Student Refund Management – What to Consider

Students enrolled in academic institutions that receive some type of financial aid, many times end up being owed a refund by the school after their tuition invoice is settled.  The bursar’s office is usually charged with determining what dollars are owed to which students.  Historically, the next step in the process entails manually processing then sending out checks to each qualified student.  Not only is the process slow and cumbersome, it is costly to both the institution and the student.  Industry data suggest that is costs almost $40 to deliver a check to a student.  Once delivered, the student has to find a place to cash the check.  Many times there is considerable fee associated with providing them the cash. 

The solution currently being adopted by many colleges and universities encourages the student to accept some form of electronic payment.  Through an integrated web interface (usually during the enrollment process), the student is prompted to select how they want to receive their refund:

MasterCard/Visa Prepaid Card

  • Student receives a MasterCard/Visa debit card and all refunds are loaded to the card
  • The student can make purchases anywhere MasterCard/Visa debit is accepted in store, online or by phone
  • Deposits are posted to MasterCard/Visa debit card a day after award is disbursed to Student Account
  • No delay while waiting for the mail
  • No bank account required or trip to the bank to cash a check
  • Surcharge-free cash withdrawals at specific ATMs locations (including on campus)  
  • Coverage by the card’s inherent fraud protection feature in the event the card is ever lost or stolen
  • Free online account management 
  • Flexible, convenient and safe access to a student’s funds

Electronic Funds Transfer (EFT)

  • Student receive an electronic funds transfer to their checking or savings account
  • Deposits are posted to checking or savings account a day after award is disbursed to Student Account
  • No delay while waiting for the mail
  • Free online account management 
  • Flexible, convenient and safe access to your funds

The fundamental issue associated with this paradigm shift involves ensuring compliance with Title IV and other legislation that regulates how a refund can be disbursed.  Title IV Funds refers to the federal financial aid programs authorized under the Higher Education Act of 1965 (as amended) and includes the following programs: Unsubsidized Federal Stafford Loan, Subsidized Federal Stafford Loan, Federal Perkins Loan, Federal PLUS Loan, Federal Pell Grant, Federal Academic Competitiveness Grant, Federal SMART Grant, Federal Supplemental Educational Opportunity Grant and Federal TEACH Grant.  The Department of Education’s guidance on this topic suggests that a check must be a method of disbursement made available to the unbanked student (or a student that fails to provide their bank routing/transit information).  If that student does not select a form of payment, the default method of payment must be a check.  In addition, a school must adopt reasonable safeguards and obtain authorization from the student (e-signature is fine) before an electronic payment can be made.   

Other issues associated with moving to an electronic form of payment involve the predatory fees some vendors charge for providing the service.  Along with severely punitive insufficient fund fees, some of this companies charge students incredibly high “abandonment account fees” if the monies remain unused in their assigned account.

The obvious economics suggest that academic institutions must move their refund disbursement process to an electronic form of payment.  That said schools must carefully evaluate all platform options before aligning with a potential provider.   The institution must be certain that the ultimate solution deployed considers what’s best for the school and the matriculating student. 

Enhanced by Zemanta