Trends and Issues

Sticky situations: Required student and/or parent authorizations for cash management purposes

In this article, Shoptalk Online returns to its series on difficult policy issues that come up every so often in the Title IV programs with a discussion of required student and/or parent authorizations (for previous "Sticky Situations" articles, see Shoptalk Online editions 384, 390, 394, 402, 409, 418, 424 and 428.

At first glance, the authorizations required in Title IV funds cash management certainly seem daunting. But a closer look at the guidance provided in the federal regulations and the 2008-09 Federal Student Aid Handbook (FSA Handbook), makes the authorizations much easier to understand. Let's explore the various circumstances in which a school is required to obtain written authorizations before performing certain tasks.

Required authorizations
A school must have written authorization from a student or parent, as applicable, to perform the following activities:

• Deliver Stafford or PLUS loan proceeds received by EFT or master check to the student's school account (i.e., to pay for institutional charges). This authorization is obtained when the borrower signs the Stafford or PLUS MPN. [§682.604(c)(3)]
• Use Title IV funds to pay for current-year charges other than tuition, fees, and contracted room and/or board. [§668.164(d)(1)(iv); §668.165(b)(1)(i)]
• Hold a Title IV credit balance on behalf of the student or parent, unless prohibited by the Department. [§668.164(e); §668.165(b)(1)(ii)]
• Use Title IV funds for the current year to pay minor prior-year charges incurred for educationally related activities other than tuition, fees, room, and board. Note that a school is not required to obtain a student or parent borrower's authorization to use current-year Title IV funds to pay minor, prior-year charges for tuition, fees, room, and board. The sum of all minor, prior-year charges that are paid with current-year Title IV funds must not exceed $200. [§668.164(d)(2)]
• Open a bank account on behalf of the student or parent borrower, establish a process the student or parent follows to open a bank account, or similarly assist the student or parent in opening a bank account. [§668.164(c)(3)(i)]

In addition, a school must obtain a parent PLUS borrower's written authorization in order to deliver a credit balance of parent PLUS loan funds directly to the student, as this authorization is not included in the PLUS MPN (FSA Handbook, page 4-32).

Please also note that although the requirement for a school to obtain authorization to deliver Title IV funds by EFT to a bank account designated by the student or parent was removed from §668.165(b)(1) in the November 1, 2007, final rules, that requirement is retained in the Federal Work-Study (FWS) regulations [see §675.16(4)(i)(B)].

Streamlining paperwork
Schools have a few options for simplifying the process of obtaining student and parent authorizations. First of all, a school may use one authorization statement to obtain multiple authorizations. However, the student or parent must be able to identify each component and term within the authorization statement. If a school uses this method, it must include a comprehensive and understandable explanation of how the school will carry out each activity being authorized. A blanket authorization that only lists each activity will not suffice.

Secondly, in order to avoid requiring the student or parent to renew the same authorization(s) each year, "…a parent or student may authorize a school to carry out the activities for which authorization is provided for the entire period that the student is enrolled at the school" (FSA Handbook, page 4-26).

Parent and student rights
The FSA Handbook (pages 4-25 and 4-26) also states that "[a] school may not require or coerce the parent or student to provide the authorization and must clearly explain to the parent or student how to cancel or modify the authorization. The parent or student may cancel or modify the authorization at any time." If the authorization statement includes more than one component, the parent or student must be aware that any individual component of the authorization may be cancelled or modified at any time.

A cancellation or modification of an authorization is not retroactive. The cancellation is effective on the date that the school receives it from the parent or student. So, for example, if the parent or student cancels an authorization for the school to hold a Title IV credit balance, the authorization is effective on that date; and the funds must be delivered directly to the student or parent as soon as possible but no later than 14 days after the school receives the notice of cancellation, in accordance with Title IV cash management requirements.

More information
Please visit TG Online at www.tgslc.org, and select Policies and Regulations in the Schools menu to access and download volume 4 of the 2008-09 FSA Handbook. If you have any questions, please contact TG customer assistance at (800) 845-6267, or send an message to cust.assist@tgslc.org.

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Question of the week

Q.: While completing his undergraduate degree, a student exceeded his Stafford aggregate loan limit. Can he still receive Stafford loans as a graduate student?

A.: Not until he resolves the issue. And how the student must resolve the issue depends on whether the excess borrowing was inadvertent or intentional. According to the Common Manual Subsection 6.11.E,

"If a Stafford borrower inadvertently exceeds an annual or aggregate loan limit under a Title IV program, the borrower will not be eligible for any additional Title IV funds until one of the following occurs:

• The borrower authorizes the school to adjust the excess loan amount or reallocate funds between a subsidized Stafford loan and an unsubsidized Stafford loan for which the borrower is eligible. For more information on adjusting or reallocating loan amounts, see Section 6.20.
• The borrower repays in full the excess loan amount. [§668.35(d)(1)]
• The borrower makes arrangements satisfactory to the holder of the loan to repay the excess loan amount. These arrangements may include having the borrower sign an agreement acknowledging the debt and affirming his or her intention to repay the excess amount as part of the normal repayment process. Consolidation of the loan(s) that exceeded the annual or aggregate loan limit (provided that the loan(s) is otherwise eligible for consolidation) is also considered to be a satisfactory repayment arrangement. [§668.35(d)(2)]

If a Stafford borrower exceeds an annual or aggregate loan limit as a result of providing false or misleading information, the borrower can only regain eligibility for Title IV aid by paying excess funds in full."

See also the 2008-09 Federal Student Aid Handbook, pages 5-16 through 5-17, for more information on resolving overpayments created by inadvertent overborrowing.

Do you have a question?
If you have a question that needs an answer, feel free to Ask TG™. Ask TG is TG's online query tool for borrowers, schools, and lenders. It includes a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question to Ask TG, visit tgslc.custhelp.com.

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