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FAP

Citations: (R)668.164
AsOfDate: 12/31/95

Maintaining funds.

(a) General. (1) Except for the requirement described

in paragraph (f) of this section, this section does not apply to
funds that an institution receives under the FFEL programs. An
institution that receives FFEL program funds through electronic
funds transfer or by master check must maintain those funds as
provided under Sec. 682.207(b).

(2)(i) For funds an institution receives under the

Federal Pell Grant, Campus-based, SSIG, and FDSL programs,
an institution must maintain a bank account that meets the
requirements under paragraphs (b) or (c) of this section into
which the Secretary transfers or the institution deposits Federal
funds that the institution receives from the title IV, HEA
programs. Except as provided in paragraph (e) of this section,
an institution is not required to maintain a separate account for
title IV, HEA program funds.

(ii) An institution must--

(A) Notify the bank of the accounts that contain

Federal funds and retain a record of that notice in its
recordkeeping system; or

(B) Ensure that the name of the account discloses

clearly that Federal funds are maintained in that account; and

(iii) Except for public institutions, file with the

appropriate State or municipal government entity a UCC-1
statement disclosing that the account contains Federal funds
and maintain a copy of that statement in its records.

(b) Interest-bearing account. (1) Notwithstanding any

other requirements in this section, an institution that participates
in the Federal Perkins Loan Program must maintain--

(i) An interest-bearing account that is--

(A) Federally insured; or

(B) Secured by collateral of value reasonably

equivalent to the amount of title IV, HEA program funds in the
account; or

(ii) An investment account consisting predominately

of low-risk income-producing securities, such as obligations
issued or guaranteed by the United States.

(2) Except as provided in paragraph (c) of this

section, for any award year, an institution must maintain an
account that meets the requirements in paragraphs (b)(1)(i) or
(ii) of this section. If an institution maintains Federal funds in an
investment account as provided in paragraph (b)(1)(ii) of this
section, the institution must maintain sufficient liquidity in that
account to make required disbursements to students.

(c) Non-interest-bearing account. (1) For any award

year, an institution is not required to maintain an
interest-bearing account if--

(i) In the prior award year, the institution drew down

less than $3 million from the title IV, HEA programs;

(ii) For the total amount of title IV, HEA program

funds that the institution drew down in the prior award year and
maintained in an interest-bearing account, the institution earned
less than $250 in interest on those funds; or
(iii) For the total amount of title IV, HEA program
funds that the institution draws down during the award year, the
institution demonstrates by its cash management practices that
it would not earn over $250 in interest by maintaining those
funds in an interest-bearing account.

(2) An institution's non-interest-bearing account must

be--

(i) Federally insured; or

(ii) Secured by collateral of value reasonably

equivalent to the amount of title IV, HEA program funds in the
account.

(d) Interest earnings. Except as provided in

paragraphs (d)(1) and (2) of this section, an institution must
remit at least annually to the Secretary the interest or
investment revenue earned on title IV, HEA program funds
maintained in an interest-bearing or investment account.

(1) Pursuant to 34 CFR Part 674, an institution must

retain for the purposes of the Federal Perkins Loan Program all
interest or investment revenue earned on Federal Perkins Loan
Program funds maintained in an interest-bearing or investment
account.

(2) Other than interest or investment revenue earned

on Federal Perkins Loan Program funds, an institution may
retain for administrative expense up to $250 per year of the
interest or investment revenue earned on title IV, HEA program
funds maintained in an interest-bearing or investment account.

(e) Separate account. The Secretary may require an

institution to maintain title IV, HEA program funds, including the
funds an institution maintains for purposes of the Federal
Perkins Loan Program, in a separate bank account that
contains no other funds if the Secretary determines that--

(1) The institution's accounting and internal control

systems do not--

(i) Identify the cash balances of title IV, HEA program

funds maintained in the institution's bank account as readily as
if those funds were maintained for each program in a separate
account; or

(ii) Identify adequately the interest or investment

revenue earned on title IV, HEA program funds maintained in its
bank account;

(2) The institution's financial records--

(i) Are not maintained on a current basis;

(ii) Do not reflect accurately all title IV, HEA program

transactions; or

(iii) Are not reconciled at least monthly; or

(3) The institution has otherwise failed to comply with

the recordkeeping and reporting requirements in subpart B of
this part or in the regulations that govern each title IV, HEA
program in which the institution participates.

(f) Standard of conduct. An institution must exercise

the level of care and diligence required of a fiduciary with
regard to maintaining and investing Federal funds.

(Authority: 20 U.S.C. 1094)

Note: (a) amended June 30, 1995, effective July 31, 1995.
(a)(2)(iii) amended December 1, 1995, effective July 1, 1996.