Program Integrity Negotiated Rulemaking

Yesterday was the second day of the third Program Integrity negotiated rulemaking session at the U.S. Department of Education offices on K Street. Negotiators will meet for at least three days from Wednesday through Friday.

Issue 4: Cash Management 

Thursday’s session was spent discussing Issue 4. At the end of the day Wednesday, the Department went over the numerous changes it made to the proposed regulatory language. Read about what was discussed about Issue 4 during the second session in March here.

Along with various minor technical changes including more definitions of terms, the Department removed the ban on sweep accounts that appeared in the last draft. They have also removed the reference that the Secretary can pay reimbursements to students and parents directly alleviating concerns brought up during the last session. In this draft it would be okay to include books and supplies as a part of tuition and fees as long as they are substantially the same in content or function and are not available from any source other than the institution.

Many revisions were made around student choice in §668(d)(4). If students or parents do not provide banking information in order to receive an EFT for financial aid reimbursements, the institution can provide options for an account as long as options are presented in a clear, fact-based manner. After the student or parent provides the information about an existing financial account, the student or parent may choose the sponsored account or other option for reimbursement.

A sponsored account in §668(e) is now defined as, “If an institution located in a State enters into a contract or arrangement with any entity (e.g. third-party servicer, financial institution, or other person) under which a student or parent opens, or is referred to open, a financial account offered by the entity, or has the option of using a card or device issued for institutional purposes to activate or access a financial account into which title IV funds may be transferred or deposited.” With sponsored account status comes various rules that institutions must follow including ensuring the student or parent does not incur any cost to open the account or maintain the account, can use the card to make four fee-free out-of-network ATM withdrawals per month, and will not encounter POS fees when using the card to pay for purchases.

Commentary:

The first order of business was to go over two proposals by committee members to make changes to the Department’s draft language. Chris Lindstrom, the higher education program director for USPIRG and the negotiator representing students, presented a couple of changes, most notably to sponsored accounts. Dan Toughy, president of TouchNet and the negotiator representing business and industry presented some changes as well including moving the definition of sponsored account up front and asking annually for bank account information of students and parents so that information is current and used properly.

The groups representing third party servicers and lenders, community banks, and credit unions asked if the whole committee could take about an hour of Q & A with the Department followed by time for those two groups to caucus so they can present a unified proposal in the hopes of reaching consensus. The Department agreed.

Paul Kundart, president and CEO of the University of Wisconsin Credit Union, asked what kind of contracts trigger sponsored account status and would a leasing contract for a campus branch or on-campus ATM trigger a sponsored account?

The Department’s answer was that it’s not about on-campus ATMs or a campus branch. The contract is a special arrangement with the financial institution to provide products directly to students in which title IV aid could be disbursed. According to the Department, their position is that to the extent there’s a contract and relationship between a higher education institution and a financial institution in which title IV is distributed to students, it’s a sponsored account.

Another committee member asked if a sponsored account is triggered only if and until title IV aid is deposited to the account. The Department clarified that if title IV aid could end up in an account and the institution has a contractual relationship with the financial institution, then it’s a sponsored account. To the extent that such an account is set up, the institution should anticipate that the student will use the account for title IV reimbursement so the account must be set up to be in compliance.

After a period of more Q & A, the groups representing lenders, community banks, and credit unions, and the third-party servicers caucused to develop a unified proposal over lunch.

Note: The Department of Education caucused over lunch with interested parties about Issue 2. This caucus was public, but I was unable to attend and therefore unable to report about it.

The afternoon was dedicated to going over the proposal from the lenders, community banks, and credit unions and the third-party servicers. That proposal can be found here. All of their proposed language relates specifically to student choice and sponsored accounts.

The rest of the afternoon was spent discussing the proposal with many committee members representing institutions commenting that the definition of sponsored account was unclear and required many scenarios and explanation to ensure they would be in compliance. Some were also concerned that the student choice aspect was weakened too much in this proposal. Although there was a lot of movement towards compromise, there was still not enough general agreement around the table—even after another caucus among the student and consumer representatives and the third-party servicers and lenders, community banks and credit unions.

Pam Moran, the negotiator for the Department, ended discussion explaining that the committee was very far behind at this point since they had yet to even go over the Department’s proposal. Tomorrow morning they have no choice but will likely be moving on to Issue 6: The Definition of Adverse Credit for Direct PLUS eligibility. The conversation about cash management will come after that discussion and is likely to take up the rest of the day.

Stay tuned for day three of session two. Or you can attend in person at 1990 K Street, N.W., Eighth Floor Conference Center, Washington, DC. If you do, drop by and say hello!

[Cross-posted at Ed Central]

Rachel Fishman

Rachel Fishman is a policy analyst for the New America Foundation Education Policy Program.