Heightened Cash Management and Reimbursement: What, How, and Why

Melissa Maichle .

Heightened Cash Management (HCM 1 and 2) and Reimbursement are alternative methods of receiving funds and making disbursements required by the Department of Education (ED). Here’s how they work…

Applicable to HCM1 and HCM2: Schools operating under these payment methods do not receive an initial authorization of funds from ED. Instead, they receive an authorization and increases to the authorization only after the COD System has accepted and posted actual disbursement records. The school must credit a student’s ledger account for the amount of Title IV funds the student or parent is eligible to receive and pay the amount of any credit balance due before it submits a request for funds.

HCM1:  The institution is required to disburse institutional funds to eligible students before submitting disbursement records to COD. It can then draw down the funds for the accepted disbursement records much like institutions using the advance payment method, except the funds drawn cannot exceed the total required to cover accepted disbursements.

HCM2: The institution is required to disburse institutional funds to eligible students like HCM1 schools. However, instead of disbursement records, the institution must transmit a payment request via COD. The COD System will generate an electronic payment request (Form 270), a completed student data spreadsheet outlining students and disbursements, and a student sample for the Department to review. The school will upload all required documentation into the COD

System, including information that each student and parent included in the request was eligible to receive and did receive the funds for which reimbursement is sought, and all student files for those students selected in the student file sample. After ED reviews the payment request it will approve all, some, or perhaps none of the disbursements depending on the error rate. Funds for approved disbursements are wired to institution’s bank account. This process can only be completed once every 30 days.

Reimbursement: This is the highest level of monitoring. It works the same as HCM2, except the institution submits and the Department reviews the documentation for all the students and parents included in the payment request, not just a sample. 

Schools are required to participate in one of these payment methods when their ability to adequately meet cash management or compliance requirements is in question. Some situations are under the direct control of the financial aid administrator — audit findings, student complaints, missed reporting deadlines, and non-compliance with Title IV regulations. But some, like adverse action against the school by its accreditor or state authorizing agency or an enforcement action against the school by a consumer protection agency are not, so working to avoid these sanctions is a campus-wide responsibility. The entire campus is negatively impacted when financial aid must be processed under these severe conditions. Having to float the funds to the students and parents and then wait to collect from ED will absolutely affect the institution’s cash flow and its ability to meet its obligations. Having to document eligibility for disbursements beyond the normal process puts an additional administrative burden on the staff.

Do you need to brush up on cash management or compliance requirements? Check out our blog on the topic. If you missed it, view the session from the Federal Student Aid (FSA) conference on demand or complete the Funds Management module in the FSA Training Center. The Higher Education Assistance Group can also be a resource for your institution whether you need staff training or a second set of eyes to review your policy and procedure manual. Email us at info@heag.us if we can help.

Resource: https://fsapartners.ed.gov/knowledge-center/fsa-handbook/2023-2024/vol4/ch1-requesting-and-managing-fsa-funds

https://www.ecfr.gov/current/title-34/subtitle-B/chapter-VI/part-668/subpart-K/section-668.162#p-668.162(d)