News & Blog

February 20, 2016

PAPSA January 2016 Update

PAPSA January 2016 Update

Jay Alexander from Wilke & Associates, a Certified Public Accounting Firm that is an Associate Member of PAPSA, submitted the following information to PAPSA for schools to be aware of;

On May 18, 2015, the Department of Education published for comment certain cash management proposed regulations. These proposed regulations have been finalized and will be effective July 1, 2016. Many schools may have overlooked the effects of the proposed regulations since much of it related to cash/debit cards issued to students.

Contained in these regulations are restrictions place on schools subject to heightened cash monitoring. Quoting from the preamble, the regulations “requires institutions placed on the reimbursement or heightened cash monitoring payment methods to credit a student ledger account for the amount of Title IV funds the student is eligible to receive and pay any credit balance due to that student before seeking reimbursement from the Department… prohibit an institution under the reimbursement or heightened cash monitoring payment methods from holding credit balance funds on behalf of a student or parent. “

If you carefully consider what the emphasized statement is providing, a school cannot retain a credit balance since the school may NOT request the funds until the credit balance has already been disbursed directly to the student/parent.

Schools will be subject to heightened cash monitoring under the following circumstances:
1. School has been placed on reimbursement by the Department
2. School’s composite score has fallen into the “zone” and elects the relief of HCMI whereby the school is permitted to post a reduced letter of credit (and in some cases no letter of credit).
3. Many schools will be subject to the new regulation as a result #2 above.

May a student sign an election for the school to hold the credit balance thus allowing the school to request the credit balance, hold the credit balance and thus ignore the provision of the regulations? If the regulations are read literally, NO! May the credit balance be disbursed followed by the student “pre-paying” future tuition? Possibly. However, there is a risk that the Department may challenge this as a systematic circumvention of the regulation if a majority of students do so.

When does a credit balance arise at a school that charges the entire cost of program upon enrollment or at least charges the first academic year’s costs upon enrollment? The regulations anticipated that this might occur and provides that “if an institution debits a student’s ledger account for the entire cost of a program or otherwise debits the ledger account for more than the charges associated with the payment period, the regulation requires the institution to determine the prorated amount of charges for the payment period by (1) for a program that has substantially equal payment periods in the program, or (2) for any other program, dividing the number of credit or clock hours the student enrolls in or is expected to complete in the current payment period by the total number of credit or clock hours in the program and multiplying that result by the total institutional charges for the program.”

-Jay Alexander, Wilke & Associates

To learn more about PAPSA (Pennsylvania Association of Private School Administrators) Click Here.

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