

transferred into the financial accounts 

offered and marketed under paragraph 

(f)(1) of this section. However, the 

institution does not have to comply 

with the requirements described in 

paragraph (f)(4) of this section if it 

documents that, for the most recently 

completed award year no student or 

parent received a credit balance. 

(3) The Secretary considers that a 

financial account is marketed directly 

if— 

(i) The institution communicates 

information directly to its students or 

their parents about the financial account 

and how it may be opened; 

(ii) The financial account or access 

device is co-branded with the 

institution’s name, logo, mascot, or 

other affiliation; or 

(iii) A card or tool that is provided to 

the student or parent for institutional 

purposes, such as a student ID card, is 

linked with the financial account or 

access device. 

(4) Under a T2 arrangement, the 

institution must— 

(i) Obtain the student’s or parent’s 

consent to open the financial account 

before— 


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(A) The institution provides, or 

permits a third-party servicer to 

provide, any information about the 

student or parent, except for name, 

address, and email address, to the 

financial institution or its agents; 

(B) An access device, or any 

representation of an access device, is 

sent to the student or parent; or 

(C) A card or tool provided to the 

student or parent for institutional 

purposes, such as a student ID card, is 

linked to the financial account; 

(ii) Inform the student or parent of the 

terms and conditions of the financial 

account as required under 

§ 668.164(d)(4)(i)(B)(2), before the 

financial account is opened; 

(iii) No later than 60 days after the 

most recently completed award year, 

provide to the Secretary and disclose 

conspicuously on the institution’s Web 

site— 

(A) 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; 

(B) 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 

(C) The number of students and 

parents 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; 

(iv) Annually provide to the Secretary 

the URL for the items under paragraph 

(f)(4)(iii) of this section for publication 

in a centralized database; 

(v) Ensure that the funds deposited in 

the financial accounts are accessible 

through surcharge free in-network 

ATMs convenient to each of the 

institution’s locations, and that those 

ATMs are sufficient in number and 

housed and serviced such that the funds 

are reasonably available from them, 

including at the times the institution or 

its third-party servicer makes direct 

payments into them; and 

(vi) Ensure that the financial accounts 

are not marketed or portrayed as or 

converted into credit cards; 

(vii) Ensure that the terms of the 

accounts offered pursuant to a T2 

arrangement are not inconsistent with 

the best financial interests of the 

students and parents opening them. The 

Secretary considers this requirement to 

be met if— 

(A) The institution documents that it 

periodically conducts reasonable due 

diligence reviews to ascertain whether 

the fees imposed under the T2 

arrangement are, considered as a whole, 

not excessive in light of prevailing 

market rates; and 

(B) All contracts for the marketing or 

offering of accounts pursuant to T2 

arrangements to the institution’s 

students or parents make provision for 

termination of the arrangement by the 

institution based on complaints 

received from students or parents or a 

determination by the institution under 

paragraph (f)(4)(vi)(A) of this section 

that the fees assessed under the T2 

arrangement are excessive; 

(viii) 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 

(ix) Ensure students and parents incur 

no cost for opening the account or 

initially receiving an access device. 

(g) Ownership of financial accounts 

opened through outreach to an 

institution’s parents or students. Any 

financial account offered pursuant to an 

arrangement described in paragraphs (e) 

or (f) of this section must meet the 

requirements of either 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 

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) 14 days after the balance occurred 

if the credit balance occurred after the 

first day of class of a payment period; 

or 

(ii) 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 for a first-year, first-time 

borrower or a student employed under 

the FWS program, 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)(4). This restriction 

does not apply if the institution is 

exempt from the 30-day delayed 

disbursement requirements under 34 

CFR 685.303(b)(4)(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, 

an otherwise eligible student becomes 

ineligible to receive title IV, HEA 

program funds on the date that— 

(i) For a Direct Loan, the student is no 

longer enrolled at the institution as at 

least a half-time student for the period 

of enrollment for which the loan was 

intended; or 

(ii) For an award under the Federal 

Pell Grant, FSEOG, Federal Perkins 

Loan, Iraq-Afghanistan Service Grant, 

and TEACH Grant programs, the student 

is no longer enrolled at the institution 

for the award year. 

(2) Conditions for a late disbursement. 

Except as limited under paragraph (i)(4) 

of this section, a student who becomes 

ineligible, as described in paragraph 

(i)(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 


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in paragraph (i)(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 

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 (i)(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)(4) 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)(4). 

(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. 

(l) Returning funds. (1) 

Notwithstanding any State law (such as 

a law that allows funds to escheat to the 

State), an institution must return to the 

Secretary any title IV, HEA program 

funds, except FWS program funds, that 

it attempts to disburse directly to a 

student or parent that are not received 

by the student or parent. For FWS 

program funds, the institution is 

required to return only the Federal 

portion of the payroll disbursement. 

(2) If an EFT to a student’s or parent’s 

financial account is rejected, or a check 

to a student or parent is returned, the 

institution may make additional 

attempts to disburse the funds, provided 

that those attempts are made not later 

than 45 days after the EFT was rejected 

or the check returned. In cases where 

the institution does not make another 

attempt, the funds must be returned to 

the Secretary before the end of this 45- 

day period. 

(3) If a check sent to a student or 

parent is not returned 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. 

(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) 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 and which are 

from unsubsidized 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 

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 and 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 


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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. 

(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 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)(2) or 

(d)(2), 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 

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 

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 for the student; 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 

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. 2015–11917 Filed 5–15–15; 8:45 am] 

BILLING CODE 4000–01–P 


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