NASFAA U SELF-STUDY GUIDES CASH MANAGEMENT AWARD YEAR ISSUE DATE MAY 2017 CREDENTIALED TRAINING

Transcription

1 NASFAA U SELF-STUDY GUIDES CASH MANAGEMENT AWARD YEAR ISSUE DATE MAY 2017 CREDENTIALED TRAINING

2 NASFAA U Self-Study Guide Cash Management Table of Contents Lesson 1: Introduction to Cash Management... 1 Lesson 2: Requesting and Managing Title IV Funds Lesson 3: Disbursing Title IV Funds Lesson 4: Notifications and Authorizations References for Cash Management Glossary for Cash Management Feedback Form These training materials are designed for individual use, as well as for in-person instruction during NASFAA U Authorized Events, such as workshops and institutes. The effectiveness of the learning experience depends on utilization of the quizzes, learning activities and reflective exercises provided by National Association of Student Financial Aid Administrators (NASFAA). All rights reserved. NASFAA has prepared this document for use only by personnel, licensees, and members. The information contained herein is protected by copyright. No part of this document may be reproduced, translated, or transmitted in any form or by any means, electronically or mechanically, without prior written permission from NASFAA. NASFAA SHALL NOT BE LIABLE FOR TECHNICAL OR EDITORIAL ERRORS OR OMISSIONS CONTAINED HEREIN; NOR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE FURNISHING, PERFORMANCE, OR USE OF THIS MATERIAL. This publication contains material related to the federal student aid programs under Title IV of the Higher Education Act and/or Title VII or Title VIII of the Public Health Service Act. While we believe that the information contained herein is accurate and factual, this publication has not been reviewed or approved by the U.S. Department of Education, the Department of Health and Human Services, or the Department of the Interior. The Free Application for Federal Student Aid (FAFSA ) is a registered trademark of the U.S. Department of Education. NASFAA reserves the right to revise this document and/or change product features or specifications without advance notice. May 2017 i

3 Lesson 1: Introduction to Cash Management Learning Objectives After completing this lesson, you will: Understand the meaning of cash management; and Know the definitions of key terms related to cash management. Key Concepts The key concepts you will learn in this lesson: Cash management; Administrative capability; Academic year; Payment period; Standard terms; and Nonstandard terms. Resources for This Lesson Glossary Icons You will see the following icons in Lesson 1: Key concept Quick quiz Reflection questions Learning activity Helpful hint Introduction to Cash Management In this self-study guide, you will learn about a school s responsibilities for managing Title IV funds, including requesting and receiving funds, maintaining funds, disbursement, notices, and authorizations. This lesson introduces you to cash management and to important terms you need to understand as you complete the remaining lessons in the guide. Cash Management Definition As we begin our deep dive into cash management, let s start with a definition. Cash management is the rules and procedures an institution that participates in the Title IV programs must follow to request, maintain, authorize, disburse, deliver, use, and return Title IV funds. The cash management regulations apply to the following Title IV programs: Federal Pell Grant Program; Iraq and Afghanistan Service Grant (IASG); Federal Supplemental Educational Opportunity Grant (FSEOG) Program; Federal Work-Study (FWS) Program; Federal Perkins Loan Program; Teacher Education Assistance for College and Higher Education (TEACH) Grant Program; and Federal Direct Student Loan (Direct Loan) Program. It s important to note that the FWS Program is excluded from certain cash management provisions. Effective cash management by the school minimizes the federal government s costs for making Title IV program funds available to students and schools, as well as the student s costs for participation in the Title IV loan programs. Additionally, effective cash management ensures that: Only eligible students receive Title IV funds; Students receive their financial aid funds as needed and in a timely manner; Interest on Title IV loans does not accrue needlessly; 2017 NASFAA Cash Management: Lesson 1 1

4 Title IV overawards and overpayments are avoided; Institutional cash flow needs are met; The school does not hold excess federal cash; and The institution has appropriate accounting procedures and maintains a clear audit trail. Separation of Functions. The focus of the checks and balances requirement is the separation of functions that is, individuals with the authority to award aid and authorize payments should not also have the ability to make disbursements, and vice versa. The institution must be diligent in safeguarding its systems so that only authorized individuals can change records and affect awards and payments. Administrative Capability Administrative capability is the ability a school must demonstrate in providing the education it promises and properly managing the federal student aid programs. Cash management is an administrative capability requirement that has campus-wide implications. It is an institutional responsibility carried out by multiple campus offices. A school s ability to participate in any or all of the Title IV programs could be jeopardized if the offices responsible for various aspects of the cash management process are not in compliance with the rules governing Title IV funds. For this reason, campus-wide communication and coordination, as well as appropriate internal controls, are pertinent to ensure effective, compliant cash management procedures throughout the institution. This is especially important for the financial aid, business, admissions, and registrar s offices. The Department of Education (ED) views a school as a single entity. Thus, if the business office knows that a student has received additional sources of aid, or if the registrar s office knows that a student has dropped classes, the financial aid office is assumed to be aware of this information as well. Another aspect of administrative capability that clearly affects a number of institutional offices and functions is the requirement that the school institute adequate checks and balances in its system of internal controls. While offices within a school must coordinate their efforts, there also must be a separation of certain duties. The institution should not only be able to detect, but should be able to prevent, fraud and abuse in its administration of the Title IV programs, and the misuse of federal funds. Effective cash management by the school minimizes the federal government s costs for making Title IV program funds available to students and schools, as well as the student s costs for participation in the Title IV loan programs. At a minimum, the institution must set up its organizational structure so that the functions of authorizing payments and disbursing or delivering funds are divided, to meet the following specific regulatory requirements: No one office may have responsibility for both functions with respect to student aid awarded under the programs; The individuals carrying out these functions must be organizationally independent; The individuals may not be members of the same family; and The individuals may not together exercise substantial control over the institution. The Title IV regulations detail the administrative capability standards an institution must meet in in the Student Assistance General Provisions. The concepts of academic year and payment periods underlie the requirements related to 2 Cash Management: Lesson NASFAA

5 disbursing Title IV funds. Payment period definitions are based, in part, on the program s definition of an academic year. Let s take a closer look at the concept of an academic year. Academic Year Every eligible academic program must have a defined academic year (AY). A school may have different academic years for different academic programs, but you must use the same academic year definition for all Title IV awards to students enrolled in the same program of study. Furthermore, a program s academic year definition must be used for all Title IV program purposes. An academic year is defined as a period that begins on the first day of classes and ends on the last day of classes or examinations. For credit-hour programs, that period must be a minimum of 30 weeks of instructional time. For clock-hour programs, that period must contain a minimum of 26 weeks of instructional time. The regulations define a week of instructional time as a consecutive seven-day period in which at least one day of regularly scheduled instruction or examinations occurs or, after the last day of regularly scheduled classes for a term or payment period, at least one day of study for final examinations. This definition excludes vacation periods, homework, orientation, counseling activities, or any other activity not related to class preparation or examination periods. Undergraduate Programs In addition to the minimum number of weeks of instructional time mentioned above, for an undergraduate educational program, during that period a full-time student must be expected to complete at least: 24 semester or trimester hours; 36 quarter hours; or 900 clock hours. Graduate Programs While there is no statutory or regulatory minimum number of hours component to the definition of an academic year for graduate and professional programs, the school must establish and document in its written policies and procedures a minimum number of hours that a full-time graduate or professional student is expected to complete during the number of weeks in the program s academic year definition. Payment Period The payment period is the schooldetermined length of time for which financial aid funds are paid to a student. For standard term academic programs (semesters, trimesters, or quarters) the payment period is the term. For programs not using standard terms, the institution designates at least two payment periods within an academic year that meet all applicable regulations. All Title IV funds, except compensation paid under the FWS Program, are disbursed to students on a payment period basis. Although the payment period concept applies to all Title IV programs, additional disbursement rules apply to the Direct Loan Program. You will learn about disbursement rules and requirements in Lesson 3. The payment period is determined based on the structure of the student s academic program, which may be a: Credit-hour program offered in standard terms or nonstandard terms with substantially equal terms; Credit-hour program offered in nonstandard terms that are not substantially equal; Nonterm credit-hour program; or Clock-hour program. Terms are substantially equal in length if no term in a program is more than two weeks of instructional time longer than any other term in the program NASFAA Cash Management: Lesson 1 3

6 Academic Terms Before we take a closer look at the payment period definitions for the various program structures, let s quickly review the applicable definitions related to academic terms. For Title IV purposes, academic terms are either standard or nonstandard. Standard Terms. Standard terms are semesters, trimesters, or quarters. A semester or trimester consists of 14 to 17 weeks of instructional time, and full-time enrollment for undergraduate students is defined as at least 12 semester or trimester credit hours. A quarter consists of 10 to 12 weeks of instructional time, and full-time enrollment for undergraduate students is defined as at least 12 quarter credit hours. For graduate level programs, the school defines full-time status. Although the standard terms in a program need not be the same length, the length of each term must be within the specified range. Nonstandard Terms. A nonstandard term is defined as any term other than a semester, trimester, or quarter. In addition, if the school uses a different credit measure for a semester, trimester, or quarter such as awarding semester credits for a quarter term the term is nonstandard. Successfully complete means not only must the student complete all of the weeks and hours in the payment period, but also the school considers the student to have passed the coursework associated with those hours. A school may combine a short nonstandard term (for example, a four-week intersession between the fall and spring semesters or between the fall and winter quarters) with a standard term, and treat the combined term as a standard term if the treatment is applied for all Title IV purposes and to all students enrolled in the program. Payment Periods for Credit-Hour Programs Offered in Standard Terms or Nonstandard Terms with Substantially Equal Terms For these programs, the payment period is the term. Remember, you must disburse all Title IV funds (except FWS) by the term. Payment Periods for Credit-Hour Programs Offered in Nonstandard Terms that are Not Substantially Equal For the Federal Pell Grant, IASG, TEACH Grant, FSEOG, and Federal Perkins Loan programs, the payment period is the nonstandard term. For the Direct Loan Program, different payment period definitions apply depending on the length of the program. For each payment period definition, the student must successfully complete both the credit hours and the weeks of instructional time in the payment period before the next payment period begins. Successfully complete means not only must the student complete all of the weeks and hours in the payment period, but also the school considers the student to have passed the coursework associated with those hours. Academic Programs Less Than or Equal to One Year in Length. The first payment period is the period of time in which the student successfully completes half the number of credit hours and half the number of weeks of instructional time in the program. The second payment period is the period of time in which the student completes the program. Academic Programs Longer Than One Year in Length. For each full academic year, the first payment period is the period of time in which the student successfully completes half the number of credit hours and half the number of weeks of instructional time in the program s academic year 4 Cash Management: Lesson NASFAA

7 definition, and the second payment period is the period of time in which the student successfully completes the academic year. For a remaining portion of a program that is less than or equal to half of an academic year, the payment period is the period of time in which the student completes the remainder of the program. For a remaining portion of a program that is less than an academic year, but more than half of an academic year, the remaining portion of the program consists of two payment periods: The first payment period is the period of time in which the student successfully completes half the number of credit hours and half the number of weeks of instructional time in the remaining portion of the program; and The second payment period is the period of time in which the student completes the remainder of the program. Nonterm Credit-Hour Programs and Clock-Hour Programs For all the Title IV programs (except FWS), different payment period definitions apply depending on the length of the program. For each payment period definition, the student must successfully complete the credit hours or clock hours and the weeks of instructional time in the payment period. Academic Programs Less Than or Equal to One Year in Length. The first payment period is the period of time in which the student successfully completes half the number of credit or clock hours and half the number of weeks of instructional time in the program. The second payment period is the period of time in which the student successfully completes the program. Academic Programs Longer Than One Year in Length. For each full academic year, the first payment period is the period of time in which the student successfully completes half the number of credit or clock hours and half the number of weeks of instructional time in the program s academic year definition, and the second payment period is the period of time in which the student successfully completes the academic year. For a remaining portion of a program that is less than or equal to half of an academic year, the payment period is the period of time in which the student completes the remainder of the program. For a remaining portion of a program that is less than an academic year, but more than half of an academic year, the remaining portion of the program consists of two payment periods: The first payment period is the period of time in which the student successfully completes half the number of credit or clock hours and half the number of weeks of instructional time in the remaining portion of the program; and The second payment period is period of time in which the student completes the remainder of the program. In addition to the basic payment period definitions for nonterm and clock-hour programs, there are some additional requirements for these types of programs. Excused Absences. Under certain conditions, a school may include clock hours for which the student received an excused absence (in other words, an absence the student does not have to make up) when determining whether the student has successfully completed the clock hours in a payment period. The school must have a written policy that allows excused absences, and the number of excused absences allowed under that policy cannot exceed the lesser of: The number of excused absences allowed under the excused absences policy of the school s accrediting agency that is designated for Title IV purposes; The number of excused absences allowed under the excused absences policies of the state agency that licenses or authorizes the school to operate in the state; or Ten percent of the clock hours in the payment period. Programs for Which Successful Completion of Half the Credit or Clock Hours Cannot Be Determined. The second payment period begins on the later of 2017 NASFAA Cash Management: Lesson 1 5

8 the date you determine the student successfully has completed, as applicable, half of the: Academic coursework in the academic year, program, or remainder of the program; or Number of weeks of instructional time in the academic year, program, or remainder of the program. If the student s re-entry falls during a new award year, the Title IV funds to be disbursed for the payment period should be paid from the award year during which the payment period originally began. For an award year that is closed, you may request an extension to the established data submission deadline through the Common Origination and Disbursement (COD) System. Rules for Students Who Re-enter Within 180 Days. If a student withdraws during the payment period from a nonterm credit-hour program or clock-hour program and resumes studies in the same program at the same school within 180 days of the withdrawal date, he: Remains in the same payment period from which he withdrew; Is eligible for previously disbursed funds for the payment period that had been returned under the return of Title IV funds requirements; and Is eligible for undisbursed funds for which he is otherwise eligible. If the student s re-entry falls during a new award year, the Title IV funds to be disbursed for the payment period should be paid from the award year during which the payment period originally began. For an award year that is closed, you may request an extension to the established data submission deadline through the Common Origination and Disbursement (COD) System. Rules for Students Who Re-enter After 180 Days or Transfer. You must calculate a new payment period if a student withdraws from a nonterm credit-hour program or clock-hour program and: Re-enters the same program at the school more than 180 days after he withdrew; or Transfers to the school from another school or into another program at the school within any time period. For purposes of calculating the new payment period only, the length of the student s program is the remaining number of credit or clock hours and weeks of instructional time in the program the student is reentering or in the transfer program. However, there is an exception to the requirement to calculate a new payment period. A student who withdraws and transfers into another program at the same school may be considered to be in the same payment period from which she withdrew if: The student is continuously enrolled at the school; The coursework in the payment period from which the student withdrew is substantially similar to the coursework the student will be taking when she first transfers into the new program; The payment periods are substantially equal in length in weeks of instructional time and credit or clock hours; There is little or no change in institutional charges associated with the payment period; and The hours from the program from which the student is transferring are accepted toward the new program. 6 Cash Management: Lesson NASFAA

9 Quick Quiz Now it s time to check what you have learned so far. Answer the following questions and check your responses using the Answer Key on page Define cash management. 2. Which Title IV program is exempt from certain cash management provisions? IASG FWS Direct Loans Federal Perkins Loan 3. Effective cash management ensures which of the following? (check all that apply) Only eligible students receive Title IV funds The school makes at least $1,000 in interest income from the Title IV programs The school employs at least five people in the business office Title IV overawards and overpayments are avoided The institution has appropriate accounting procedures and maintains a clear audit trail 4. Define administrative capability. 5. At a minimum, an institution must set up its organizational structure so that the functions of authorizing payments and disbursing or delivering funds are divided to meet what specific regulatory requirements? 2017 NASFAA Cash Management: Lesson 1 7

10 Quick Quiz (cont d) 6. An academic year consists of which two components? Months and hours Weeks of instructional time and hours Weeks of instructional time and competencies Days and credits 7. A credit-hour program must include a minimum of weeks of instructional time. A clock-hour program must include a minimum of weeks of instructional time. (fill in the blanks) 8. During the time covered by an academic year, a full-time undergraduate student is expected to complete at least: (check all that apply) 24 semester or trimester hours 30 semester or trimester hours 30 quarter hours 36 quarter hours 600 clock hours 900 clock hours 9. Who determines the minimum number of hours in the academic year for a graduate program? 10. What are standard terms? 11. Define payment period. 8 Cash Management: Lesson NASFAA

11 Quick Quiz (cont d) 12. For which program structure is the payment period always the term (except for FWS)? Standard term Nonstandard term with terms that are not substantially equal in length Nonterm programs All nonstandard term 13. Define substantially equal in length. 14. For credit-hour programs with terms that are not substantially equal in length, the payment period is the term for which Title IV programs? (check all that apply) Federal Pell Grant FSEOG Direct Loans TEACH Grant IASG Federal Perkins Loan 15. Define successfully complete. 16. For nonterm credit-hour programs and clock-hour programs, the definition of the payment period varies based on the: Number of hours in the program Program level (undergraduate or graduate) Length of the program Format of the program 2017 NASFAA Cash Management: Lesson 1 9

12 Quick Quiz (cont d) 17. For credit-hour programs with terms that are not substantially equal in length, nonterm credit-hour programs, and clock-hour programs, how many payment periods are in a full academic year? For nonterm credit-hour programs and clock-hour programs shorter than an academic year, how is the payment period defined? 19. What conditions apply if a student withdraws during a payment period from a nonterm credit-hour program or clock-hour program and resumes studies in the same program at the same school within 180 days of the withdrawal date? 20. Under what conditions is a student who withdraws and transfers into another nonterm credit-hour program or clock-hour program at the same school considered to be in the same payment period from which she withdrew? 10 Cash Management: Lesson NASFAA

13 Learning Activity: Research Research the following questions about your institution. 1. How does your institution ensure the separation of functions? _ 2. How does the institution define the academic year? Does it use the same definition for all programs? If not, what other definitions does it use? Why? 3. What is the structure of the programs offered by the institution? 4. If your institution offers credit-hour programs with terms that are not substantially equal in length, nonterm credit-hour programs, and/or clock-hour programs, how does it ensure a student has successfully completed a payment period? 2017 NASFAA Cash Management: Lesson 1 11

14 Reflection Questions Take a few moments to reflect on the following questions. There are no right or wrong answers. You can also discuss these questions with a coworker in your office. 1. Do you agree with the purposes of cash management? Why or why not? 2. Given advances in technology, do you think the separation of functions is still necessary? Why or why not? 3. Do you think it is appropriate that the academic year should have a minimum number of weeks of instructional time? Is this approach still appropriate given the popularity of innovative learning models, such as competency-based education? 4. Do you think it is necessary to have multiple definitions of a payment period? Why or why not? 12 Cash Management: Lesson NASFAA

15 Lesson 1 Answer Keys Quick Quiz 1. Define cash management. Cash management is the rules and procedures an institution that participates in the Title IV programs must follow to request, maintain, authorize, disburse, deliver, use, and return Title IV funds. 2. Which Title IV program is exempt from certain cash management provisions? IASG FWS Direct Loans Federal Perkins Loan 3. Effective cash management ensures which of the following? (check all that apply) Only eligible students receive Title IV funds The school makes at least $1,000 in interest income from the Title IV programs The school employs at least five people in the business office Title IV overawards and overpayments are avoided The institution has appropriate accounting procedures and maintains a clear audit trail 4. Define administrative capability. Administrative capability is the ability a school must demonstrate in providing the education it promises and properly managing the FSA programs. 5. At a minimum, an institution must set up its organizational structure so that the functions of authorizing payments and disbursing or delivering funds are divided to meet what specific regulatory requirements? To ensure the separation of the functions of awarding and disbursing aid, a school must ensure that no one office may have responsibility for both functions with respect to student aid awarded under the programs; the individuals carrying out these functions must be organizationally independent; the individuals may not be members of the same family; and the individuals may not together exercise substantial control over the institution. 6. An academic year consists of which two components? Months and hours Weeks of instructional time and hours Weeks of instructional time and competencies Days and credits 7. A credit-hour program must include a minimum of 30 weeks of instructional time. A clock-hour program must include a minimum of 26 weeks of instructional time. (fill in the blanks) 2017 NASFAA Cash Management: Lesson 1 13

16 Quick Quiz (cont d) 8. During the time covered by an academic year, a full-time undergraduate student is expected to complete at least: (check all that apply) 24 semester or trimester hours 30 semester or trimester hours 30 quarter hours 36 quarter hours 600 clock hours 900 clock hours 9. Who determines the minimum number of hours in the academic year for a graduate program? Schools must establish and document in their written policies and procedures the minimum number of hours a full-time graduate or professional student is expected to complete during the number of weeks in the academic year definition. 10. What are standard terms? Standard terms are semesters, trimesters, and quarters, and full-time for the term is defined, as applicable, 12 semester hours, 12 trimester hours, or 12 quarter hours. 11. Define payment period. The payment period is the academic period or period of enrollment established by a school for which it disburses financial aid. 12. For which program structure is the payment period always the term (except for FWS)? Standard term Nonstandard term with terms that are not substantially equal in length Nonterm programs All nonstandard term 13. Define substantially equal in length. Terms are substantially equal in length if no term in a program is more than two weeks of instructional time longer than any other term in the program. 14. For credit-hour programs with terms that are not substantially equal in length, the payment period is the term for which Title IV programs? (check all that apply) Federal Pell Grant FSEOG Direct Loans TEACH Grant IASG Federal Perkins Loan 14 Cash Management: Lesson NASFAA

17 Quick Quiz (cont d) 15. Define successfully complete. Successfully complete means not only must the student complete all of the weeks and hours in the payment period, but also the school considers the student to have passed the coursework associated with those hours. 16. For nonterm credit-hour programs and clock-hour programs, the definition of the payment period varies based on the: Number of hours in the program Program level (undergraduate or graduate) Length of the program Format of the program 17. For credit-hour programs with terms that are not substantially equal in length, nonterm credit-hour programs, and clock-hour programs, how many payment periods are in a full academic year? For nonterm credit-hour programs and clock-hour programs shorter than an academic year, how is the payment period defined? The first payment period is the period of time in which the student successfully completes half the number of credit hours and half the number of weeks of instructional time in the program. The second payment period is the period of time in which the student completes the program. 19. What conditions apply if a student withdraws during a payment period from a nonterm credit-hour program or clock-hour program and resumes studies in the same program at the same school within 180 days of the withdrawal date? The student remains in the same payment period from which he or she withdrew, is eligible for previously disbursed funds for the payment period that had been returned under the return of Title IV funds requirements, and is eligible for undisbursed funds for which he or she is otherwise eligible. 20. Under what conditions is a student who withdraws and transfers into another nonterm credit-hour program or clock-hour program at the same school considered to be in the same payment period from which she withdrew? A student who withdraws and transfers into another program at the same school is considered to be in the same payment period from which he or she withdrew if the student is continuously enrolled at the school, the coursework in the payment period from which the student withdrew is substantially similar to the coursework the student will be taking when he or she first transfers into the new program, the payment periods are substantially equal in length in weeks of instructional time and credit or clock hours, there is little or no change in institutional charges associated with the payment period, and the hours from the program from which the student is transferring are accepted toward the new program NASFAA Cash Management: Lesson 1 15

18 NOTES: 16 Cash Management: Lesson NASFAA

19 Lesson 2: Requesting and Managing Title IV Funds Learning Objectives After completing this lesson, you will understand: How a school requests and receives Title IV funds for making Title IV disbursements to students and for administrative cost allowances used to administer the Title IV programs; Crossover payment periods and how to manage Title IV program funds covering those periods; How to maintain Title IV funds received and held by the institution; How to manage excess cash; and When to return funds to the appropriate Title IV programs. Key Concepts The key concepts you will learn in this lesson are: Requesting Title IV funds; G5; Common Origination and Disbursement System; Funding methods; Advance payment method; Current Funding Level; Reimbursement payment method; Requesting Title IV Funds In Lesson 1, you were introduced to the key concepts and definitions of cash management as they relate to the proper administration of the Title IV federal student aid programs. You learned that cash management encompasses the rules and procedures an institution must follow to request, maintain, authorize, disburse, deliver, use, and return Title IV funds. This lesson will focus on how a school requests and receives Title IV funds, how it manages those funds while being held by the institution, and how it promptly returns any funds it is not using to pay students or administer the Title IV programs. Requesting, or drawing down, Title IV funds is the process by which a school s accounting or business office electronically requests and receives Title IV program funds from the federal government. All Title IV funds are requested or drawn down by the school. Once received, the funds are used to pay students and parent PLUS borrowers the Title IV assistance for which they are eligible. The G5 Payment System To request Title IV funds, schools use the Department of Education s (ED s) G5 payment system. G5 is the delivery system that supports Title IV program award and payment administration. It is the system through which schools request and return Title IV funds to and from the federal government. G5 receives payment data from the Common Origination and Disbursement (COD) System and information regarding the school s campus-based program award year allocations from the ecampus-based System. G5 communicates with COD through the Financial Management System (FMS), which is ED s general ledger for Title IV funds. G5 and FMS are parts of the Education Central Automated Processing System (EDCAPS), which is the ED system that interfaces directly with the U.S. Treasury s Federal Reserve System to deliver funds from the Treasury to schools. EDCAPS integrates its financial processes, including financial management, contracts and purchasing, grants administration, and payment management. A school requests Title IV program funds on-line using the G5 website at You will find definitions relevant to the content of this lesson in the Glossary NASFAA Cash Management: Lesson 2 17

20 Cash monitoring payment method; Crossover payment period; Crossover payment period drawdowns; Maintaining Title IV funds; Institutional depository account; Interest-bearing depository account; Administrative cost allowance; Excess cash; Returning Undeliverable Title IV funds; and Student ledger account. Resources for This Lesson Title IV Funding Methods Comparison chart Crossover Payment Period Awards and Draw Downs chart Returning Undeliverable Title IV Funds flowchart Glossary Icons You will see the following icons in Lesson 2: Key concept Quick quiz Reflection questions Learning activity Helpful hint Common Origination and Disbursement System In general, COD is an integrated system used by schools to request, report, and reconcile funds for Federal Pell Grants, Iraq and Afghanistan Service Grants (IASGs), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and Federal Direct Student Loans (Direct Loans). We will be learning more about COD as we discuss the various program-specific requirements and payment methods a little later on. For now, let s turn our attention to the various methods used by schools to request Title IV funds and by ED to pay those funds to schools. The COD website is at Funding Methods ED delivers Title IV funds to the school using one of the following funding methods: The advance payment method; The reimbursement payment method; or The heightened cash monitoring payment methods. Under these funding methods, a school requests and receives Title IV funds to cover: Federal Pell Grant, IASG, and TEACH Grant disbursements; The federal share of Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan disbursements; and The net amount of Direct Loan disbursements (in other words, the gross amount borrowed minus applicable loan fees). Let s take a closer look at each of these funding methods. Advance Payment Method Definition Most schools receive Title IV funding under the advance payment method. Under this method, a school requests and receives funds needed for disbursements the school will make or has made to students and parents. Limitations. A school s request for cash may not exceed the amount of funds the school needs immediately for disbursements it has made or will make to students and parents. 18 Cash Management: Lesson NASFAA

21 Timeframes. Upon receiving the requested funds, the school is expected to make disbursements as soon as administratively feasible, but no later than three business days following the date the school received the funds. There are some exceptions to the three-business-day rule; these are discussed a little later under excess cash. Delivery of Funds. Under the advance payment method, the school initiates a drawdown request through G5, and then substantiates the amount drawn down by reporting actual disbursement records. A school s access to additional funding may be restricted if prior drawdowns are not substantiated in a timely manner. Direct Loan Program Funds The school requests Direct Loan funds electronically by transmitting origination and disbursement data via COD. Origination data establishes a student s eligibility for a specific annual award amount. The school draws down funds to cover the corresponding disbursements. Current Funding Level (CFL). Prior to July 1, the school will receive an initial Current Funding Level (CFL), which also is referred to as an authorization or Cash Control Amount (CCA). The CFL is based on the school s prior-year disbursement history against which it can draw down funds and make disbursements for the current year. Each drawdown must be substantiated by actual disbursement records submitted to and accepted by COD. Upon acceptance of an actual disbursement, COD calculates whether the school s CFL needs to be increased. As the award year progresses, the schools CFL is adjusted accordingly. Timeframes. The school can submit actual disbursement records in advance of, on, or after the disbursement date. Actual disbursement records may be submitted to COD as early as 7 calendar days prior to the disbursement date, and no later than 15 days of the actual disbursement or an adjustment to a previous disbursement. Federal Pell Grant, IASG, and TEACH Grant Program Funds Like Direct Loans, the school requests Federal Pell Grant, IASG, and TEACH Grant funds electronically by transmitting origination and disbursement data via COD. For these programs, the school will receive a CFL after its first disbursement record is submitted and accepted by COD. Each drawdown must be substantiated by actual disbursement records submitted to, and accepted by, COD. Upon acceptance of an actual disbursement, COD calculates whether the school s CFL needs to be increased. Under the advance payment method the school initiates a drawdown request through G5 and then substantiates the amount drawn down with actual disbursements. For the Federal Pell Grant Program, the school also is sent an initial authorization called an Electronic Statement of Account (ESOA). The school s initial ESOA for the award year is ED s estimate of the amount of funds the school will need to make the first disbursements to its students based on the school s total program expenditures for the prior award year. The initial ESOA is sent by June 1 each year; subsequent ESOAs are sent each time the school s CFL changes. Timeframes. As with Direct Loans, the school can submit actual Federal Pell Grant, IASG, and TEACH Grant disbursement records in advance of, on, or after the disbursement date. Actual disbursements may be submitted to COD as early as 7 calendar days prior to the disbursement date, and no later than 15 days of the actual disbursement or an adjustment to a previous disbursement NASFAA Cash Management: Lesson 2 19

22 More detailed information about programspecific COD processing requirements may be found in the Common Origination and Disbursement (COD) Technical Reference available on ED s FSA Download website at as well as the COD website at Campus-Based Program Funds The amount a school may expend in any campusbased program is composed of both federal and nonfederal funds, and the amount of federal funds is referred to as the federal share. The federal share of Federal Perkins Loan Program funds is called the federal capital contribution (FCC). Unlike the Federal Pell Grant, IASG, TEACH Grant, and Direct Loan programs, schools do not receive CFLs from COD and do not report disbursement information to COD for any of the campus-based programs. Instead, the amount of funds a school may request for any campus-based program is limited to the amount of funds ED has allocated to the school for the award year (i.e., the period from July 1 of one year to June 30 of the following year). The amount of funds allocated for each campusbased program is based on information the school annually reports to ED on its Fiscal Operations Report and Application to Participate (FISAP). Schools use the FISAP to report campus-based program expenditures made during the recently completed award year, and to apply for campusbased funds for the upcoming award year. For the campus-based programs, the amount a school may draw down is the federal share for disbursements the school has already made or will make within three business days following the drawdown date. Cash requests for each of the campus-based programs are drawn down using G5. It is important to note that since the award year, no FCC funds have been appropriated for the Federal Perkins Loan Program. In addition, in the award year, graduate students cannot qualify for Federal Perkins Loans. A school may award Federal Perkins Loans to eligible undergraduate students only through September 30, These students may receive subsequent disbursements only if the first disbursement occurred prior to October 1, You can find more information about campus-based program funding requirements including the federal and institutional shares and the wind-down of the Federal Perkins Loan Program in the NASFAA Self-Study Guide, The Campus-Based Programs. Schools were notified of tentative campus based allocations in the January 9, 2017, Electronic Announcement, Tentative Funding Levels for the Campus-Based Programs, available on ED s Information for Financial Aid Professionals (IFAP) website at If ED determines it must strictly monitor the school s use of federal funds, ED will place a school on the reimbursement payment method. Reimbursement Payment Method Definition If ED determines it needs to increase the monitoring of the school s participation in the Title IV programs, ED will place a school on the reimbursement payment method. Under this payment method, the school must make disbursements and pay any Title IV credit balance that the student or parent PLUS borrower is eligible to receive before the school can request and receive Title IV funds from ED. For the Federal Pell Grant, IASG, TEACH Grant, and Direct Loan programs, the school receives the funds only after COD has accepted and posted actual disbursement records. 20 Cash Management: Lesson NASFAA

23 Limitations. Before submitting a Reimbursement Payment Request to ED and receiving Title IV funds, the school must: Make Title IV disbursements and pay Title IV credit balances to students and parent PLUS borrowers in the amount(s) for which they are eligible for the payment period by using institutional funds; Identify the students and parent PLUS borrowers for whom it seeks reimbursement from ED by completing and submitting a Student Data Spreadsheet to ED; Complete and submit Office of Management and Budget (OMB) , Standard Form 270; and Submit documentation showing each student s and parent PLUS borrower s eligibility was determined properly, the correct amount(s) of funds were disbursed, and any Title IV credit balance was paid directly to the student or parent PLUS borrower. Timeframes. After the school s reimbursement request is approved, ED transfers the appropriate amount of funds to the school s depository account in which it maintains its federal funds. The school may submit only one reimbursement request within any given 30-day period. Delivery of Funds. For Federal Pell Grant, IASG, TEACH Grant, and Direct Loan funds, ED electronically transfers funds to the school s depository account through G5 after reviewing the required documentation, approving the school s request for funds, and receiving actual disbursement records in COD. The school does not receive an initial CFL that is, the school receives a CFL only after actual disbursement records are accepted by COD. For the campus-based programs, which are not processed via COD, ED electronically transfers funds to the school s depository account after reviewing the required documentation and approving the school s request for funds. Heightened Cash Monitoring Payment Method Definition If ED determines a school is financially weak, or has failed financial responsibility standards, the school will be placed on the heightened cash monitoring payment method. The heightened cash monitoring payment method is similar to the reimbursement payment method in that a school must make Title IV disbursements, as well as pay any Title IV credit balance to students and parent PLUS borrowers using institutional funds, before requesting and receiving the funds. However, different documentation requirements apply to schools placed on the cash monitoring payment method, and ED may tailor each school s documentation requirements and its review procedures on a caseby-case basis. Limitations. ED establishes documentation requirements depending on its cash monitoring focus. Documentation requirements are less restrictive than the reimbursement payment method. Timeframes. When funds are delivered to a school depends on the level of cash monitoring it must use. If ED determines a school is financially weak or has failed financial responsibility standards, the school will be placed on the heightened cash monitoring payment method. Delivery of Funds. For the Federal Pell Grant, IASG, TEACH Grant, and Direct Loan programs, schools placed on the heightened cash monitoring payment method do not receive an initial funding authorization; they receive an authorization/cfl only after COD has accepted and posted actual 2017 NASFAA Cash Management: Lesson 2 21

24 disbursement records. Funds are provided to schools by one of the following methods: Heightened Cash Monitoring 1 (HCM1); and Heightened Cash Monitoring 2 (HCM2). HCM1 allows a school to request and receive Title IV funds after the school makes Title IV disbursements and pays any Title IV credit balance to eligible students and parents from institutional funds. The school draws down the funds in the same manner as a school on the advance payment method. For the Federal Pell Grant, IASG, TEACH Grant, and Direct Loan programs, the school must submit the disbursement records to COD before drawing down the funds. HCM2 also requires a school to request and receive Title IV funds only after the school makes disbursements to eligible students and parents from institutional funds. However, the school s request for the funds must contain a Reimbursement Payment Request, which includes: A completed OMB , Standard Form 270; and Documentation demonstrating that each student and parent PLUS borrower was eligible for and received the funds. After the school s reimbursement request is approved, ED transfers the appropriate amount of funds to the depository account in which the school maintains its federal funds. The school may submit only one Reimbursement Payment Request within any given 30-day period. The Title IV Funding Methods Comparison chart starting on page 37 provides a sideby-side comparison and summary of these funding methods. Crossover Payment Period Drawdowns So far, all of the payment methods we have discussed apply to the July 1 through June 30 award year. Let s now turn our attention to some issues regarding the drawdown of funds when the payment period crosses over two award years. Remember, ED allocates funds for on an award year basis, from July 1 of one year through June 30 of the following year. The award year from which funds should be drawn down is not always apparent for a payment period that overlaps two award years. Although the award year association is straightforward for the fall/spring semesters or fall/winter/spring quarters, for example, a summer crossover period tends to cause some confusion. Crossover Payment Period Jan 10 - May 15 A crossover payment period is a payment period that begins before July 1 and ends on or after July 1, encompassing portions of two award years. Spring Semester May 20 - Aug 15 Summer Crossover Aug 20 - Dec 20 Crossover Payment Period Drawdowns Fall Semester Because a new award year begins on July 1, a summer crossover payment period actually crosses over from one award year to the next, encompassing portions of two award years. The rules for drawing down funds to cover crossover period payments to students vary among the Title IV programs. Please see the Crossover Payment Period Awards and Draw Downs chart on page 41. Federal Pell Grant, IASG, and TEACH Grant Program Funds For the Federal Pell Grant, IASG, and TEACH Grant programs, if a student enrolls in a crossover payment period, the school must consider the entire payment period to occur within one award year. The institution determines the award year in which the crossover payment period will be placed, with one 22 Cash Management: Lesson NASFAA

25 exception: if more than six months of the crossover payment period for a TEACH Grant will fall within one award year, the crossover payment period must be assigned to that award year. Otherwise, the institution may determine on a student-by-student basis the award year to which the crossover payment period is assigned. If the institution places the crossover payment period in the prior award year, it must draw down and use funds from the prior award year funding authorization (or allocation). If the institution places the crossover payment period in the upcoming award year, it must draw down and use funds from the upcoming award year funding authorization. Regardless of the award year to which the crossover payment period is assigned, a student may not receive more than one Federal Pell Grant, IASG, or TEACH Grant Scheduled Award in an award year. Additionally, for the chosen award year: The student must demonstrate eligibility for the grant; and The school must have an official expected family contribution (EFC) on a valid Institutional Student Information Record or Student Aid Report referred to as the ISIR and SAR, respectively. FSEOG and Federal Perkins Loan Program Funds In general, the school may choose which award year s EFC it uses to determine a student s eligibility for campus-based funds for a summer crossover period. For example, a school could pay a student s FSEOG for a 2017 summer crossover payment period from its award year allocation based on the student s EFC from the award year. For the FSEOG and Federal Perkins Loan programs, if the school has adequate funds in its allocation to cover drawdowns, the school may choose to pay funds from either award year allocation. The allocation from which funds are drawn need not correspond to the award year used to calculate the student s EFC. Moreover, the award year EFC used for FSEOG and Federal Perkins Loan funds may differ from the award year EFC used for Federal Pell Grant funds, but must be the same award year EFC that is used to award Direct Loan funds. FWS Program Funds The FWS Program adds another dimension to a summer crossover payment period. Any hours worked before July 1 are paid from the school s prior award year allocation. Hours worked on or after July 1 are paid from the school s allocation for the upcoming award year. If the student is enrolled in classes during the crossover payment period, the school may choose to use the student s prior award year EFC, cost of attendance (COA), and estimated financial assistance (EFA), or the upcoming award year COA, EFC, and EFA, to determine the student s FWS eligibility for the crossover payment period. If the student is not enrolled in classes during the crossover payment period, the school must use the upcoming award year EFC, COA, and EFA to determine the student s FWS award amount and eligibility. The award year from which the EFC is used to determine the student s FWS eligibility does not have to correspond to the award year allocation from which the FWS funds are drawn; however, the same award year EFC must be used to award FWS, FSEOG, Federal Perkins Loan, and Direct Loan funds. FSEOG and FWS carry-forward and carryback provisions add another variable to a summer crossover payment period. These provisions are discussed in the NASFAA Self-Study Guide, The Campus-Based Programs. Direct Loan Program Funds The rules are a little different for the Direct Loan Program. Because this program does not have a set funding authorization maximum by award year, there are no restrictions on the total amount of Direct Loan funds a school may award and disburse during an award year. Instead, Direct Loans are awarded on an academic year basis that is, based on the student s Scheduled Academic Year (SAY) or Borrower-Based Academic Year (BBAY) NASFAA Cash Management: Lesson 2 23

26 A SAY begins and ends at approximately the same time each calendar year according to the school s published academic year beginning and ending dates. As applicable, a student s SAY consists of two semesters or trimesters or of three quarters offered during the fall through spring. For enrollment during a summer term, the school has a choice of attaching the summer to the SAY either as the first term of the SAY (i.e., a header) or as the last term of the SAY (i.e., a trailer). A BBAY does not begin at the same time each year. Instead, it floats with the student s enrollment. Unlike the SAY, a new BBAY always begins with a period of enrollment that the student actually attends. A SAY or a BBAY may be used to award Direct Loans to students enrolled in credit-hour programs that are offered in standard terms (i.e., semesters, trimesters, or quarters) or in nonstandard terms with substantially equal terms and no term is less than nine weeks of instructional time in length. For all other program structures, the school always must use a BBAY to award Direct Loans. The amount of loan awarded for a SAY or BBAY is based on the student s need, grade level and, with the exception of Direct PLUS, maximum annual and aggregate loan limits applicable to the student s grade level and dependency status. The allocation from which the Direct Loan funds are drawn down is based on the dates the funds are disbursed. If the school uses a SAY and is originating a Direct Loan for a loan period that includes only a summer crossover period, the school has a choice of award year EFC unless the school also is awarding campus-based funds for the summer crossover period. If the student also will receive campus-based funds for the summer crossover period, the school must use the same award year EFC to award the campus-based aid and Direct Loan funds. Academic year and loan period determinations, annual and aggregate loan limits, and Direct Loan amount calculations are detailed in the NASFAA Self-Study Guide, Direct Loan Program. 24 Cash Management: Lesson NASFAA

27 Quick Quiz 1 Now it s time to check what you have learned so far. Answer the following questions and check your responses using the Answer Key on page G5 receives funds for the non-campus-based programs from the and information regarding the campus-based program award year allocations from the. (fill in the blanks) 2. COD is used to report and request funds for which of the following programs? (check all that apply) Federal Pell Grants Teacher Education Assistance for College and Higher Education (TEACH) Grants Federal Perkins Loans Direct Loans 3. Which of the following is not a funding method used by the U.S. Department of Education (ED) to deliver Title IV funds to schools? Advance payment method Just-in-time payment method Reimbursement payment method Heightened cash monitoring payment method 4. Under the Title IV federal student aid funding methods, schools request and receive Title IV funds to cover which of the following? (check all that apply) The federal and school shares of FSEOG and FWS awards Federal Pell Grant and TEACH Grant disbursements Gross amounts of Direct Loan disbursements Net amounts of Direct Loan disbursements 5. Upon receiving funds under the advance payment method, the school is expected to make disbursements as soon as administratively feasible, but no later than. 3 business days 7 calendar days 10 business days 30 calendar days 2017 NASFAA Cash Management: Lesson 2 25

28 Quick Quiz 1 (cont d) 6. Define Current Funding Level (CFL). 7. What is the ED s system for drawing down and delivering Title IV funds? EDFUNDS G5 FISAP NSLDS 8. Fill in each blank in the following statement using one of the options presented: Under the advance payment method, actual Direct Loan disbursement records may be submitted to COD no earlier than calendar days prior to the disbursement date, and no later than calendars days of the actual disbursement For the Federal Pell Grant Program, a school using the advance payment method is sent an initial authorization that is ED s estimate of the amount of funds the school will need to make first disbursements to its students based on the school s prior award year Federal Pell Grant expenditures. What is this authorization called? Current Funding Level Electronic Statement of Account G5 Cash Control Amount 26 Cash Management: Lesson NASFAA

29 Quick Quiz 1 (cont d) 10. What are the four steps a school must take in order to receive Title IV funds under the reimbursement payment method? 1) 2) 3) 4) 11. Most schools receive Title IV funding under the reimbursement payment method. True False 12. Match each of the following Title IV payment methods to the characteristics that apply to that payment method. Some characteristics apply to multiple payment methods. a Advance Payment Method b Reimbursement Payment Method c Heightened Cash Monitoring 1 Payment Method d Heightened Cash Monitoring 2 Payment Method Payment Method Characteristic The school must make disbursements to students out of institutional funds before drawing down the funds. The school requests and receives funds for disbursements it will make to students within the next 3 business days. The school submits a Reimbursement Payment Request to ED. The school completes and submits OMB Standard Form 270 to ED. The school submits documentation supporting each student s eligibility for disbursed funds. The school receives an authorization/cfl only after COD has accepted and posted actual disbursements. The school does not receive an initial CFL and submits actual disbursements on or after the disbursement date. The school must substantiate the amount of Federal Pell Grant, IASG, TEACH Grant, or Direct Loan funds drawn down with actual disbursements accepted and posted in COD. ED transfers Title IV funds to the school s depository account after reviewing the school s disbursement documentation. Payment Method (a, b, c, and/or d) 2017 NASFAA Cash Management: Lesson 2 27

30 Quick Quiz 1 (cont d) 13. A summer term that starts before July 1 and ends after July 1 is called a. (fill in the blank) 14. Which of the following is true regarding crossover payment period drawdowns of FSEOG and Federal Perkins Loan funds? The award year allocation from which funds are drawn needs to correspond to the expected family contribution used to award funds The school may choose to pay funds from either the prior award year allocation or the upcoming award year allocation The award year used for FSEOG and Federal Perkins Loans may differ from the award year used to award Direct Loan funds The award year used for FSEOG and Federal Perkins Loans must be the same as the award year used to award Federal Pell Grant funds 15. Which of the following is true regarding crossover payment period drawdowns of Federal Pell Grant funds? If the crossover payment period starts before July 1, the school must place the payment period in the prior award year The award year used for Federal Pell Grants must be the same as the award year used to award Direct Loan funds If the payment period is seven months and at least six months fall within one award year, the crossover payment period must be assigned to that award year The award year used for Federal Pell Grants does not need to be the same as the award year used to award campus-based funds 16. Which of the following is true regarding crossover payment period drawdowns of Federal Work-Study funds? The award year allocation from which FWS funds are drawn needs to correspond to the expected family contribution used to award FWS funds The award year used for FWS may differ from the award year used to award Federal Perkins Loan and Direct Loan funds The award year used for FWS must be the same as the award year used to award Federal Pell Grant funds Funds for hours worked prior to July 1 are drawn down from the prior award year allocation and hours worked on or after July 1 are drawn down from the upcoming award year allocation 28 Cash Management: Lesson NASFAA

31 Learning Activity Crossover Payment Period Drawdowns Review the following scenario and indicate whether the funds for each Title IV program must be drawn down from or award year funds, whether the school has a choice of the award year from which it draws down funds, or whether the funds must be drawn down based on payment of the funds to the student before or after July 1. Check your responses using the Answer Key on page 47. Scenario: Peter is a dependent second-year student in the English Language Program at Neverland University so he can become a secondary school teacher. He enjoyed his freshman year a little too much, so he s a little behind on completing his program. Because he always feels the ticking of the clock, he decides to accelerate his studies and enrolls in summer modules that cover the entire summer period between the and award years. The 2017 summer term begins on June 1, 2017 and ends on August 10, For the summer term, he is awarded a Federal Pell Grant, a Direct Loan, and funds from each of the campus-based programs. Neverland is a standard semester-based school that combines all summer modules into a single term crossover payment period for purposes of awarding and disbursing Title IV federal student aid. Neverland also treats the summer as a trailer to the previous academic year that is, the academic year is fall, spring, and summer when students are enrolled during the summer term. For summer 2017, Neverland requires the Free Application for Federal Student Aid (FAFSA) and uses the expected family contribution (EFC) to award federal student aid from all of the following programs. Peter starts a Federal Work-Study job after the July 4 th holiday and works the rest of the summer. Aid Program Funds must be drawn down from award year allocation? Funds must be drawn down from award year allocation? School may choose to draw down funds from either award year? Funds are drawn down according to whether they are paid before July or on/after July 1? Federal Pell Grant Yes No Yes No Yes No Yes No TEACH Grant Yes No Yes No Yes No Yes No FSEOG Yes No Yes No Yes No Yes No FWS Yes No Yes No Yes No Yes No Federal Perkins Loan Yes No Yes No Yes No Yes No Direct Loan Yes No Yes No Yes No Yes No If Peter had chosen not to work during the summer between the and award years, but still wanted to work in his FWS job during the summer before returning in the fall semester, which award year EFC would be used? How would his summer FWS earnings be drawn down if he began the summer FWS job on June 1, 2017? 2017 NASFAA Cash Management: Lesson 2 29

32 Maintaining Title IV Funds Title IV Funds Institutional Depository Account A school must maintain Title IV funds in a depository account that meets certain regulatory requirements. A depository account is an interest-bearing account at a depository institution described in 12 U.S.C. 461(b)(1)(A) and into which ED deposits all Title IV funds requested by the school. The account must be insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). If the school is a foreign institution, the depository account may be insured by the FDIC, NCUA, or an equivalent agency of the country in which the institution is located. Furthermore, the depository account must be an interest-bearing account unless the school is a foreign institution. A school is not required to keep Title IV funds in a separate depository account unless ED specifically requires the school to do so. Nonfederal and federal funds may be kept in the same depository account; however, for all accounts containing Title IV funds, schools must adhere to certain rules regarding identification of funds, the use of funds and revenue earnings, and accounting and fiscal record-keeping. If ED determines that a school s fiscal practices are weak, it may decide that the school s Title IV funds must be maintained in a separate depository account. Identification of Funds All schools must identify that Title IV funds are maintained in the depository account where they are held. Public institutions must: Ensure the name of the account includes the words federal funds in the account s title; or Notify the depository institution that the account contains Title IV funds and maintain a copy of the notice. All other institutions must meet these requirements too. However, if the school is not a foreign institution and the name of a nonpublic school s depository account containing Title IV funds does not include the words federal funds, the school also must file a Uniform Commercial Code Form (UCC-1) with the appropriate state or municipal government entity. The UCC-1 form discloses that the account contains federal funds. A school must maintain a copy of any UCC-1 form that it files. All schools must ensure each depository account identifies that Title IV funds are maintained in the account. A school may make disbursements from its own funds, and then reimburse itself by drawing down federal funds. While this practice is acceptable, it does not exempt the school from the requirement of maintaining a depository account into which federal funds are deposited. ED will release requested funds only into a depository account specifically designated for the federal funds. Use of Funds The Title IV program funds a school receives for disbursements are held in trust for the students who will ultimately receive the funds. Thus, a school may use Title IV funds only for: Making disbursements to students; and Other program-specific uses stipulated in regulations (e.g., administrative cost allowance payments or FWS Job Location and Development Program administration). The school may not use federal funds for any other purpose, such as paying operating expenses, securing loans, or earning interest or generating revenue in a manner that risks the loss of Title IV funds or subjects the Title IV funds to liens or other attachments. 30 Cash Management: Lesson NASFAA

33 Use of Revenue Earnings ED expects schools to maintain Title IV funds in an interest-bearing depository account. Interest earnings that the may be retained are limited, but include the following: Interest or investment revenue earned on Federal Perkins Loan funds must be retained as part of the school s Federal Perkins Loan fund; and Up to $500 of the initial revenue earned on any other Title IV program account may be retained by the school to pay for the administrative expense of maintaining the account. Any interest earned from holding Title IV funds in excess of these amounts must be remitted to ED at least annually, and no later than 30 days after the end of each award year. The interest may be remitted electronically through G5, or by paper check to the Department of Health and Human Services (HHS). Accounting and Fiscal Records The school must maintain accounting and internal controls that readily identify the cash balances of Title IV funds held in each depository account, as well as any earnings on Title IV funds. In addition, the school must maintain its fiscal records in accordance with Title IV recordkeeping requirements. Additional information regarding Title IV recordkeeping requirements can be found in 34 CFR and Volume 2 of the FSA Handbook. Administrative Cost Allowance Schools are allowed an administrative cost allowance (ACA) for the Federal Pell Grant and campus-based programs. The allowance is given to help defray the costs associated with administering the programs, including salaries, training, supplies, and equipment, as well as expenses related to the carrying out student consumer information requirements. In addition, if the school enrolls a significant number of less-than-full-time or independent students, a reasonable portion of the Federal Pell Grant ACA must be used to ensure that financial aid services are available to those students during times and at places that will accommodate the needs of those students most effectively. Let s take a closer look at each program. Federal Pell Grant ACA The Federal Pell Grant ACA is subject to the availability of funds, and is $5.00 per student receiving a Federal Pell Grant award at the school for the award year. A school may use the Federal Pell Grant ACA only to defray the costs of administering the Federal Pell Grant and campusbased programs, and to ensure financial aid services are available to less-than-full-time or independent students. The amount the school receives is calculated using the number of Federal Pell Grant recipients reported by the school via COD with at least one accepted actual disbursement during the award year. Students who receive disbursements and later withdraw are included in the calculation, as well as students who transfer to the school. However, students for whom all actual disbursement records have been rejected by COD are not included in the ACA calculation. A school does not have to calculate or request its ACA. COD calculates the school s ACA and deposits the ACA funds directly into the school s depository account. Campus-Based Program ACA A school calculates its own ACA for the campusbased programs based on its program expenditures for the award year. These expenditures include: The total of the federal and nonfederal shares of FSEOG disbursements made to students; The total of the federal and nonfederal share of the FWS gross wage compensation paid to students; and Federal Perkins Loan advances made to students. The campus-based ACA is calculated as a percentage of the school s total expenditures for the campus-based programs. However, if a school 2017 NASFAA Cash Management: Lesson 2 31

34 chooses to overmatch its share of FSEOG awards (i.e., provide a nonfederal share of more than 25 percent), the school may not include any FSEOG nonfederal share in excess of 25 percent. In addition, total Federal Perkins Loan expenditures may not include the amount of loans made under the Federal Perkins Loan Program it assigns to ED during the award year. A school s campus-based ACA for an award year equals the sum of: 5% of first $2,750,000 of its total expenditures + 4% of its expenditures greater than $2,750,000 but less than $5,500, % of its expenditures that are $5,500,000 or more = School s total campus-based ACA Unlike the Federal Pell Grant Program, the campusbased ACA is not an additional amount of money given to the school. It is claimed from the federal portion of the school s campus-based program allocations. In other words, both funds disbursed to students and the ACA calculated and claimed by the institution may be paid from the federal share of the school s allocation. A school may use its campus-based programs ACA only to: Defray the costs of administering the Federal Pell Grant and campus-based programs; and Offset expenses incurred for carrying out Title IV student consumer information services. A school draws down the ACA funds in the same way as it draws down its other cash requests. A school should maintain accounting records showing which portion of its cash request represents funds to be paid to students and which represents the ACA for expended funds. This information is needed so that the school can report program expenditures accurately on its annual FISAP. The matching contribution and ACA requirements related to the campus-based programs are discussed in NASFAA s Self- Study Guide, Campus-Based Programs. Excess Cash Definition In general, excess cash is any amount of Title IV funds (other than Federal Perkins Loan funds) a school does not disburse to students or parents by the end of the third business day following the date the school: Drew down the funds; or Deposited or transferred to its federal funds account previously disbursed funds, such as funds from award adjustments, recoveries, or cancellations. The excess cash regulations do not apply to Federal Perkins Loan Program funds in this context. Limitations and Timeframes All excess cash must be used either to make disbursements to students or parent PLUS borrowers, or immediately be returned to ED. To avoid having schools return funds only to request them again, ED built a tolerance into the excess cash regulations. A school may retain, for up to seven days, an amount of excess cash not exceeding one percent of the total amount of funds the school drew down in the prior award year. A school must return: Immediately any amount of excess cash above the one percent tolerance; and After the seven-day tolerance period, any amount remaining in its account. In most cases, a financial aid administrator will not be responsible for determining whether the excess cash tolerance can be applied. Business office personnel are typically responsible for this task. Normally, a school determines whether it has satisfied the three-business-day rule for disbursing funds based on the date that the school credits the 32 Cash Management: Lesson NASFAA

35 student s ledger account, issues a check to the student, or initiates an EFT to the student s bank account. A student s ledger account is a bookkeeping account the school maintains to record the financial transactions pertaining to enrollment at the school. A check is considered issued when the school releases or makes the check available by mailing it to the student or when the student expeditiously is notified of when and where the check is available for immediate pick-up at a specified location at the school. Funds represented by checks that have been issued according to this definition generally are not considered excess cash. Upon finding that a school has maintained excess cash balances, ED considers the school to have issued a check on the date that check cleared the school s depository account, unless the school demonstrates that it issued the check to the student shortly after it was written. Now that you have an understanding of how schools request and draw down Title IV funds for making disbursements, we will examine how the school returns excess cash or Title IV funds that cannot be delivered to the student. Returning Undeliverable Title IV Funds Undeliverable Funds If the institution is not successful in its attempts to deliver Title IV funds directly to the student or parent PLUS borrower, the funds must be returned to the appropriate Title IV program. Funds are considered undeliverable if: A check sent by mail is returned or not negotiated (cashed) by the student or parent; or An electronic funds transfer (EFT) is rejected by the bank. not cashed, the institution must return the funds to the appropriate Title IV program no later than 240 calendar days after the date it issued the funds. In addition, if a check is returned to the institution, or an attempt to deliver funds by EFT is rejected, the institution has the option to make additional attempts to deliver the funds, but it must do so no later than 45 days after the funds were returned or rejected. In the case where the institution elects to make additional attempts to deliver the funds, it must cease all attempts and return the funds to the appropriate Title IV program account no later than 240 days after the date it issued that check or EFT. 240 Days Title IV funds check or EFT issued to student or parent 195 Days Attempt #1 to deliver returned check or rejected EFT Refer to the Returning Undeliverable Title IV Funds flowchart on page 42 for step-bystep guidance on returning Title IV funds within the applicable timeframes. Escheat Prohibition 150 Days Attempt #2 to deliver returned check or rejected EFT Regardless of the circumstances or timeframes, the institution must have a process in place to ensure that Title IV funds never escheat to the school, the state, or any other third party. Escheatment is the reversion of funds to an unintended third-party, such as when a Title IV credit balance check sent to a student is not cashed, and the funds remain in the school s depository account or are transferred to the state s escheatment account. Timeframes The regulations require Title IV funds to be returned to the appropriate program within a certain time period. If Title IV funds are delivered by check to the student or parent PLUS borrower and the check is 2017 NASFAA Cash Management: Lesson 2 33