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Books/Supplies/Kits Charges as they Relate to Institutional Charges, Credit Balances & R2T4 Calculations

April 9, 2018
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Books, Supplies, and Equipment.  Oh My!

 There is a familiar line in the cinema classic, Wizard of Oz, as Dorothy and her unique companions were walking in the dark forest: Lions and tigers and bears!  Oh, my!  No doubt the line in this timeless film could be paraphrased for the world of financial aid:  “Books and supplies, kits and equipment!  Oh, my!”  Yes, in the financial aid realm—especially in the proprietary sector—this topic has, on occasion, perhaps brought apprehension similar to what the traveling trio experienced while traversing down the yellow brick road.

It has become clear that not all institutions are charging by the payment period, and thus, accordingly may not charge books, supplies, and kits, as a first payment period charge.  Let us explore concerns related to this refrain about books, supplies, kits, and equipment.

Institutional Charges

One of the first concepts that requires a clear understanding is the meaning of “institutional charges.”  Of late, we have had extensive dialog with the U.S. Department of Education (ED) on this topic.  One of the clarifying points made during these communication opportunities is that what ED denotes as “institutional charges” carries the same meaning as the term, “allowable charges” used in the Title IV regulations at 34 CDR 668.164.  As such, the most recent guidance provided to us specifies that an “institutional charge” includes any charge that is:

  • part of an enrollment agreement
  • part of an addendum to an enrollment agreement, and/or
  • a charge for which the institution routinely debits the students’ ledger accounts for the amount of the charge along with the tuition and fees.

Books, supplies, kits, or other necessary educational equipment (B/S) must be considered an institutional charge if the student does not have a “real and reasonable opportunity” to purchase the items from anywhere but the institution.  A “real and reasonable opportunity” means that:

  • the required items are available for purchase at a relatively convenient location unaffiliated with the institution in any way, and
  • the institution does not restrict the availability of financial aid funds so that the student can exercise the option to purchase the items from alternative sources in a timely manner.

Absent a “real and reasonable opportunity” to obtain books and supplies elsewhere, the books and supplies must meet the requirements for including those costs in tuition and fees.

Requirements for Including Books & Supplies in Tuition & Fees

To include books and supplies (B/S) as part of tuition and fees (T/F), per 34 CFR 668.164(c)(2), the institution MUST:

  1. have an arrangement with a book publisher or other entity that enables the institution to make the books and supplies available to the students for a price below competitive market rates,
  2. make available a way for the students to obtain the books and supplies by the 7thday of the payment period, AND
  3. ALSO have a policy provided for students that allows them to OPT OUT of obtaining their books and supplies through the institution via the way the institution provides for the student to obtain books and supplies by the 7thday of the payment period, and
  4. document the books and supplies are not available or accessible by students from other sources than those provided or authorized by the institution, or,
  5. demonstrate that there is a compelling health or safety reason.

Additionally, for clarification, ED has specified that an institution that includes books and supplies in tuition and fees should supply a detailed breakdown of the cost of items included, not just an aggregate total for books and supplies, etc.

Disbursements

When it comes to disbursement related matters pertaining to books and supplies, and the allocation of funds to the appropriate payment period, there are several concepts about which it is important to be aware.

If there is a real and reasonable opportunity to do so, the student may purchase books and supplies from the institution or another vendor as long as the same quality/brand name is purchased.  The institution must ensure the student is able to have the books and supplies applicable to the payment period by the 7th day of the payment period if, 10 days before the beginning of the payment period—

  • the institution could disburse the title IV, HEA program funds for which the student is eligible; and
  • presuming the funds were disbursed, the student would have a credit balance. See 34 CFR 668.164(c)(2).

Note:  The student should use the institution’s posted textbook consumer information (including current ISBN and price, etc.) to determine books and materials needed for a particular payment period.

  1. If the institution charges Tuition/Fees by the Payment Period and Books/Supplies are included as an “institutional charge” (as described earlier), there is no need to prorate the books and supplies over the length of the program or academic year (AY) since they are being purchased and used in the same payment period as the charges. However, the cost of books and supplies for the payment period are included for purposes of determining if there is a credit balance, and if an R2T4 calculation is required.
  2. If an institution charges Tuition/Fees by the Payment Period, but Books/Supplies are intended for use over more than one payment period, then the cost of the books and supplies is prorated over the length of the program or academic year (the charge period), as appropriate. Additionally, the prorated cost of the books and supplies is included for the payment period for purposes of determining if there is a credit balance and if an R2T4 calculation is required.
  3. For an institution that charges Tuition/Fees by the Academic Year (AY) or by the Program, the Books/Supplies must be included as an “institutional charge” (as described earlier). Accordingly, the cost of books/supplies/kits/equipment is prorated over the length of the program or academic year, as appropriate.  The prorated cost of the books and supplies is included for the payment period for purposes of determining if there is a credit balance, and if an R2T4 calculation is required.

Generally speaking, books, supplies, kits, and equipment charged and/or bought for use over the duration of an academic year or the entire academic program may not simply be considered a first payment period charge just because the student may be required to have them in the first payment period.

The bottom line regarding disbursements is that it is a rare situation for non-traditional colleges and universities to be able to consider books and supplies as a payment period charge, regardless of how the enrollment agreement is written.  (To do so would require that the books and supplies that are purchased and/or charged to the student’s ledger account for a payment period also be used/expended during that payment period and not further used in a subsequent payment period.)

Pro-Rating Costs for Books & Supplies When Calculating Credit Balances and Return of Title IV Funds Calculations

Additional considerations must be taken into account, as well, in regard to pro-rating costs for periods longer than one payment period.  When an institution assesses charges for more than a payment period at a time (e.g., by the academic program, or an academic year), the following must be applied:

  1. For institutions with substantially equal payment periods: Total institutional charges (including books and supplies, as discussed above) must be divided by the number of payment periods.
  2. For institutions that charge tuition and fees by the payment period, but are required to prorate the cost of books and supplies intended for use over more than one payment period: The institution must add the cost of the prorated books and supplies to the tuition and fees it charges for the payment period when determining the amount of Title IV aid to credit to the student’s account for that payment period.
  3. For institutions that charge by the academic program or academic year: The institution must divide the number of credit or clock hours in the payment period by the number of hours in the program and multiply the result by the total institutional charges for the program (including books and supplies, as discussed above).

When a student signs an authorization to retain funds [this is not an option that is applicable to schools on heightened cash monitoring (HCM)], and the institution retains more than the prorated amount, the Return of Title IV Funds (R2T4) provisions in 34 CFR 668.22(g)(3)(ii) will apply.  As a result, for R2T4 calculations, the institution will enter as “institutional charges” the amount of Title IV aid retained for institutional charges as of the withdrawal date (exceeding the prorated charges) in Step 5 of the R2T4 Worksheet.  In other words, the institution will use in the R2T4 the greater of the Title IV aid retained for the payment period, or the pro-rated institutional charges for the payment period.

ED guidance continues to limit the amount of Title IV aid that an institution must return for aid credited for certain unreturnable equipment, or equipment not returned in good condition within 20 days of withdrawal.  (See the FSA Handbook, Volume 5, Chapter 2, page 5-17.)

 

Finally, it is important to remember that Title IV aid may be credited to a student’s ledger account for all charges described under 34 CFR 668.164(c)(1)(i) without student authorization if the institution follows the stipulations about charging below market rates, books/equipment availability, or health and safety, etc., described in 34 CFR 668.164(c)(2).

A thorough understanding of how to appropriately charge students for books, supplies, kits, and equipment is crucial to a compliant financial aid operation.  When we understand the reality of the environment in which we work and how we must engage our students regarding charges, including those for books, supplies, kits, and equipment, we soon find—as did Dorothy and her companions—that a perceived fierce lion may actually be a gentle beast that we have join us on our journey toward successful operations and compliance.

Should you have any additional questions regarding this topic, please feel free to contact Customer Service through the Client Solution Center.

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This article is presented for informational and educational purposes only and should not be considered to be giving legal advice.

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