When the U.S. Department of Education finds compliance issues at a college, one of the first things they do is place the school on one of the Department’s Heightened Cash Monitoring (HCM) payment methods. This allows FSA to provide additional oversight of the college’s administration of Federal Student Aid Funds.

There are two levels of Heightened Cash Monitoring; Heightened Cash Monitoring 1 (HCM1) and Heightened Cash Monitoring 2 (HCM2).

Heightened Cash Monitoring 1 is the less onerous of the two statuses. After a school makes disbursements to eligible students from institutional funds and submits disbursement records to the Common Origination and Disbursement System, it draws down FSA funds to cover those disbursements in the same way as a school on the Advance Payment Method. HCM 1 requires a school to pay closer attention to its authorization and disbursement practices to ensure compliance. The goal for colleges placed on HCM1 is to nip problems in the bud and ensure that the school doesn’t end up on HCM2.

Heightened Cash Monitoring 2 is known as “reimbursement” and is much tougher than HCM1. Under reimbursement, a school no longer receives funds under the Advance Payment Method. After a school on HCM2 makes disbursements to students from its own institutional funds, a Reimbursement Payment Request must be submitted to the Department, usually along with student financial aid files before any funds can be drawn down. The files are reviewed by a payment analyst at ED and funding is only approved to be drawn down if everything in the student files checks out.

If you read our first post Ten Reasons schools are placed on Heightened Cash Monitoring, we’ve got eight more reasons you should be aware of.

  1. Financial Statements Late/Missing – Financial statements were not submitted to FSA by a specific due date, depending on the institution’s type (public, private non-profit, proprietary).
  2. Financial Responsibility – School has a failing or a zone composite score or other concerns such as unreconciled accounts.
  3. Office of the Inspector General – Under investigation by the Office of the Inspector General.
  4. Common Ownership Problems – The common ownership of certain institutions that had issues identified at some of their schools.
  5. Outstanding Liability/Offset – School has outstanding liabilities that resulted from an audit or program review.
  6. Provisional Certification – School is participating in Title IV programs under a provisional certification which imposes certain restrictions.


West Virginia’s Public Colleges recently made the news when the Department placed more than a dozen schools in the state on Heightened Cash Monitoring after the schools failed to provide their audit on time. It’s extremely rare to see a public school placed on Heightened Cash Monitoring since public schools are backed by the “full credit and faith of the state” but the Department cited the State’s colleges for their demonstrated lack of administrative capability over the late and missing audits. So let’s look at the ten reasons a school gets placed on HCM.


Accreditation Problems – Includes accreditation actions such as the school’s accreditation has been revoked and is under appeal, or the school has been placed on probation.

Administrative Capability – Concerns about the institution’s ability to manage the Title IV programs including student file maintenance, record retention, and verification. 

Audit Late/Missing – School did not submit their audit by the due date and is considered not financially responsible.

Audit (Severe Problems) – School has severe audit findings which could include financial statements, internal controls, and compliance with laws, regulations, and provisions of contract or grant agreements.

Default Rate – A school’s cohort default rate for Perkins loans made to students for attendance at the school exceeds 15% or the cohort default rate for Federal Stafford loans or for Direct Subsidized/Unsubsidized Loans made to students for attendance at the school equals or exceeds 30% for the three most recent fiscal years or if the most recent cohort default rate is greater than 40%.

Denied Recertification (PPA Not Expired) – School’s recertification was denied but its Program Participation Agreement has not yet expired.

Financial Responsibility – School has a failing or a zone composite score or other concerns such as unreconciled accounts.

Change In Ownership Problems (Eligibility) – Issues identified with information needed on a Change in Ownership application such as missing/incorrect same-day balance sheet or other needed documentation; or an unreported CIO is discovered.

Program Review – School is being reviewed by the Department as part of its normal oversight and monitoring responsibilities or as a result of concerns regarding the school’s administrative capability and financial responsibility.

Program Review (Severe Findings) – School has potential of severe program review findings such as failure to make refunds or return of Title IV funds.


Understanding Heightened Cash Monitoring

Letter of Credit, Heightened Cash Monitoring,

The U.S. Department of Education often places schools on Heightened Cash Monitoring when their policies and procedures have been called into question. How does a school get placed on Heightened Cash Monitoring?

Understanding Heightened Cash Monitoring

The purpose of the cash management regulations are to promote sounds cash management of Federal Student Aid program funds by schools. Institutions receive aid funds from the U.S. Department of Education and holds funds in trust for the students. By acting as a fiduciary in this way, schools help the government minimize the costs of making grant and loan funds to students and do it much cheaper than if they did it on their own. This also allows the government to keep the costs down for students, thus Federal Student Loans generally carry very low fees.

Schools may be placed on one of the Department’s Heightened Cash Monitoring payment methods so the Department can closely monitor the institutions cash management.

Heightened Cash Monitoring 1 (HCM1)  – Under HCMI, a school first makes disbursements to students from institutional funds and then submits disbursement records to COD, drawing down funds once the records have been accepted. However under the Department’s HCM2 method, the process is much more onerous.

Heightened Cash monitoring 2 (HCM2) – Under HCM2, schools must make disbursements to students from institutional funds and then submit a Reimbursement Payment Request for those funds. It’s much more onerous because the school must also send documents and records to ED for each student, showing that they were eligible for and received those funds. Schools can only submit a Reimbursement Payment Request once during any 30 day period. As you can imagine, this severely impacts cash flow and in recent years, a number of schools and colleges have folded because they couldn’t correct the deficiencies that landed them on Heightened Cash monitoring in the first place.

Schools subject to one of the Heightened Cash Monitoring methods of disbursement must pay credit balances due to students before requesting funds. Rules were enacted last year which went into place on July 1, 2016. The rules not only require that schools pay these credit balances, but also prevent schools from holding credit balances, even when a student has given authorization to do so.

How does an institution get put on Heightened Cash Monitoring?

  • Late or Missing Audits –  Annual HEA Title IV Audit
  • Repeat Audit or Program Review Findings – Failure to Implement Corrective Action
  • Excessive Audit Findings
  • Excessive Program Review Findings
  • Failure to Meet Financial Standards
  • Composite Score – Weighted Sum of Primary Reserve, Equity, and Net Income Ratios
  • Refund Reserves – Failure to maintain sufficient cash reserves
  • Returning Funds – Late Refunds or Incorrect R2T4
  • Provisional Certification Requiring a Letter of Credit

It’s important to note that the administration of the Cash Monitoring Program must be audited every year. The independent auditor engaged by the school must express an opinion in the audit report regarding the school’s compliance with the cash monitoring requirements.

Institutions with questions pertaining to this blog post or other matters of compliance with Accreditation, Federal Student Aid standards are welcome to contact our offices for additional assistance.

Peter Terebesi is the President and founder of Higher Ed Executives. You can find Peter on Twitter (@HigherEdPete), and reach him through the Higher Ed Executives website. You may also email

As stated in our disclaimers, blog posts by Higher Ed Executives, shared on Twitter, LinkedIn, or elsewhere, should not be considered legal advice. Please consult a qualified advisor.