Banks and bursars’ offices are doing their part to tamp down America’s ballooning college debt crisis … by disbursing tuition monies painfully slowly. The punchline isn’t all that funny, actually, as 21st century college lending remains mired in paper checks and legacy disbursement systems.
It’s an upside-down situation, as accredited institutions are under legal mandate to issue grants and aid in the form of paper checks, even though most have the option of disbursing via automated clearing house (ACH) transfer. Here’s the rub: students (or parents if they’re signatories) must request that aid be sent electronically, or else paper check is the auto default.
Weirder still is this: the federal Department of Education (DoE) now requires higher learning institutions to offer students several options for funds disbursement, yet slow and unsecure paper continues to dominate educational payments. Ironically, there’s an educational component to this Gordian knot. Most borrowers don’t know that faster payments options are available, and lenders are on academic probation for failing to share that knowledge.
How quickly and safely tuition gets dispensed is one of the more educative lessons contained in the February 2020 PYMNTS Disbursements Tracker®, powered by Ingo Money. The small and medium-sized business (SMB) angle is also covered in depth, as rapid digital disbursements have the potential to accelerate billions of dollars owed to SMBs on 30 to 180-day terms. If SMB funds arrived faster, it could have untold positive reverberations throughout the U.S. economy.
Tuition Payments Want to be Digital
The disconnect between student loan disbursements and digital payments is perhaps the most frustrating. Colleges have had the ability to issue grants and refunds via ACH for 20 years, but government regulations insist on the tangible, tactile paper check as payment mode of choice despite its well-known weaknesses — lack of speed and security, plus an error-prone nature.
Bright spots noted in the February Disbursements Tracker® include mobile disbursements programs at the University of Arkansas and the University of Texas in which students opt to have tuition and housing funds deposited directly into student accounts. Other innovative programs are loading tuition refunds directly onto mobile card accounts. At present, 36 universities are participating in one mobile tuition payments program. Others are sure to follow suit, as each year’s wave of college freshmen is more digitally native than the last.
The demise of cash has been consistently exaggerated, and it’s the same with paper checks. Between regulations, the cost of upgrading systems and a university network that is oddly averse to change (at least when it comes to money), paper tuition checks will continue to flow through the U.S. Postal Service for the foreseeable future. So, it pays to know your options.
For those who believe financial literacy class should replace trigonometry for many high schoolers, it’s an idea with merit. But the inefficient movement of tuition dollars isn’t the fault of budding young scholars. It’s a failure of planning and imagination among financial institutions, colleges and government agencies (which would also benefit, incidentally).
As we find in the latest Disbursements Tracker®, it’s an ongoing and troublesome issue with students caught in the middle. “We cannot mandate direct deposit for federal [aid] ... per [a] Department of Education regulation,” Ohio University Bursar Sherry Rossiter told PYMNTS. “So, if a student does not opt into direct deposit, we have no other option but to refund by check.”