[Federal Register Volume 64, Number 210 (Monday, November 1, 1999)]
[Rules and Regulations]
[Pages 58974-58984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28274]
[[Page 58973]]
_______________________________________________________________________
Part IV
Department of Education
_______________________________________________________________________
34 CFR Part 668
Student Assistance General Provisions; Final Rule
Federal Register / Vol. 64, No. 210 / Monday, November 1, 1999 /
Rules and Regulations
[[Page 58974]]
DEPARTMENT OF EDUCATION
34 CFR Part 668
RIN 1845-AA04
Student Assistance General Provisions
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the loan default reduction and prevention
measures in the Student Assistance General Provisions regulations in 34
CFR part 668. These regulations reflect changes made by the Higher
Education Amendments of 1998 to the Higher Education Act of 1965, as
amended (HEA).
DATES: These regulations are effective July 1, 2000.
FOR FURTHER INFORMATION CONTACT: Kenneth Smith, U.S. Department of
Education, 400 Maryland Avenue, SW., ROB-3, room 3045, Washington, DC
20202-5447. Telephone: (202) 708-8242. If you use a telecommunications
device for the deaf (TDD), you may call the Federal Information Relay
Service (FIRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding
paragraph.
SUPPLEMENTARY INFORMATION: The Higher Education Amendments of 1998
(Pub. L. 105-244, enacted October 7, 1998, and referred to in the
preamble to these final regulations as the ``1998 Amendments'') changed
some requirements relating to the calculation of a school's Federal
Family Education Loan (FFEL) Program cohort default rate, William D.
Ford Federal Direct Loan (Direct Loan) Program cohort rate, or weighted
average cohort rate. The Secretary is revising 34 CFR 668.17 of the
Student Assistance General Provisions regulations to reflect these
changes.
On July 30, 1999, we published a notice of proposed rulemaking
(NPRM) for the Student Assistance General Provisions in the Federal
Register (64 FR 41752). In the preamble to the NPRM, we discussed on
pages 41753 through 41758 the major changes proposed in that document
for the loan default reduction and prevention measures in the Student
Assistance General Provisions:
Amending Sec. 668.17(a)(1) and 668.17(j) to change the
process that schools use to identify and challenge or request an
adjustment to incorrect data.
Amending Sec. 668.17(b)(4) to reflect the amendment to the
HEA that makes a school ineligible to participate in the Federal Pell
Grant Program when it becomes ineligible to participate in the FFEL or
Direct Loan Program due to excessive rates.
Amending Sec. 668.17(b)(5)(ii) and 668.17(b)(6) to
implement the statutory amendments that make a school liable for the
loans it certifies and delivers or originates and disburses while it is
appealing a loss of participation.
Amending Sec. 668.17(c)(1)(ii)(A) and 668.17(j)(4) to
reflect the statutory changes that modify the requirements for a
school's appeal on the basis of its participation rate index (PRI).
Amending Sec. 668.17(c)(1)(ii)(B) and 668.17(c)(7) to
reflect the amendments that modify requirements for a school's
mitigating circumstances appeal based on its economically disadvantaged
rate and completion or placement rate.
Adding Sec. 668.17(c)(1)(ii)(C) and (D) to permit a school
to appeal its loss of participation on the basis of two new mitigating
circumstances.
Amending Sec. 668.17(e), 668.17(f), and 668.17(h)(2)(iii)
to conform to statutory changes in the definition of ``default.''
Adding Sec. 668.17(k) and Appendix H to implement the
statutory changes relating to the treatment of special institutions.
Except for minor editorial and technical revisions and revisions
that provide clarification, there are no differences between the NPRM
and these final regulations. As in the NPRM, to avoid confusion in the
preamble to these final regulations, we use the word ``rate'' by itself
to refer to an FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate. We use the complete term
if we are referring to another type of ``rate'': an ``economically
disadvantaged rate,'' a ``completion rate,'' a ``placement rate,'' or a
``participation rate.''
Discussion of Student Financial Assistance Regulations Development
Process
The regulations in this document were developed through the use of
negotiated rulemaking. Section 492 of the Higher Education Act requires
that, before publishing any proposed regulations to implement programs
under Title IV of the Act, the Secretary obtain public involvement in
the development of the proposed regulations. After obtaining advice and
recommendations, the Secretary must conduct a negotiated rulemaking
process to develop the proposed regulations. All proposed regulations
must conform to agreements resulting from the negotiated rulemaking
process unless the Secretary reopens that process or explains any
departure from the agreements to the negotiated rulemaking
participants.
These regulations were published in proposed form on July 30, 1999,
in conformance with the consensus of the negotiated rulemaking
committee. Under the committee's protocols, consensus meant that no
member of the committee dissented from the agreed-upon language. The
Secretary invited comments on the proposed regulations by September 15,
1999, and 23 comments were received. An analysis of the comments
follows.
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address technical and other
minor changes in the proposed regulations, and we do not respond to
comments suggesting changes that the Secretary is not authorized by law
to make.
Analysis of Comments and Changes
General
Comments: In general, the commenters supported the proposed
regulations and appreciated the Department's responsiveness to the
student aid community.
Discussion: We appreciate the commenters' support for the proposed
regulations and the work of the members of the negotiated rulemaking
committee that resulted in the proposed regulations.
Changes: None.
Challenges and Adjustments to Inaccurate Data Used To Calculate Rates
(Sec. 668.17(a)(1) and 668.17(j))
Comments: The commenters supported the proposed changes to the
process for a school to challenge its draft data, especially the
extension of the time limit for schools to submit the challenge, from
30 to 45 days. One commenter, while applauding the proposed change,
recommended extending the time limit further, to 60 days. The commenter
reasoned that this extension is necessary because the data review
process usually takes place when schools are beginning their processing
for the next academic year and when their State reports are due. The
commenter also reasoned that the extension was necessary because
formatting or other software changes may be needed to accommodate the
electronic supporting data.
Several other commenters noted that the proposed regulations did
not include a change to the 30-day timeframe under which a guaranty
[[Page 58975]]
agency must respond to a school's challenge. The commenters reasoned
that new benefits associated with low cohort default rates may increase
the number of challenges to draft rates and that it may be difficult
for guaranty agencies to respond to challenges within the current 30-
day timeframe. Commenters asked us to revise the regulations to allow
the Secretary to extend a guaranty agency's response period if there
are extenuating circumstances, acceptable to the Secretary, that will
impair the agency's ability to respond within the required timeframe.
Discussion: Because of statutory requirements for the issuance and
review of draft data and the issuance of final rates by September 30,
the time period for the draft data review process is necessarily short.
Extending the period for schools to challenge their draft rates from 30
to 45 days will further shorten the period. Under the process included
in the regulations, schools must challenge their draft rates within 45
days, and guaranty agencies will have 30 days to respond to those
challenges. An additional 2 months are needed for the guaranty agencies
to submit corrected data to the National Student Loan Data System
(NSLDS). At least two submission cycles are needed to ensure that NSLDS
data has been updated and that any rejected data is corrected. In
addition, we use this 2-month period to review guaranty agencies'
responses to schools.
We intend to issue draft rates by late March. Final rates must be
calculated by late August to ensure that they are published by
September 30. Thus, the timeframes for the review process are very
tight, and we do not believe it is possible to further extend the
deadlines for individual actions. Allowing an option to extend
timeframes for guaranty agencies on a case-by-case basis is not a
workable alternative. Delayed responses from one or two guaranty
agencies could significantly affect the accuracy of many schools'
rates.
Changes: None.
Comments: In the preamble to the NPRM, the Department announced
administrative changes to the process used by a school to request an
adjustment to a published rate: supporting data will be provided to
more schools with their published rates, a school will have more time
to request an adjustment, and a school will be able to request an
adjustment of the data used to calculate its published rate that was
not used to calculate its draft rate (``new data''). Commenters
generally expressed appreciation for all of these changes. Several
commenters asked for clarification in the preamble to these final
regulations concerning the types of adjustments to new data that a
school would be able to request.
Discussion: The ``new data adjustment,'' which will be available to
schools beginning with receipt of the fiscal year (FY) 1998 published
rates, will be used only to adjust rates based on incorrect new data.
``New data'' are data that were reported one way in the draft rate and
a different way in the published rate. Schools may not use this process
to correct data that were used to calculate their draft rates: a school
must have challenged its draft rate to correct the data on which the
draft rate was based.
For example, if a borrower was included in the denominator of the
calculation of a school's draft rate but was not included in the
calculation of its final rate, the school may use a new data adjustment
to correct the data that resulted in the removal of the borrower,
incorrectly, from the calculation of the published rate. However, if a
borrower was not included in both the draft and published rates, the
school may not use a new data adjustment to correct data that resulted
in the borrower's exclusion from its published rate.
Changes: None.
Comments: The NPRM's preamble announced other administrative
changes to the process used to challenge and adjust rates. These
changes included making supporting data available to schools in an
electronic format and allowing schools to view, year round, ``real-
time'' loan repayment and default data that will be used to calculate
their rates. These changes will affect the process for both draft and
published rates and will be implemented under the timelines announced
in the preamble to the NPRM.
Several commenters asked for clarification in this preamble
concerning the process for providing electronic supporting data and
real-time data. Two commenters recommended that we make electronic data
available to all schools and guaranty agencies, in a format compatible
with schools' software, and that eventually we provide electronic data
automatically to all schools. Commenters recommended that we provide
real-time data via a system to which schools currently have access, and
they suggested the use of the National Student Loan Data System (NSLDS)
for this purpose. The commenters reasoned that these provisions would
reduce the administrative and financial burden for schools.
Discussion: We intend to meet the implementation timeframes
described in the preamble to the NPRM for providing supporting data to
schools electronically and for providing data on a real-time basis.
After those deadlines are met, we expect eventually to provide
supporting data electronically to all schools and to guaranty agencies.
We are also working with schools to ensure that the format of the
electronic supporting data is compatible with schools' computer
hardware and software. In addition, we plan to provide real-time data
to schools via NSLDS.
Changes: None.
Deadline for Publishing Rates (Sec. 668.17(b)(3))
Comments: In the preamble to the NPRM, we addressed the concerns
expressed by some non-Federal negotiators during negotiated rulemaking
about the possible consequences of our issuing rates after the date
required by statute, September 30 of a year. Four commenters noted that
the Department's guidance is not currently included in regulations or
other guidance issued by the Department and recommended that the
guidance be provided more formally. Two commenters reasoned that,
without this formal guidance, a school's eligibility may be challenged
by a party critical of the guidance. Commenters recommended that the
guidance be provided in the Student Financial Aid Handbook and in the
Cohort Default Rate Guide. One commenter recommended including the
guidance in regulations.
Discussion: We have already published the Department's view of the
effect of a later publication of rates in the FY 1997 Official Cohort
Default Rate Guide and in the 1999-2000 Student Financial Aid Handbook.
It is not appropriate or necessary to include this guidance in
regulations because the Department intends to meet the statutory
requirements and publish rates by September 30 of each year.
Changes: None.
Loss of Pell Eligibility (Sec. 668.17(b)(4))
Comments: One commenter stated that the compromise reached during
negotiated rulemaking was fair in allowing a school with excessive
rates to continue participating in the Federal Pell Grant Program if it
had not certified an FFEL loan or originated a Direct Loan on or after
July 7, 1998. Several commenters asked us to clarify in this preamble
whether a school could meet this criteria if it delivered FFEL funds or
disbursed Direct Loan funds after July
[[Page 58976]]
7, 1998, for a loan certified or originated before that date.
Another commenter recommended removing this provision entirely. The
commenter reasoned that, as the process to develop the statute was
lengthy, schools had adequate time to withdraw formally from the FFEL
and Direct Loan programs before its enactment. The commenter believed
that the basis provided for including this provision was speculative
and that its inclusion in regulations would lead to the loss of Federal
funds.
Discussion: Under Sec. 668.17(b)(4)(iii), a school with excessive
rates would be allowed to continue participating in the Federal Pell
Grant Program if it has not certified an FFEL loan or originated a
Direct Loan on or after July 7, 1998. Because this criterion is
specific to the certification or origination of loans, a school's
delivery or disbursement of funds after July 7, 1998, for a loan that
was certified or originated before that date does not affect a school's
satisfaction of the criterion.
We do not agree with the recommendation that the provision allowing
continued participation in the Federal Pell Grant Program be removed
from the regulations. The Department is satisfied that there were cases
in which schools that intended to withdraw from the FFEL or the Direct
Loan Program were not aware that they needed to notify the Department
in writing and instead simply stopped certifying or originating loans.
The Department believes that these schools should not lose the
opportunity to participate in the Federal Pell Grant Program based on
their rates.
Changes: None.
Comments: One commenter recommended that a school be allowed to
continue participating in the Federal Pell Grant Program, despite loss
of participation in the FFEL or Direct Loan Program due to excessive
rates, if the school: (1) Is in good standing with the community and
its accreditation organization, (2) was not aware of the provisions in
the 1998 Amendments for loss of eligibility to participate in the
Federal Pell Grant Program, and (3) returns all FFEL Program and Direct
Loan Program funds received after the date of enactment of the 1998
Amendments. The commenter reasoned that this provision would allow
schools to continue participating in the Federal Pell Grant Program and
providing an education to needy students.
Discussion: The commenter's recommendations are inconsistent with
statutory requirements. The HEA provides only two exceptions to the
loss of participation in the Federal Pell Grant Program based on
excessive rates: (1) The school did not have the opportunity to appeal
its rate under the appropriate regulations, and (2) the school did not
participate in the FFEL or Direct Loan Program on or after the date of
enactment.
Changes: None.
Liability for Unsuccessful Appeals (Sec. 668.17(b)(5)(ii) and
668.17(b)(6))
Comments: Several commenters asked for clarification of the
regulations for establishing a school's liability on loans made during
an unsuccessful appeal. In particular, the commenters requested that we
provide further explanation of--
(1) Whether the liability determination would apply to schools that
are subject to loss of participation based on three rates over 25
percent, for schools with one rate over 40 percent, or for special
institutions that are continuing to participate by complying with the
requirements of Sec. 668.17(k);
(2) The formula that will be used to calculate a school's
liability;
(3) The beginning and ending date of the period during which a
school would be liable;
(4) Whether a school that suspends its participation to avoid a
liability may resume its participation 45 days after the submission of
its completed appeal, without incurring a liability, if we have not
made a determination on the appeal; and
(5) Whether the repayment terms for a liability will be flexible
enough to ensure a school's repayment without causing serious financial
problems for the school and its students.
Discussion: Responses to each of the commenters' issues follow:
(1) The liability for loans made during the appeal process only
applies to a school with rates of 25 percent or more for 3 consecutive
years that is subject to an action under Sec. 668.17 (a)(3), (b)(1), or
(b)(2). The 1998 Amendments do not require a similar liability
determination for a school subject to termination from all of the Title
IV programs based on a rate over 40 percent. In addition, a special
institution would only be subject to this type of liability if it is
not in compliance with Sec. 668.17(k) and its rates for the 3 most
recent fiscal years are 25 percent or more. If a special institution is
in compliance with Sec. 668.17(k), and thus not subject to an action
under Sec. 668.17 (a)(3), (b)(1), or (b)(3), it may challenge its rate
without incurring a potential liability.
(2) A more detailed description of the estimated loss formula is
available to the public on the Internet at the following site: http://
ifap.ed.gov/csb__html/procmemo.htm.
The current guidance on the estimated loss formula is provided on
that site, under ``Procedure Memos Sorted by Memo Number,'' in IRB Memo
92-3, which is listed as ``I92-3.''
(3) The period during which a school would be liable begins 30
calendar days after it receives its published rate and ends on the 45th
calendar day after the school submits its completed appeal.
(4) The final regulations have been changed to clarify that a
school's suspension of its participation need not continue longer than
45 days after it submits its completed appeal to the Department. Like
other schools, a school that suspends its participation would not incur
this type of liability for funds delivered or disbursed more than 45
calendar days after it submits its completed appeal to the Department.
(5) We will consider a school's request for more time to repay a
liability, over a period greater than the 45 days allowed in the
regulations, on a case-by-case basis. A determination to extend a
school's repayment period may include a consideration of the school's
circumstances, its students' circumstances, and the best method to
ensure that funds are recovered.
Changes: We have revised Sec. 668.17(b)(6) to clarify that, if a
school suspends its participation in order to avoid a liability, the
suspension may end 45 days after the school submits its completed
appeal. We have also revised the regulations to clarify that a school
is subject to a potential liability for loans certified and delivered
or originated and disbursed during the appeal process if the school is
subject to an action under Sec. 668.17(a)(3), (b)(1), or (b)(2).
Comments: One commenter stated that the use of the Department's
``Estimated Loss Formula'' to determine a school's liability for loans
made during an unsuccessful appeal, as described in the NPRM,
exaggerates the potential loss to the Government and would make appeals
prohibitively expensive. The commenter stated that the intent of
Congress was to focus on the amount of interest and special allowance
for loans made during the appeals period, rather than on the amounts
calculated under the ``Estimated Loss Formula.'' The commenter did not
believe that the issue is adequately addressed by allowing a school to
avoid a liability by suspending its participation.
Discussion: Under the amendments to section 435(a)(2)(A) of the
HEA, a school's liability is not limited to the amount of the interest
and special allowance on the loans made during its appeal. Rather, the
HEA requires an institution to pay ``an amount equal to
[[Page 58977]]
the amount of interest, special allowance, reinsurance, and any related
payments.'' Thus, the amount of the Government's costs for reinsurance
and any related payments must be included in the calculation of the
school's liability.
We also do not agree that the Department's ``Estimated Loss
Formula'' exaggerates potential losses to the Government. As described
in the NPRM, the formula uses the school's most recent published rate
to estimate the principal amount of the loans that would be expected to
default and estimates the costs that will be incurred for interest,
special allowance, and other losses on the loans. These amounts are
equivalent to the amounts that the HEA requires a school to pay. The
formula is used by the Department to calculate schools' liabilities in
other, similar circumstances, and it has proven to be a reliable and
supportable measure of potential losses to the government.
Assessing a liability does not make appeals prohibitively expensive
because any school may avoid a liability by suspending its
participation in the loan program or programs during the appeal
process. If a school has confidence in the basis for its appeal, it
will be able to continue to participate during the appeal process with
the same confidence. The regulations ensure that the school, rather
than the Government, assumes the risk for the cost of the loans made
during an unsuccessful appeal.
Changes: None.
Comments: The proposed Sec. 668.17(b)(6)(ii)(C)(1) would permit a
school to appeal, under subpart H of 34 CFR part 668, a liability
calculated for loans made during an unsuccessful appeal. As the
provisions in subpart H are used by schools to appeal final audit and
program review determinations, one commenter asked for clarification of
the procedures that a school would use to file this type of appeal. The
commenter did not understand how or why subpart H could be used to
appeal the calculation of this liability.
Discussion: In appealing a calculation of a liability for loans
under these regulations, under subpart H, the calculation will be
treated as a program review determination.
Changes: We have revised Sec. 668.17(b)(6)(ii)(C)(1) to clarify the
procedures for the appeal of a liability.
Participation Rate Index (PRI) (Sec. 668.17(c)(1)(ii)(A) and
668.17(j)(4))
Comments: None.
Discussion: On further review, we have determined that the language
in Sec. 668.17(c)(1)(ii)(A)(2), explaining the method for calculating a
PRI, could be misinterpreted. We have modified the language to avoid
confusion. The new language does not change the substance of the
calculation.
Changes: We have revised Sec. 668.17(c)(1)(ii)(A)(2) to more
clearly describe the calculation of a school's PRI for a fiscal year.
Comments: Several commenters recommended that the regulations be
revised to clarify the procedures that may be used by schools to
challenge an anticipated loss of participation, on the basis of a
participation rate index (PRI), during the draft rate process. The
commenters stated that the proximity of the proposed regulations in
Sec. 668.17(j)(4) to the provisions for a challenge of incorrect data
may cause confusion. They were especially concerned that schools may
send their PRI challenges to guaranty agencies, rather than to the
Department.
Discussion: Though the two paragraphs contain separate
requirements, we agree that their proximity in the regulations could
cause some confusion.
Changes: We have revised Sec. 668.17(j)(4) to distinguish more
clearly between the procedures and requirements for a challenge of
inaccurate data and those for a PRI challenge.
Comments: One commenter asked us to clarify the consequences of a
school's successful PRI appeal based on a draft rate, if the school's
published rate for the same fiscal year would not result in a
successful PRI appeal. Another commenter noted that under the proposed
regulations, if a school successfully challenges an anticipated loss of
participation during the draft rate process, the school would have to
appeal again the following year to continue participating, even if the
draft rate upon which the school based its original challenge is equal
to or higher than the same fiscal year's published rate. The commenter
stated that this type of second appeal is unnecessarily burdensome and
recommended that it be required only if the draft rate upon which a
school bases its PRI challenge is lower than the published rate.
Discussion: Since a PRI challenge or appeal may be based on the PRI
for any of the 3 most recent fiscal years for which data are available,
the same PRI may be a criterion for a school's challenge or appeal in
more than one year. A school that successfully challenges or appeals a
loss of participation, based on its PRI, does not need to challenge or
appeal again in a subsequent year as long as the same, successful PRI
could be used as a basis for the subsequent appeal. An example is
provided in the preamble to the NPRM.
If a school's PRI challenge based on a draft rate is successful,
and the school's published rate for the same fiscal year would not
result in a successful appeal, the school has still successfully
challenged its loss of participation for that year. However, when rates
are published the following year, the prior, successful PRI challenge,
based on a draft rate, cannot be used to continue the school's
participation, because a prior year's draft rate is not a basis for a
challenge or appeal of a school's current loss of participation.
We agree with the comment suggesting that we should not require a
school to appeal a second time if it successfully appealed the previous
year on the basis of a PRI calculated using its draft rate and its
published rate for the same fiscal year was equal to or lower than its
draft rate. In that case, there is no need for the school to submit
another appeal because we already have enough information to determine
that the school's appeal would be successful.
The administrative procedure used to make the determination that
the school's appeal would be successful will be similar to the
procedure used for the new mitigating circumstances appeals provided in
Sec. 668.17(c)(1)(ii)(C) and (D). There is no need to include this
procedure in the regulations. If information we maintain can be used to
determine that a school's PRI appeal would be successful, we will
calculate the results and notify the school. In addition to the
circumstances noted by the commenter, this calculation would also be
performed if a school's challenge during the draft rate process is
unsuccessful, its published rate for the same fiscal year is lower than
its draft rate, and an appeal based on the published rate would be
successful. In that case, we would also calculate the results of the
school's PRI appeal and notify the school.
Changes: None.
Mitigating Circumstances Appeals (Sec. 668.17(c)(1)(ii)(B) and
668.17(c)(7))
Comments: Previously, the economically disadvantaged rates,
completion rates, and placement rates used to determine a school's
mitigating circumstances appeal were calculated as percentages of all
of the school's regular students. The NPRM proposed to limit the groups
of students for whom the percentages are calculated to include only
students who are enrolled in programs eligible for Title IV aid. This
change was requested by some of the negotiators during negotiated
rulemaking because they believed it was
[[Page 58978]]
unlikely that the records needed to determine a school's economically
disadvantaged rate would be available for students not in Title IV
eligible programs.
In general, commenters supported this change. They reasoned that if
the change were not made, it would be difficult for schools to obtain
the information necessary to determine eligibility for this type of
appeal. One commenter stated that this change was also appropriate
because it focused on the completion and placement outcomes for
students attending classes supported by Title IV funds.
Several other commenters suggested that only the economically
disadvantaged rate should be based on students enrolled in programs
eligible for Title IV aid and that a school should have an option to
base its completion rate or placement rate on either its regular
students or on the students in Title IV eligible programs. They
reasoned that, as the same problem with records does not apply to
completion and placement rates, giving a school this option may provide
a small degree of assistance for schools to satisfy the criteria for a
successful appeal and to continue to serve economically disadvantaged
students.
Discussion: All of the commenters' suggestions were considered and
rejected during the negotiated rulemaking process. As one commenter
noted, one of the reasons for restricting the calculation to students
in Title IV eligible programs was that, in doing so, the calculation
would be restricted to the loan programs that are actually serving the
low-income population. Basing the economically disadvantaged rate and
the completion and placement rates on different populations would not
ensure that the benefit shown in the school's completion or placement
rate was actually received by economically disadvantaged students.
Changes: None.
Comments: One commenter asked for clarification concerning our
intent to explain to a school the reasons that we have determined an
independent auditor's report or an institution's management's assertion
to be ``contradicted or otherwise refuted.'' Another commenter
recommended that we define ``independent auditor'' in these final
regulations and that we include provisions for rejecting an auditor's
certification that a school meets the criteria for the appeal if the
facts demonstrate that the auditor's opinion is fraudulent or
inaccurate. The commenter also recommended that we use more than just
the information we maintain when making a determination on an appeal.
The commenter recommended that these final regulations be revised to
allow us to routinely obtain information for making our determinations,
reasoning that limiting ourselves to the information that we maintain
invites abuses and that we have no reason to believe that auditors will
always act honestly and truthfully.
Discussion: If a school's appeal is not accepted because we
determine an independent auditor's report or an institution's
management's assertion to be ``contradicted or otherwise refuted'' by
the information we maintain, the reasons for our determination will be
explained in the notification we send to the school.
We agree with the commenter's recommendation that a definition of
``independent auditor'' should be referenced in these regulations.
``Independent auditor'' is already defined in Sec. 668.23(a)(1), and we
have incorporated that definition into this section of the regulations.
The additional requirements that the commenter recommends to
prevent fraud or inaccuracies are not needed.
The proposed regulations allow us to deny an institution's appeal
if we determine that the independent auditor's report does not meet the
requirements of Sec. 668.17 or that it is contradicted or otherwise
refuted by information that we maintain. The standards for the
engagement that forms the basis for an independent auditor's opinion,
in Sec. 668.17(c)(7)(ii)(B), include criteria that address an auditor's
proficiency and independence. Also, as we noted in the NPRM's preamble,
if improprieties are suspected in a school's appeal, an investigation
could be pursued under other legal authority.
We also do not agree with the commenter's recommendation that we
routinely obtain information to evaluate the validity of the auditor's
certification for these appeals. As we discussed in the preamble to the
NPRM, it would be inappropriate for us to ignore information we
maintain or any contradictions in the data of an independent auditor's
report when deciding whether a school meets the appeal's criteria.
However, we believe that it would be inconsistent with congressional
intent for us to routinely duplicate the work of an independent auditor
by conducting investigations to gather additional information.
Changes: We have revised Sec. 668.17(c)(1)(ii)(B)(1) to incorporate
the definition of ``independent auditor'' from Sec. 668.23.
Other Mitigating Circumstances Appeals (Sec. 668.17(c)(1)(ii)(C) and
(D))
Comments: Many commenters strongly supported the two new mitigating
circumstances that were included in the NPRM, which will allow schools
to appeal based on the total number of borrowers in the 3 most recent
fiscal years and will allow schools with ``average'' rates to appeal
based on the rate for a single fiscal year only. The commenters stated
that these new mitigating circumstances are a significant improvement
toward eliminating sanctions based on statistically insignificant
percentages and that they represent movement in a positive direction
toward reducing unnecessary regulatory penalties. Commenters asked that
the Secretary revisit these and other issues related to schools' rates
in future negotiations.
One commenter noted that, under the 1998 Amendments, the Secretary
is required to conduct a study of the effectiveness of rates for
certain schools at which a small percentage of students receive loans.
The commenter asked the Department to further address these schools'
circumstances after conducting the required study. The commenter felt
that this is necessary because a school's excessive rates may cause it
to suffer from public criticism or to be placed on a provisional
certification status, regardless of its being allowed to continue its
participation in the Title IV programs as the result of a successful
appeal.
Discussion: We appreciate the commenters' support for the proposed
regulations, and their interest in this issue and in the study of the
effectiveness of rates. We will consider these issues and the results
of the study during the ongoing review of the regulations for the Title
IV programs.
Changes: None.
Comments: Several commenters stated that the language in the
preamble to the NPRM and in the proposed regulations was in error when
it used the phrase ``30 or fewer.'' They noted that an average rate, as
described in Sec. 668.17(d), (e), and (f), is calculated for a school
with ``fewer than 30'' borrowers entering repayment in that fiscal
year. The commenters asked us to correct the language in the NPRM.
Discussion: There is no error. The phrases ``30 or fewer'' and
``fewer than 30,'' as used in the preamble to the NPRM and in the
proposed regulations, apply to separate, unrelated requirements. As the
commenters note, an ``average'' rate is calculated for a school with
``fewer than 30'' borrowers entering repayment during a fiscal year.
[[Page 58979]]
However, the proposed regulations would add a new mitigating
circumstance that allows a school to appeal its loss of participation
if the total number of its borrowers entering repayment in the 3 most
recent fiscal years for which data are available is ``30 or fewer.''
The former standard is used in determining how a school's rate is
calculated. The latter standard is used in determining a school's
eligibility to appeal a loss of participation. However, we do recognize
the value of making terms in these regulations consistent, and we will
reconsider this issue during the ongoing review of the regulations for
the Title IV programs.
Changes: None.
Definition of ``Default'' (Sec. 668.17(e), 668.17(f), and
668.17(h)(2)(iii))
Comments: Several commenters were concerned that readers might be
confused by the NPRM's explanation of the date on which a loan is
considered to be in default for the purpose of calculating a rate. They
stated that some readers might believe, based on the preamble's
language, that the actual definition of ``default'' for an FFEL Program
loan was changing from 270 days of delinquency to 360 days and asked us
to provide clarification in the preamble to these final regulations.
Discussion: The 1998 Amendments changed the definition of a default
on an FFEL or a Direct Loan Program loan from 180 days to 270 days past
due for a loan that is repayable in monthly installments and from 240
days to 330 days past due for loans repayable in less frequent
installments. The definition of ``default'' that is used in Sec. 668.17
for the purpose of calculating rates is based on this general
definition. It is not the same as the definition provided in the
statute for the date of a borrower's default.
For the purposes of calculating an FFEL Program cohort default
rate, a default is generally considered to have occurred on the date
that a claim for insurance is paid on the loan by a guaranty agency.
Since there is generally a 90-day period between the date that a
borrower defaults and the date that an insurance claim is paid, an FFEL
Program loan would not normally be considered in default for the
purposes of calculating a school's rate until it is at least 360 days
past due (270 days + 90 days = 360 days). For consistency, because
Direct Loans do not go through a claims payment process, these final
regulations change from 270 to 360 the number of days past due after
which a Direct Loan borrower is considered in default for purposes of
calculating a school's rate.
Changes: None.
Comments: Several commenters expressed concerns about the impact of
the change in the definition of ``default,'' from 180 days to 270 days,
upon the calculation of a school's rate. The commenters were concerned
that, using the current method to calculate rates, the change in the
timeframe may remove a significant number of defaulted borrowers from
the calculation of rates, decreasing their consistency and accuracy as
a reflection of the borrowing history of a school and affecting the
effectiveness of default prevention activities conducted by schools.
Some commenters stated that it is appropriate for the Department to
consider the impact of the change in the definition of ``default'' on
schools' rates and to communicate its intentions concerning anticipated
future changes, if any, to the calculation of rates. One commenter
asked the Department to devise a calculation that would address the
lengthened default period.
Discussion: The calculation of a school's rate is defined in
section 435(m) of the HEA.
Changes: None.
Special Institutions (Sec. 668.17(k) and Appendix H)
Comments: One commenter stated that historically black colleges or
universities, tribally controlled community colleges, and Navajo
community colleges (``special institutions'') have already had an
adequate length of time to reduce their rates to acceptable levels. The
commenter objected to continuing a double standard and asked to either
eliminate the provisions that allow special institutions with excessive
rates to continue to participate or to apply the same criteria to all
schools with excessive rates.
Another commenter questioned the creation of a new Appendix H when
Appendix D of 34 CFR part 668 already addresses default management
plans. The commenter suggested that, since Appendix D needs to be
updated, the two appendices should be combined, updated, and applied to
all schools. The commenter also asked that regulations specify whether
a special institution would be subject to loss of participation in the
Federal Pell Grant Program if it is not in compliance with
Sec. 668.17(k).
Discussion: The provisions that provide a different treatment for
special institutions with excessive rates are statutory and cannot be
changed by regulations. Also, it is not necessary to specify in
Sec. 668.17(k) that a school is subject to loss of participation in the
Federal Pell Grant Program if it is not in compliance with that
paragraph. If any school is subject to a loss of participation in the
FFEL or Direct Loan Program under Sec. 668.17, it is also subject to
loss of participation in the Federal Pell Grant Program if it meets the
criteria in Sec. 668.17(b)(4).
The requirements reflected in Sec. 668.17(k) are limited to a 3-
year transition period, after which the consequences of excessive rates
will become fully applicable to special institutions. As other schools
do not have the same transition period, these criteria are not
appropriate for them.
Finally, we believe it would be inappropriate to revise, in these
final regulations, the current Appendix D to include some or all of the
guidance in Appendix H, because the revision would go beyond the scope
of the proposed regulations. However, the updates to Appendix D
suggested by the commenter will be considered during the ongoing review
of the regulations for the Title IV programs.
Changes: None.
Comments: The criteria for determining whether a special
institution has made substantial improvement are listed in paragraphs
(A) through (H) of Sec. 668.17(k)(4)(i). One commenter stated that
while it is appropriate to use either paragraph (A) or (B), by itself,
to determine a school's substantial improvement, the commenter did not
believe that any of the remaining criteria, alone, would adequately
reduce a school's rate. The commenter suggested that, if a school
cannot show that it has met the criterion in either paragraph (A) or
(B), a school should be required to meet more than one of the remaining
criteria in order for the Secretary to determine that the school has
made substantial improvement.
The commenter also suggested the following changes to Appendix H:
(1) to include, under ``Core Default Reduction Strategies,'' the design
of procedures to reduce a school's rate by identifying and implementing
alternative financial aid award policies and developing alternative
financial resources; (2) to provide for monthly, rather than annual,
targets for reductions in a school's rate; (3) to make item 7 the first
item under ``Additional Default Reduction Strategies,'' reasoning that
this item is the most effective long-term solution; (4) to remove item
1 under ``Statistics for Measuring Progress;'' and (5) to provide for
the tracking of sub-categories of borrowers under items 2 and 7 under
``Additional Default Reduction Strategies.'' The commenter felt that
these changes would assist schools in identifying potential problems
and
[[Page 58980]]
reacting to them more quickly and effectively.
Discussion: The requirements in Sec. 668.17(k) and the sample plan
in Appendix H are provided to ensure that a school that is subject to
those provisions will, no later than July 1, 2002, have a rate that is
less than 25 percent. To regulate the requirements in more detail, as
the commenter suggests, or to provide more detailed guidance in the
sample plan in Appendix H, may tend to limit a school's choices and
make a school less able to devote its resources effectively to the task
at hand. Each school needs the flexibility to implement a plan that
addresses its individual circumstances.
The same flexibility is needed in making a determination of a
school's substantial improvement under Sec. 668.17(k)(4)(i). The
criteria in that paragraph are the bases for a determination of
substantial improvement, but the criteria will be applied to schools as
appropriate to their individual circumstances, as described in
Sec. 668.17(k)(4)(ii). If a school's performance under any one of the
criteria is adequate to determine that it has made substantial
improvement, there is no reason to require the school to meet another
criterion under that paragraph.
Changes: None.
Executive Order 12866
We have reviewed these final regulations in accordance with
Executive Order 12866. Under the terms of the order we have assessed
the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those we have determined to
be necessary for administering these programs effectively and
efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, we have determined that
the benefits of the regulations justify the costs.
We have also determined that this regulatory action does not unduly
interfere with State, local, and tribal governments in the exercise of
their governmental functions.
We summarized the potential costs and benefits of these final
regulations in the preamble to the NPRM (64 FR 41752).
Paperwork Reduction Act of 1995
The Paperwork Reduction Act of 1995 does not require you to respond
to a collection of information unless it displays a valid OMB control
number. We display the valid OMB control number assigned to the
collection of information in these final regulations at the end of the
affected section of the regulations.
Intergovernmental Review
The Federal Supplemental Educational Opportunity Grant Program and
the State Student Incentive Grant Program are subject to Executive
Order 12372 and the regulations in 34 CFR part 79. The objective of the
Executive order is to foster an intergovernmental partnership and a
strengthened federalism by relying on processes developed by State and
local governments for coordination and review of proposed Federal
financial assistance.
In accordance with the order, we intend this document to provide
early notification of our specific plans and actions for these
programs.
The Federal Family Education Loan, Federal Supplemental Loans for
Students, Federal Work-Study, Federal Perkins Loan, Federal Pell Grant,
Income Contingent Loan, and William D. Ford Federal Direct Loan
programs are not subject to Executive Order 12372 and the regulations
in 34 CFR part 79.
Assessment of Educational Impact
In the NPRM we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have
determined that these final regulations do not require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Electronic Access to This Document
You may view this document in text or Adobe Portable Document
Format (PDF) on the Internet at the following sites:
http://ocfo.ed.gov/fedreg.htm
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To use the PDF you must have the Adobe Acrobat Reader Program with
Search, which is available free at the first of the previous sites. If
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Printing Office (GPO), toll free, at 1-888-293-6498; or in the
Washington, DC, area at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032 Federal
Family Education Loan Program; 84.032 Federal PLUS Program; 84.032
Federal Supplemental Loans for Students Program; 84.033 Federal
Work-Study Program; 84.038 Federal Perkins Loan Program; 84.063
Federal Pell Grant Program; 84.069 State Student Incentive Grant
Program; 84.226 Income Contingent Loan Program; and 84.268 William
D. Ford Federal Direct Loan Program)
List of Subjects in 34 CFR Part 668
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs-education, Loan
programs-education, Reporting and recordkeeping requirements, Student
aid, Vocational education.
Dated: October 20, 1999.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
part 668 of title 34 of the Code of Federal Regulations as follows:
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
1. The authority citation for part 668 continues to read as
follows:
Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099c, and
1141, unless otherwise noted.
2. Section 668.17 is amended to read as follows by--
A. Revising paragraph (a)(1).
B. In the introductory language for paragraph (b)(3), removing the
word ``institution's'' and adding, in its place, ``institution whose'';
removing the word ``respectively''; and removing the words ``section
and continuing'' and adding, in their place, ``section. The loss of
participation continues''.
C. Revising paragraphs (b)(4) through (b)(6).
D. In the introductory text for paragraph (c)(1), after ``except
that an institution may submit an appeal under'', removing the word
``section'' and adding, in its place, ``paragraph''; removing the words
``the information required by paragraph (c)(7) may be submitted in
accordance with that paragraph'' and adding, in their place, ``an
institution submits an appeal under paragraph (c)(1)(ii)(B) of this
section in accordance with paragraph (c)(7) of this section''; and
removing the sentence, ``The additional 30-day period specified
[[Page 58981]]
in paragraph (c)(7) of this section is an extension for the submission
of the auditor's statement only and does not affect the date by which
the appeal data must be submitted.''
E. Revising paragraphs (c)(1)(ii), (c)(2), and (c)(7).
F. In paragraphs (e)(1)(ii)(A), (e)(1)(ii)(B), (f)(1)(ii)(A), and
(f)(1)(ii)(B), removing the number ``270'' and adding, in its place,
``360''.
G. In paragraphs (e)(3) and (f)(3), removing ``270 days'' and
adding, in its place, ``360 days (or for 270 days, if the borrower's
delinquency began before October 7, 1998)''.
H. In paragraph (h)(2)(ii), adding, at the end of the paragraph,
``In excluding loans from the calculations of these rates, the
Secretary removes them from both the number of students who entered
repayment and the number of students who defaulted.''
I. In paragraph (h)(2)(iii), removing the number ``270'' and
adding, in its place, ``360''.
J. In the introductory language for paragraph (h)(3)(ii)(B),
removing the words ``with a representative sample'' and adding, in
their place, ``with access, for a reasonable period of time not to
exceed 30 days, to a representative sample''; and removing the words
``records submitted by the lender to the guaranty agency to support the
lender's submission of a default claim and included in the claim file''
and adding, in their place, ``collection and payment history records
provided to the guaranty agency by the lender and used by the guaranty
agency in determining whether to pay a claim on a defaulted loan''.
K. In the introductory language for paragraph (h)(3)(iii)(B),
removing the words ``with a representative sample'' and adding, in
their place, ``with access, for a reasonable period of time not to
exceed 30 days, to a representative sample''; and removing the words
``records maintained by the Department's Direct Loan Servicer with
respect to the servicing and collecting of delinquent loans prior to
the default'' and adding, in their place, ``collection and payment
history records maintained by the Department's Direct Loan Servicer
that are used in determining an institution's Direct Loan Program
cohort rate or weighted average cohort rate''.
L. Revising paragraph (j)(1)(ii).
M. Removing paragraph (j)(1)(iii).
N. Redesignating paragraphs (j)(2), (j)(3), (j)(4), (j)(5), and
(j)(7) as paragraphs (j)(3)(i), (j)(3)(ii), (j)(3)(iii), (j)(3)(iv),
and (j)(3)(v), respectively.
O. Redesignating paragraph (j)(6) as (j)(2).
P. In the redesignated paragraph (j)(2), removing the cross-
reference ``(h)(1)'' and adding, in its place, ``(j)(1)''.
Q. In the redesignated paragraph (j)(3)(i), removing the number
``30'' and adding, in its place, ``45''.
R. In the redesignated paragraph (j)(3)(ii), removing the citation
``(h)(2)'' and adding, in its place, ``(j)(3)(i)''.
S. In the redesignated paragraph (j)(3)(v), removing the citation
``(d)(1)'' and adding, in its place, ``(c)(1)(i)''; removing the word
``preliminary'' and adding, in its place, ``draft''; and removing the
citation ``(h)'' and adding, in its place, ``(j)(3)''.
T. Adding a new paragraph (j)(4).
U. Adding a new paragraph (k).
V. Revising the OMB control number following the section.
Sec. 668.17 Default reduction and prevention measures.
(a) * * *
(1)(i) If the Secretary calculates an FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
for an institution, the Secretary notifies the institution of that
rate.
(ii) If an institution has an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate of 10
percent or more, the Secretary includes a copy of the supporting data
used in the calculation of the rate with the notice of the rate.
(iii) An institution with an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate of
less than 10 percent may request a copy of the supporting data used in
the calculation of the rate. The institution's request must be sent to
the Secretary within 10 working days of receiving the Secretary's
notice. Upon receiving the institution's request, the Secretary sends a
copy of the data to the institution.
* * * * *
(b) * * *
(4) If an institution loses eligibility to participate in the FFEL
or Direct Loan Program under this section, it also loses eligibility to
participate in the Federal Pell Grant Program for the same period of
time, except that the institution may continue to participate in the
Federal Pell Grant Program if the Secretary determines that the
institution--
(i) Was ineligible to participate in the FFEL and Direct Loan
programs before October 7, 1998, and the institution's eligibility was
not reinstated;
(ii) Requested in writing, before October 7, 1998, to withdraw its
participation in the FFEL and Direct Loan programs, and the institution
did not subsequently re-apply to participate; or
(iii) Has not certified an FFEL loan or originated a Direct Loan on
or after July 7, 1998.
(5) An institution whose participation in the FFEL, Direct Loan, or
Federal Pell Grant Program ends under paragraph (a)(3), (b)(1), (b)(2),
or (b)(4) of this section may not participate in that program until the
institution--
(i) Demonstrates to the Secretary that it meets all requirements
for participation in the FFEL, Direct Loan, or Federal Pell Grant
Program;
(ii) Has paid any amount owed to the Secretary under paragraph
(b)(6)(ii) of this section or is meeting that obligation under an
agreement satisfactory to the Secretary; and
(iii) Executes a new agreement with the Secretary for participation
in that program following the period described in paragraph (b)(3) of
this section.
(6)(i) An institution may, notwithstanding Sec. 668.26, continue to
participate in the FFEL, Direct Loan, and Federal Pell Grant programs
until the Secretary issues a decision on the institution's appeal if
the Secretary receives an appeal that is complete, accurate, and timely
in accordance with paragraph (c) of this section.
(ii) If an institution subject to an action under paragraph (a)(3),
(b)(1), or (b)(2) of this section files a complete, accurate, and
timely appeal under paragraph (c) of this section and the institution's
appeal is unsuccessful--
(A) The Secretary estimates the amount of interest, special
allowance, reinsurance, and any related or similar payments made by the
Secretary (or which the Secretary is obligated to make) on any FFEL or
Direct Loan Program loan for which the institution certified and
delivered or originated and disbursed funds more than 30 calendar days
after the date the institution received its most recent notification
under paragraph (a)(1)(i) of this section;
(B) The Secretary excludes from the estimate calculated under
paragraph (b)(6)(ii)(A) of this section any amount that is attributable
to funds delivered or disbursed by the institution more than 45
calendar days after the date on which the institution submitted its
completed appeal to the Secretary; and
(C) The institution must pay the Secretary the amount estimated
under paragraph (b)(6)(ii) of this section within 45 days of the date
of the Secretary's notification, unless--
(1) The institution files an appeal under the procedures
established in subpart H of this part, for which the calculation of the
institution's liability
[[Page 58982]]
is considered a final program review determination; or
(2) The Secretary permits a longer repayment period.
(iii) An institution may suspend its participation in the FFEL or
Direct Loan Program during the period in which it would otherwise be
subject to a liability under paragraph (b)(6)(ii) of this section.
(iv) An institution may also continue to participate in the FFEL
Program or Direct Loan Program if it is in compliance with paragraph
(k) of this section.
(c) * * *
(1) * * *
(ii) The institution meets one of the following exceptional
mitigating circumstances:
(A)(1) The institution's participation rate index, as determined
under paragraph (c)(1)(ii)(A)(2) of this section, is equal to or less
than 0.0375 for any of the 3 most recent fiscal years for which data
are available.
(2) For the purpose of paragraph (c)(1)(ii)(A)(1) of this section,
an institution's participation rate index for a fiscal year is
determined by multiplying its FFEL Program cohort default rate, Direct
Loan Program cohort rate, or weighted average cohort rate for that
fiscal year by the percentage that is calculated by dividing--
(i) The number of students who received an FFEL or Direct Loan to
attend the institution during a loan period that coincided with any
part of a 12-month period that ended during the 6 months immediately
preceding that fiscal year; by
(ii) The number of regular students, as defined in 34 CFR 600.2,
who were enrolled at the institution on at least a half-time basis
during any part of the same 12-month period.
(B)(1) The report of an independent auditor (as defined in
Sec. 668.23(a)(1)), submitted under paragraph (c)(7) of this section,
certifies that the institution's economically disadvantaged rate is
two-thirds or more, as determined under paragraph (c)(1)(ii)(B)(2) of
this section, and--
(i) If the institution offers an associate, baccalaureate, graduate
or professional degree, the institution's completion rate is 70 percent
or more, as determined under paragraph (c)(1)(ii)(B)(3) of this
section; or
(ii) If the institution does not offer an associate, baccalaureate,
graduate or professional degree, the institution's placement rate is 44
percent or more, as determined under paragraph (c)(1)(ii)(B)(4) of this
section.
(2) For the purpose of paragraph (c)(1)(ii)(B)(1) of this section,
an institution's economically disadvantaged rate is the percentage of
its students, enrolled on at least a half-time basis in an eligible
program at the institution during any part of a 12-month period that
ended during the 6 months immediately preceding the fiscal year for
which the cohort of borrowers (used to calculate the institution's FFEL
Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate) is determined, who--
(i) Are eligible to receive a Federal Pell Grant award of at least
one-half the maximum Federal Pell Grant award for which the student
would be eligible based on the student's enrollment status; or
(ii) Have an adjusted gross income that, if added to the adjusted
gross income of the student's parents (unless the student is an
independent student), is less than the poverty level as determined by
the Department of Health and Human Services.
(3) For the purpose of paragraph (c)(1)(ii)(B)(1) of this section,
an institution's completion rate is the percentage of its regular
students, initially enrolled on a full-time basis in an eligible
program and scheduled to complete their programs, as described in
paragraph (c)(2) of this section, during the same 12-month period used
to determine its economically disadvantaged rate under paragraph
(c)(1)(ii)(B)(2) of this section, who--
(i) Completed the educational programs in which they were enrolled;
(ii) Transferred from the institution to a higher level educational
program;
(iii) Remained enrolled and making satisfactory progress toward
completion of the student's educational programs at the end of the 12-
month period; or
(iv) Entered active duty in the Armed Forces of the United States
within 1 year after their last day of attendance at the institution.
(4)(i) Except as provided in paragraph (c)(1)(ii)(B)(4)(ii) of this
section, for the purpose of paragraph (c)(1)(ii)(B)(1) of this section,
an institution's placement rate is the percentage of its former
students, as described in paragraph (c)(1)(ii)(B)(4)(iii) of this
section, who are employed, in an occupation for which the institution
provided training, on the date following 1 year after their last date
of attendance at the institution; were employed, in an occupation for
which the institution provided training, for at least 13 weeks before
the date following 1 year after their last date of attendance at the
institution; or entered active duty in the Armed Forces of the United
States within 1 year after their last date of attendance at the
institution.
(ii) If a former student's employer is the institution, the student
is not considered employed for the purposes of paragraph (c)(1)(ii)(B)
of this section.
(iii) The former students who are used to determine an
institution's placement rate under paragraph (c)(1)(ii)(B)(4) of this
section include only students who were initially enrolled in eligible
programs on at least a half-time basis; were originally scheduled, at
the time of enrollment, to complete their educational programs during
the same 12-month period used to determine the institution's
economically disadvantaged rate under paragraph (c)(1)(ii)(B)(2) of
this section; and remained in the program beyond the point at which a
student would have received a 100 percent tuition refund from the
institution. A student is not included in the calculation of the
placement rate if that student, on the date that is 1 year after the
student's scheduled completion date, remains enrolled in the same
program at the institution and is making satisfactory progress.
(C) At least two of the rates that result in a loss of eligibility
under paragraph (a)(3), (b)(1), or (b)(2) of this section--
(1) Are calculated using data for the 3 most recent fiscal years,
pursuant to paragraph (d)(1)(i)(B), (e)(1)(i)(B), (e)(1)(ii)(B),
(f)(1)(i)(B), or (f)(1)(ii)(B) of this section; and
(2) Would be less than 25 percent if calculated using data for only
the fiscal year for which the institution received its rate, pursuant
to paragraph (d)(1)(i)(A), (e)(1)(i)(A), (e)(1)(ii)(A), (f)(1)(i)(A),
or (f)(1)(ii)(A) of this section, respectively.
(D) During the 3 most recent fiscal years for which the Secretary
has determined the institution's rate, a total of 30 or fewer borrowers
entered repayment on a loan or loans included in a calculation of the
institution's rate.
(2) For the purposes of the completion rate and placement rate
described in paragraphs (c)(1)(ii)(B)(3) and (4) of this section, a
student is scheduled to complete an educational program on the date on
which--
(i) If the student is initially enrolled full-time, the student
will have been enrolled in the program for the amount of time specified
in the institution's enrollment contract, catalog, or other materials,
for completion of the program by a full-time student; or
(ii) If the student is initially enrolled less than full-time, the
student will have been enrolled in the program for the amount of time
that it would take the student to complete the program if the
[[Page 58983]]
student remained enrolled at that level of enrollment throughout the
program.
* * * * *
(7)(i) An institution that appeals on the grounds that it meets the
exceptional mitigating circumstances criteria in paragraph
(c)(1)(ii)(B) of this section must submit to the Secretary--
(A) Within 30 calendar days of the date that it was notified of its
loss of participation, notice of its intent to appeal under that
paragraph, in a format prescribed by the Secretary; and
(B) Within 60 calendar days of the date that it was notified of its
loss of participation, the independent auditor's compliance attestation
report, as described in paragraph (c)(7)(ii) of this section, including
the specific institution's management's written assertions for which
the independent auditor opines, all in a format prescribed by the
Secretary.
(ii)(A) The report of the independent auditor, required for an
institution's appeal under paragraph (c)(1)(ii)(B) of this section,
must state whether, in the auditor's opinion, the institution's
management's assertion met the exceptional mitigating circumstances
criteria specified in paragraph (c)(1)(ii)(B) of this section, as
provided to the auditor to examine, and is fairly stated in all
material respects.
(B) The engagement that forms the basis of the independent
auditor's opinion must be an examination-level compliance attestation
engagement performed in accordance with the American Institute of
Certified Public Accountant's (AICPA) Statement on Standards for
Attestation Engagements, Compliance Attestation (AICPA, Professional
Standards, vol. 1, AT sec. 500), as amended, and Government Auditing
Standards issued by the Comptroller General of the United States.
(iii) The Secretary denies an institution's appeal under paragraph
(c)(1)(ii)(B) of this section if--
(A) The independent auditor does not opine that the institution
meets the criteria for the appeal; or
(B) The Secretary determines that the independent auditor's report
or institution's management's assertion described in paragraph
(c)(7)(i) of this section--
(1) Demonstrates that the independent auditor's report or
examination does not meet the requirements of this section; or
(2) Is contradicted or otherwise refuted, to an extent that would
render the auditor's report unacceptable, by information maintained by
the Secretary.
* * * * *
(j) * * *
(1) * * *
(ii) The Secretary's notice to an institution of its draft cohort
default rate includes a copy of the supporting data used in the
calculation of that draft rate.
* * * * *
(4)(i) An institution may challenge an anticipated loss of
participation under paragraph (a)(3), (b)(1), or (b)(2) of this section
using the criteria in Sec. 668.17(c)(1)(ii)(A).
(ii) In meeting the requirements of Sec. 668.17(c)(1)(ii)(A) during
a challenge under this paragraph, the institution's draft rate is
considered to be its most recent rate.
(iii) An institution's challenge under paragraph (j)(4)(i) of this
section must be submitted to the Secretary, in writing, no more than 30
calendar days after the date that the institution receives the draft
default rate information from the Secretary.
(iv) The Secretary notifies an institution of the determination on
its challenge before the institution's FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
is published.
(k) Special institutions. (1) Applicability of requirements. For
each 1-year period beginning on July 1 of 1999, 2000, or 2001, the
Secretary may determine that the provisions of paragraph (a)(3),
(b)(1), or (b)(2) of this section and the provisions of Sec. 668.16(m)
do not apply to a historically black college or university within the
meaning of section 322(2) of the HEA, a tribally controlled community
college within the meaning of section 2(a)(4) of the Tribally
Controlled Community College Assistance Act of 1978, or a Navajo
community college under the Navajo Community College Act if the
institution submits to the Secretary--
(i) By July 1, 1999--
(A) A default management plan; and
(B) A certification that the institution has engaged an independent
third party, as described in paragraph (k)(3) of this section; and
(ii) By July 1, 2000 and 2001--
(A) Evidence that it has implemented its default management plan
during the preceding 1-year period;
(B) Evidence that it has made substantial improvement in the
preceding 1-year period in the institution's FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate; and
(C) A certification that it continues to engage an independent
third party, as described in paragraph (k)(3) of this section.
(2) Default management plan. (i) An institution's default
management plan must provide reasonable assurance that it will, no
later than July 1, 2002, have an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate that
is less than 25 percent. Measures that an institution must take to
provide this assurance include but are not limited to--
(A) Establishing a default management team by engaging the chief
executive officer and relevant senior executive officials of the
institution and enlisting the support of representatives from offices
other than the financial aid office;
(B) Identifying and allocating the personnel, administrative, and
financial resources appropriate to implement the default management
plan;
(C) Defining the roles and responsibilities of the independent
third party;
(D) Defining evaluation methods and establishing a data collection
system for measuring and verifying relevant default management
statistics, including a statistical analysis of the borrowers who
default on their loans;
(E) Establishing annual targets for reductions in the institution's
rate; and
(F) Establishing a process to ensure the accuracy of the
institution's rate.
(ii) An institution's default management plan must be acceptable to
the Secretary, after consideration of that institution's history,
resources, dollars in default, and targets for default reduction.
(iii) If the Secretary determines that an institution's proposed
default management plan is unacceptable, the institution must consult
with the Secretary to develop a revised plan, and the institution must
submit the revised plan to the Secretary within 30 calendar days of
notice from the Secretary that the plan is unacceptable.
(iv) If the Secretary determines, based on evidence submitted under
paragraph (k)(1)(ii) of this section, that an institution's default
management plan is no longer acceptable, the institution must develop a
revised plan in consultation with the Secretary, and it must submit the
revised plan to the Secretary within 60 calendar days of notice from
the Secretary.
(v) A sample default management plan is provided in appendix H to
this part. The sample is included to illustrate additional components
of an acceptable default management plan. Because institutions' family
income profiles, student borrowing patterns, histories, resources,
dollars in default, and targets for default reduction are
[[Page 58984]]
different, an institution must consider its own, individual
circumstances in developing and submitting its plan.
(3) Independent third party. (i) An independent third party may be
any individual or entity that--
(A) Provides technical assistance in developing and implementing
the institution's default management plan; and
(B) Is not substantially controlled by a person who also exercises
substantial control over the institution.
(ii) An independent third party need not be paid by the institution
for its services.
(iii) The services of a lender, guaranty agency, or secondary
market as an independent third party under paragraph (k) of this
section are not considered to be inducements under 34 CFR 682.200 or
682.401(e).
(4) Substantial improvement. (i) For purposes of this section, an
institution's substantial improvement is determined based upon--
(A) A reduction in the institution's most recent draft or published
FFEL Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate;
(B) An increase in the percentage of delinquent borrowers who avoid
default by using deferments, forbearances, and job placement
assistance;
(C) An increase in the academic persistence of student borrowers;
(D) An increase in the percentage of students pursuing graduate or
professional study;
(E) An increase in the percentage of borrowers for whom a current
address is known;
(F) An increase in the percentage of delinquent borrowers contacted
by the institution;
(G) The implementation of alternative financial aid award policies
and development of financial resources that reduce the need for student
borrowing; or
(H) An increase in the percentage of accurate and timely enrollment
status changes submitted by the institution to the National Student
Loan Data System (NSLDS) on the Student Status Confirmation Report
(SSCR).
(ii) When making a determination of an institution's substantial
improvement, the Secretary considers the institution's performance in
light of--
(A) Its history, resources, dollars in default, and targets for
default reduction;
(B) Its level of effort in meeting the terms of its approved
default management plan during the previous
1-year period; and
(C) Any other mitigating circumstance at the institution during the
1-year period.
(5) Secretary's determination. (i) If the Secretary determines that
an institution is in compliance with paragraph (k) of this section, the
provisions of paragraph (a)(3), (b)(1), or (b)(2) of this section and
the provisions of Sec. 668.16(m) do not apply to the institution for
that 1-year period, beginning on July 1, 1999, 2000, or 2001.
(ii) If the Secretary determines that an institution is not in
compliance with paragraph (k) of this section, the institution is
subject to the provisions of paragraph (a)(3), (b)(1), or (b)(2) of
this section and the provisions of Sec. 668.16(m). The institution's
participation in the FFEL and Direct Loan programs ends on the date
that the institution receives notice of the Secretary's determination.
(Approved by the Office of Management and Budget under control
number 1845-0022)
3. A new appendix H is added to part 668 to read as follows:
Appendix H to Part 668--Default Management Plans for Special
Institutions
This appendix is provided as a sample plan for those schools
developing a default management plan in accordance with 34 CFR
668.17(k). It describes some measures schools may find helpful in
reducing the number of students that default on federally funded
loans. These are not the only measures a school could implement when
developing a default management plan. In developing a default
management plan, each school must consider its own history,
resources, dollars in default, and targets for default reduction to
determine which activities will result in the most benefit to the
students and the school.
Core Default Reduction Strategies (from Sec. 668.17(k)(2)(i))
(1) Establish a default management team by engaging the chief
executive officer and relevant senior executive officials of the
school and enlisting the support of representatives from offices
other than the financial aid office.
(2) Identify and allocate the personnel, administrative, and
financial resources appropriate to implement the default management
plan.
(3) Define the roles and responsibilities of the independent
third party.
(4) Define evaluation methods and establish a data collection
system for measuring and verifying relevant default management
statistics, including a statistical analysis of the borrowers who
default on their loans.
(5) Establish annual targets for reductions in the school's
rate.
(6) Establish a process to ensure the accuracy of the school's
rate.
Additional Default Reduction Strategies
(1) Enhance the borrower's understanding of his or her loan
repayment responsibilities through counseling and debt management
activities.
(2) Enhance the enrollment retention and academic persistence of
borrowers through counseling and academic assistance.
(3) Maintain contact with the borrower after he or she leaves
the school by using activities such as skip-tracing to locate the
borrower.
(4) Track the borrower's delinquency status by obtaining reports
from lenders and guaranty agencies for FFEL Program loans and from
the Secretary for Direct Loan Program loans.
(5) Enhance student loan repayments through counseling the
borrower on loan repayment options and facilitating contact between
the borrower and lender for FFEL Program loans and the borrower and
the Secretary for Direct Loan Program loans.
(6) Assist a borrower who is experiencing difficulty in finding
employment through career counseling, job placement assistance, and
facilitating unemployment deferments.
(7) Identify and implement alternative financial aid award
policies and develop alternative financial resources that will
reduce the need for student borrowing in the first 2 years of
academic study.
(8) Familiarize the parent, or other adult relative or guardian,
with the student's debt profile, repayment obligations, and loan
status by increasing, whenever possible, the communication and
contact with the parent or adult relative or guardian.
Defining the Roles and Responsibilities of Independent Third Party
(1) Specifically define the role of the independent third party.
(2) Specify the scope of work to be performed by the independent
third party.
(3) Tie the receipt of payments, if required, to the performance
of specific tasks.
(4) Assure that all the required work is satisfactorily
completed.
Statistics for Measuring Progress
(1) The number of students enrolled at the school during each
fiscal year.
(2) The average amount borrowed by a student each fiscal year.
(3) The number of borrowers scheduled to enter repayment each
fiscal year.
(4) The number of enrolled borrowers that received default
prevention counseling services each fiscal year.
(5) The average number of contacts the school or its agent had
with a borrower who was in deferment/forbearance or repayment status
during each fiscal year.
(6) The number of borrowers at least 60 days delinquent each
fiscal year.
(7) The number of borrowers who defaulted in each fiscal year.
(8) The type, frequency, and results of activities performed in
accordance with the default management plan.
[FR Doc. 99-28274 Filed 10-29-99; 8:45 am]
BILLING CODE 4000-01-U
