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IFAP
FSA Information for Financial Aid Professionals
U.S. Department of Education

Citations: (R)668.164
AsOfDate: 12/1/94

Sec. 668.164 Maintaining funds.

(a) General. (1) Other than for funds an institution receives

under the FFEL 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.

(2)(i) 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

(ii) 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)