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There are countless areas that fintech has revolutionized how organisations make and accept payments, particularly cross-border ones (including U.S. student loan payments). The problem isn’t accessing these solutions, or using them, it’s hearing about them.

One niche that falls into this category is non-U.S. universities processing U.S. student loan payments – typically via a private lender, a public federal loan, or an army veteran loan. In our latest webinar, ‘The Faster Way to Process U.S. Student Loans’, our experts Aoife Walsh and Jonathan Church talked about how new solutions could save universities time, money and administration time by leveraging these methods, while also enhancing the student experience in the process.

Here, we break down the big takeaways from that session. To watch the full session, click here.

Number 1: The old system for processing U.S. student loan payments is broken

The traditional way of processing U.S. student loans via the correspondence banking system is cumbersome, expensive (for university and student), and time-consuming. As Jonathan Church explained, it’s based on centuries old infrastructure, especially when it comes to processing cheques.

Number 2: The inefficiencies come down to three basic things – speed, cost, and ease

No matter what lengths a non-U.S. university has gone to make the process easier, such as moving away from cheques and setting up U.S. bank accounts, they will still come up against problems. Aoife Walsh explains in more detail about why it’s such a difficult web to untangle.

Number 3: There is an alternative out there

Because of the infrastructure built by fintech’s over the last couple of decades, non-U.S. universities now have a genuine alternative to the traditional correspondence banking system. By utilising these local rails set-up by fintech’s, they can now process U.S. student loan payments quicker, at a lower cost and more transparently.

Number 4: The alternative is easy to set-up

Much like the process itself, getting set-up with this new way of doing things is quick and easy. As Aoife Walsh explains, it’s a matter of taking a few simple steps and you’re ready to make processing U.S. student loans as a non-U.S. university faster and more cost-effective than ever before.

To find out how TransferMate can transform how you process U.S. student loans, click here.

Criminals are always looking for an angle. If they can find one that works again and again, they won’t just keep going at the same rate, they’ll pile on and ramp it up. When it comes to money-laundering schemes, using universities to launder ill-gotten gains has become evermore common as rules tighten up elsewhere.

Reports are emerging from around the world that illustrate the true scale of the problem. As this scale becomes more apparent, it is likely to seep into the public conscious, leaving universities that don’t have strong anti-money laundering policies and procedures in place open to transformative new legislation.

For universities that don’t take a proactive approach, they may find themselves waking up one day in the unenviable position of realizing a sizeable chunk of their revenue is from illegitimate sources.

Common money-laundering schemes that universities are affected by

Refund schemes

The refund scheme is a classic of its type and works particularly well in the university financial ecosystem where refunds are common. It allows for a criminal to pay for tuition fees (or other associated university costs such as accommodation etc.) before canceling their proposed education and then requesting a refund from the university – thereby ‘washing’ the money through the university. The criminal will often recruit students to act as a “money-mules”, and the refund may be re-directed to the Criminal.

A 2019 report in Canada by the British Columbia Attorney General found many instances of this scheme. Agents and third parties were also commonly used as accomplices, collecting the refund on behalf of the ‘student’.

A sideline is wildly overpaying for fees and then requesting a refund for the surplus.

The same Canadian report found that in once case a student who was only required to pay a $150 dollar charge arrived at the college with $9,000 in a duffel bag and asked to deposit all of it with the college. They would then be able to withdraw the money later in the form of a check from the university, which on the surface would be a ‘clean’ source of money.

Cash payments

While most tuition fees are paid digitally, there are still large tuition fees being paid to universities in cash.
While most tuition fees are paid digitally, there are still large tuition fees being paid to universities in cash.

While we live in a largely digital economy, paying for university in cash is not as uncommon as you think.

An investigation by the UK Times in 2021 found that UK universities had accepted £52 million ($65 million USD) in cash for tuition fees. In a separate investigation in the same year found that UK universities (and boarding schools) estimated that there were £30 million ($42 million USD) worth of questionable payments made from West Africa.

Put simply, these cash payments are open for allowing fraudsters to money-launder proceeds from crime or bribery. While cash payments aren’t generally allowed for high-value purchases, such as houses, in the UK at least they are allowed to be used for tuition fees, which can be substantial in themselves.

In the UK and across Europe, a university receiving cash payments of €10,000 or more in single or linked transactions in exchange for goods or services may be classed as a “High Value Dealer” which may result in the need to report such transactions to the authorities.

“TransferMate Education works with universities around the world to reduce their exposure to cash-based payments while providing the student with several alternative payment mechanisms, and coupled with an industry-leading compliance system to detect real risk in real time” said Simon McFeely, Chief Risk & Compliance Officer at TransferMate.

Third-Party Payees

Another potential for universities to be caught up in money-laundering schemes is allowing third-parties pay for a student’s tuition fees.

Corrupt officials – both in the public and private sphere – can us a tuition fee to facilitate a bribe rather than directly accepting the money.

While this is not illegal (think of a generous benefactor hearing a person’s story and deciding to help them out) it again opens up the possibility of fraud and vulnerable students to act as money-mules. Corrupt officials – both in the public and private sphere – can also use the tuition fee to facilitate a bribe rather than directly accepting the money.

In countries where public officials earn relatively low amounts compared to tuition fees in major world universities, real red flags must be raised when third parties are paying for their children’s education.

Insider collaboration

While not a scheme in and of itself, universities need to include the potential for internal collaboration with fraudsters in their thinking. The schemes mentioned above can be carried out with the university as an unwitting stooge, or as part of a more elaborate scheme.

Secondly, ‘turning a blind eye’ can be just as dangerous in the long run.

If universities allow for fraud to happen by simply ignoring the issue and not proactively preventing or investigating it, they may well be caught out through changes in the law. This would mean an abrupt shortfall of revenue and becoming an existential threat to the institutions very existence, and this isn’t including the very real reputational risk they might suffer if money-laundering activities were found to be rife within their financial system.

How universities can prevent money-laundering when accepting payments

A proactive approach, from systems to training, is vital for universities wanting to tackle fraud.

As always, there is no silver bullet or impenetrable shield that prevents fraud. Once one obstacle is put up, fraudsters generally will find a way to circumvent it in some way. However, there are concrete steps universities can take to prevent from being used in money-laundering schemes.

Get ahead of the legislation, and protect your brand

An overall policy and philosophy for university leaders is to actively seek out proposed legislation around the world and implement it before it becomes a reality. While the laws may never tighten around university payments like they do around other institutions more closely associated with the financial sector, it is likely that they will be under more severe scrutiny than they currently are at some point down the road.

And there are existing laws. For example, in the United Kingdom, a university has a duty under the Proceeds of Crime Act 2002 to notify the relevant authorities if it suspects that its processes or services are being used to launder money obtained through criminal activity, and it is required by law to have a robust Anti-Money Laundering program in place.

No university wants to support criminal activity in any manner, nor be in the headlines, so from a brand and reputational standpoint, it makes good sense move away from cash-based payments not only to streamline the admission process but also to ensure that risk exposure is reduced through the use of a carefully selected payment partner.

Automated checks and systems in payment process

Having a robust payment system with AML and fraud checks is one of the key (and cost-effective) ways universities can protect themselves against criminal activities in their payment processes.

Modern payment systems use the latest technologies to detect and prevent fraud before they go through the system.

Modern payment systems use the latest technologies to detect and prevent fraud before they go through the system. They also have the advantage of having a larger global footprint than many of even the largest banks, meaning they have embedded local rules in their systems when payments pass through certain countries.

“Our systems have very stringent checks on potential fraudulent payments’ said Simon McFeely, Chief Risk & Compliance Officer at TransferMate. ‘Universities can track payments end-to-end, know that they are checked against international sanctions lists, will be notified if any payment contravenes the AML checks we have embedded in the system, and have the highest standards of data security. Additionally, our sophisticated screening and monitoring technology applies to the student and the payer of the fees; we believe a first in the industry to do so.”

Refund to the original source of payment

One of the best ways to deter a criminal scheme is to only refund cancelled tuition payments to their original source. In essence, this leaves the criminals back at square one.

Refunding to a different bank account, for example, can be another step in the criminal layering their ill-gotten gains and integrating it into the legitimate financial system.

However, there are genuine reasons why a refund may need to go back to another bank account, so it’s important to use a system with specific in-built rules that target criminal typologies to weed-out potential bad-actors.

Ignorance of the law is not a defense, and this is particularly true in financial crimes.

Establish an AML culture

Culture will always play a role in tackling money-laundering. Regular training will allow the financial team to spot obvious cases of potential fraud and raise concerns with more opaque cases.

In general, ignorance of the law is not a defense, and this is particularly true in financial crimes. Allowing a culture of turning a blind eye to money laundering can leave the university vulnerable to not only reputational risks, but legal ones too.

Getting ahead of the game is key

When you see how vulnerable universities are to money-laundering schemes, it becomes plain that more needs to be done. Without a proactive approach, these schemes will build to such a scale where the very existence of universities will be put at risk.

While criminals are good at finding angles, there should be few better institutions than a university to see those angles and counteract them with new and innovative solutions. After all, isn’t that what education is all about?

If you want to talk to our experts and discover how TransferMate’s solutions can protect your university from money laundering and fraudulent schemes, click here.

There are many ways cultures mark the beginning of adulthood. From religious ceremonies to a traditional rite of passage to a significant birthday, being designated a ‘grown-up’ is usually marked by an event rather than experience.

The real moments we become adults, however, is when we interact with the real-world on our own, and few are as impactful as when we experience the twisted logic of bureaucracy for the first time.

For U.S. students looking to study abroad, paying for their tuition through a private, federal, or veteran loan may well be one of those occasions. The labyrinthian process that a U.S. student loan cheque goes through is quite remarkable – travelling several thousand miles back and forth across oceans, passing through multiple hands and, unfortunately, losing value along the way.

The traditional way of processing U.S. student loans as a non-U.S. university

We’ve talked before about the traditional correspondent banking infrastructure versus the modern payment rails being built today, and processing U.S. student loan payments is another area where the old system leads to more complications than is necessary.

We’ll specifically focus on cheques for this part, as it highlights the extremes payments have to go through, but even universities that have moved away from it and set-up a U.S. Dollar bank account still require elements like EIN and DUNS numbers, which is just one more layer of complexity to deal with.

Speaking of complexity, be prepared to read this next paragraph twice.

In the traditional way, a U.S. student can apply for a student loan to study abroad from three main places – private companies (such as Sallie Mae), federal loans, and army veteran loans. Once successful, the loan approver sends the cheque or bank transfer for tuition fees to the non-U.S. university in U.S. dollars. The non-U.S. university then converts that cheque into their local currency, sending it back to a U.S. bank for clearance, sometimes even needing to go to the specific branch, where it’s converted back to dollars before being sent back again to a local bank where the money is again converted into the local currency, such as Euros, British Pounds, Australian dollars, or whatever local currency is needed. At this point, the non-U.S. university must reconcile the payment as the amount is now different because of the bank charges the payment has incurred along the way, as well as the FX commissions charged during each conversion.

This leads to:

  1. Delays in students being confirmed that they have their place at the university.
  2. The students don’t receive their full payments because of the banking and FX fees incurred, sometimes leaving to a shortfall in living expenses.

What’s more, it’s a slow process – often taking weeks and even months – leaving both university and student in the dark while the payment is making its way through this circuitous route. This can mean problems are only identified at the last minute, leading to more anxiety and stress for all parties.

The Old Way to Process U.S. Student Loan Payments
A graphic demonstrating the traditional way of processing U.S. student loans as a non-U.S. university

This is essentially a result of a banking infrastructure built up over centuries that is not conducive to modern needs. As a result, banks themselves are now working with fintech companies to provide faster, simpler, and more cost-effective solutions.

The modern way to process U.S. student loan payments as a non-U.S. university

The modern method of processing U.S. student loan payments bypasses many of the steps used in the traditional way. It utilizes modern payment rails and infrastructure to cut-out much of the complexity and expense of the old way, and significantly reduces processing time.

Here’s how it works.

The non-U.S. university sets-up a U.S. bank account with a fintech provider. Even if the non-U.S. university has to go through the KYC (Know your Customer) and onboarding process, this can be done within a few days. If they are already a client, it can literally be less than a minute to set-up a U.S. bank account. Then, the U.S. loan company pays directly into the non-U.S. universities U.S. bank account. The University can then draw down their local currency from that account.

This has significant benefits:

  1. Processing time is reduced from 4 – 6 weeks to between 24 – 48 hours.  
  2. The amount paid is the amount received, meaning the university receives all the loan payment, and the student receives their full loan amount.
  3. There are no bank charges and considerably less FX charges.
The New and Faster Way to Process U.S. Student Loan Payments
How TransferMate leverages modern payment rails and technologies to provide a more efficient, fully transparent U.S. student loan process

The reason this is all possible is that fintech’s, such as TransferMate, have acquired regulatory banking licenses across the world, allowing them to circumvent many of the third-party handlers that you’re required to pass through via the traditional banking network.

This means that less institutions handle the money (and therefore there are less charges and fees), the payment flow is transparent because you have full visibility over the payment path, and the time it takes is significantly reduced.

The U.S. student loan payment process reaches adulthood

A core attribute of any ambitious university student is the desire to change the system they’re about to enter. Whatever issue they focus on, it’s how it can be changed that excites them the most. Unfortunately, systems have an innate ability to beat people down to the point where they not only accept it, but they also become active in propping it up through their working lives.

Making a tuition payment – particularly an international one – can be one of those first experiences of a system that will lead to a desire to change it. Fortunately, it’s already been done. It’s now a matter of implementing this new way so it becomes the norm.

And maybe, just maybe, we can put off becoming an adult just a little while longer.

TransferMate hosted a webinar, ‘The Faster Way to Process U.S. student loans‘, on Thursday, May 5th, 2022. You can register here to watch the on-demand recording.


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