Pay Now or Pay Later: Strengthening Financial Aid Operations
By: Delinda “Lindy” Hall Ed.D.
Financial aid offices increasingly operate under lean budgets and staffing models, where the challenge of “doing more with less”—whether in labor or financial resources—has become the prevailing theme. This pressure doesn’t just stop there; it may also put operations at risk, as financial aid professionals struggle to manage budget constraints, staffing shortages, and evolving compliance demands, all while striving to maintain high-quality support. To maintain compliance, efficiency, and quality service, financial aid offices must recognize early warning signs of operational risk and take proactive steps to address them.
Financial Aid Operations are at risk when there are:
- Frequent complaints regarding financial aid from students and parents.
- Negative audit findings related to the administration of federal financial aid.
- Multiple emails to the president from the Department of Education.
- Continuous staffing turnover in key financial aid positions.
Recognizing these warning signs is only the first step—assessing the broader risks of operating in a lean environment is essential to maintaining institutional stability and avoiding serious consequences such as Heightened Cash Monitoring (HCM), decreased student retention, or lower enrollment yield.
Measure the Risks of Being Too Lean
Assessing the risks of operating in a lean environment is essential for maintaining the stability and long-term health of an institution. Recognizing the consequences of non-compliance and overly tight operational models is key to mitigating risk. In Title IV financial aid administration, one of the most serious risks institutions face is being placed on Heightened Cash Monitoring (HCM) by the U.S. Department of Education.
According to Federal Student Aid, the two HCM categories are:
Heightened Cash Monitoring 1 (HCM1)
Schools on HCM1 disburse aid to eligible students using institutional funds, submit disbursement records to the Common Origination and Disbursement (COD) System, which then draws down FSA funds to cover those disbursements, similar to the Advanced Payment Method.
Heightened Cash Monitoring 2 (HCM2)
When an institution is placed on HCM2 it no longer receives funds under the Advance Payment Method. Instead, they must disburse aid using institutional funds and then submit a Reimbursement Payment Request to the Department of Education for approval before receiving federal funds.
Reasons for HCM Placement
The Department of Education uses HCM when it sees a need for more oversight. This happens if there are financial, administrative, or compliance issues with how the institution manages Title IV program funds. In February 2020, the Office of Inspector General released a report which listed the top five reasons schools were placed on Heightened Cash Monitoring.
- Negative accreditation actions
- Late or missing annual financial statements,
- Inability to meet one or more standards of administrative capability
- Failure to be financially responsible based on a composite score
- Severe findings found during a FSA program review
How to Avoid the Risk of HCM Placement
Institutions should consider the downsides of being on Heightened Cash Monitoring (HCM) and recognize the value of investing in staffing solutions and technology optimization to improve efficiency. This proactive approach can help avoid the repercussions of HCM, making it a clear case of “pay now or pay later.” According to P3•EDU, an event hosted by the University of Colorado Denver, 75% of university leaders expect public-private partnerships to grow on their campuses, highlighting the increasing importance of leveraging external collaborations to strengthen operations.
Strategies worth exploring to strengthen staffing resources, ensure proper compliance monitoring, and adherence to policies and procedures include:
- Accessing interim staffing during peak processing periods.
- Utilizing third-party processing for behind-the-scenes process improvements.
- Investing in training sessions by experts in the areas of Title IV aid administration.
- Optimizing financial aid technology to streamline and automate processes.
Implementing these strategies can help institutions avoid risks like HCM placement while strengthening compliance and operational efficiency.
Technology Resources: An Impactful Tool for Financial Aid
Enterprise Resource Planning (ERP) technology is either underutilized or improperly configured from the start at many higher education institutions. However, its potential is well worth the investment when implemented strategically.
Consider how ERP can help your Financial Aid team:
- Evaluate the financial aid technology setup to optimize performance in response to ongoing changes in business processes.
- Provide ERP training opportunities for new staff members, as well as refresher courses for veteran staff and tackle your staffing turnover issues.
- Reassess processes that have become more manual due to poor system setup or system flaws.
- Appoint a dedicated staff member responsible for configuring and setting up the financial aid systems, ensuring smooth and efficient ongoing operations.
- Perform regular system upgrades. In the realm of Title IV aid administration and processing, regulations change frequently, and timely system upgrades are essential to ensure ongoing compliance.
- Schedule intentional collaborative sessions with financial aid and student accounts staff. This fosters teamwork to review business processes and optimize performance.
Monitoring and ensuring compliance in administering and processing financial aid is essential to administrative effectiveness. Financial Aid Services offers interim staffing, technology optimization, and consulting to improve and sustain a more efficient operational model. Investing proactively in system improvements today is a clear case of ‘pay now or pay later,’ ensuring long-term institutional success while delivering a better experience for both students and staff.
Partner with FAS to achieve a better operational model for your institution.
