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News and Notes from Negotiated Rulemaking
April 11, 2014
PLUS Loans and institutional cash management provoked considerable controversy during the second meeting of the Program Integrity and Improvement Committee March 26-28. (See Education Department Proposes Expansive State Authorization Requirements for Distance Education Programs)
PLUS Loans: A change the Education Department made at the end of 2011 to tighten the adverse credit standard used to determine a parent or grad student’s eligibility for a PLUS Loan was the focus of much discussion. The Department has acknowledged that it did not properly warn schools when it realized it was not using the intended credit assessment indicators, but its correction caused many applicants to be denied loans and many schools to lose enrollment.
The HBCU representative recommended returning to the earlier formula and argued that PLUS Loans are essential for college access for low-income students. Consumer advocates, while concerned about maintaining access, seem to have greater concern about “over-borrowing” and the borrower’s ability to repay the loan. Some view increasing access to PLUS Loans as a benefit for colleges, not students.
At the request of the panel, the Education Department provided PLUS Loan data that were not publically available previously. This has delayed the Department’s ability to provide proposed regulatory language and required adding another session in May to deal with PLUS Loans.
Cash Management: Consumer advocates and financial industry representatives disagreed over how to manage student aid funds on college campuses. Overall, the consumer groups support the Education Department’s proposals while industry and campus representatives warned of unintended consequences and additional administrative burden and costs.
The Department has proposed two categories of regulations. One has to do with handling credit balances due to students while the other applies more broadly to management of Title IV student aid funds. The credit balance issues mainly concern low-tuition schools like community colleges. Of greater concern to private, nonprofit colleges are proposed rules on managing Title IV funds.
Regarding the broader cash management requirements, the Education Department’s proposed language bans co-branded ID or debit cards, even when sponsorship arrangements are unrelated to Title IV funds. It also requires colleges to maintain separate bank accounts for Title IV funds and prohibits putting Title IV funds into “sweep” accounts (short-term/overnight accounts that can earn interest) or other accounts that might put the funds at risk. It also proposes institutions obtain specific authorization for including charges for books and supplies integral to a course as part of tuition and fees charges. Currently, tuition and fees may be paid with Title IV funds without additional authorization by the student or parent. A separate authorization from the student (or parent for PLUS Loans) is required before Title IV funds can be used to pay most other types of charges.
The proposed credit balance disbursement requirements are designed to provide students with their student aid credit balance refunds without any additional charges, regardless of the disbursement method. A highly contentious issue was ensuring students who received refunds on a debit card did not have to pay any ATM fees anywhere and would be exempt from account maintenance and overdraft fees. The stringent requirements concerning credit balances stem from allegations that some fees charged for use of debit or prepaid cards were too high, which financial representatives said is no longer the case.
The other two student aid issues, one dealing with clock-to-credit hour conversion, and the other about repeating passed courses were settled with little discussion.
The Education Department website provides details on all of the Program Integrity and Improvement negotiated rule-making issues.