Just Charge It: Considerations When Charging by the Program
Just charge it! That sounds like a theme from a credit card commercial. But, the reality is that for a good number of schools that is what they do. They charge it to the students—their program costs that is. It is not uncommon for schools in the technical and career training sectors of higher education to charge students the full program costs up front as they begin the program. Said differently, the charges assessed at enrollment are for the entire length of the program. This has several implications when doing so. Naturally, it gives a boost to the school’s accounts receivables. And, depending upon the school’s institutional refund policy, it could have some advantages in funds being able to be retained if a student does withdraw. It also may make it simpler to determine the appropriate “program” costs when completing the Net Price Calculator template or the IPEDS Institutional Characteristics survey (for “program” reporters) as both of those instruments require schools to input program costs rather than academic year costs. Yet, there are other implications that come into play when a school charges by the program. Specifically, there are things a school must be aware of as it relates to its participation in Title IV Federal Student Aid (FSA) programs. Consider the following important points.
A school is required to appropriately apportion or allocate its educational charges (e.g., tuition and fees) to each loan period or award year, as applicable, for which the student will receive educational services. This refers to the educational services provided in accordance with the academic program defined in the enrollment agreement. The result is one that is similar to what traditional colleges and universities experience when they charge by term and year in their more conventional academic programs. The charges for books, supplies, and equipment that students are required to pay to the school may also be allocated on a pro rata basis, or they may be assigned to the payment period in which they are purchased.
When a school is making its determination of how to apportion the charges for a student’s academic program, it does have some options. Let us look at some possibilities a school may consider when apportioning charges.
First, the school may choose to simply allocate the charges equally over the total number of loan periods (or, award years if the student has Federal Pell Grant, but no student loans). For example, if a student is in a 1500 clock hour program that is 50 weeks in length and the academic year for financial aid purposes is defined as 30 weeks (900 hours), then the charges could be prorated and apportioned over the two loan periods or academic years. To see this illustrated, let us use a hypothetical program cost of $15,000.
First academic year of 900 hours = $ 9,000
Second academic year (600 hours) = $6,000
TOTAL = $15,000
Alternatively, the school could modify its apportionment of costs if it retains more charges in the first academic period due to books and supplies that the student must pay for in that period that are for the entire program. For example, let us again use the hypothetical program cost of $15,000 described above and stipulate that the total cost included the program’s cost for books, supplies, and equipment. In such a scenario, if the school retained an additional $1000 in the first payment period to cover the costs it incurred for books and supplies in that period, the resulting apportionment would be:
First academic year (900 hours) + books/supplies = $ 10,000
Second academic year (600 hours) = $5,000
TOTAL = $15,000
Regardless of the manner of apportioning students’ charges, the school must use the same method for all students in the same program.
The school must be able to demonstrate the student’s account balance per the applicable loan period and/or award period based upon the manner of apportioning that the school utilizes. Let us look at an example using the first option mentioned above where charges are apportioned on a prorated basis for each academic year. In such a scenario, if a student had $5730 Federal Pell Grant in the first academic year, $3500 in Subsidized Direct Loan, and $2,000 in Unsubsidized Direct Loan (for illustration purposes only, the loan origination fees are not considered here), her total aid will equal $11,230 for the first academic year. If her apportioned charges for the first year were $9,000, her account would have a $2,230 credit balance after the aid was applied for the 900 hours in the first academic year. She would be entitled to receive the credit balance from the school within 14 days.
Keep in mind that an institution uses the total charges allocated to each particular year in determining the amount of current year charges and whether there is a credit balance applicable to the current year. This is important in establishing whether there are prior year charges that may be owed on a student’s account. A school may use up to $200 of current year Federal Student Aid program funds to pay for minor unpaid prior year charges.
There are a number of items that are not affected by apportionment. Specifically, the cost of attendance for loans and Campus-Based aid funds, the institutional refund policy, the student ledger or account cards, and R2T4 calculations are not impacted by how the institution apportions funds. [Note, however, that when determining institutional charges for a payment period when performing an R2T4 calculation, the institutional charges for the payment period to use in the calculation are the amount actually retained for the period. This will likely be a prorated amount of the total charged for a longer period (e.g., the entire period of enrollment). If a school has retained FSA funds in excess of the prorated amount to cover institutional charges in the payment period (for example, books and supplies, as in our earlier illustration), then in the R2T4 calculation the institutional charges for the period are equal to the amount retained to cover those charges.]
Accounting and Apportioning
It should be mentioned again that the apportionment or allocation procedures described above do not affect the school’s accounting processes or how it maintains its accounting records. It is simply a tool that is required to be used to understand what charges assessed up front are applicable to a particular payment period of the related loan period or award year for Title IV purposes. Schools may choose to document this method of apportioning the costs of a student’s program through use of a separate accounting method (e.g., a subsidiary Title IV ledger) other than the student’s actual student account or ledger card. A school could also potentially use a spreadsheet or other electronic means for documenting students’ calculated balances resulting from the apportioning method the school utilizes.
In summary, in a multi-year program where the school assesses the students’ entire program charges up front, the school must allocate tuition and fees to the applicable periods during which the student will receive education. Additionally, a school must decide how it will handle the charges for books, supplies, and equipment the student is required to purchase and delineate such determination in its policies and procedures. Likewise, the school will have to describe its policy for prorating charges when calculating R2T4s. The accounting method used to document how the school attributes charges applicable to particular payment periods of a loan period or award year must be easily demonstrated and accessible in audits or program reviews. Thus, we see that when a school assesses a student’s costs for an entire program up front, there are implications that have to be addressed. It is not simply a matter of saying to the bookkeeper, “Just charge them!”
(FSAH1314: 3-34; 4-36; 5-16; CFR 668.164; DCL GEN0911)