Higher Education Evaluates Student Refunds

As COVID-19 impacts the U.S., colleges and universities have responded by closing dorms and shifting classes to online formats. The demands of social distancing have created a unique financial dilemma for higher education institutions.

Students who paid for housing and meal plans for the semester have begun calling for a refund, some going so far to file class action lawsuits, since they no longer live on campus1. The volume of refund requests has created a financial strain, leading a number of institutions to discuss whether to process a refund/credit or carry the credit balance into the fall semester. As colleges and universities work to navigate these issues, the following includes helpful information regarding regulations on credit balances for students who have been awarded federal student aid at higher education institutions.

Per Code of Federal Regulations - Student Assistance General Provisions Subpart K – Cash Management 668.164 (Disbursing Funds) and 668.165 (Notices and Authorizations), an institution is permitted to hold credit balances, related to Title IV Student Financial Aid, only if it obtains a voluntary authorization from the student or parent. If the institution has the authorization to hold the credit balance, it must identify the amount of funds that it holds for the student or parent in a subsidiary ledger account designated for that purpose. Institutions also must maintain, at all times, cash in their bank accounts that is at least equal to the amount that it holds for students. Federal student aid regulations specifically prohibit carrying forward more than $200 of credit from one award year into another award year. Credit balances exceeding $200 must be paid to students by the end of the award year, which is June 30 (end of the award year). Therefore, it is of utmost importance for colleges and universities to be certain they have enough cash to pay these credit balances owed to students. The CARES Act: Higher Education Relief Fund does not provide relief from Code of Federal Regulation guidelines regarding the carryforward of credit balances. It should also be noted that per 668.162 (Requesting Funds), Institutions on Heightened Cash Monitoring 1 (HCM1) list are prohibited from holding federal student aid credit balances.

Credit balances related to COVID-19 pose a unique situation and may cause cash management issues. We suggest a review of your institution’s refund policy and monitoring the Department of Education guidance concerning credit balances of this type2.

For questions or more information, please contact us at nonprofit@dhg.com.

Sources

  1. Anderson, Greta. “Students Turn to Courts for Refunds.” Inside Higher Ed, April 20, 2020.
  2. More information, including all regulatory guidance concerning COVID-19, can be found within the COVID-19 Electronic Announcement section at IFAP.ed.gov.

ABOUT THE AUTHORS

Mark Nicolas
Managing Partner, Non-profit, Education & Government
Mark.Nicolas@dhg.com

Michael Whitfield
Senior Associate
DHG Education

nonprofit@dhg.com

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