On March 5, 2019 ED published new guidance to address when books, supplies, etc. are considered to be institutional charges and how these charges should be properly recognized for Title IV purposes. ED defined clearly that an institutional charge must be recognized over the entire period for which the charge is applicable. Thus, an institutional charge can’t be deemed to be a charge related solely to the student’s 1st payment period if the charge is applicable to future payment periods. This distinction is important as it impacts the calculation of a Title IV credit balance and the R2T4 calculation.
In order to know what charges should be prorated, the institution must first define what is an institutional charge and a non-institutional charge. The most common institutional charges are tuition, fees and room and board if contracted with the institution. Other charges that could be considered institutional charges are course materials such as books, kits, tools and supplies. The institutions most impacted by this are likely to be those that offer Cosmetology and Trade programs, as the kits, tools and supplies that students purchase are typically used over the entire educational program. However, these “other charges” have additional considerations when determining if they are in fact an institutional charge. The guidance from the 2019 release reiterated ED’s position that if a student does not have a real and reasonable opportunity to purchase books and supplies outside of the institution, then these would represent institutional charges that must be apportioned similar to tuition and fees (if the institution charges for the entire cost at the beginning of the program).
Non-institutional charges include any required course materials that an institution can document a student had a real and reasonable opportunity to purchase elsewhere. For example, if a student is able to purchase a book for a class online instead of buying the book directly from the institution it could potentially be considered a non-institutional charge and in turn not subject to being prorated over the entire educational program.
The recent guidance is potentially a positive for most institutions. With the advances of technology and the internet, generally, students have the ability to buy their kits, tools, books and supplies online. However, each institution’s specific conditions and circumstances need to be individually reviewed. M&A has developed a policies and procedures memo if an institution is seeking to document books and supplies charges as “non-institutional.”At a minimum, an institution should document: complete listing of the items needed, how these items are sold to students, timing of the sales to students, and regulatory cash management considerations. As a reminder, this regulation affects both for-profit and non-profit institutions. McClintock & Associates compliance team is available to assist your institution in reviewing and implementing this guidance.
