Set up payment rails and duplicate-award checks

← Back to the checklist

Exactly what to do

1. 6.1Pick your payment channels
   The proposed regulations allow four, and your award terms should name the ones you use (the four ways to pay):
   1. Direct to the school. Tuition, fees, room and board, and similar charges billed by the school must be paid to the school, never through the family.
   2. Direct to a verified vendor. Other qualified expenses (a tutor, a special-needs service provider, a bookseller) may be paid directly to a vendor you’ve verified as an appropriate provider, that isn’t related to the student, and that is required to refund overpayments and errors.
   3. Qualified reimbursement. Money goes to a family only to reimburse an expense backed by a receipt showing both that it was paid and that it’s a qualified expense, and only after your duplicate check.
   4. A qualified digital wallet. A third-party platform where families submit purchase requests, approved expenses are tracked, and vendors are pre-approved and paid directly or receipts come in on time. Treasury’s preamble adds that money moved into a wallet counts as spent for the 90% test on the transfer date, if you don’t keep ownership of it.
2. 6.2Build the duplicate and refund controls
   The rule asks for reasonable procedures to prevent and detect fraud and abuse, including a system that stops awards to the same student for the same expense from adding up to more than its cost. In practice: an expense ledger per student, a question on every application and reimbursement request about other scholarships covering the same expense, and a written agreement with each school and vendor to refund overpayments and payments made in error. A refund is new income in the year it comes back, with until the end of the following year to spend it. Every participating state must impose application, documentation, and financial-reporting requirements aimed at exactly this kind of fraud, so expect your state to ask how your controls work.

Questions people actually ask

Primary sources: Treasury proposed regulations, October 2026 (our summary) · Four ways to pay, explained