Compliance Focus: New FSA Handbook Prohibits Discounts to Students Who Pay in Cash or Who Pay Before the Start of Class


As many of you know, the new Federal Student Aid Handbook were released this summer.  There are a number of new items in the handbook and I encourage you all to review it.  We will be discussing these new items in future posts (so make sure you do the reading, or else you won’t be able to participate!)

One new note that comes a bit out of the blue this year relates to tuition discounts: many of them are prohibited:

Charging variable tuition
Schools may not charge students who receive federal student aid a different tuition from those who don’t receive federal student aid for the same program. Moreover, giving a discount to students who pay in cash or who pay their tuition in full before the start of class is not allowed. This, of course, does not prevent schools from having different costs for other categories of students, such as having a different tuition for in-state and out-of-state students.
See  Volume Three of the Handbook, at 3-36.  Now, this comes from section 472(1) of the Higher Education Act which talks about “tuition and fees normally assessed a student carrying the same academic workload…”  Internally, the Department of Education has interpreted this to mean that all students–aided as well as unaided student–in the same program are charged the same tuition.  This is to prohibit schools from charging different tuition based on whether a student receives Title IV funding (and presumably charge those students more).  However, given the explicit language, schools should strongly consider ending discount programs covered by this note even if all students are eligible for the discount.
One problem with this guidance is that this may be a bigger issue than the Department may realize.  Indeed, given the unceremonious way this was announced — no Dear Colleague Letter or announcement — I imagine the Department didn’t think this was a big deal.  While I tend to think the issue the law prohibits – charging different tuitions based on access to student aid — is not a common occurrence, providing modest discounts to get students to pay tuition on time are much more prevalent.  Indeed, most states cover the issue of offering discounts to students (some, like Florida, prohibit them).  Two national accreditors also cover the explicitly, and ACICS explicitly requires the discount to be available to all students:


Tuition costs and charges, tuition discounts, and all costs incidental to training are disclosed to the prospective student before enrollment. Tuition discounts offered to prospective students must be bona fide (i.e., represent actual reductions in the tuition that would otherwise be charged) and must be fairly applied.ACICS:

3-1-435. Cash Discounts. Any institution providing discounts for cash received in advance of the normal payment schedule must have a written policy. That policy must be provided in writing to all student applicants prior to enrollment.The institution must demonstrate that the policy:

(a) is available to all students at the institution; and

(b) bases the size of the discount on the financial benefit the institution receives from the payment of cash earlier than otherwise would be required under the institution’s normal tuition payment schedule or applicable retail installment contract.

I hope the Department offers additional guidance on this.  While I understand schools could use “discounts”  to discriminate against Title IV eligible students, there has to be a way to keep modest discounts for students.  Until we receive more guidance, however, schools would be wise to end or phase out such programs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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