Toughey Talks

Consumer Protection

Dear Colleague, Are You Ready for the Spotlight?
May 10, 2012

Higher Education is in the spotlight and it's not to highlight the good work that so many of you do day in and day out. You can't watch the news or read the paper without seeing a negative story about tuition increases or the explosive growth of student debt. Politicians are tuned in, and the media are on the hunt for controversy.

While student loans are getting a lot of the attention, the Department of Education (DOE) is also shining the spotlight further downstream on the bank accounts that students are being asked to open in order to manage funds disbursements. That's why I read with interest the DOE's April 26th "Dear Colleague Letter" published under the subject Disbursing or Delivering Title IV Funds Through a Contractor. Here are a few of the topics addressed:

  • Can you use third-party servicers to disburse funds?
    Yes, you can. But your third-party servicers must comply with the same Title IV, HEA, and FERPA restrictions and requirements that you do. Simply put, you can never outsource your responsibility for compliance with student privacy rules and regulations---just like you can't outsource your responsibility for PCI compliance.
  • Can you give student PII to third-party servicers?
    Yes, again. But only when those third-party servicers are acting as a "school official." Schools can pass on student information if the third-party servicers are going to use it the same way the institution would. However, a school cannot give PII (Personally Identifiable Information) to a third-party servicer to set up bank accounts, offer students additional financial products, or pre-load yet-to-be activated debit cards without the students' written permission. Plus, all pertinent fees and potential charges must be disclosed beforehand.
  • How can a school control the cost of delivering Title IV credit balances to students?
    The letter advises institutions to encourage incoming students to open a bank account at a financial institution of their own choosing or require them to provide an existing bank account where the institution can make credit balance payments cheaply and expeditiously via electronic funds transfers (ACH).

I encourage you to read the full DOE Dear Colleague Letter. Now is a good time to review your campus Title IV processes. Try to understand how outsiders, such as politicians or reporters looking for a good story, might perceive them. Then, remember the advice attributed to Mark Twain: "Never pick a fight with someone who buys his ink by the barrel."

Thanks for reading.

Dan Toughey

P.S. Also, the Department of Education has just announced its intent to establish a negotiated rulemaking committee (read the DOE announcement)  that will address fraud and funds disbursement (through both EFT and debit cards) in Federal Student Aid Programs. You might want to stay in touch with this as well.