Amendments to Title IV Higher Education Act cash management regulations have highlighted the disbursement of federal financial aid funds. There has been a move to electronic payments, and schools can use this opportunity to explore some alternative, student-friendly options, such as prepaid card programs and Digital Disbursements. More information on these payment methods is provided below.
Prepaid Card: Cost savings and convenience
For a college or university, one of the key advantages of any electronic payment method is that it’s less expensive than paying students by check. As one of the approved electronic payment options for Title IV financial aid disbursements, prepaid cards can lower costs and improve the service offered to all students by removing the need for a bank account.
Unbanked students often rely on expensive check-cashing services, and even those with bank accounts could find a prepaid card less costly than a checking account from their hometown bank. Unlike a check, funds can remain on the card throughout the semester. If the card is lost or stolen, students are protected.1
Source: 2015 AFP Payments Cost Benchmarking Survey.
Source: 2017 FDIC National Survey of Unbanked and Underbanked Households.
Alias-based Payments: Speedy and more secure
Alias-based payments are another cost-effective alternative for making electronic disbursements of financial aid funds. At Bank of America we call our offering Digital Disbursements. It enables a college or university to send funds using either a mobile phone number or email address as an identifier. Funds are then deposited directly into a student’s designated account.
In addition to being well-received by students, Digital Disbursements, like prepaid cards, are more secure and less expensive than checks. In most cases the funds are available immediately or as soon as the next business day. This avoids delays associated with mailing a check to the wrong address — an important consideration for students, who tend to relocate regularly.
Considering innovative new options
Schools need to carefully review their providers to obtain the best possible outcomes for institutions and students. This includes examining a provider’s cardholder fee schedule, speed of delivery, location of surcharge-free ATMs and reporting capabilities. Additionally, considering both prepaid card and alias-based payment options means schools can improve customer service — meeting the needs of students without bank accounts, as well as those who prefer to manage financial transactions using their mobile phones or laptops.
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1 Certain requirements must be met in order to receive these protections.
- Regulatory changes have placed a spotlight on the disbursement of federal financial aid funds
- Prepaid card programs can enable schools to disburse payments electronically to students without a local bank account
- Alias-based payments, such as Digital Disbursements, can help schools exceed speed of settlement requirements