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 info@ed-executives.com.

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.