TITLE IV CREDIT BALANCE DEADLINES INCLUDING UNCLAIMED TITLE IV CREDIT BALANCES

This article provides reminders of the deadlines associated with Title IV credit balances including unclaimed Title IV credit balances. This is not new guidance or new requirements by ED. These are reminders of the current requirements related to Title IV credit balances. “Credit balance” as used throughout this article is meant to refer to a Title IV credit balance.

A credit balance occurs when the amount of Title IV funds credited to a student’s account for a payment period exceeds the amount assessed the student for allowable charges associated with that payment period. You are required to provide the credit balance directly to the student or parent no later than 14 days after the date the credit balance occurs. However, if the credit balance occurs prior to the first day of class for that payment period (early disbursements), you must pay the credit balance no later than 14 days after the first day of class. A school is not required to pay a credit balance under $1.00.

If the credit balance includes Parent PLUS Loan funds, the credit balance (or Parent PLUS portion of the credit balance) must be provided to the parent. However, the parent may provide written authorization to transfer the proceeds of a Parent PLUS credit balance to the student for whom the loan was made.

ED does not stipulate any order in which FSA funds create the credit balance. Therefore, it’s not necessarily which aid pays first. The school makes the decision on which aid creates the credit balance regardless of the actual disbursement dates of the aid. As such, a school could consider Parent PLUS proceeds as the first fund type to be applied toward the allowable charges even if it’s not the first aid disbursed for that payment period. In this case, a credit balance owed to the parent would only occur if the Parent PLUS by itself exceeds the allowable charges.

There are two exceptions to the 14 day timeframe for delivering a credit balance to the student or parent:

1. The student and/or parent may provide written authorization for the school to retain the credit balance on their behalf. If the school obtains the authorization and holds the credit balance for the student and/or parent, the school must pay any remaining credit balance of loan funds by the end of the loan period and any other FSA program credit balances by the end of the last payment period in the award year for which the funds were awarded. Schools on Heightened Cash Monitoring (HCM) or Reimbursement are not permitted to hold credit balances even if the student and/or parent requests that it be held.
2. If a student withdraws during the payment period in which a credit balance exists, the school must hold the credit balance funds until the Return to Title IV funds calculation is performed. After completing the R2T4 calculation and applying any applicable refund policy (state, accrediting agency, institutional, etc.), any remaining credit balance must be used to repay any grant overpayment owed by the student as a result of the current withdrawal. Any remaining credit balance must be provided to the student and/or parent OR with written authorization, the credit balance may be used to reduce the student’s Title IV loan debt. The school must distribute the credit balance within 14 days of the date the R2T4 calculation is performed whether that credit balance is being paid to the student and/or parent, being used to pay any grant overpayment owed by the student or being used to reduce the student’s Title IV loan debt.

In meeting the 14 day deadline, the school must either:

• notify the student that a check is available for immediate pickup;
• mail the check to the student or parent; or
• initiate an EFT to the student’s or parent’s bank account.

If the school notifies the student that a check is available, the school may hold the check up to 21 days after this notification. If the student does not pick up the check within the 21 days, the institution must immediately mail the check to the student or parent or initiate an EFT to the student’s or parent’s bank account.

Unclaimed Credit Balances

Unclaimed credit balances can never escheat to a state or any other third party. If you are unable to provide those to the student or parent, the funds must be returned to the Title IV Programs.

If an EFT is rejected or a credit balance check is returned, the school may make additional attempts to provide those credit balance funds to the student and/or parent but must do so within 45 days of the date the EFT was rejected or the check returned. If the school does not make any other attempts to deliver the credit balance funds, those funds must be returned to the Title IV Programs before the end of the 45 day period.

If a school issues checks to pay credit balances to the student or parent, the school must have procedures in place to ensure those checks are cashed. Most checks have a limited period after which they become invalid. For example, some states may allow up to 90 days whereas other states may allow up to 180 days after which the check becomes invalid. If a check is not cashed within these timeframes, the school would either need to issue a replacement check to the student or parent OR return those funds to the Title IV Programs. Schools must monitor these checks and take appropriate actions when a credit balance check is not cashed. This might mean reaching out to the student or parent to determine if a replacement check is needed. If the school is unable to locate the student or parent and the check is not cashed within its useful life timeframe (i.e. 90 days or 180 days), the check should be voided and the funds returned to the Title IV Programs.

The school must cease all attempts to disburse the credit balance funds and return them to the Title IV Programs no later than 240 days after the date it issued the first check.