TITLE IV FUNDS MUST NEVER ESCHEAT TO A THIRD PARTY

At schools that issue paper checks to students for credit balances, the check issuing process is often handled by someone removed from the financial aid and student accounts functions. Check processing is typically handled by an accounts payable employee or someone similar in the back accounting office. The same goes for EFT/ACH transactions. When a school issues a check, EFT or ACH payment to a student that results from a Title IV Credit Balance, it must have a process in place to ensure that the funds are delivered to the student and never escheat to a third party. 

A school’s credit balance process must ensure that FSA funds never escheat to a state, or revert to the school, or any other third party. All Title IV Credit Balances must be issued to the student (or parent for PLUS loan funds). However, if after attempting to deliver the funds to a student the school determines it is not possible to do so, funds must be returned to the Department of Education.

All Title IV funds, except FWS Program funds that a school attempts to disburse directly to a student or parent must be returned to the Department if the student or parent does not receive the funds or cash the check. For FWS Program funds, a school is required to return only the Federal portion of the payroll disbursement. If a school attempts to disburse a credit balance by check or EFT and the check is not cashed or the EFT is rejected, the school must return the funds no later than 240 days after the date it issued that check or made the EFT. Therefore schools should have a process to ensure that all student disbursement checks (including EFT and ACH) are cashed within 240 days or otherwise returned to the department.  This rule is applicable to all credit balances of one-dollar or more.

Schools are required to abide by the federal regulations which govern how FSA funds must be managed and those that fail to have adequate systems in place run the risk of administrative capability findings in annual audits and program reviews.

WHAT TO DO WITH EXCESS INTEREST EARNED ON TITLE IV FUNDS

Did you know that ED requires schools to return excess interest earned on federal title IV funds each year?

Institutions must maintain their Title IV, HEA program funds in an interest-bearing depository account. Interest may accrue throughout the year and schools may keep up to $500 in interest earned on Title IV funds. At the end of each award year, any interest earned in excess of the 500 dollar threshold must be returned to the federal government. This is called “excess interest”. Unlike Title IV funds, excess interest gets returned to the Department of Health and Human Services (HHS) through the HHS Payment Management System (PMS). http://bit.ly/2qkA5cz

PMS is the central collection point for interest earned on federal grants. Schools may no longer remit excess interest through G5 and instead must remit excess Title IV interest to HHS’s Payment Management System and must do so within 30 days after the end of each award year.

According to a recent electronic announcement, the return of interest should be made payable to Department of Health and Human Services. Institutions must include with the remitted interest:

  • An explanation stating that the refund is for excess interest,
  • U.S. Department of Education-Federal Student Aid as the name of the awarding agency, and
  • The institution’s Data Universal Number System (DUNS) number in the addendum record or other correspondence.

The electronic announcement also states that the instruction above vary somewhat with the instruction under Returning Interest on the HHS webpage, which, for example, refer to payee account and grant numbers that do not apply here and may be ignored.

Schools have three methods to return excess interest; via ACH, FedWire or by mailing a paper check to HHS Program Support Center in Atlanta, GA (and not to the Rockville Maryland Address that was included in the regulations).

For more information refer to the May 19, 2017 Electronic Announcement from Federal Student Aid here: http://bit.ly/2rpL2cI

The deadline for the 2016-2017 award year is July 30, 2017.