means that the institution has credited the student's account with Direct Loan, FFEL, or Federal Perkins Loan program funds. If an institution notifies a student or parent electronically, it must request the student or parent to confirm the receipt of the notice and maintain a record of that confirmation.

(2) Student account balances. Unless otherwise authorized, by a student or parent borrower, whenever an institution applies title IV, HEA program funds to a student's account and determines that an amount of those funds exceeds, or exceeded, the amount of allowable charges the institution assessed the student, the institution must pay that balance directly to the student, or in the case of a PLUS loan to the parent borrower, as soon as possible but―

(i) For students enrolled at the institution at any time during the period beginning July 1, 1995 and ending June 30, 1996, within 21 days of the later of(A) The date that balance occurs; (B) The first day of classes of a payment period or period of enrollment, as applicable; or

(C) The date the student, or parent borrower rescinds his or her authorization under paragraph (d) of this section; and

(ii) For students enrolled at the institution on or after July 1, 1996, within 14 days of the later of the events described in paragraph (b)(2)(i) (A), (B), or (C) of this section.

(3) Allowable charges. For the purposes of this section, allowable charges include

(i) Tuition and fees;

(ii) Board, if the student contracts with the institution for board;

(iii) Room, if the student contracts with the institution for room; and

(iv) If an institution obtains the student's or parent's authorization under paragraph (d) of this section

(A) Other cost-of-attendance charges, as provided under section 472 of the HEA, included in that authorization; and

(B) Other institutional charges that a student incurs at his or her discretion. (4) Holding student funds.

(i) Except as provided in paragraph (b)(4)(ii) of this section, an institution,

as a fiduciary for benefit of a student, may hold student funds from the title IV, HEA programs in excess of institutional charges included in paragraph (b)(3) of this section, if the student, or in the case of a PLUS loan the parent borrower, authorizes the institution to retain the excess funds to assist the student in managing those funds. If an institution chooses to hold excess student funds, the institution

(A) Must identify the student and the amount of the funds the institution holds for that student in a subsidiary ledger account designated for that purpose;

(B) Must maintain, at all times, cash in its bank account for an amount at least equal to the amount of the funds the institution holds for the student; and

(C) May retain any interest earned on the student's funds.

(ii) If the Secretary determines that an institution has failed to meet the standards of financial responsibility under §668.15, an institution may not hold a student's excess funds for this purpose.

(c) Early payments. (1) An institution may not make a payment to a student for a payment period or period of enrollment, as applicable, until the student is enrolled for classes for that period.

(2) Except as provided in paragraph (c)(3) of this section, the earliest an institution may directly pay, or credit the account of an enrolled student with title IV, HEA program funds, or in the case of a PLUS Loan pay the parent borrower is

(1) 10 days before the first day of a payment period or period of enrollment, as applicable; and

(ii) For second and subsequent disbursements of loan funds under the Direct Loan and FFEL programs, 10 days before the first day of a semester, term, or other period of enrollment for which that disbursement is intended.

(3) Pursuant to $682.604(c) and § 685.303(b)(4), if a student is enrolled in the first year of an undergraduate program of study and the student has not previously received an FFEL or Direct Loan Program loan, the institution may not release to the student for endorsement the first installment of his

or her FFEL or Direct Loan Program loan, as applicable, until 30 days after the first day of the student's classes.

(d) Student authorization. (1) An institution must obtain from a student or parent, as applicable, written authorization allowing the institution to

(i) Disburse title IV, HEA program funds by initiating an electronic funds transfer as provided in paragraph (a)(2) of this section;

(ii) Use the student's or parent's title IV, HEA program funds to pay for other charges as provided in paragraph (b)(3)(iv) of this section; or

(iii) Hold excess student funds under paragraph (b)(4) of this section.

(2) In obtaining authorization for any of these activities, an institution

(i) May not require the student or parent to provide that authorization; and

(ii) Must allow the student or parent to rescind that authorization at any time.

(3) The authorization granted to an institution is valid for the award year or period of enrollment in which the institution obtains that authorization. The Secretary considers that initial authorization to continue to be valid provided that the institution notifies the student or parent of the provisions regarding the student's or parent's current authorization prior to conducting any of the activities that require that authorization for any subsequent award year or period of enrollment. The institution's notice to the student or parent must

(i) In a plain and conspicuous manner, explain those provisions, including an explanation regarding any interest that the institution earns on the student's funds and whether the institution will provide that interest to the student; and

(ii) Provide the student or parent with the opportunity to cancel or modify those provisions.

(e) Prior-year charges. An institution may use a student's title IV, HEA program funds to pay minor prior-year institutional charges if—

(1) The student has, or will have, a title IV, HEA credit balance as determined under paragraph (b)(2) of this section;

(2) The institution obtains the student's authorization to pay these charges; and

(3)(i) The prior-year charges do not exceed $100; or

(ii) The payment of these charges does not, or will not, prevent the student from paying his or her currentyear education costs.

(Approved by the Office of Management and Budget under control number 1840-0697) (Authority: 20 U.S.C. 1094)

[59 FR 61718, Dec. 1, 1994, as amended at 60 FR 34433, June 30, 1995; 60 FR 61814, Dec. 1, 1995; 61 FR 3776, Feb. 1, 1996]

(a) General. The Secretary considers excess cash to be any amount of title IV, HEA program funds, other than FFEL or Federal Perkins Loan Program funds, that an institution does not disburse to students by the end of the third business day following the date the institution received those funds. Except as provided in paragraph (b) of this section, an institution must return promptly to the Secretary any amount of excess cash in its account.

(b) Excess cash tolerances. (1) If an institution draws down title IV, HEA program funds in excess of its immediate cash needs, the institution may maintain the excess cash balance in the account the institution established under § 668.164 only if—

(i) In the award year preceding that drawdown, the amount of that excess cash balance is less than

(A) For a period of peak enrollment at the institution during which that drawdown occurs, three percent of its total prior-year drawdowns; or

(B) For any other period, one percent of its total prior-year drawdowns; and

(ii) Within the next seven days, the institution eliminates its excess cash balance by disbursing title IV, HEA program funds to students for at least the amount of that balance.

(2) For the purposes of this section, a period of peak enrollment at an institution occurs when at least 25 percent of the institution's students start classes during a given 30-day period. For any award year, an institution calculates the percentage of students who started classes during a given 30-day period by

(i) For the prior award year in which the 30-day period began, determining the number of students who started classes during that period;

(ii) Determining the total number of students who started classes during the entire award year used in paragraph (b)(2)(i) of this section;

(iii) Dividing the number of students in paragraph (b)(2)(i) of this section by the number of students in paragraph (b)(2)(ii) of this section; and

(iv) Multiplying the result obtained in paragraph (b)(2)(iii) of this section by 100.

(3) For the purpose of determining the total amount of title IV, HEA program funds under paragraph (b)(1)(i) of this section, an institution that participates in the Direct Loan Program may include, for the latest year for which the Secretary has complete data, the total amount of loans guaranteed under the FFEL Program for students attending the institution during that year.

(c) Consequences for maintaining excess cash balances. (1) If the Secretary finds that an institution maintains in its account

excess cash balances greater than those allowed under paragraph (b) of this section, the Secretary

(1) As provided in paragraph (c)(2) of this section, requires the institution to reimburse the Secretary for the costs the Secretary deems to have incurred in making those excess funds available to the institution; and

(ii) May initiate a proceeding to fine, limit, suspend, or terminate the institution's participation in one or more title IV, HEA programs under subpart G of this part.

(2) For the purposes of this section, upon a finding that an institution has maintained excess cash, the Secretary

(i) Considers the institution to have issued a check on the date that the check cleared the institution's bank account, unless the institution demonstrates to the satisfaction of the Secretary that it issued the check shortly after the institution wrote the check; and

(ii) Calculates, or requires the institution to calculate, a liability for maintaining excess cash balances in accordance with procedures established by the Secretary. Under those procedures, the Secretary assesses a liability that is equal to the difference between the earnings that the excess cash balances would have yielded if invested under the applicable current value of funds rate and the actual interest earned on those balances. The current value of funds rate is an annual percentage rate, published in a Treasury Financial Manual (TFM) bulletin, that reflects the current value of funds to the Department of Treasury based on certain investment rates. The current value of funds rate is computed each year by averaging investment rates for the 12-month period ending every September. The TFM bulletin is published annually by the Department of Treasury. Each annual bulletin identifies the current value of funds rate and the effective date of that rate.

(Authority: 20 U.S.C. 1094)

[59 FR 61718, Dec. 1, 1994, as amended at 60 FR 34433, June 30, 1995]

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