In the IFAP – Electronic Announcement dated March 5, 2019, the Department of Education provided clarification on crediting a student’s ledger with Title IV funds to pay for allowable charges. These acceptable charges include those associated with a payment period where an institution debits an account at the beginning of a student’s enrollment for the cost of books, supplies and equipment to be used throughout the program.
Prior to July 1, 2016, institutions were allowed to include the full cost of books, supplies and equipment at the beginning of a student’s enrollment. However, with the implementation of the cash management final regulations on July 1, 2016, the Department clarified in instances where the institution charged these items upfront, and students did not have a real and reasonable opportunity to obtain materials elsewhere, the institution must prorate the costs of those materials when determining the amount of Title IV aid to provide to a student as a credit balance during each payment period.
Under this order, charges are considered institutional charges if students were not provided a real and reasonable opportunity to purchase course materials from any other source but the school.
A student has a “real and reasonable” opportunity to obtain required course materials from another source if:
At the time an institution provides students with notice of their financial aid fund availability, they must also include at least one alternative source for a student to purchase supplies in a timely manner. Schools can determine the quality of the supplies needed, but they cannot limit the availability of branded products to force students to buy directly from the school.
The Department now considers online providers as eligible alternative sources. In addition, a distributor or cosmetology supply company that is owned by or connected with the institution is considered an alternative source for students purchasing kits and supplies, as long as the materials are widely available on the retail market. The Department does require that merchandise from affiliated distributors be sold to students and the public at the same price.
An affiliated entity is a related party that provides books, supplies and equipment only to students at the institution that are either customized by the seller for the institution or are not generally available in the retail market.
If the components are part of a widely available product line, this would meet the requirement that the student has a real and reasonable opportunity to purchase the supplies elsewhere.
Lastly, there is no requirement that a certain percentage of students must purchase their materials from an alternate source. As long as an alternative source is available and students have a real and reasonable opportunity to purchase materials elsewhere, there is no violation.
The Department previously viewed any amounts for materials on the enrollment agreement as being institutional charges. However, because some states require schools to include material costs on the enrollment agreement (which is beyond the school’s control), the Department will not consider them institutional charges if the following conditions are met:
The Department’s clarification may have a direct impact on your institution. Make sure your school is complying with this update and talk through your specific situation with a Title IV audit expert.
This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.