Bursar/Student Accounts Archives | Page 2 of 2

Regulation F: What It Means for Educational Debt Collections

September 23, 2021

The Consumer Financial Protection Bureau (CFPB) has finalized new debt collection rules. This is the first major update to requirements put in place in 1978. The changes include definitions of communication tools, such as email and text messaging, that were not envisioned when the laws were enacted over 40 years ago. These new requirements, known as “Regulation F”, are designed to provide more consumer-oriented information and communications to those owing debts while providing a more structured environment for the agencies to conduct their business.

When Regulation F takes effect on November 30, 2021, third party collectors in all industries, including higher education, must comply with a variety of process changes. These include providing more detailed notifications and disclosures and limiting the number of contacts with consumers. While most changes are internal to the collection agencies’ operations, they will be required to obtain more detailed documentation from school clients before initiating their collection efforts.

Agencies will be required to send consumers a new, more detailed validation notice that provides actual dates of service and other related events, such as last dates for statements, payments or other transactions, as well as the current amount of the debt (principal, interest, collection costs, late fees or other related charges). Agencies also will have to provide new consumer protection information with the numerous disclosures about the debt. Under Regulation F, consumers will have a 30-day period to dispute a debt, otherwise it is assumed to be valid.

Agencies also will be restricted to the use of “limited content messages”, defining what can be disclosed when leaving voicemail messages for delinquent borrowers to help protect their privacy. Also, agency collectors will be prohibited from making more than seven telephone calls in a 7-day period, unless they’ve made direct contact with the individual. In this case, the clock restarts. These call limits are designed to eliminate any perceived harassment of consumers.

Other items contained in Regulation F that may impact educational debt collections include:

Prohibiting some contacts where students work if banned by employers.
Disallowing use of litigation to collect “time-barred” debt, or balances more delinquent than a state’s statute of limitations on a consumer debt.
Using email addresses to communicate with students. Some legal counsel have suggested that when institutional policies require bills and notices be sent to students’ institutional email addresses (e.g. .edu address), schools should obtain students’ personal email addresses to communicate with them after they leave the institution.
Using social media to communicate personal student information on a public site.

Collection agencies, specializing in educational debt collections, are contacting their clients to discuss how Regulation F is changing their business processes. Also, they are explaining what new steps schools must take to refer delinquent accounts for external collection. Again, the new rules apply to collection companies. However, institutional collection staff should work with each of their agencies to understand specific expectations, differences in account handling and placement of delinquent debts.

Schools should consult with their legal counsel to identify and mitigate potential compliance risks associated with internal business processes and forms. Specifically ask that Financial Responsibility Agreements (FRAs) be reviewed, and updated if necessary, to comply with Regulation F.

Handling Student Payments More Efficiently

April 22, 2021

by David Glezerman

Getting students to pay their tuition on time is challenging in normal times. During the COVID-19 pandemic, new barriers have arisen to receiving and processing these payments—and many other types of payments–quickly and efficiently. Despite efforts to work remotely to avoid spread of the virus, business officer staff still must come to campus to process and deposit checks. This can be stressful for students who want to make sure their payments were received on time. If your school uses a payment vendor or bank to receive and process its transactions, many students and families prefer to use traditional payment methods. It is important to promote the security and easeof-use provided with online payments.

Changing the culture of institutional payers is complex and requires clear and concise communications with both internal and external customers. How an institution describes options and communicates its preferences and expectations will set the tone for success or failure.

Maintaining quality customer service and enhancing cash flow is crucial to educational institutions, particularly during troubled times. Colleges and universities should be looking at existing processes to identify opportunities for improvements and efficiencies. To help your institution find solutions to enhance customer service, streamline cumbersome processes, and improve cash flow, please see our recent industry paper on Cashiering: Migrating from Cash and Checks to Digital Payments.

Want to improve your digital payment adoption rate?

Consider these steps:

Examine current payment patterns to find opportunities
Investigate business relationships with banks and payment vendors and if there are best practice solutions that your institution is not utilizing
Review your customer communications to assure that messaging is clear, concise, and accurate

Long-Awaited Updates to Distance Education and R2T4 Rules Finalized

October 26, 2020

Long-Awaited Updates to Distance Education and R2T4 Rules Finalized

With a focus on reducing barriers to innovation, the Department of Education (ED) issued final regulations on September 2 updating its rules on distance education, withdrawal and return of Title IV funds, some definitions, and several other topics. The rules were drafted as part of a negotiated rulemaking process that began in January 2019 and ended with consensus agreement on proposed rules in April of that year. Other priorities intervened and ED delayed publishing the notice of proposed rulemaking until April 2, 2020.

Under the master calendar provisions in the Higher Education Act, Title IV rules that ED publishes by November 1 may take effect no earlier than the following July 1. The Department may allow institutions to implement changes earlier, however, and has chosen to do so in this case. Colleges and universities may implement the new rules at their discretion. ED promises to publish a separate notice on the timing of implementation soon.

Key provisions in the final rules are summarized below.

New or Modified Definitions

A number of new or revised definitions are provided to address distance education, innovation, and codify ED’s past guidance. In addition, references to outdated technologies and programs are eliminated.

Academic Engagement: The new rules establish a definition of academic engagement to standardize the activities that verify student attendance for use in the return of Title IV (R2T4) rules and elsewhere. The definition is based on the criteria for “academic attendance” and “attendance at academically related activities” in the current R2T4 regulations with some refinements.

Clock hour: Clock hours earned through distance education may be taught through synchronous (codifying existing policy) or asynchronous (new) instruction if permitted by licensing boards or other regulatory entities.

Credit hour: Codifies the flexibility provided in Dear Colleague Letter GEN-11-06 to address educational delivery models that are not based on seat time.

Distance education and correspondence courses: Continues to differentiate between “distance education” and “correspondence courses”, while allowing team approach to instruction and clarifying that if the institution provides opportunities for interaction, students do not need to take part in each one.

Subscription-based program: Defines a subscription-based program where the institution charges a student for a term (standard or nonstandard) with the expectation that a certain number of credit hours will be completed (but without a specific time frame for completion). Students must complete the requisite credit hours (or the equivalent) before receiving another disbursement. While ED originally planned to restrict the subscription–based method of disbursement to direct assessment programs, it recognized there would be unintended consequence to competency-based programs offered in credit hours, and concluded the disbursement method may be used for all types of programs. Among other provisions specific to subscription-based programs, repeat coursework is not eligible for federal aid, and the revised satisfactory academic progress rules drop the pace requirement for such programs.

Week of instructional time: Adds a new part to the existing definition for programs using asynchronous coursework through distance education or correspondence courses as a week in which instructional material, other resources, and instructor support are made available to students by the institution. No change for traditional educational programs.

Direct Assessment Programs

The definition of direct assessment program is simpler, with more emphasis on meeting the requirements of the institution’s accreditor and state approval agency. Some restrictions on offering remedial coursework, prerequisites for an eligible program, or teacher certification programs have been removed, if the institution has approval to offer direct assessment programs and the coursework is consistent with state and accreditor requirements.

Under the new rules, an institution will only need approval from ED for its first direct assessment program at a given academic level. Schools will need to notify ED when they add more programs, allowing ED to track the growth in such program offerings. ED believes that this will “encourage institutions that have demonstrated the ability to design and operate a direct assessment program to expand that model of instruction and enables institutions to respond more quickly to student and workforce needs.”

Certification of Institutional Eligibility and New Programs

In a departure from long-standing ED regulatory policy, ED added language to the rules on applying for eligibility to participate in Title IV requiring the Secretary “to ensure prompt action” on institutional applications and reapplications. ED’s historical position has been that the agency does not regulate itself.

To encourage new programs, the new rules:

Eliminate a current provision that allowed ED to tell an institution up to 30 days before a new educational program was scheduled to start that it needed approval from ED to be eligible for Title IV.
Provide for automatic renewal of an institution’s recertification for Title IV participation, if the institution submits a materially complete application no later than 90 days before its Program Participation Agreement (PPA) expires, and ED has not made a decision to grant or deny within 12 months of that expiration date.

Return of Title IV Funds

Ten years ago, ED revised its regulations for return of Title IV funds (R2T4) for students enrolled in classes taught in modules. ED had realized that some schools were skirting the R2T4 process by having students complete a short, one-credit module at the beginning to the term. Now, recognizing that the current rules have resulted in uneven treatment, ED is tweaking how the number of days of attendance are counted when a student withdraws from a program offered in modules. ED has also made new distinctions between students enrolled in standard or nonstandard-term programs and those in non-term or subscription-based programs.

Under the revised rules, in a program offered in modules (which may only be term-based), a student will not be considered to have withdrawn if the student successfully completes (1) one or more modules that include 49 percent or more of the number of days in the payment period or (2) coursework equal to or greater than that required of a half-time student. Note that:

When counting days in the payment period, scheduled breaks of five or more consecutive days and all days between modules (or combination of modules) should be excluded.
In determining the number of days in the payment period that the student is scheduled to attend (the denominator), schools should use all modules that were included in determining the student’s eligibility for Title IV funds for the term (payment period). In the preamble to the final rules, ED says it expects schools to use the student’s schedule at a fixed point. Schools have discretion to determine what that point will be such as a census date or its Pell recalculation date This avoids treating students differently based on when they dropped subsequent modules.
A student must earn a passing grade in at least one module to meet the “successfully complete” requirement. If a student has all incompletes or failing grades, at least one incomplete must be converted to a passing grade before the date that the school is required to perform an R2T4 calculation. This is a different standard than used for students enrolled in term-based programs with no modules in which an earned “F” is sufficient to fulfill all days scheduled to complete and not require an R2T4 calculation.

A student in a standard or nonstandard-term program who, after ceasing attendance in a module, is not scheduled to begin another course within 45 days is considered withdrawn. A student in a non-term or subscription-based program has 60 days to resume. In both cases, a student on an approved leave of absence is not considered to have withdrawn.

The new rules provide that a student who meets all requirements for graduation before completing the days or hours that the student was scheduled to attend is not considered to have withdrawn.

FAS has prepared a version of the revised R2T4 rules which tracks all additions and deletions.

Satisfactory Academic Progress

The maximum time frame for undergraduate credit-hour programs may now be expressed in calendar time in addition to credit hours, as under the current rules.

Other provisions in these rules address program participation agreements, clock-to-credit hour conversions, written agreements with other entities to provide education programs, and when students attending foreign institutions study in the U.S.

The Timing of Issuing a Federal Credit Balance & Recovering Unclaimed Federal Funds

October 22, 2019

Issuing a Federal Credit Balance

After the start of a term when student aid (including federal aid) has been disbursed to student accounts, most business offices issue credit balances to students within 14 days. That is, 14 calendar days, not business days. Why 14 days? A federal regulation[i] [ii]requires a school to pay directly to the student a federal aid credit balance within 14 days. Rather than determine whether any portion of a credit balance is a federal credit balance, most schools have incorporated the 14 day rule in their procedures without consideration of the source of funds. (Note: If the federal credit balance is attributable to a PLUS loan, the funds are returned to the parent, unless the parent authorized that the student receive the refund.)

So what is a federal credit balance? Simply put, subtract all federal grant and loan student aid from allowable charges, e.g., tuition, fees, room/board (provided by the institution), other educationally related charges (with student authorization), and, if any, up to $200 of carried forward, prior-year charges. If student aid remains, there is a federal credit balance. Be careful. The calculation is based solely on allowable charges and federal student aid credits for a term. Allowable charges are strictly defined by federal regulation[iii].

Some institutions may hold a credit balance beyond 14 days, if the credit balance includes non-federal funds. The institution may have a policy or procedure that allows it to hold a credit balance on a student’s account for a specified period, e.g., after a certain point in the term or until the end of term or academic year. This may be offered as an option for students who find it helpful for budgeting to cover future charges, or for those receiving nonfederal aid intended to cover more than one term.

To hold a federal credit balance the institution must have a signed authorization (that complies with federal rules[iv]) from the student (or parent, if applicable). The student (or parent) cannot be required or coerced to authorize the hold of a federal credit balance. In any case, even if an institution has an authorization to hold funds, it must release any federal funds to the student (or parent, if applicable):

by the end of the loan period, if the federal credit balance is federal loan monies, or
by the end of the last term of the award year in which the student was enrolled, if the federal credit balance is other federal aid.

Note: If the federal credit balance includes both grant and loan, these two timeframes will not necessarily coincide.

Institutions that promptly issue credit balances are doing the right thing, but must keep a watchful eye for student aid adjustments to student accounts. Federal aid adjustments can occur within the term; after a student’s withdrawal; and/or after the end of a term, an award year, or loan period. It can be maddening to manage. If there is a negative aid adjustment, a balance may be created on a student account that must be collected. If there is a positive aid adjustment, there may be a credit balance to process.

Note: A federal credit balance occurs whenever the total amount of federal aid credited to a student’s account for the term exceeds the amount of allowable charges (as federally defined) for the term.

Recovering Unclaimed Federal Funds

As maddening as adjustments can be, monitoring a failed transaction of a credit balance refund is equally frustrating and requires action, i.e., a rejected electronic fund transfer (EFT), a non-deposited or non-deliverable check, or an unprocessed credit balance on a student account. This is particularly troublesome if the credit balance includes federal student aid funds, because there are federal rules[v] for the recovery of unclaimed federal funds.

If a failed transaction includes federal student aid funds, the institution can either attempt to issue the transaction again or must return the federal aid to the appropriate federal program(s) within 45 days. Yes, 45 calendar days, not business days.

There is a federal provision that allows an institution to make more attempts to disburse the aid, but each attempt must be made within 45 days of a failed attempt. When the institution stops trying to return funds to the student (or parent, if applicable), it must return the unclaimed federal student aid funds to the appropriate federal program within 45 days of the last failed attempt. There is a limit to the total number of days in which attempts can be made. The institution must cease all attempts to disburse the funds and return the funds to the respective federal aid program(s) no later than 240 days after the initial date it issued the first check or EFT.

Of course, the business office has to determine what portion of the credit balance is federal aid. If the federal credit balance includes more than one type of federal aid, the institution has to determine to which program(s) and in what order, it will return funds.

Note: Federal regulations are silent on the order in which federal funds must be returned. However, the U.S. Department of Education strongly suggests that an institution act in the best interest of the student. That is, return loan funds before grant monies.

A best practice for recovery of unclaimed federal funds is to review at least monthly:

EFT transactions,
non-deposited and non-delivered checks, and
student accounts for unprocessed credit balances.

The business office will need a customized program or report to calculate by term the allowable charges, federal aid disbursed (excluding Federal Work-Study earnings), and the resulting balance of federal aid, if any.

If there are unclaimed funds to process, take the following steps:

Business Office: Notify the Financial Aid Office that federal unclaimed funds must be returned to the respective federal program(s).
Financial Aid: Authorize the downward adjustment amount to disbursed fund(s) on the student account.
Business Office: Process the negative disbursement. Check that the federal credit balance is reversed on the student account.
Financial Aid: Ensure the downward adjustment in disbursed amount has been submitted and accepted by the Common Origination and Disbursement (COD) system, if appropriate.
Business Office and Financial Aid: Reconcile the federal aid account(s).
Business Office: Transmit the unclaimed funds to the federal payment system (G-5), if appropriate.

The business office must always be alert to ensure that federal student aid credit balances are released on a timely basis (14 days) and, if those funds go unclaimed, to ensure that they are never escheated to a state, or revert back to the institution or any other third party. They must be returned to the appropriate federal program(s).

Failure to properly, accurately, and timely administer federal credit balances and/or repay unclaimed federal student aid funds could result in audit or program review findings citing an institution for lack of administrative capability and/or fiscal responsibility, and for having inadequate internal controls. Sanctions also may include fines or other types of enhanced oversight.

Federal Regulations: Title 34—Education, CFR – Code of Federal Regulation, 668 –Student Assistance General Provisions, 668.164 –Disbursing Funds 668.165 – Notices and Authorizations

[ii] 34 CFR 668.164(h) – Title IV, HEA credit balances

[iii] 34 CFR 668.164(c) — Crediting a student’s ledger account, includes definition of Allowable Charge

[iv] 34 CFR 668.165(b) — Student or parent authorizations

[v] 34 CFR 668.164(l) — Returning funds

Or go to: Federal Student Aid Handbook 2018-2019, U.S. Department of Education, Volume 4—Processing Aid and Managing FSA Funds, Chapter 2 – Disbursing FSA Funds, pages 4-43 through 4-47 (Allowable Charges and Federal Credit Balances), page 4-51 (Authorization to Hold Federal Funds), and pages 4-49 and 4-50.(Recovery of Unclaimed Federal Funds)

Link to: https://ifap.ed.gov/fsahandbook/attachments/1819FSAHbkVol4Ch2.pdf

How Service Restrictions Help Your Student Accounts Receivable

November 9, 2018

Students and their families often find themselves in situations where they encounter financial difficulties or have not planned out how to finance their education. Confusion about the financial aid and student loan processes or failure to follow up with necessary information through verification or other school inquiries lead to late or no payments on their student accounts for their tuition, fees, room and board charges, along with assessment of late charges.

In the world of student accounts receivable management, where additional charges may not deter students from paying late(r) or not until a stronger action is put in place, service restrictions become the primary and/or ultimate sanction to enforce debt collection.

Service restrictions, known by other terms such as “blocks” or “holds” against student accounts/records, are most likely to prevent future course registrations and issuance of transcripts. Stronger sanctions may include withholding of licensure verifications, denial of building access or other actions that stop current and/or former students from receiving any form of institutional services.

Student retention efforts can be thwarted by having high numbers of students who cannot continue their education because of unpaid balances. Students’ efforts to transfer to another institution also will be halted when they cannot submit the academic transcript to prove prior coursework, etc. These sanctions also can impact institutional graduation rates when students’ academic careers are delayed while trying to figure out if/when they can repay these obligations to the school.

Colleges and universities cannot afford to carry excessive amounts of outstanding delinquent accounts, which can affect cash flow, provide a basically “interest-free” loan for extended periods, impact future retention efforts and create potentially excessive expenses to collect. Schools can either use staff resources to collect these outstanding obligations or may need to utilize third party collection agencies or law firms, who will charge a contingent fee, or percentage, of the recovered amounts for their services. At the same time, institutions must set aside reserve funds as a contingency for uncollectible debts, based on the age of the delinquent accounts.

So why use service restrictions? Students may not understand the importance of on-time payment – one of the reasons why more institutions of higher education are developing and implementing financial literacy or wellness programs for their students. These programs often target parents as another means of helping them understand the tools needed for financing a student’s education is more than filing a FAFSA every year. Other times, students, particularly first semester freshmen or transfers, (unofficially?) withdraw, creating potential R2T4 issues as well as leaving outstanding tuition debt without thinking that registering for classes creates an implied contract. Registering for classes is no different than buying an airplane ticket – you cannot resell that seat once leaving the terminal!

No matter what the cause of delinquent payment, service restrictions bring the outstanding balance to the forefront. Best practices have the institution issue warning notice(s) to the student before imposing sanctions (late fees or service restrictions). Having a clear and concise communications process that sets expectations and consequences reduces the “I didn’t know” contact and often brings students to the business and/or financial aid offices to either pay or explain their situation and seek assistance.

Setting minimum balances for imposing service restrictions usually is an institutional decision. While some public colleges and universities may have statutory or regulatory requirements that set balance limits or timing for the sanctions, the institution should try to reduce the number of students impacted by considering such steps as using late fee amounts or the $200 Title IV limit for paying off certain prior year amounts as a threshold for using the sanction.

Many colleges and universities now use a Financial Responsibility Statement or Agreement that is incorporated into the start of the student’s course registration process to serve as initial notice to students that they are expected to follow institutional payment policies and indicate potential consequences. The National Association of College and University Business Officers (NACUBO) has published a white paper that outlines best practices and legal requirements for these documents, which can be in either electronic or paper format. Using this type of agreement can establish the necessary standards and expectations while taking the “contract” from an implication to a real agreement between student and school.

Once the service restriction is imposed, it is counter-productive to lift the restriction solely on a promise to pay, although the institution should have a set of pre-established procedures for reviewing any potential exceptions, but more importantly, to have standards for account resolutions. For example, having a student or family just apply for a student loan is insufficient; having a loan approval following school certification with completed Truth-in-Lending documents means there is minimal risk of non-payment.

Remember that indiscriminate removal of a service restriction will send the wrong message to chronically delinquent students. When making an exception, always document the terms and conditions for the action and set a definite date for repayment. Besides having good documentation in your student system, have a process to identify due dates for these payments and don’t delay your follow up if payment is not received. Some schools may even cancel these permitted registrations for non-payment.

In any event, don’t set up a process that mitigates the importance for students to honor their promises and pay. And don’t communicate an action for which you will not actually follow through and do! By doing so, you could be seen as conducting unfair, deceptive or abusive acts or practices, known as UDAAP, by state attorneys general or the (federal) Bureau of Consumer Financial Protection (BCFP).

Also, consider FERPA implications if you do not provide delinquent students with a means to see their grades. Check with your institutional attorney about what you can and cannot do under federal and state laws as it relates to providing grades or possibly unofficial transcripts. But remember that providing an official academic transcript is tantamount to eliminating any leverage you might have to get the debt paid.

Business officers can work with other administrative offices, such as Financial Aid and Housing, as well as academic units to conduct outreach efforts. One such initiative is to contact delinquent students with service restrictions. If the student responds, the school can identify opportunities for additional one-time funding and/or encourage students to contact the business office to facilitate repayment activities. These institution-wide initiatives can be leveraged to facilitate improvement of retention and graduation rates as well as bring in real dollars already recognized as tuition and fee revenue back to the school.

Institutions can often establish best practices and enhance internal collection processes by their business offices through a business process assessment. This can focus on reviewing existing policies and procedures as a means to implement best practice activities that will enhance both student services and internal collection efforts. Thus, schools may benefit on many levels of their operations by utilizing both internal and external resources to help effect change and efficiency.

Utilizing service restrictions as a collections tool is just one facet of an effective program to minimize delinquent accounts receivable and deliver quality customer service.

Regulation F: What It Means for Educational Debt Collections

Handling Student Payments More Efficiently

Want to improve your digital payment adoption rate?

Long-Awaited Updates to Distance Education and R2T4 Rules Finalized

The Timing of Issuing a Federal Credit Balance & Recovering Unclaimed Federal Funds

How Service Restrictions Help Your Student Accounts Receivable

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