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An In-Depth Comparison of Refund Methods

5/17/2022 9:00:00 AM

It’s important to understand the differences between the many types and reasons for refunds on campus to maximize efficiencies and minimize the risks in delivering those refunds. For higher education campuses, refunds typically fall into three buckets:

  • Campus Merchants and Services: Purchases made at a campus merchant where students receive a refund in the form of a return or credit

  • Campus Departments and Offices: A student is returning goods purchased from a department or office

  • Tuition/Financial Aid: There is a balance on financial aid that needs to be disbursed back to the student

Lowering Fraudulent Activity

Regardless of the type of refund you are issuing, checks continue to be the payment method most impacted by fraud activity. According to the 2022 AFP Payments Fraud and Control Survey Report, check fraud was highest in 2021 at 66%. ACH debit fraud and credit card fraud were significantly lower, at 34% and 24% respectively. Encouraging your students to use electronic refunds is a good way to lower the risk of fraud activity.

What Makes Refunds Complex?

Beyond protecting against fraud, managing refunds can be complicated. While each of the buckets mentioned above need to be properly managed, the complexity mainly exists with financial aid disbursements due to the regulatory requirements around timing and student choice. The rules and regulations for financial aid are outlined in the Code of Federal Regulations, and referred to as Return of Title IV Funds.

Different Refund Methods: Paper Checks, ACH, Direct to Debit

Taking cash out of the equation, paper checks have arguably been the longest-standing refund method. However, check processing costs are significantly higher than other refund methods and it can take two to six days to receive and deposit funds. Additionally, paper checks carry a higher risk of fraud, and can get lost, misplaced, stolen, or damaged, resulting in stop payment fees and check replacement costs. This is driving institutions to adopt electronic disbursement methods.

Sending refunds through an electronic funds transfer in the form of an Automated Clearing House (ACH) transaction is another method that has been available for quite some time. With ACH, the student is required to provide their checking account information and authorize the electronic direct deposit of funds. The institution then creates an ACH file to process the refund.

An ACH transaction is one of the most affordable options and students receive funds in two to three business days. However, students frequently don’t know checking account and routing numbers, and enter debit card information instead, resulting in a failed transaction.

The newest refund method is direct to debit, or an Original Credit Transaction (OCT). Students provide their debit card information and the institution pushes funds directly to the recipient's debit card account. Supported by Visa and Mastercard, the funds are deposited immediately. The transaction costs are slightly more than an ACH transaction; however, according to a Visa study, 9 out of 10 consumers prefer OCTs.

While OCT may eventually become the preferred refund method, be aware that the federal rules that permit using OCT for Title IV credit balances are currently temporary. The Department of Education issued a waiver as part of the CARES Act allowing OCT to be used for Title IV funds (Cash Management Rule: 34 CFR § 668.161) and this waiver expires at the end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is rescinded.

Comparing Refund Method Costs and Timing

To learn more about how TouchNet’s refund options can help make your process more efficient, cost effective, and convenient for students and staff, watch our webinar, Refunds: Options For All Use Cases, on-demand.


Ready to get started with TouchNet's refund solutions? Contact us to schedule a demo.