By Linda S. Williams The U.S. Department of Education recently released a proposed rule that turns back the clock on the disbursement of federal financial aid refunds to students to a time when the process was slow, costly, vulnerable to fraud and burdensome. Schools, students and financial aid administrators across the country have urged the department to fix the rule. Congress should do the same.
In 2007, the department encouraged schools to reduce fraud and increase efficiency in the disbursement process. Since then, hundreds of schools, including mine, have partnered with third-party servicers to administer the disbursement of financial aid refunds. Schools have reduced administrative costs and provided students with options on how they receive their refunds, such as direct deposit into an existing bank account or opening new low-cost banking options regardless of a student’s past financial history.
Students now have choices on how they receive their refund and no longer have to spend hours waiting in line at the financial aid office to get a check. Unbanked students are allowed to open bank accounts, escaping the cycle of predatory checking cashing and payday lending.
While the department’s intention is commendable, the proposed rule will negatively impact schools’ ability to efficiently disburse financial aid refunds. More than 200 comments on the rule were submitted to the department this summer by schools, financial aid administrators, students, members of Congress and others. 80 percent expressed serious concerns about the rule, including: large systems, such as DCCCD, Ivy Tech Community College and Miami Dade College; historically black colleges and universities, such as the Southern University System and Delaware State University; and leading education associations, such as the National Association of College and University Business Officers (NACUBO), the American Council on Education (ACE) and the National Association of Student Financial Aid Administrators (NASFAA). Republican and Democratic members of Congress have also expressed concerns about the rule, most recently half a dozen senior members of the Congressional Black Caucus.
A number of common concerns exist. The rule, for example, increases student loan fraud potential by limiting information a school can provide a third-party servicer to process a refund. Under the proposed rule, a school could only provide vendors with the student's name, email and streets addresses - all information easily accessible online. Anyone with access to this information could potentially steal a student's refund.
Schools would be required to offer a paper check option to students – running counter to the Obama Administration’s mandate that all federal funds be disbursed electronically, including tax refunds, SSI and unemployment insurance. Referencing challenges unbanked students could face when trying to cash their refund check, one system wrote the rule would “be operationally challenging for our system” and “provide a ready market for check cashing services and their exorbitant fees."
Schools would also be required to push students to deposit their refunds into bank accounts that could have high fees not subject to protections the Department claims it is trying to achieve in this rule.
Lastly, while the Department takes positive steps forward in mandating full transparency for fees associated with accounts where a refund is deposited, the California Community Colleges Student Financial Aid Administrators Association and dozens of schools noted the rule will result in third party servicers no longer being able to offer financial accounts as part of the disbursement process. The result will be increased administrative and financial burden on schools and “a loss for many of our students who are unbanked…”
If the Department cannot develop a workable rule for schools and students, Congress must take action. Reauthorization of the Higher Education Act is a natural vehicle through which Congress can address the issue, but there may not be enough time because millions of students will be affected as earl y as July 2016 if a final rule is issued in the next month.
Fortunately, the rule is not yet final and the Department can make the important and necessary changes to preserve a disbursement system we all know works. If it does not, then Congress needs to act.
Dr. Linda S. Williams is the financial aid program manager at Sierra College and president of the California Community Colleges Student Financial Aid Administrators Association.