Checks may be cumbersome and flawed, but they persist as one of the top methods by which businesses, legal firms and universities pass refunds to consumers, clients and students. U.S. academic institutions are legally required to offer check refunds to students, despite the option’s well-documented security weaknesses. However, universities can make digital disbursements easier to access and more appealing for students, Sherry Rossiter, bursar at Ohio University, told PYMNTS in a recent interview.
“We only refund by check once a week, [and] we encourage direct deposit because we feel that is a more secure means of transmitting the funds to the students,” she explained.
Ohio University must offer check disbursements to students by mandate of the Department of Education, though the school has enabled direct deposit for almost 20 years. Rossiter added that approximately 70 percent of the university’s student body opts to receive funds through ACH. Such payments are also popular with businesses, as 250 million of these transactions were expected to have been sent by the end of 2019. Removing checks from universities’ payment processes will require elimination at the regulatory level, then infrastructure updating — a time-consuming and costly endeavor for many academic institutions.
The Disbursements Catch-22
Innovation at the federal level is another factor keeping checks involved in student refunds. The Department of Education requires universities to give students multiple disbursement options. However, many may not be aware that ACH is an option, let alone other digital methods.
The digital disbursements adoption rate is slow among freshmen at Ohio University, Rossiter said, but the number of those who opt into ACH refunds climbs as students complete their first semesters, and become more familiar with the university. This has caused the university to nudge students toward ACH refunds, reducing how often it makes check disbursements, while educating students on direct deposit availability via emails and during orientation.
“There are a lot of checks and reporting requirements involved if we were to utilize a third-party system to, say, implement credit cards or debit cards … for their refunds, as opposed to issuing them paper checks,” she said. “The Department of Education is very high on student choice, so whatever we would choose, the students really have to be the ones choosing how to receive their payments.”
This creates a Catch-22 for payments innovation: Institutions are required to offer checks unless students request otherwise, but students must first be told about other options that cannot be implemented until they are requested.
“We cannot mandate direct deposit for federal [aid], … per [a] Department of Education regulation,” Rossiter clarified. “So, if a student does not opt into direct deposit, we have no other option but to refund by check.”
Additional payment complications keep checks in the mix. Parent borrowers are not enrolled and cannot receive direct deposits, for example, and unbanked students have no other disbursement options.
Mobile Disbursements And Security
Online options are becoming more intriguing, as check problems persist and students receive university news on their phones. Mobile person-to-person (P2P) payments are one of the more popular ways to send and receive money, especially among younger generations. Seventy-five percent of Gen Z consumers reported using P2P products monthly, for example, and these apps have interesting applications for student refunds. Apps such as Apple Pay, Venmo and Zelle can support instant disbursements, Rossiter said, and their security measures make them intriguing.
“The [apps have] security features, where we do not have to have students’ banking information ourselves,” she explained. “They would be able to use tokenization to help us remit those payments, and [without having] to have their personal information in our records.”
Questions remain about whether these payments would be permitted by the Department of Education, however, and approval will likely take time. Checks may, thus, have to stay a disbursement option for years to come, but there is no reason why they should be central to the experience.
Universities aiming to rid themselves of check disbursements should look to move students to digital platforms, and educate them on such payments’ benefits. Younger generations’ reliance on smart devices for everyday tasks and payments makes it likely that digital disbursement use will grow with time, but that does not necessarily correlate to checks’ complete death. Universities must also work with their students to offer the most convenient, cutting-edge payment methods if they want checks to finally disappear.