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.

Thieves on Campus Could Target Credit Balance Checks

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A college financial aid office employee was once charged with stealing financial aid. It was difficult to identify because the aid was being disbursed to students in the form of checks for credit balances, sometimes refered to as stipends. Colleges are required to abide by the federal regulations which include procedures about how FSA funds must be managed. Id a college fails to have adequate systems in place, it runs the risk of administrative capability citations in annual audits and program reviews. A college must have a process that ensures FSA funds never escheat to a state, or revert to the school, or any other third party. All Title IV Credit Balances therefore must be returned to the student or to the Department of Education.

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