October 8, 2008

ED Guidance May Require Schools to Review Cash Management Methods

Under guidance recently issued by the Department of Education (ED) to the National Association of Student Financial Aid Administrators (NASFAA), a school may be required to re-evaluate its method of assessing institutional charges. This guidance is related to the November 1, 2007 final rules in §668.164(d), which increased the amount of current-year Title IV funds that may be applied to a student’s prior-year charges from $100 to $200 and removed a school’s discretion to exceed the maximum amount.

Academic Year vs. Award Year

Title IV grants and campus-based funds are tied to the award year, from July 1 to June 30 of the following year. The loan period for the Federal Family Education Loan Program (FFELP) and Federal Direct Loan Program is normally associated with the student’s academic year as defined by the school, which may begin and end at any point on the calendar.

ED’s position is that the “current year” for grants and campus-based aid is the award year; for FFEL and Direct loans, the “current year” is the loan period (normally the academic year). This means that if the school assesses institutional charges at the beginning of a program or academic year, only the following Title IV funds may be applied to those charges:

• Grants and campus-based aid awarded for the award year in which the charges were assessed.
• FFEL and Direct loan funds for the loan period in which the charges were assessed.
• A maximum of $200 from grants attributable to the next award year, or loan funds from the subsequent loan period.

Included in this guidance are several implications that may affect a school’s cash management practices in disbursing Title IV aid to a student whose academic year or program spans more than one award year or loan period. A school may find it necessary to modify its method of assessing institutional charges (i.e. begin assessing charges on a payment period basis) to ensure that a greater portion of institutional charges are satisfied as Title IV funds are received.

NASFAA continues discussion with ED regarding this issue. Please refer to ED’s position paper for more information.