[Federal Register Volume 59, Number 188 (Thursday, September 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24115]
[[Page Unknown]]
[Federal Register: September 29, 1994]
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Part IV
Department of Education
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34 CFR Part 668
Student Assistance General Provisions; Proposed Rule
DEPARTMENT OF EDUCATION
34 CFR Part 668
RIN 1840-AC13
Student Assistance General Provisions
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the Student Assistance General
Provisions regulations by revising subpart B and adding a new subpart
K. The proposed regulations would govern the management of funds an
institution receives under the Federal Pell Grant, Federal Supplemental
Educational Opportunity Grant (FSEOG), Federal Work-Study (FWS),
Federal Perkins Loan, Federal Family Education Loan (FFEL), Federal
Direct Student Loan (Direct Loan), and Presidential Access Scholarship
(PAS) programs authorized by title IV of the Higher Education Act of
1965, as amended (title IV, HEA programs). The purpose of the proposed
regulations is to promote sound cash management practices by
institutions that participate in the title IV, HEA programs by
strengthening and making uniform the cash management rules for those
programs. In so doing, the Secretary expects to reduce the cost to the
Federal government of making title IV, HEA program funds available to
students and institutions under these programs.
DATES: Comments must be received on or before October 31, 1994.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to John Kolotos, U.S. Department of Education, 600
Independence Avenue, S.W., Room 4318, ROB-3, Washington, D.C. 20202-
5244. (Internet address: cash____management@ed.gov).
A copy of any comments that concern information collection
requirements should also be sent to the Office of Management and Budget
at the address listed in the Paperwork Reduction Act section of this
preamble.
FOR FURTHER INFORMATION CONTACT: John Kolotos or Kim Goto. Telephone:
(202) 708-7888. (Internet address: cash____management@ed.gov).
Individuals who use a telecommunications device for the deaf (TDD) may
call the Federal Information Relay Service (FIRS) at 1-800-877-8339
between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.
SUPPLEMENTARY INFORMATION: The rules and procedures under which an
institution requests, maintains, disburses, and otherwise manages funds
that the institution receives under each title IV, HEA program in which
it participates are currently codified in those program regulations, or
described in Department of Education publications. In this notice of
proposed rulemaking, the Secretary proposes to consolidate, in a new
subpart K of the Student Assistance General Provisions regulations,
most of the current cash management requirements in the title IV, HEA
program regulations. Also, the Secretary proposes to codify in subpart
K existing cash management policies and procedures currently specified
in subregulatory guidance. Lastly, the Secretary proposes new
requirements and proposes to amend some existing requirements to
promote sound cash management practices by institutions.
The Secretary wishes to make clear that while proposed subpart K
would establish a common set of cash management rules and procedures,
subpart K would not contain all of the rules and procedures that an
institution would follow with regard to managing title IV, HEA program
funds. An institution would continue to follow other cash management
rules and procedures particular to a title IV, HEA program.
The Secretary intends to amend the appropriate sections of each of
the title IV, HEA program regulations on or before December 1, 1994 to
eliminate conflicting requirements between the program regulations and
proposed subpart K of the General Provisions regulations and to
otherwise harmonize the proposed subpart K requirements with other
Federal cash management requirements. In this regard, the Secretary has
identified throughout the following discussion the major sections of
the title IV, HEA program regulations and sections of other relevant
Federal regulations that would be amended and consolidated in subpart
K.
Provisions Proposed by the Regulations
The following discussion reflects the proposed provisions under
which an institution would request, maintain, disburse, and otherwise
manage title IV, HEA program funds. The provisions are discussed in the
order in which they appear in the proposed regulations. If a provision
applies to more than one section, it is discussed the first time it
appears and with an appropriate cross-reference to its other
appearances.
Proposed Sec. 668.161 Scope and Purpose
The purpose of these regulations is to promote sound cash
management practices by institutions and to minimize the financing
costs to the Federal Government of making available title IV, HEA
program funds to students and institutions. To achieve these
objectives, the Secretary proposes new requirements, proposes to amend
existing regulations, and proposes to establish in this subpart uniform
rules and procedures under which an institution requests, maintains,
disburses, and otherwise manages funds that it receives under each
title IV, HEA program in which it participates. To establish uniformity
in title IV, HEA program requirements, the Secretary proposes to
consolidate in this subpart the cash management rules that are now in
each of title IV, HEA program regulations and to codify existing
departmental cash management policies and practices.
In proposed Sec. 668.161(b), the Secretary would adopt the
provision in Sec. 668.18 that specifies that funds received by an
institution under the title IV, HEA programs are held in trust for the
intended student beneficiaries and the Secretary and that as a trustee
of Federal funds, the institution may not use or hypothecate those
funds for any other purpose.
In addition, the Secretary wishes to make clear the rules and
procedures that apply to an institution under this subpart would also
apply to a third-party servicer.
Proposed Sec. 668.162 Definitions
Disburse: The Secretary proposes to define the term disburse to
encompass all the methods by which an institution pays title IV, HEA
program funds to a student or parent. Accordingly, under this proposal,
these methods would be (1) Crediting the student's account at the
institution, (2) issuing a check or cash to the student or a parent
borrower under the Direct Loan or FFEL programs, and (3) initiating an
electronic funds transfer (EFT) to a bank account designated by the
student or by a parent borrower under the Direct Loan or FFEL programs.
The Secretary acknowledges that the term disburse has a different
meaning under the FFEL programs (34 CFR 682.200). Under those programs,
a disbursement is defined as ``The transfer of loan proceeds by a
lender to a borrower, a school, or an escrow agent by issuance of a
check or by electronic funds transfer.'' Because the Secretary does not
intend to change the definition of the term disbursement under the FFEL
programs, the Secretary wishes to make clear that solely for the
purposes of these proposed regulations that the term disburse would
correspond to the concept of the delivery of proceeds under the FFEL
programs.
Issue checks. The Secretary proposes to define very broadly the
term issue checks to include any means by which an institution pays a
student or parent by check. Under the proposed definition, an
institution would be considered to have issued a check to a student or
parent when the institution has released, distributed, or otherwise
made that check available to the student or parent. Although the
Secretary does not wish to regulate the mechanisms that an institution
may use to issue checks, the Secretary intends to enforce rigorously
the liability provisions described in proposed Sec. 668.166 on any
institution that does not issue checks to students shortly after the
institution writes those checks.
Proposed 668.163 Requesting Funds
In proposed Sec. 668.163, the Secretary would codify existing
policy and practice under which the Secretary provides title IV, HEA
program funds, other than FFEL program funds, to institutions. The
Secretary provides title IV, HEA program funds to institutions under
either the advance payment method or the reimbursement payment method.
Under the advance payment method, the Secretary accepts an
institution's request for cash and transfers the amount requested to a
bank account designated by the institution. The amount of the
institution's request for cash may not exceed the institution's
``immediate need.'' Since 1986 the Secretary has required an
institution to limit the amounts of its cash requests to the amounts
needed to make disbursements to students within 3 business days. The
Department's current policy regarding the meaning of the term
``immediate need'' is articulated in the following publications:
(1) OMB Circular A-110, as contained in the Education Department
General Administrative Regulations (EDGAR), July 6, 1994, 34 CFR
74.22(b);
(2) The Recipient's Guide for the Department of Education Payment
Management System (EDPMS), October 1993, Chapter 5;
(3) The Audit Guide, U.S. Department of Education, Office of the
Inspector General, March 1990, Section II;
(4) The Blue Book, U.S. Department of Education, December 22, 1988,
Chapter 5; and
(5) The Department of the Treasury regulations, September 24, 1992,
31 CFR part 205.
As noted in these publications, an institution on the advance
payment method must limit the amount of its request for cash to the
amount needed to make disbursements to students and must time its
request for cash to be in accordance with its actual and immediate cash
requirements.
In proposed Sec. 668.163(b), the Secretary would codify this
longstanding 3-day immediate-need standard for the following reasons.
First, the Department can deliver reliably by EFT title IV, HEA program
funds to institutions. Second, the Secretary believes that 3 business
days provides an institution sufficient time to make disbursements to
students. Moreover, the Secretary believes that the 3-day immediate-
need standard furthers the objective of minimizing the financing costs
to the Treasury of making title IV, HEA program funds available to
students and institutions.
In proposed Sec. 668.163(c), the Secretary would merely codify
existing procedures under which the Secretary provides title IV, HEA
program funds to an institution on the reimbursement payment method.
Under those procedures, an institution must first disburse funds to
eligible students before the institution may submit a request for cash.
The amount of the institution's request for cash may not exceed the
amount of the actual disbursements the institution made to those
students. The Secretary approves the institution's request for cash if
the Secretary determines that the institution (1) Determined properly
the eligibility for title IV, HEA program funds of each student
identified in its request for cash, (2) made disbursements for the
correct amounts of title IV, HEA program funds to those students, and
(3) submitted any documentation required by the Secretary to
substantiate the information provided by the institution on its request
for cash.
Proposed Sec. 668.164 Maintaining Funds
In proposed Sec. 668.164, the Secretary would consolidate and
amend, as noted below, several requirements that are currently in
Sec. 674.19 of the Federal Perkins Loan Program, Sec. 675.19 of the FWS
Program, Sec. 676.19 of the FSEOG Program, Sec. 690.81 of the Federal
Pell Grant Program, and proposed Sec. 685.308 of the Direct Loan
Program regulations regarding the account into which an institution
deposits and otherwise maintains Federal funds.
First, the Secretary proposes to consolidate in one place, with a
minor modification, current provisions that require an institution to
maintain a bank account into which the Secretary transfers or the
institution deposits Federal funds (other than FFEL program funds) that
the institution receives from the title IV, HEA programs. Under current
regulations, an institution must either (1) Ensure that the name of the
account discloses clearly that Federal funds are deposited into that
account, or (2) notify the bank of the accounts that contain Federal
funds and retain a record of that notice in its recordkeeping system.
Under proposed Sec. 668.164(a), an institution would have to comply
with both of these requirements. The Secretary notes that this proposal
is consistent with the requirements under Sec. 685.308(h) of the
proposed Direct Loan Program regulations.
Second, the Secretary proposes to incorporate in Sec. 668.164(b)
the current provisions that require an institution to maintain an
interest-bearing account for the deposit of Federal Perkins Loan
Program funds. Specifically, the account must be (1) An interest-
bearing account that is either federally insured or secured by
collateral of value reasonably equivalent to the amount of funds in the
account, or (2) an investment account consisting predominantly of low-
risk, income-producing securities.
The Secretary believes, however, that where it is cost-effective an
institution should be required to maintain all title IV, HEA program
funds (except FFEL program funds) it receives in a federally insured,
interest-bearing account. Therefore, in proposed Sec. 668.164(b), the
Secretary would require an institution to maintain in any award year an
interest-bearing account if the institution drew down in the prior
award year a total amount greater than $1 million from the title IV,
HEA programs. The Secretary notes that this requirement does not
preclude an institution that is below the proposed $1 million threshold
from choosing to maintain title IV, HEA program funds in an interest-
bearing account.
Under section 487 of the HEA and 34 CFR 668.14(b)(1), an
institution must use interest earned on funds it receives under the
title IV, HEA programs solely for purposes of those programs. In
proposed Sec. 668.164(b)(4), the institution would have to remit at
least annually to the Federal government interest earned on all title
IV, HEA program funds except Federal Perkins Loan Program funds (see,
34 CFR 674.18, 34 CFR 674.19, and section 463 of the HEA). In proposing
the $1 million threshold, the Secretary weighed the benefits to the
Federal government of recovering the interest earned on title IV, HEA
program funds maintained in interest-bearing accounts against the cost
to, and administrative burden on, institutions of maintaining those
accounts. The Secretary wishes to make clear that, except for Federal
Perkins Loan Program funds, the proposed interest-bearing account would
be merely a temporary holding account for title IV, HEA program funds,
and that any interest earned on funds maintained in that account,
including interest earned on funds pending the clearance of checks,
would be remitted to the Federal government.
The Secretary notes, however, that under the referenced EDGAR and
OMB provisions (see 34 CFR 74.22 and OMB Circular A-110, subpart C,
respectively) an institution must maintain Federal funds in an
interest-bearing account unless: (1) The institution receives less than
$120,000 in Federal funds per year (other than title IV, HEA program
funds), (2) the best reasonably available interest-bearing account
would not be expected to earn interest in excess of $250 per year on
Federal cash balances, or (3) the bank would require an average or
minimum balance so high that it would not be feasible within the
expected Federal and non-Federal cash resources. In addition, the EDGAR
and OMB provisions allow an institution to retain interest earnings in
an amount up to $250 per year for the administrative expense of
maintaining an interest-bearing account. (The Secretary proposes to
adopt this allowance.)
The Secretary especially invites comment on the appropriateness of
the requirement for a $1 million threshold and on the extent to which
the Secretary should adopt the EDGAR and OMB provisions described above
regarding interest-bearing accounts.
In proposing a requirement for interest-bearing accounts, the
Secretary does not wish to imply that the Secretary is in any way
encouraging an institution to maintain Federal funds in excess of its
immediate need solely to earn interest on those funds. To the contrary,
the Secretary simply recognizes that an institution may not always be
able to disburse title IV, HEA program funds to students immediately
upon receiving those funds, and wishes only to recover for the Treasury
the interest earned on those funds while the funds are in the
institution's account.
Third, in Sec. 668.164(c), the Secretary proposes to require an
institution to maintain a separate bank account for title IV, HEA
program funds if the Secretary finds that the institution is unable to
account adequately for the receipt, disbursement, or use of those
funds. These requirements are consistent with current title IV, HEA
program regulations and with the standards described in OMB Circular A-
110 and 34 CFR 74.22 that govern the use of banks as depositories of
Federal funds.
Finally, because the Secretary has proposed that institutions
maintain an interest-bearing account for all title IV, HEA program
funds (except FFEL program funds), the Secretary clarifies that an
institution must exercise the level of care and diligence required of a
fiduciary with regard to depositing and investing Federal funds (see 34
CFR 668.82).
Proposed Sec. 668.165 Disbursing Funds
The Secretary proposes to consolidate and amend, as noted below,
several requirements that are currently in Sec. 674.16 of the Federal
Perkins Loan Program, Sec. 675.16 of the FWS Program, Sec. 676.16 of
the FSEOG Program, Sec. 690.78 of the Federal Pell Grant Program, and
proposed Sec. 685.303 of the Direct Loan Program regulations under
which an institution disburses title IV, HEA program funds to eligible
students.
In proposed Sec. 668.165(a) the Secretary would consolidate the
provisions common to all the program regulations, except the FWS
Program, with respect to paying a student. An institution must continue
to follow the disbursement procedures contained in 34 CFR 675.16 for
paying a student his or her wages under the FWS Program. To encourage
the use of more efficient methods of payment than issuing checks, the
Secretary proposes to allow an institution to make a payment to a
student by EFT. Under this proposal, the institution would have to
obtain once each award year written authorization from a student or
parent to make EFT payments to the student's or parent's bank account,
as applicable.
In proposed Sec. 668.165(b), the Secretary would clarify and make
uniform the procedures under which an institution credits a student's
account. For example, the campus-based program regulations (see, for
example, 34 CFR 676.16(c)) require only that an institution may credit
a student's account or pay the student directly. (The campus-based
programs are the Federal Perkins Loan, FSEOG, and FWS programs.) Under
the Federal Pell Grant Program regulations (see 34 CFR 690.78(a)(2)),
an institution may credit a student's account only for specified
institutional charges. Assuming that the institution drew down the
entire amount of the student's award, the institution would pay the
student directly any amount of his or her Federal Pell Grant award in
excess of the specified institutional charges. However, under current
policy the Secretary allows an institution, for accounting purposes and
for administrative convenience, to apply to a student's account his or
her entire award, and if that amount exceeds allowable institutional
charges, directly pay the student that balance. The proposed procedures
would codify existing policy and specify the period of time within
which an institution would pay a student any balance on his or her
account.
Under the proposed procedures, an institution would credit a
student's account by applying the student's title IV, HEA program funds
to allowable institutional charges. (However, consistent with current
policy, the institution would not be permitted to credit the student's
account for charges the institution assessed the student in a prior
award year.) If the amount of title IV, HEA program funds the
institution applies to the student's account exceeds the amount of
allowable institutional charges, the Secretary proposes to require the
institution to pay the balance remaining on the account directly to the
student as soon as possible but within the later of (1) 7 days after
the date that balance occurs, (2) 14 days after the first day of
classes of the payment period or period of enrollment, as applicable
(the Secretary intends this provision to apply also to second
disbursements of Direct Loan and FFEL program funds), or (3) 7 days
after the date the student rescinds his or her permission regarding the
charges for which the institution may credit the student's account. The
Secretary believes that these procedures strike an appropriate balance
between the institution's obligation to provide title IV, HEA program
funds to students in a timely manner and the administrative needs of an
institution.
However, the Secretary is concerned over findings by the Office of
Inspector General and other offices within the Department that some
institutions maintain for long periods, and use for their own purposes,
title IV, HEA program funds in excess of allowable institutional
charges. Those funds belong to students and to the Secretary. The
Secretary believes it is imperative that institutions, as stewards of
Federal funds, request funds only when needed and provide those funds
to their students as expeditiously as possible. On the other hand, the
Secretary recognizes that it does not make sense to require an
institution immediately to pay a student the balance on his or her
account if the student will incur within a short period of time
additional institutional charges as a result of adding classes to his
or her schedule. Consequently, in proposed Sec. 668.165(b)(2)(ii), an
institution would be permitted to maintain the balance on a student's
account for up to 14 days after the student's first day of classes. The
Secretary particularly invites comments on this 14-day credit balance
provision. In addition, the Secretary seeks comments on alternative
approaches that would provide administrative relief to institutions for
dealing with situations where students incur additional institutional
charges by adding classes, while still requiring prompt payment for the
majority of students who do not incur those charges.
In proposed Sec. 668.165(b)(3), the Secretary would adopt for all
title IV, HEA programs, the Federal Pell Grant Program and Direct Loan
Program statutory provisions, sections 401(e) and 455(j) of the HEA,
respectively, under which an institution may credit a student's account
only for allowable institutional charges. Those charges are (1) Tuition
and fees and (2) room and board, if the student contracts with the
institution for room and board. In addition, the Secretary proposes to
adopt the Federal Pell Grant Program requirement that an institution
must obtain permission from a student to credit his or her account for
other cost-of-attendance charges (but no other charges), as defined in
section 472 of the HEA. Implicit in this requirement, and consistent
with current policy, a student may at any time withdraw that permission
and request the institution to pay him or her the remaining balance on
his or her account.
In proposed Sec. 668.165(b)(4), the Secretary would adopt for all
title IV, HEA programs, the procedures in the Direct Loan and FFEL
program regulations (see, proposed Sec. 685.303(c)(3), and 34 CFR
682.604(d), respectively) under which an institution holds title IV,
HEA program funds for the benefit of the student. Under those
procedures, a student may request an institution to hold funds in
excess of allowable institutional charges to assist him or her in
managing those funds during an award year. If the institution chooses
to hold those funds for the student, it must maintain those funds in a
separate account established solely for that purpose. In addition, the
institution may not commingle those funds with other funds or use those
funds for any other purpose. The Secretary wishes to make clear that
the account into which an institution deposits student funds under this
provision may be an interest-bearing or a noninterest-bearing account.
If the account is interest-bearing the interest would accrue to the
institution and the institution may rebate that interest to students.
In addition, the Secretary proposes to amend and make uniform the
early payment requirements common to the title IV, HEA programs
governed under this subpart (see, for example, 34 CFR 676.16(d) and
690.78(b)). Under those requirements, the earliest an institution may
credit a student's account is 21 days before the first day of a payment
period or period of enrollment. The 21-day requirement was established
at a time when the Federal government provided to institutions title
IV, HEA program funds by Treasury check. Under the standards of that
time, an institution requested cash for an amount the institution
anticipated it needed to meet its disbursement needs for 30 days.
Because it usually took several weeks for the Treasury to deliver the
check to the institution, the institution could not determine with
certainty when it would receive that check. However, with the advent of
EFT, the Federal government can reliably transmit within 3 business
days title IV, HEA program funds to an institution. Therefore, in
proposed Sec. 668.165(c), the Secretary would provide that the earliest
an institution may credit a student's account is 10 days before the
first day of a payment period or period of enrollment. The Secretary
believes that under this proposal an institution will not be
financially burdened, as it may have been under the 30-day need
standard with Treasury checks, because the institution may request
funds as often as needed and the Federal government is able to provide
those funds quickly and reliably. Moreover, sound financial management
supports the conclusion that the Department of Treasury should not make
available Federal funds to institutions for such extended periods.
Finally, the Secretary recognizes that a student may incur
educational expenses before he or she starts classes, and therefore has
decided to adopt for all title IV, HEA programs the current requirement
in the Federal Pell Grant, campus-based, FFEL, and Direct Loan program
regulations under which the earliest an institution may directly pay a
student is 10 days before the first day of a payment period or period
of enrollment.
The Secretary notes that under section 428G(b)(1) of the HEA and
proposed Sec. 685.303(b)(4) of the Direct Loan Program regulations, an
institution must delay releasing for 30 days the first installment of a
FFEL or Direct Loan program loan, as applicable, to a first-year,
first-time borrower.
Proposed Sec. 668.166 Excess Cash
In proposed Sec. 668.166(a), the Secretary would define excess cash
as any amount of title IV, HEA program funds, other than FFEL or
Federal Perkins Loan Program funds, that an institution does not
disburse to students by the end of the 3rd business day following the
date the institution received those funds. As discussed previously, the
selection of 3 business days is consistent with departmental guidance
in the Blue Book, a publication setting out the procedures for
``Accounting, Recordkeeping, and Reporting By Postsecondary Educational
Institutions for Federally-Funded Student Financial Aid Programs,''
with audit guidelines issued by the Department of Education Office of
Inspector General, and with requirements from the Department of the
Treasury. Except as discussed below, an institution must return
promptly to the Secretary any excess funds in its account.
The Secretary realizes that an institution may be unable to
disburse title IV, HEA program funds within 3 business days because of
circumstances beyond the institution's control (for example, changes in
student enrollment status, failure of a student to attend classes as
scheduled, changes in a student's award as a result of verification).
Although the Secretary does not intend to prescribe the methods by
which an institution determines its 3-day immediate cash needs, the
Secretary expects the institution to take into consideration the
circumstances identified above, and any other circumstances the
institution knows of, to determine more accurately its actual cash
needs. Therefore, in proposed Sec. 668.166(b), the Secretary would
merely as practical matter allow an institution to maintain nominal
excess cash balances under certain conditions and only on an exception
basis. First, an institution would not have to return excess cash for
amounts of $5,000 or less. In making this proposal, the Secretary
expects the institution to eliminate its excess cash balance by
reducing the amount of its next request for cash by that amount.
Second, an institution would not have to return immediately an excess
cash balance if (1) The amount of that excess cash is less than one-
half of 1 percent of its total prior-year drawdowns where such prior
annual drawdowns exceeded $1 million and (2) the institution makes
within 7 calendar days a cash request greater than the amount of its
excess cash. Although the Secretary believes that these excess-cash
thresholds are reasonable, the Secretary seeks comment on the level and
appropriateness of the proposed thresholds.
Finally, because the Secretary expects institutions to establish
procedures that minimize the potential for excess cash, in proposed
Sec. 668.166(b)(3) the Secretary would require an institution to return
immediately any amount of excess cash that the institution would
otherwise be able to maintain under the thresholds discussed above if
the institution routinely maintained excess cash balances at or below
the threshold levels.
The Department has also established a policy of reviewing
institutions to determine where excess cash balances have been
maintained and to seek recovery from those institutions of the losses
to the government caused by having made those funds available to
institutions in advance of their immediate needs. In proposed
Sec. 668.166(c), upon a finding of excess cash, including a finding
that an institution maintained routinely excess cash balances at or
below the threshold levels, the Secretary would require an institution
to reimburse the Department for the costs, as those costs would be
calculated under proposed Sec. 668.166(c)(2), that the government
incurred in making those excess funds available to the institution. In
addition, where the excess cash balances are disproportionately large
to the size of the institution or represent a continuing problem with
the institution's responsibility to administer efficiently the title
IV, HEA programs, the Secretary may initiate a proceeding to fine,
limit, suspend, or terminate the institution's participation in one or
more of those programs under subpart G of this part.
In proposed Sec. 668.166(c)(2), in calculating whether an
institution has excess cash, the Secretary would consider the
institution to have issued a check on the date that check cleared the
institution's bank account, unless the institution demonstrates to the
satisfaction of the Secretary that it issued the check to the student
shortly after the institution wrote that check. Finally, the Secretary
proposes to assess against an institution that maintains excess cash
balances a liability that is equal to the difference between the
earnings those cash balances would have yielded under a Treasury-
derived rate and the actual interest earned on those cash balances.
Executive Order 12866
1. Assessment of Costs and Benefits
These proposed regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those determined by the
Secretary to be necessary for administering this program effectively
and efficiently. Burdens specifically associated with information
collection requirements, if any, are identified and explained elsewhere
in this preamble under the heading Paperwork Reduction Act of 1980.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these proposed regulations, the Secretary has
determined that the benefits of the proposed regulations justify the
costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, or tribal governments in the
exercise of their governmental functions.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the program.
2. Clarity of the Regulations
Executive Order 12866 requires each agency to write regulations
that are easy to understand.
The Secretary invites comments on how to make these regulations
easier to understand, including answers to questions such as the
following: (1) Are the requirements in the regulations clearly stated?
(2) Do the regulations contain technical terms or other wording that
interferes with their clarity? (3) Does the format of the regulations
(grouping and order of sections, use of headings, paragraphing, etc.)
aid or reduce their clarity? Would the regulations be easier to
understand if they were divided into more (but shorter) sections? (A
``section'' is preceded by the symbol ``Sec. '' and a numbered heading;
for example, 668.161 Scope and purpose.) (4) Is the description of the
proposed regulations in the Supplementary Information section of this
preamble helpful in understanding the proposed regulations? How could
this description be more helpful in making the proposed regulations
easier to understand? (5) What else could the Department do to make the
regulations easier to understand?
A copy of any comments that concern how the Department could make
these proposed regulations easier to understand should be sent to
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of
Education, 600 Independence Avenue, SW., (Room 5121, FB10), Washington,
DC 20202-2241.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. The small entities that would be affected by these
regulations are small institutions of higher education. These
regulations would safeguard Federal funds and reduce potential abuse in
the title IV, HA programs. These changes would not significantly
increase institutions' workloads or costs associated with administering
the title IV, HEA programs. In the case of institutions that are
required to maintain interest-bearing accounts, those institution may
retain interest earnings to offset the costs of maintaining those
accounts. Therefore, these regulations will not have a significant
economic impact on a substantial number of small entities.
Paperwork Reduction Act of 1980
Section 668.164 contains information collection requirements. As
required by the Paperwork Reduction Act of 1980, the Department of
Education will submit a copy of this section to the Office of
Management and Budget (OMB) for its review. (44 U.S.C. 3504(h)).
These proposed regulations contain information collection
requirements regarding the bank account that all participating
institutions must maintain for the deposit of title IV, HEA program
funds. Specifically, institutions must notify their bank of the
accounts into which they deposit Federal funds and must maintain a
record of that notice in their recordkeeping system. In addition,
institutions that draw down more than $1 million in title IV, HEA
program funds must deposit those funds in interest-bearing accounts and
keep records for any interest earned on those funds. Institutions may
retain annually interest earnings on title IV, HEA program funds for an
amount up to $250, must keep records for the amount retained, and must
return to the Department any interest earnings greater than the amount
retained. The Department needs and uses this information to determine
whether institutions have complied with these requirements.
For approximately 8500 institutions, a one-time public reporting
burden for this collection of information is estimated at 5610 hours
for institutions to notify banks of the accounts that contain title IV,
HEA program funds and maintain a record of that notice in their
recordkeeping system. In addition, the annual public reporting burden
for this collection of information is estimated at 4250 hours for those
institutions to account for the interest earned on title IV, HEA
program funds and return to the Federal government any interest
earnings in excess of $250.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 3002, New Executive
Office Building, Washington, DC 20503; Attention: Daniel J. Chenok.
Invitation to Comment
Interested persons are invited to submit comments and
recommendations regarding these proposed regulations.
All comments submitted in response to these proposed regulations
will be available for public inspection, during and after the comment
period, in Room 4318, Regional Office Building 3, 7th and D Streets,
SW., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., Monday
through Friday of each week except Federal holidays.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority in the United States.
List of Subjects in 34 CFR Part 668
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements, Student
aid.
(Catalog of Federal Domestic Assistance Number: 84.007 Federal
Supplemental Education Opportunity Grant Program; 84.032 Federal
Family Educational Loan Program; 84.032 Federal PLUS Program; 84.032
Federal Supplemental Loans for Students Program; 84.033 Federal
Work-Study Program; 84.038 Federal Perkins Loan Program; 84.063
Federal Pell Grant Program; 84.069 Federal State Student Incentive
Grant Program; 84.268 Federal Direct Student Loan Program; and
84.272 National Early Intervention Scholarship and Partnership
Program. Catalog of Federal Domestic Assistance Number for the
Presidential Access Scholarship Program has not been assigned.)
Dated: September 15, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary 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. 1085, 1088, 1091, 1092, 1094, 1099c, and
1141, unless otherwise noted.
2. The Table of Contents of Part 668 is amended by adding subpart K
to read as follows:
Subpart K--Cash Management
668.161 Scope and purpose.
668.162 Definitions.
668.163 Requesting funds.
668.164 Maintaining funds.
668.165 Disbursing funds.
668.166 Excess cash.
Sec. 668.18 [Removed]
3. Section 668.18 is removed and reserved.
4. Subpart K is added to Part 668 to read as follows:
Subpart K--Cash Management
Sec. 668.161 Scope and purpose.
(a) General. (1) This subpart establishes uniform rules and
procedures under which a participating institution requests, maintains,
disburses, and otherwise manages funds that the institution receives
under any title IV, HEA program. An institution must also follow rules
and procedures for managing title IV, HEA program funds under each
program in which it participates.
(2) For purposes of this subpart, the title IV, HEA programs
include only the Federal Pell Grant, PAS, FSEOG, Federal Perkins Loan,
FWS, Direct Loan, and FFEL programs.
(3) The rules and procedures that apply to an institution under
this subpart also apply to a third-party servicer.
(b) Federal interest in title IV, HEA program funds. Funds received
by an institution under the title IV, HEA programs are held in trust
for the intended student beneficiaries and the Secretary. Except for
funds received by an institution for administering those programs, the
institution, as a trustee of Federal funds, may not use or hypothecate
(i.e., use as collateral) title IV, HEA program funds for any other
purpose.
(Authority: 20 U.S.C. 1094)
Sec. 668.162 Definitions.
The following definitions apply to terms used in this subpart:
Check: A negotiable demand draft or warrant.
Credit an account: To post a payment of funds to an account
maintained for a student by an institution.
Day: A calendar day unless otherwise specified.
Disburse: To make a payment of title IV, HEA program funds, or
deliver the proceeds of a loan under the FFEL programs, to or on behalf
of a student by--
(1) Crediting the student's account at the institution;
(2) Issuing a check or cash to--
(i) The student; or
(ii) In the case of a parent borrower under the Direct Loan or FFEL
programs, the student's parent; or
(3) Initiating an electronic funds transfer to a bank account
designated by the student, or in the case of a parent borrower under
the Direct Loan or FFEL programs, to a bank account designated by the
parent.
Drawdown: A process whereby an institution requests and receives
Federal funds. The phrase ``draw down'' is used as a verb form of this
word.
Issue checks: To release, distribute, or make available checks to
students or parents.
Period of enrollment: (1) With respect to the Direct Loan Program,
a period of enrollment as defined in 34 CFR 685.102;
(2) With respect to the FFEL Program, a period of enrollment as
defined in 34 CFR 682.200.
Request for cash: A solicitation for cash that is completed and
submitted in accordance with procedures contained in the Recipient's
Guide for the Department of Education Payment Management System. This
guide is published by the Department of Education, 600 Independence
Avenue, SW., Room 3321, FB10, Washington, DC 20202-4331, and contains
the procedures institutions use to request, report, and account for
Federal funds.
(Authority: 20 U.S.C. 1094)
Sec. 668.163 Requesting funds.
(a) General. The Secretary pays an institution in advance, or by
reimbursement, for the institution to disburse title IV, HEA program
funds, other than FFEL program funds, to students who qualify to
receive those funds.
(b) Advance payment method. (1) Under the advance payment method,
the Secretary accepts an institution's request for cash and transfers
electronically the amount requested into a bank account designated by
the institution.
(2) An institution's request for cash must not exceed the amount of
funds the institution needs immediately to make disbursements to
students. The institution must make the disbursements as soon as
administratively feasible, but no later than 3 business days following
the date the institution received those funds.
(c) Reimbursement payment method. (1) To receive payment of title
IV, HEA program funds under the reimbursement method, an institution
must first make disbursements to eligible students before it submits a
request for cash.
(2) The amount of the institution's request for cash may not exceed
the amount of the actual disbursements the institution made to students
included in that request.
(3) The Secretary may require the institution to submit
documentation that each student included in the request was eligible to
receive, and received, payment for the title IV, HEA program funds for
which the institution is seeking reimbursement.
(4) The Secretary approves the amount of the institution's request
and transfers electronically that amount into a bank account designated
by the institution if the Secretary determines that the institution--
(i) Determined properly the eligibility of each student for title
IV, HEA program funds;
(ii) Made disbursements for the correct amounts of title IV, HEA
program funds to the students included in its request; and
(iii) Submitted any documentation required under paragraph (c)(3)
of this section.
(Authority: 20 U.S.C. 1094)
Sec. 668.164 Maintaining funds.
(a) General. (1) Other than for funds an institution receives under
the FFEL programs, an institution must maintain an account at a bank
into which the Secretary transfers or the institution deposits Federal
funds that the institution receives from the title IV, HEA programs.
Except as provided in paragraph (c) of this section, an institution is
not required to open or maintain a separate account for depositing
Federal funds.
(2) An institution must notify the bank in which it deposits
Federal funds of the account into which those funds are deposited by--
(i) Ensuring that the name of the account discloses clearly that
Federal funds are deposited into that account; and
(ii) Notifying the bank of the account into which the institution
deposits Federal funds.
(3) The institution must retain in its recordkeeping system a
record of the notice required under paragraph (a)(2) of this section.
(b) Interest-bearing account. (1) Except as provided in paragraph
(b)(2) of this section, for any award year, an institution must ensure
that the account into which it deposits Federal funds is an interest-
bearing account that is federally insured, if the institution, during
the prior award year, drew down a total amount greater than $1 million
from the title IV, HEA programs.
(2) For any award year, an institution that participates in the
Federal Perkins Loan Program must deposit Federal Perkins Loan Program
funds in--
(i) An interest-bearing account that is--
(A) Federally insured; or
(B) Secured by collateral of value reasonably equivalent to the
amount of funds in the account; or
(ii) An investment account consisting predominantly of low-risk
income-producing securities, such as obligations issued or guaranteed
by the United States.
(3) Except as provided in paragraphs (b)(3) (i) and (ii) of this
section, an institution must remit at least annually to the Secretary
the interest earned on title IV, HEA program funds maintained in an
interest-bearing account.
(i) Pursuant to 34 CFR part 674, an institution must retain for the
purposes of the Federal Perkins Loan Program all interest or investment
revenue earned on Federal Perkins Loan Program funds maintained in an
interest-bearing or investment account.
(ii) Other than interest or investment revenue earned on Federal
Perkins Loan Program funds, an institution may retain for
administrative expense up to $250 per year of the interest earned on
title IV, HEA program funds maintained in an interest-bearing account.
(c) Separate account. The Secretary may require an institution to
maintain title IV, HEA program funds in a separate bank account that
contains no other funds if the Secretary determines that--
(1) The institution's accounting and internal control systems do
not--
(i) Identify the cash balances of title IV, HEA program funds
maintained in the institution's bank account as readily as if those
funds were maintained for each program in a separate account; or
(ii) Identify adequately the interest or investment revenue earned
on title IV, HEA program funds maintained in its bank account;
(2) The institution's financial records--
(i) Are not maintained on a current basis;
(ii) Do not reflect accurately all title IV, HEA program
transactions; or
(iii) Are not reconciled at least monthly; or
(3) The institution has otherwise failed to comply with the
recordkeeping and reporting requirements in subpart B of this part or
in the regulations that govern each title IV, HEA program in which the
institution participates.
(d) Standard of conduct. An institution must exercise the level of
care and diligence required of a fiduciary with regard to depositing
and investing Federal funds.
(Authority: 20 U.S.C. 1094)
Sec. 668.165 Disbursing funds.
(a) Method of payment. (1) An institution must notify a student of
the amount of title IV, HEA program funds the student can expect to
receive and how that amount will be paid.
(2) If the institution chooses to disburse to the student or the
student's parent by initiating an electronic funds transfer to the bank
account designated by the student or parent, as applicable, the
institution must obtain each award year written authorization from the
student or parent, as applicable, to disburse by that method.
(3) An institution must follow the disbursement procedures in 34
CFR 675.16 for paying a student his or her wages under the FWS Program.
(b) Crediting a student's account.--(1) General. An institution may
disburse to a student by crediting the student's account. In crediting
the student's account with title IV, HEA program funds, the institution
may apply those funds only to allowable charges described under
paragraph (b)(3) of this section, except that the institution may not
apply the student's title IV, HEA program funds to any charges the
institution assessed the student in a prior award year.
(2) Student account balances. Except as provided in paragraph
(b)(4) of this section, if the amount of title IV, HEA program funds
the institution applies to a student's account exceeds the amount of
allowable charges, the institution must pay the balance remaining on
the student's account directly to the student as soon as possible but
within the later of--
(i) 7 days after the date that balance occurs;
(ii) 14 days after the first day of classes of the payment period
or period of enrollment, as applicable; or
(iii) 7 days after the date the student rescinds his or her
permission under paragraph (b)(3)(ii) of this section.
(3) Allowable charges. For the purpose of determining a student's
account balance under paragraph (b)(2) of this section, allowable
charges include--
(i) Only--(A) Tuition and fees;
(B) Board, if the student contracts with the institution for board;
and
(C) Room, if the student contracts with the institution for room;
and
(ii) Other cost-of-attendance charges, as provided under section
472 of the HEA, for which the institution obtains the student's
permission. The institution must obtain from the student each award
year permission to use his or her title IV, HEA program funds to pay
for these cost-of-attendance charges. The institution--
(A) May not require the student to grant that permission; and
(B) Must allow the student to rescind that permission at any time.
(4) Holding student funds. An institution, as a fiduciary for the
benefit of a student, may hold student funds from the title IV, HEA
programs in excess of institutional charges included in paragraph
(b)(3) of this section, if the student requests in writing that the
institution retain those excess funds to assist the student in managing
his or her funds for an award year. The institution must maintain these
funds in a separate account established solely for the purpose of
holding excess student funds and may not commingle these funds with
other funds or use these funds for any other purpose.
(c) Early payments. (1) An institution may not make a payment to a
student for a payment period or period of enrollment, as applicable,
until the student is enrolled for classes for that period.
(2) Except as provided in paragraph (c)(3) of this section, the
earliest an institution may pay directly, or credit the account of, an
enrolled student is 10 days before the first day of a payment period or
period of enrollment, as applicable.
(3) Pursuant to 34 CFR 682.604(c) and 34 CFR 685.303(b)(4), if a
student is enrolled in the first year of an undergraduate program of
study and the student has not previously received an FFEL or Direct
Loan Program loan, the institution may not release to the student for
endorsement the first installment of his or her FFEL or Direct Loan
Program loan, as applicable, until 30 days after the first day of the
student's classes.
(Authority: 20 U.S.C. 1094)
Sec. 668.166 Excess cash.
(a) General. The Secretary considers excess cash to be any amount
of title IV, HEA program funds, other than FFEL or Federal Perkins Loan
Program funds, that an institution does not disburse to students by the
end of the 3d business day following the date the institution received
those funds. Except as provided in paragraph (b) of this section, an
institution must return promptly to the Secretary any amount of excess
cash in its account.
(b) Excess cash tolerances. If an institution draws down title IV,
HEA program funds in excess of its immediate cash needs, the
institution may maintain the excess cash in its account only if--
(1) The amount of that excess cash is less than $5,000; or
(2)(i) In the award year preceding that drawdown, the institution
drew down more than $1 million of title IV, HEA program funds, and the
amount of that excess cash is less than one-half of 1 percent of its
total prior-year drawdowns; and
(ii) The institution makes within 7 days a cash request greater
than the amount of its excess cash; and
(3) The institution does not maintain routinely in its account the
excess cash balances described in paragraph (b)(1) or (b)(2) of this
section.
(c) Consequences for maintaining excess cash balances. (1) If the
Secretary finds that an institution maintains in its account excess
cash balances greater than those allowed under paragraph (b) of this
section or maintains routinely excess cash balances allowed under
paragraph (b) of this section, the Secretary--
(i) As provided in paragraph (c)(2) of this section, requires the
institution to reimburse the Secretary for the costs the Secretary
deems to have incurred in making those excess funds available to the
institution; and
(ii) May initiate a proceeding to fine, limit, suspend, or
terminate the institution's participation in one or more title IV, HEA
programs under subpart G of this part.
(2) For the purposes of this section, upon a finding that an
institution has maintained excess cash, the Secretary--
(i) Considers the institution to have issued a check to a student
on the date that the check cleared the institution's bank account,
unless the institution demonstrates to the satisfaction of the
Secretary that it issued the check shortly after the institution wrote
the check; and
(ii) Calculates, or requires the institution to calculate, a
liability for maintaining excess cash balances in accordance with
procedures established by the Secretary. Under those procedures, the
Secretary assesses a liability that is equal to the difference between
the earnings that the excess cash balances would have yielded if
invested under the applicable current value of funds rate and the
actual interest earned on those balances. The current value of funds
rate is an annual percentage rate, published in a Treasury Financial
Manual (TFM) bulletin, that reflects the current value of funds to the
Department of the Treasury based on certain investment rates. The
current value of funds rate is computed each year by averaging
investment rates for the 12-month period ending every September. The
TFM bulletin is published annually by the Department of the Treasury.
Each annual bulletin identifies the current value of funds rate and the
effective date of that rate.
(Authority: 20 U.S.C. 1094)
[FR Doc. 94-24115 Filed 9-28-94; 8:45 am]
BILLING CODE 4000-01-P
