2024 Update: Refunds Regulations, Solutions, and Best Practices

Processing financial aid refunds – sometimes called Title IV disbursements – takes a lot of work in a short period of time. Staff must follow federal regulations, accurately and timely process funds through multiple payment methods, reconcile accounts and manage unclaimed funds, and protect against fraud. Staying up to date on the newest regulations, solutions, and best practices for student refunds can help your institution successfully manage this crucial process each term.

Changes to regulations on Title IV refunds

In June 2023, multiple waivers ended that were enacted as emergency measures for higher education administration during the pandemic. Related to refunds, the option to return Title IV funds via original credit transaction (OCT) is no longer available.

In addition, currently there is a state of uncertainty regarding the regulation of third-party servicers (TPS) and higher education institutions.

The Department of Education (DoE) released a Dear Colleague Letter in February 2023, and updated May 2023, to provide guidance to institutions that contract with a TPS to administer any aspect of the institution’s participation in the student assistance programs authorized under Title IV of the Higher Education Act of 1965, including financial aid funds. While the requirements laid out in the February 2023 letter have been suspended, we believe the description of refund activity remains a useful guide for evaluating TPS activity. Meanwhile, both higher education institutions and TPS continue to await further clarification of their responsibilities and requirements by the DoE.

Refunds solution functionality

As the regulations and guidance surrounding refunds change, so too does the technology for colleges and universities to manage these disbursements. Common payment options offered to students today include:

• Digital check emailed to students, which they can print out for in-person or mobile deposit, or convert to alternative payment methods like Direct to Debit/Instant Pay, Paypal, Zelle, or Venmo
• Paper check mailed to the student
• Direct deposit that can be sent to a student’s debit card via ACH, PAD, or similar payment method

When selecting a refund solution for your institution, look for software that provides the functions needed to meet student evolving expectations and federal regulations, maintain security and compliance, and improve the speed and accuracy of refunds processing.

Refund profiles

The creation of a refund profile allows students to securely save their bank account information to receive refunds via direct deposit, streamlining the refund process and speeding up funds receipt.

Multiple payment options for convenience and compliance

Students can select from multiple disbursement methods, allowing institutions to meet student expectations for disbursement options and refund speed. Multiple disbursement options also means you are in compliance with Title IV requirements on providing multiple payment methods.

SIS integration

Integration with your student information system (SIS) eliminates manual data entry and reduces duplication to help ensure accurate records and data integrity.

Security functions

Alerts notify users when a change is made to their account, and requiring multi-factor authentication verifies the user's identity with a passcode, helping prevent fraud and ensure security.

Data to ease management

Ability to create reports enables easy refund tracking, allows processing verification, and provides quick access to details to answer questions.

Instant communication

Sending students automated notifications of refund status saves time for staff and helps students access their refunds as soon as possible.

Refunds best practices

After implementing a refunds solution with robust functions, follow these best practices to improve the refunds process for students and staff:

Utilize multi-factor authentication

Multi-factor authentication (MFA) is a proven way to reduce risk by improving the security of access, and a growing number of organizations, not to mention various laws, require its implementation. MFA ensures the person logging in to a student account is the student and helps prevent refund fraud attempts.

Set digital check as default payment method

When students don’t create a direct deposit profile, many institutions set paper checks as their default refund method. Instead, you can automatically send students a digital check to their institution-issued email address with an alert prompting them to choose their preferred payment method for future transactions.

Digital checks are less expensive than a paper check, and students can convert digital checks into ACH and other forms of payment, while paper checks cannot be converted. Digital checks are less likely to go unclaimed and create an overhead expense for the institution, and they meet the timeline for issuing disbursements.

Use account alerts

Send alerts within your payment solution that students will see when they log in to their account. Remind students of their balances and other important details or necessary actions.

Send targeted messages

Filter students by type and send tailored messages to these groups. For instance, filter for students without payment profiles and send a reminder of the benefits of setting up their profile, with instructions and other important information on refunds and their account.

Raise awareness and educate on security issues

Bad actors are sophisticated and constantly evolving their fraud techniques. Help protect students from fraud by conducting communication campaigns through emails, websites, social media, and flyers on campus that explain today’s cyber threats and fraud scams and how to defend against them.

Use reporting functions to analyze and assess processes

Take advantage of data features in your refund solution to gain insights into your process. Use filters and parameters to create reports that track refunds individually or by batch, identify students who have not set up refund profiles, monitor refund processing and posting to student accounts, and more.

Today’s solutions for today’s refunds

While colleges and universities are responsible for meeting Title IV rules, software can simplify the disbursement process for a more effective and efficient experience for students and staff. To learn more about how refund solutions can help manage your refunds processing, and more best practices to improve it, register and attend our webinar, Evolving Refund Options to Meet Student and Staff Needs, on Tuesday, October 8th at 1:00 PM (CT).