[Federal Register Volume 59, Number 39 (Monday, February 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3879]
[Federal Register: February 28, 1994]
_______________________________________________________________________
Part II
Department of Education
_______________________________________________________________________
34 CFR Parts 668 and 690
Student Assistance General Provisions
and Federal Pell Grant Program;
Proposed Rule
DEPARTMENT OF EDUCATION
34 CFR Parts 668 and 690
RIN 1840-AB85
Student Assistance General Provisions and Federal Pell Grant
Program
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend Subparts A and B of the
Student Assistance General Provisions regulations and the Federal Pell
Grant Program regulations to reflect changes made by the Higher
Education Amendments of 1992 and the Higher Education Technical
Amendments of 1993 to the Higher Education Act of 1965, as amended
(HEA). These proposed regulations would seek to improve the efficiency
of Federal student aid programs and, by so doing, to improve their
capacity to enhance opportunities for postsecondary education.
DATES: Comments must be received on or before March 30, 1994.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Wendy L. Macias, Program Specialist, U.S. Department of
Education, 400 Maryland Avenue, SW. (Regional Office Building 3, room
4318), Washington, DC 20202-5346.
FOR FURTHER INFORMATION CONTACT: Wendy L. Macias. Telephone (202) 708-
7888. Individuals who use a telecommunications device for the deaf
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 between 8 a.m. and 6 p.m., Eastern time, Monday through
Friday.
SUPPLEMENTARY INFORMATION: In order to approve a postsecondary
education institution to participate in the student financial
assistance programs authorized by Title IV of the HEA (Title IV, HEA
programs) and many other Federal programs, the Secretary must
determine, in part, that the institution satisfies the statutory
definition of an ``institution of higher education.'' Under the HEA and
other Federal statutes, one element of that definition requires an
eligible institution of higher education to be accredited or
preaccredited by an accrediting agency recognized by the Secretary as a
reliable authority as to the quality of the education or training
provided by the institution. Another element requires an eligible
institution to be legally authorized to provide an educational program
beyond the secondary level in the State in which it is located. Thus,
the statutory definition of an institution of higher education provides
the framework for a shared responsibility among accrediting agencies,
States, and the Federal government to ensure that the ``gate'' to the
Title IV, HEA programs is opened to only those institutions that
provide students with quality education or training worth the time,
energy, and money they invest in it. The three ``gatekeepers'' sharing
this responsibility have traditionally been referred to as ``the
triad.'' While the concept of a triad of entities responsible for
gatekeeping has had a long history, the triad has not always worked as
effectively as it should to ensure educational quality, nor has it
served as an effective deterrent to abuse by institutions participating
in the Title IV, HEA programs. For several years, certain institutions
participating in the Title IV, HEA programs have failed to provide
students with education or training of an acceptable level of quality;
they have also failed to treat students fairly. In addition, they have
failed to meet acceptable standards of financial responsibility and
administrative capability and to adequately protect Title IV, HEA
program funds entrusted to them. The institutions that have engaged in
these abusive practices are not restricted to a particular sector of
higher education. Rather, the abuses have been found in all types of
institutions participating in the Title IV, HEA programs, including
those in the private non-profit and public sectors of higher education
as well as those in the proprietary sector.
At the same time, gatekeeping functions have not been carried out
effectively. For example, some accrediting agencies have not taken
sufficient care to ensure the quality of the education or training
provided by the institutions or programs they accredit or to protect
student interests when they accredit particular institutions or
programs. Moreover, some States have also not taken sufficient care to
ensure the quality of the education or training provided by the
institutions they authorize or license to operate in the State or to
protect student interests. Finally, the Federal government's management
of its responsibilities to determine eligibility and to certify
institutions to participate in the Title IV, HEA programs has not
always been adequate to prevent abusive practices at institutions that
participate in those programs.
Consequently, in the Higher Education Amendments of 1992, Public
Law 102-325, (the Amendments of 1992), Congress provided for a new part
H of Title IV entitled ``Program Integrity Triad.'' Under that part,
States and accrediting agencies are required to assume major new
oversight responsibilities, and States, accrediting associations, and
the Secretary are linked to create a stronger and more coordinated
evaluation of institutions that participate or wish to participate in
the Title IV, HEA programs. The Secretary believes that the most
appropriate approach to this coordinated evaluation of institutions by
the three components of the triad is a complementary one with each
component focusing its evaluation on its obligations within the context
of the HEA. Thus, the focus for accrediting agencies is the quality of
education or training provided by the institutions or programs they
accredit. For States, which already had responsibility for determining
that institutions have the legal authority to operate within the State,
the HEA added a new focus: reviewing institutions that trigger certain
statutory review criteria. The focus of the Secretary's evaluation of
institutions is the administrative and financial capacity of those
institutions to participate in the Title IV, HEA programs.
The statute allocates legal responsibility among the entities that
compose the program integrity triad. While the specific statutory
responsibilities for the three triad entities may overlap, when viewed
as a whole the triad brings together in a coordinated fashion three
different but very important aspects of institutional review. Within
this statutory scheme, the Secretary has sought to assure that the
gatekeeping system operates as efficiently as possible, with maximum
integration among the three triad entities and without unnecessary
burden on postsecondary institutions. In order to assist the Secretary
in designing a final regulation that achieves these goals, the
Secretary specifically requests comment on the following questions:
(1) In several areas, the statute specifically requires each triad
entity to evaluate an institution under the same or similar standards.
For example, a SPRE and an accrediting agency may establish different
standards for evaluating the financial responsibility of an institution
or for evaluating the success of an institution's educational program.
Thus, a reviewed institution would need to satisfy the SPRE's and the
accrediting agency's standards even though those standards address the
same areas. How should final regulations be structured to both reduce
the burden on institutions and enable the triad entities to carry out
effectively their statutory functions?
(2) Should final regulations be more explicit in identifying
levels, characteristics, or definitions for any of the assessment or
review criteria that a triad entity is expected to consider in its
evaluation of an institution?
Subpart 1 of part H creates a new program, the State Postsecondary
Review Program, or SPRP, under which State oversight of institutions
participating in the Title IV, HEA programs is strengthened. Subpart 2
of part H establishes procedures and criteria under which the Secretary
recognizes an accrediting agency as a reliable authority as to the
quality of the education or training offered by institutions that the
agency accredits. Lastly, subpart 3 specifies the procedures the
Secretary uses to determine whether an institution meets the
eligibility requirements and has the administrative capacity and
financial responsibility to administer the Title IV, HEA programs.
On January 24, 1994, the Secretary published in the Federal
Register the NPRMs to implement the SPRP provisions in subpart 1 of
part H of the HEA (59 FR 3604) and the accrediting agency provisions in
subpart 2 of part H of the HEA (59 FR 3578). The Secretary's
publication of this NPRM prior to the publication of final regulations
implementing the SPRP and accreditation provisions provides the
Department of Education an opportunity to coordinate all comments
received on the triad.
The provisions of subpart 3 that pertain to the institutional
eligibility requirements found in 34 CFR part 600 have been addressed
in a Notice of Proposed Rulemaking (NPRM) published in the Federal
Register on February 10, 1994, that proposes changes to 34 CFR part
600. This NPRM addresses those provisions of subpart 3 that pertain to
subparts A and B of 34 CFR part 668. Subpart A contains definitions
applicable to the Title IV, HEA programs. Subpart B contains
requirements for initial and continued participation in the programs.
In particular, the following provisions in this NPRM address provisions
of subpart 3: Proposed Secs. 668.15 and 668.16 delineate the standards
for the evaluation of an institution's financial responsibility and
administrative capability, respectively, as required by section 498(a),
(c), and (d) of the HEA. Proposed Sec. 668.15 also codifies the
definition of persons who exercise substantial control of an
institution found in section 498(e) of the HEA. Proposed Sec. 668.12
addresses the requirements of section 498(b) of the HEA that requires
the Secretary to develop a single application form to be used by
institutions that wish to apply to participate or to continue to
participate in a Title IV, HEA program. Proposed Sec. 668.13 includes
the provisions governing the requirement of financial guarantees from
owners found in section 498(e) of the HEA, addresses the provision that
requires the Secretary to establish a schedule for the expiration of
the approval of institutions to participate in the Title IV, HEA
programs found in section 498(g) of the HEA, and codifies the
provisions governing provisional certification of institutions found in
section 498(h) of the HEA. Pursuant to sections 498(g) and (h) of the
HEA, proposed Sec. 668.26 delineates the date that an institution's
period of participation would end, when the institution's period of
participation expires, or the institution's provisional certification
is revoked.
The Amendments of 1992 amended the HEA in several areas relating to
the participation of institutions in the Title IV, HEA programs. The
Student Assistance General Provisions regulations contain requirements
that are common to educational institutions that participate in the
Title IV, HEA programs. The following list summarizes the major issues
in this NPRM.
Each participating institution is subject to a new
statutory definition of an academic year in which a full-time student
(with respect to an undergraduate course of study), during a minimum
30-week period, must complete: At institutions that measure program
length in credit hours, at least 24 semester or trimester hours or 36
quarter hours; or at institutions that measure program length in clock
hours, at least 900 clock hours. Section 668.2 proposes to clarify the
terms used in the statutory definition of academic year.
The statute now mandates the definition of an eligible
program for proprietary institutions of higher education and
postsecondary vocational institutions, including ``short-term''
programs (at least 300 but less than 600 clock hours) that would be
eligible for the FFEL programs only. The statute requires that these
programs must have completion and placement rates of at least 70
percent, measured in accordance with regulations. Section 668.8
proposes methodologies for those measurements. The Secretary eventually
may propose a single methodology (based on comments on this NPRM,
regulations to implement the Student Right-to-Know Act, and other
NPRMs) to be used wherever appropriate in regulations for the Title IV,
HEA programs. In accordance with the statute, this NPRM contains
further provisions to evaluate the quality of these programs,
specifically a requirement proposed by the Secretary that a program may
not exceed by more than 50 percent the minimum number of clock hours
required by the State for training in the recognized occupation for
which the program prepares students, and a requirement that a program
be in existence for at least one year before applying for eligibility
under these criteria.
This NPRM proposes to add two new sections to codify
procedures with regard to applications to participate initially or to
continue to participate in a Title IV, HEA program (proposed
Sec. 668.12) and procedures by which the Secretary certifies that an
institution meets the standards in subpart B of these regulations and
accordingly may participate in a Title IV, HEA program (proposed
Sec. 668.13). Proposed Sec. 668.13 also includes proposed procedures
whereby the Secretary codifies new statutory provisions governing
provisional certification procedures for participation in a Title IV,
HEA program. Provisional certification permits the Secretary to allow
an institution that otherwise would not qualify to participate in a
Title IV, HEA program to participate on a limited basis. The
institution is subject to shorter periods of participation than a fully
certified institution and does not have the right to the extensive
appeal proceedings under subpart G of the Student Assistance General
Provisions if the Secretary revokes the institution's provisional
certification. Instead, as proposed by the Secretary in this NPRM, the
institution would be offered a modified appeal. Further, an institution
that is provisionally certified may be monitored more closely to the
extent that the Secretary believes the institution warrants a greater
degree of oversight.
Section 668.14 proposes to amend the regulations governing
program participation agreements to include numerous new provisions
added by the Amendments of 1992 and provisions previously prescribed by
the HEA but not specifically spelled out in the regulations. This
section also includes provisions proposed by the Secretary. This NPRM
proposes to implement statutory requirements regarding disclosure of
revenues and expenses for institutions that offer athletically related
student aid. This NPRM would also address statutory requirements
concerning incentive payments based directly or indirectly on success
in securing enrollments or financial aid.
This NPRM proposes significant changes to Sec. 668.15
(currently Sec. 668.13) the section governing the evaluation of an
institution's financial responsibility. The NPRM proposes to strengthen
the factors used to evaluate an institution's financial responsibility
and to reflect statutory changes, including the provision that requires
that any standards developed for the determination of an institution's
financial responsibility take into account any differences in
accounting principles between for-profit and nonprofit institutions.
For example, this NPRM proposes to require a for-profit institution to
have a ratio of current assets to current liabilities of 1.25:1 and a
nonprofit institution to have a ratio of current assets to current
liabilities of 1:1. As the statute requires the establishment of cash
reserves sufficient to ensure repayment of any required refunds, the
NPRM also proposes to require each institution to maintain a minimum
cash reserve of at least 10 percent of the institution's total deferred
tuition income at the end of the institution's most recent fiscal year.
This NPRM proposes, in Sec. 668.16 (currently Secs. 668.14
and 668.15) to strengthen and expand the standards of administrative
capability for participating institutions, addressing areas previously
not regulated or for which there were only guidelines, such as: The
maximum time frame allowed in the standards for satisfactory academic
progress for completion of a student's educational program and the
expansion of standards to include those general areas that will be
reviewed by State postsecondary review entities (SPREs). The SPRE
review areas are included because these areas may have a significant
bearing on an institution's administrative capability and thus should
be considered as the Secretary reviews the administrative capability of
an institution.
However, the NPRM does solicit comments on whether these additional
proposed standards should be implemented across the board or be made
applicable only to institutions that meet specific criteria or
thresholds, e.g., institutions with short-term programs and
institutions with a history of administrative problems. For example,
this section of the NPRM includes the proposed requirement that an
institution that offers a vocational program of less than two years in
length that prepares students to enter recognized occupations must
demonstrate that the borrower's increased annual expected earnings,
based on completion of the training, will exceed the annual amount of
Title IV, HEA program assistance received for the programs.
The provisions in proposed Sec. 668.17 (currently
Sec. 668.15) governing default reduction measures reflect statutory
changes made by the Amendments of 1992 and current departmental
practices. The provisions in the Technical Amendments of 1993 that
address institutional appeals of cohort default rates are not included
in this NPRM and will be addressed separately.
As mandated by statute, all participating institutions are
required to implement a fair and equitable refund policy. This
statutory provision is similar to the requirement for fair and
equitable refunds prescribed by the FFEL program regulations for
institutions that participate in the FFEL programs. Section 668.22
proposes to clarify the terms used in the statutory definition of a
fair and equitable refund policy. The NPRM also proposes to mandate a
refund policy (Appendix A) that an institution must use to calculate a
student's refund if the student is not entitled to a pro rata refund
and an institution's State and accrediting agency do not have specific
refund standards. In addition, because of a new statutory provision
that specifies the order of return of refunds to the Title IV, HEA
programs and other sources of aid without regard to the amount of aid
received from State or private sources, this NPRM proposes to remove
the fraction that is currently used to determine the portion of the
refund attributable to the Title IV, HEA programs and that attributable
to other sources of aid.
In accordance with the statute, institutions will now be
required to have compliance audits every year rather than every two
years, as required by current regulations. Section 668.23 proposes to
allow institutions that do not pose a great financial risk to the Title
IV, HEA programs (i.e., institutions that received less than $100,000
in total annual funding under the Title IV, HEA programs or have not
had deficiencies identified in their most recently submitted audit
reports) to submit audits biennially. Further, under this proposal, an
institution would not be required to submit a compliance audit for any
year in which the total Title IV, HEA program funds it received were
less than $25,000. This section also proposes to extend audit
requirements to foreign institutions.
This NPRM also contains a proposed change to the Federal Pell Grant
Program regulations. This NPRM proposes to implement section 487(c)(7)
of the HEA that provides that an institution may offset the amount of
Title IV, HEA program disbursements against liabilities or may receive
reimbursement from the Department for those amounts if, in the course
of any audit conducted after December 31, 1988, the Department
discovers or is informed of any Title IV, HEA program assistance
(specifically, Federal Pell Grant Program funds) that an institution
has provided to its students in accordance with program requirements,
but the institution has not previously received credit or reimbursement
for these disbursements. Although this provision relates directly to
the Federal Pell Grant Program and is proposed to be included in the
Federal Pell Grant Program regulations, it is contained in Part G of
the HEA and is subject to the negotiated rulemaking process explained
below. Therefore, it has been included in this NPRM instead of the
Federal Pell Grant Program NPRM, which was not subject to the
negotiated rulemaking process.
Under new section 492 of the HEA, these proposed changes are
subject to the negotiated rulemaking process, which includes a
requirement for the Secretary to convene regional meetings to obtain
public involvement in the development of proposed regulations.
Accordingly, issues related to these proposed changes were discussed in
meetings held in September 1992 in New York City; San Francisco;
Atlanta; and Kansas City, Missouri. At these meetings, the Secretary
provided the attendees with a list of issues to be addressed in these
proposed regulations. A summary of the responses of the attendees is
contained in the Appendix to this preamble.
Groups that attended the regional meetings nominated individuals to
participate in the regulation negotiations. The Secretary selected
regulation negotiators from the names nominated and chose negotiators
to reflect all the groups that participate in the Title IV, HEA
programs, such as students, student financial aid administrators, and
various types of eligible institutions.
These proposed regulations also address statutory changes required
by the Higher Education Technical Amendments of 1993, Public Law 103-
208 (the Technical Amendments of 1993). Those areas affected by the
Technical Amendments of 1993 are identified in the discussion of
regulatory changes. The Secretary notes that the statutory changes
required by the Technical Amendments of 1993 are not subject to the
negotiated rulemaking process of section 492 of the HEA.
Regulatory Changes
In accordance with section 492(b) of the HEA, the Secretary
prepared draft proposed regulations and negotiated the provisions of
that draft with negotiators. The great majority of the proposed changes
do not reflect consensus reached at the negotiations (as consensus was
rarely obtained). The Secretary has identified in the discussion of
changes the areas where consensus was reached.
The following discussion reflects proposed significant changes to
the existing Student Assistance General Provisions regulations and the
Federal Pell Grant Program regulations. Proposed changes are discussed
in the order in which they appear in the proposed regulatory text. If a
provision applied to more than one section or is included in more than
one section, it is discussed the first time it appears with an
appropriate reference to its other appearances.
Subpart A--General
Section 668.1 Scope
The Secretary proposes to revise this section to remove vocational
school from the list of what the term institution includes, because
vocational schools are no longer eligible institutions under the HEA.
The Secretary proposes to revise this section to reflect a listing of
currently existing Title IV, HEA programs that would be subject to part
668. Programs added to the list would include the National Early
Intervention Scholarship and Partnership, Presidential Access
Scholarship, and Federal Direct Student Loan programs. The Income
Contingent Loan Program, which no longer exists, would be removed from
the list. These revisions reflect statutory changes made to the HEA by
the Amendments of 1992.
Section 668.2 General Definitions
This section includes definitions proposed in NPRMs published on
October 4, 1993 (58 FR 51716), and on February 17, 1994 (in part II)
(59 FR 8044). Those definitions are: designated department official,
initiating official, output document, show-cause official, and third-
party servicer. The Secretary will not repeat the discussion of those
definitions here.
The Secretary proposes to remove the definitions of Award year,
Regular student, and State, because they would be included in 34 CFR
part 600, governing institutional eligibility under the HEA. The
Secretary proposed to move these definitions to 34 CFR Part 600 in the
NPRM published on February 10, 1994 (59 FR 6446).
The Secretary is proposing technical changes to clarify the
definitions of the current Title IV, HEA programs and to add
definitions of the newly authorized Title IV, HEA programs to conform
with statutory changes and for consistency with terminology used in the
individual program regulations. The Secretary also proposes to make
technical changes in the definitions of Independent student, to reflect
statutory changes, and Enrolled, Valid student aid report, and Valid
institutional student information report for consistency with other
program regulations. The Secretary would move the definition of
Participating institution from Sec. 668.81 to this section.
The Secretary is proposing to add or amend the following
definitions:
Academic Year
Section 481(d)(2) of the HEA provides a definition of academic year
to be used for all the Title IV, HEA programs. The statute specifies
that in an academic year, a full-time student is expected to complete
at least twenty-four semester or trimester hours or thirty-six quarter
hours at an institution that measures program length in credit hours,
or at least nine hundred clock hours at an institution that measures
program length in clock hours. The definition delineates not only the
minimum amount of work that a full-time student enrolled in an
undergraduate educational program is expected to complete during an
academic year, but also the minimum period of time over which the work
in any educational program must be completed.
The Technical Amendments of 1993 specify that this provision is
only applicable with respect to an undergraduate course of study. The
Secretary expects that institutions would continue to use their own
academic standards, within the framework of current program
regulations, to determine the amount of work full-time graduate and
professional students are expected to complete over a minimum of thirty
weeks of instruction.
The minimum time period specified is thirty weeks of instructional
time. The Technical Amendments of 1993 further amended section 481 of
the HEA definition of academic year to provide that the Secretary may
reduce, for good cause on a case-by-case basis, the 30-week minimum to
not less than 26 weeks of instructional time in the case of an
institution of higher education that provides a 2-year or 4-year
program of instruction for which it awards an associate or
baccalaureate degree. The Secretary has been unable to determine a
definition of ``good cause'' that would justify using this authority.
In addition, the Secretary is concerned that regulatory standards for
those reductions would encourage many institutions to seek that
treatment routinely and this implementation would result in the
inequitable treatment of Federal student aid recipients from
institution to institution. Further, the Secretary is concerned that
widespread implementation would result in increased costs to the Title
IV, HEA programs. Therefore, the Secretary has not proposed specific
criteria to implement this technical amendment at this time. The
Secretary requests comments on a definition of ``good cause'' and ways
of implementing this provision through regulations that address the
Secretary's concerns.
The Secretary has determined that the terms used in the definition
of academic year must be clarified if the definition is to be well-
understood and applied consistently. In determining what constitutes
the 30-week period, the Secretary would count the period that begins on
the first day of classes and ends on the last day of classes or
examinations. For example, if an institution's first day of classes
begins on a Tuesday, the first week of the academic year would begin on
that Tuesday and end the following Monday. The institution would not
begin counting with the Sunday preceding the first day of classes.
The Secretary proposes that, for purposes of this definition, a
week would be a consecutive seven-day period, as opposed to a five-day
or six-day school week or seven individual days that are spread out
over more than one calendar week. This approach would facilitate
counting and readily accommodate institutions that start and end on
different days of the week.
For purposes of this definition, a week of instructional time would
be any week in which at least one day of regularly scheduled
instruction, examinations, or preparation for examination occurs. The
Secretary recognizes that there may be certain weeks during an academic
year during which fewer than five days of instruction occur. An
institution should not be prohibited from counting those weeks in its
30-week period, provided at least one day of regularly scheduled
classes occurs in each of those weeks. Further, this proposal would
accommodate innovative educational programs such as those offered only
on weekends or condensed schedules. At the same time, the proposal does
not open the door to abuse, because regardless of the number of days of
study that occur in any week, an institution must still provide enough
instruction for a full-time student to be able to earn the minimum
number of credit or clock hours needed to meet the definition. Finally,
the Secretary would make clear that an institution cannot count, as
instructional time, periods consisting purely of noninstructional
activities, such as orientation, counseling, or vacations.
It should be noted that because the statute specifies both the
amount of work expected to be completed and the minimum timeframe for
an academic year for use in the Title IV, HEA programs, an institution
might need to prorate or adjust Title IV, HEA program assistance for
its students. For example, if the span of time from the first scheduled
class at the beginning of the school year until the last examination at
the end of the school year (excluding any weeks that consist
exclusively of vacation time and all other activities not directly
related to instruction, preparation for examinations or examinations)
is twenty-five weeks, the institution would need to make adjustments in
accordance with individual program regulations. Because summer sessions
generally would not be long enough to constitute the equivalent of a
complete semester or quarter, as they are under various current program
regulations, Title IV, HEA program funds awarded for summer sessions
would need to be adjusted to reflect the lengths of the sessions. A
comprehensive discussion of the potential effect of this new definition
of academic year on Federal Pell Grant calculations may be found in the
NPRM on the Federal Pell Grant Program to be published shortly.
Full-Time Student
The Secretary believes it is necessary to have a definition of
full-time student that is applicable to all Title IV, HEA programs. A
definition of full-time student is needed because the definition of
academic year is based, in part, on the workload of a full-time
student, and because the term is used elsewhere for other purposes in
part 668. The Secretary has proposed a definition of full-time student
that would be based on a slightly modified definition found in the
Federal Pell Grant and the campus-based program regulations. This
definition also would incorporate parts of the definition of full-time
student found in the FFEL program regulations.
Generally, the Secretary proposes to define a full-time student as
an enrolled student who is carrying a full-time academic workload
(other than by correspondence) as determined by the institution under a
standard applicable to all students enrolled in a particular
educational program. In determining a student's workload, an
institution would be permitted to include combinations of courses,
work, research, or special studies that the institution considers
sufficient to classify the student as a full-time student. Under this
proposal, for an undergraduate student, an institution's minimum
standard must equal or exceed: (1) 12 semester hours or 12 quarter
hours per academic term in an educational program using a semester,
trimester, or quarter system; (2) 24 semester hours or 36 quarter hours
per academic year for an educational program using credit hours but not
using a semester, trimester, or quarter system (or the prorated
equivalent for a program of less than one academic year); or (3) 24
clock hours per week for an educational program using clock hours.
This definition also provides for a method for determining full-
time status for students enrolled in an educational program using both
credit and clock hours. In order to evaluate the combined workload of
the student, an institution could determine full-time status based on
the sum of the proportionate workload carried in terms of credit hours
and the proportionate workload carried in terms of clock hours.
Further, an undergraduate student could be considered a full-time
student if he or she undertakes a series of courses or seminars that
equals at least 12 semester hours or 12 quarter hours in a maximum of
18 weeks. For cooperative education programs, an undergraduate student
could be considered a full-time student if the work portion of a
cooperative education program in which the amount of work performed is
equivalent to the academic workload of a full-time student.
The Secretary is particularly interested in establishing a minimum
standard for a full-time academic workload for students who receive
funds under the FFEL programs. Currently, for the purpose of those
programs, an institution determines what a full-time academic workload
is for these students. The Secretary recognizes that, because no
minimum requirement for an academic workload of a full-time student
exists under the FFEL programs, there is the potential for abuse of
FFEL program funds through the use of the definition of an academic
year. For example, an institution might have educational programs that
are measured in credit hours and do not use academic terms. The
institution could claim that it offers a full academic year's worth of
work over a thirty-week period by giving a full-time student a small
amount of instruction, which the institution claims to be equivalent to
24 semester or 36 quarter hours. This situation would result in the
receipt of an inordinately large amount of FFEL program funds for the
amount of work actually accomplished. The Secretary requests comments
on whether, to further address this potential abuse, he should also
establish a weekly minimum full-time workload for educational programs
that are measured in credit hours but do not use academic terms.
Undergraduate Student
The Secretary proposes to add a definition of undergraduate student
to this section. Because the proposed definition of a full-time student
makes reference to an undergraduate student and because the term
undergraduate student is used in other places in part 668, the
Secretary believes it is now necessary to define undergraduate student
in this part. The proposed definition is the definition currently found
in the Federal Pell Grant and campus-based program regulations. The
Secretary proposes to define an undergraduate student as a student
enrolled in an undergraduate educational program at an institution who
has not earned a baccalaureate or first professional degree. The
student would have to be enrolled in an undergraduate educational
program that usually does not exceed 4 academic years, or a 4- to 5-
academic-year program designed to lead to a first degree. A student
enrolled in a program of any other length would be considered an
undergraduate student for only the first four academic years of that
program.
Section 668.8 Eligible Program
Admission Requirements
These proposed regulations would remove the current provisions in
Sec. 668.8(a)(1) (i) through (iv), which govern the educational
qualifications of persons admitted into an eligible program. These
qualifications are appropriately addressed in 34 CFR 600.4 through
600.6, which govern the types of institutions that may be eligible to
apply to participate in HEA programs. The educational qualifications of
eligible students under the Title IV, HEA programs are also addressed
in Sec. 668.7(a) (3) and (b). Therefore, these provisions are no longer
needed for purposes of defining an eligible program. Note that other
provisions governing the admission requirements needed for certain
educational programs to qualify as an eligible program are discussed
further below.
Definitions
These regulations would clarify a number of the terms used to
determine an eligible program. Proposed Sec. 668.8(b)(1) would define
the equivalent of an associate degree as either an associate degree, or
the successful completion of at least a two-year program that is
acceptable for full credit toward a bachelor's degree and qualifies a
student for admission into the third year of a bachelor's degree
program. This definition is needed because educational programs offered
by a proprietary institution of higher education or a postsecondary
vocational institution may qualify as eligible programs depending, in
part, on whether the programs admit students with the equivalent of an
associate degree (see the discussion on minimum program lengths). The
definition is based on the provision in section 1201(a)(3) of the HEA
that qualifies institutions offering 2-year transfer programs for
institutional eligibility.
For the same reason (that the terms are needed to establish the
eligibility of programs offered by proprietary institutions of higher
education and postsecondary vocational institutions-- see the
discussion on minimum program lengths) the Secretary proposes to define
week and week of instruction. For consistency, these terms would be the
same as those proposed to be used in Sec. 668.2 for the definition of
academic year. The terms are discussed in detail there.
It is important to note that short-term programs (those offering
less than 600 clock hours) that are eligible under current regulations
because they met the definition of vocational school that used to be in
section 435 of the HEA, will cease to be eligible when the final
regulations governing programs become effective, unless those short-
term programs are able to satisfy these regulations. Short-term
programs that were not offered or were not eligible before July 23,
1992 can only become eligible when final regulations become effective.
Minimum Program Length
The proposed regulations would also add requirements regarding the
minimum length of an eligible program. Under section 481(b) of the HEA,
a proprietary institution of higher education or a postsecondary
vocational institution must, to be eligible, provide an eligible
program, as defined in section 481(e) of the HEA. Proposed
Sec. 668.8(d) would implement that definition. The proposed definition
would supplant the current regulatory definition of a six-month
training program in 34 CFR 600.2.
Section 481(e) of the HEA provides for three types of eligible
programs. The first type of eligible program is one that must provide
at least 600 clock hours, 16 semester or trimester hours or 24 quarter
hours of instruction offered during a minimum of 15 weeks. The program
must provide undergraduate training that prepares a student for gainful
employment in a recognized occupation. The program may admit as regular
students persons who have not completed the equivalent of an associate
degree.
The second type of eligible program is one that must provide at
least 300 clock hours, 8 semester hours, or 12 quarter hours of
instruction offered during a minimum of 10 weeks. The program must
provide training that prepares a student for gainful employment in a
recognized occupation and be a graduate or professional program or
admit as regular students only persons who have completed the
equivalent of an associate degree. For the first time, this type of
program may qualify for purposes of all Title IV, HEA programs, not
just the FFEL programs, as under current regulations.
The third type of eligible program would qualify for the FFEL
programs only. It must provide at least 300 but less than 600 clock
hours of instruction offered during a minimum of 10 weeks. The program
must provide undergraduate training that prepares a student for gainful
employment in a recognized occupation, and admit as regular students
some persons who have not completed the equivalent of an associate
degree. This type of program must also satisfy regulations of the
Secretary governing placement rates, completion rates, and other
criteria. These rates and criteria are discussed below.
Qualitative Factors
Section 481(e)(2) of the HEA requires the third type of eligible
program to have a verified completion rate of at least 70 percent and a
verified placement rate of at least 70 percent in accordance with the
Secretary's regulations and to meet other criteria specified by the
Secretary in regulations. Proposed Sec. 668.8(e) would implement these
provisions. Proposed Sec. 668.8(e)(2) would require an institution to
substantiate the calculation of its completion and placement rates by
having its independent auditor who prepares its compliance audit report
under Sec. 668.23 verify the accuracy of the calculations. The
Secretary believes that the auditor's assurance of these calculations
would be a reliable independent substantiation. The Secretary also
believes it is practical for an auditor to check this information,
inasmuch as he or she is already on site to perform the institution's
required compliance audit.
Section 668.8 would include formulas in paragraphs (f) and (g) for
calculating the appropriate completion and placement rates. The
Secretary believes a single methodology is desired, and invites
comments in this area. The Secretary notes that an NPRM implementing
the Student Right-to-Know provisions in section 485(a) of the HEA,
which addressed the calculation of completion or graduation rates, was
published in the Federal Register on July 10, 1992 (57 FR 30826). The
Secretary will be publishing a second NPRM for implementation of the
Student Right-to-Know provisions shortly after publication of this NPRM
to further address this calculation. The Secretary would also like to
know if any proposals relative to the Student Right-to-Know Act
regarding graduation and completion rate calculations should be used
instead of the methods proposed here. The proposed formulas would be
based on the following:
Award Year
All calculations would be based on enrollments, completions, and
placements during an award year. Thus, an applicable completion or
placement rate would be the rate as it existed at the end of a
particular award year.
Calculation of Completion Rate
(1) An institution would base its calculation on the number of
regular students who were enrolled in the program during the award
year. The rate calculation is based on regular students because those
students by definition intend to complete a program. The Secretary
believes that inclusion of other students would not provide an accurate
picture of the institution's completion rate.
(2) The institution would subtract from the number of regular
students the number of those students who, during that award year,
withdrew from, dropped out of, or were expelled from the program and
were entitled to and actually received in a timely manner in accordance
with Sec. 668.22(i)(3) a refund of 100 percent of their tuition and
fees (less any permitted administrative fee) under the institution's
refund policy. The Secretary believes that the inclusion of students
who have received a 100 percent refund at an institution would unduly
penalize the institution because these students would not have
participated in the academic component of an institution's program.
These students are excluded from the calculation because there would
not be a loss of Title IV, HEA program funds to the Department of
Education if the institution has refunded all tuition and fees.
(3) The institution would subtract the number of students who were
enrolled in the program at the end of that award year.
(4) The institution would determine the number of regular students
who, during that award year, received the degree, certificate or other
recognized education credential awarded for successfully completing the
program.
(5) The institution would divide the number determined in item (4)
by the total obtained under item (3) of this section.
This proposed methodology instructs institutions to subtract from
the denominator all students who were enrolled in the program at the
end of the award year without regard to any time frame established for
the completion of the program. In view of the fact that the Secretary
is addressing the effect of the expectation that a student complete a
program in a reasonable period of time on the calculation of completion
rates in the forthcoming NPRM concerning the Student Right-to-Know
provisions in section 485(a) of the HEA, the Secretary particularly
invites comment on whether that expectation should also be considered
in the calculation under this section.
Calculation of Placement Rate
(1) An institution would determine the number of students who,
during the award year, received the degree, certificate, or other
recognized educational credential awarded for successfully completing
the program. The Secretary believes it would not be fair or accurate to
include in the placement rate calculation those students who have not
yet completed the program.
(2) The institution would subtract from the number of students
described in item (1) the number of those students who were employed by
the institution either before or after their receipt of the degree,
certificate, or other recognized educational credential. The Secretary
believes that excluding employees of the institution will help curb
abuse by those schools who may hire their own students in order to
increase placement rates. The Secretary specifically requests comment
on whether there are methods of distinguishing legitimate hiring by an
institution of its graduates or students from hiring simply to improve
the results of a placement rate calculation.
(3) Of the total obtained under item (2), the institution would
determine the number of students who, within 180 days of the day they
received their degree, certificate, or other recognized education
credential, obtained gainful employment in the recognized occupation
for which they were trained or in a related comparable recognized
occupation and, on the date of this calculation, are employed or have
been employed for at least 13 weeks following receipt of the credential
from the institution.
The Secretary believes that only students who have been placed
within 180 days should be counted in the calculation. The Secretary
proposes 180 days because it is consistent with the maximum period of
time that a payment on a student's loan under the FFEL loan program may
be deferred. These FFEL deferments include provisions for deferments
for periods of unemployment. The Secretary considers this time frame to
be adequate and reasonable, and provides ample time for an institution
to place a student.
The proposed regulation allows an institution to include in its
placement rate a student who is placed in a recognized occupation which
is comparable and related to the occupation for which the student has
been trained. For instance, if a student were trained as an auto
mechanic, he could be included in the placement rate calculation if he
were placed as a boat mechanic. However, if a student completed a
retail sales management program, he could not be included in the
calculation if he were placed as a counterman at a fast food
establishment.
To be included in the placement rate, a student must have been
employed for at least 13 weeks following graduation from the
institution. The Secretary believes that this requirement will help
stem abuse by institutions that may arrange to have students hired for
short term jobs in order to boost placement rates. The proposed 13-week
period is consistent with the period of time a student must be employed
to be counted in the calculation of an institution's placement rate
under the procedures delineated in current Sec. 668.15(g) for the
appeal of an institution's loss of participation due to an unacceptable
cohort default rate.
As stated above, for purposes of this calculation, a student has up
to 180 days after he or she receives his or her degree, certificate, or
other recognized education credential to obtain gainful employment and
then must be employed for at least 13 weeks following receipt of the
credential from the institution. The Secretary understands that,
because of the total length of time allowed for obtaining and
maintaining employment, an institution's calculations may not
accurately reflect placement results for programs that are offered in
the latter half of the award year. The Secretary specifically requests
comments on ways to address this issue.
(4) The institution would divide the number of students determined
in item (3) of this section by the total obtained under item (2).
The institution must maintain documentation that each student
described in item (3) above, obtained gainful employment in an
occupation for which he or she was trained or in a related occupation.
Examples of satisfactory documentation of a student's gainful
employment include, but are not limited to--
A written statement from the student's employer;
Signed copies of State or Federal income tax forms; and
Written evidence of payments of Social Security taxes.
The Secretary believes that requiring institutions to collect this
data will help curb abuse by institutions that may overstate their
placement rates in order to achieve and maintain eligibility for short-
term programs. Furthermore, to further avoid potential abuse, the
Secretary proposes that in certifying the accuracy of an institution's
placement rate, as required under Sec. 668.8(e)(2), the institution's
auditor should review the above types of documentation collected by the
institution to verify each student's inclusion in the placement rate
calculation.
The statute provides that the Secretary may prescribe other
regulations to determine the quality of these programs. Under proposed
Sec. 668.8(e)(1)(iii), to be eligible, programs less than 600 clock
hours in length may not exceed by more than 50 percent the minimum
number of clock hours required for training in the recognized
occupation for which the program prepares students, as established by
the State in which the program is offered, if the State has established
such a requirement. For example, if a State requires security guard
students to complete only 300 clock hours of training, a security guard
program in that state will not be eligible if it exceeds 450 clock
hours. The Secretary believes this regulation will help curb abuse of
the programs by preventing institutions from providing unnecessary
training to students in order to receive additional Title IV, HEA
program funds.
Proposed Sec. 668.8(e)(1)(iv) requires that to be eligible,
programs less than 600 clock hours must have been in existence for at
least one full year. The Secretary believes that this time frame is
necessary so programs may demonstrate the appropriate completion and
placement rates. Institutions will be required under 34 CFR 600 to
apply for eligibility of these programs after the one-year requirement
is satisfied.
English as a Second Language
In addition to the elements already in place in the current
regulations regarding English as a Second Language (ESL) programs,
Sec. 668.8(j)(2) proposes that in order for an ESL program to be
eligible, the institution must test each student at the end of the
program to substantiate that the student has attained adequate
proficiency in written and spoken English to use already existing
knowledge, training or skills. The institution will also be required to
identify the test it gives to the students and the basis for the
judgment that the student has attained the adequate proficiency. This
proposal, based on California law, was suggested during the negotiation
process as a method to stem abuse by institutions which offer ESL
programs. As established by the current regulations, ESL programs which
qualify as eligible programs are eligible for purposes of the Federal
Pell Grant program only. This provision remains unchanged.
Subpart B--Standards for Participation in the Title IV, HEA Programs
Section 668.12 Application Procedures
The Secretary proposes to add a new Sec. 668.12 to codify the
Secretary's current practices with regard to applications to
participate or to continue to participate in a Title IV, HEA program.
This section also would include proposed procedures whereby the
Secretary codifies new statutory provisions governing applications to
participate or to continue to participate in a Title IV, HEA program.
Section 498(b) of the HEA requires the Secretary to develop a
single application form to be used by an institution that wishes to
apply to participate or to continue to participate in a Title IV, HEA
program. The statute requires that this form provide for the collection
of various information and documentation. First, the form must require
an institution to provide sufficient information and documentation to
determine that the requirements of institutional eligibility,
accreditation, and the capability of the institution are met.
Second, the form must require an institution to describe the
relationship between a main campus of an institution and all of its
branches. In particular, the form must require an institution to
include a description of the student aid processing that is performed
by the main campus and that which is performed at its branches. Third,
the form must require an institution to describe all third-party
servicers of the institution and supply a copy of any contract with a
third-party servicer. Finally, the form must require an institution to
provide any other information that the Secretary determines will ensure
compliance with Title IV, HEA program requirements with respect to
eligibility, accreditation, administrative capability and financial
responsibility.
Currently, the Department of Education uses a single application
form that addresses both institutional eligibility requirements (as
found in 34 CFR part 600) and the standards for certification of
administrative capability and financial responsibility. In recent
years, although institutions filed a single application form, they
received separate notifications of action from the Department: an
institutional eligibility notice and a certification letter. This
created confusion because some institutions misinterpreted the
institutional eligibility notice also to be the notice informing the
institution that it met the requirements for ``certification'' and that
the institution was now able to participate in a Title IV, HEA program.
In order to reduce confusion, the Secretary is now combining these
notices of ``institutional eligibility'' and ``certification'', issuing
one ``Institutional Approval Notice'' to an institution that meets the
institutional eligibility and certification requirements. The
Institutional Approval Notice advises the institution that it is an
eligible institution, and is approved to participate in the Title IV,
HEA programs listed in the Notice and indicated in the institution's
program participation agreement. The effective date of approval, which
is specified in the Institutional Approval Notice, is the date that the
Secretary signs the institution's program participation agreement.
Under current practice, an institution that wishes to participate
in a Title IV, HEA program for the first time must first apply to the
Secretary for a certification that the institution meets the standards
for participation found in Subpart B of these regulations. A currently
participating institution must apply to the Secretary for a
certification that the institution continues to meet these standards
under a number of conditions.
First, the institution must apply for certification if the
Secretary requests the institution to apply. The Secretary reserves the
right to require a participating institution to apply at any time if
the Secretary is concerned about the institution's continued
participation in a Title IV, HEA program. Currently, the Secretary
exercises this authority only rarely, and generally when the Secretary
receives reliable information that could affect the institution's
eligibility under 34 CFR part 600 or the institution's financial
responsibility or administrative capability under subpart B of these
regulations. For example, if the Secretary receives information that an
institution that does not grant degrees has received authorization from
its State and accrediting agency to award degrees, the Secretary would
require the institution to apply under 34 CFR part 600 to determine
whether the institution satisfies the definition for a different type
of institution and therefore might be eligible to apply to participate
in HEA programs for which the institution earlier was not qualified. At
the same time, the Secretary requires the institution to apply for
recertification under this subpart. Similarly, if the Secretary
receives reliable information that could affect whether an institution
meets the factors of financial responsibility in this subpart, the
Secretary requires the institution to apply for recertification. The
Secretary does not intend to exercise this authority more frequently
than under current practice.
Second, a participating institution must apply for certification if
the institution wishes to include in its participation a branch campus
(as that term would be defined in 34 CFR part 600) or another location
that offers 100 percent of an educational program. Adding a branch
campus or additional location that offers 100 percent of an educational
program can have a great effect on the ability of an institution to
continue to participate in the Title IV, HEA programs. The Secretary
considers it is appropriate to scrutinize the effect of such an
addition. In particular, the Secretary believes it is necessary to
examine whether the institution has the financial resources and the
administrative capability necessary to support such an addition.
A number of circumstances that could affect an institution's
participation in a Title IV, HEA program do not, under the Secretary's
current practice, require the institution automatically to apply for
recertification under subpart B of these regulations. Instead, these
circumstances require the institution to notify the Secretary, and, if
necessary, provide specified information about the circumstances. These
circumstances parallel many of those described in 34 CFR part 600
requiring the institution to notify the Secretary of changes that could
affect the institution's eligibility. Based on that notification and
information, the Secretary determines whether the institution must
apply for recertification. If the institution need not apply, the
Secretary notifies the institution under the provisions of 34 CFR
600.30 that the institution continues to be eligible and participating.
If the Secretary needs further information to make that determination,
the Secretary requests additional information from the institution or
requires the institution to apply for recertification. These procedures
apply to the following circumstances: (1) A change in name, address, or
location of the institution or one of the institution's locations; and
(2) the inclusion in an institution's participation of a location that
offers less than 100 percent but at least 50 percent of an educational
program. In making the determination that the institution must apply
for approval, the Secretary takes into account the institution's
ability to provide adequately education or training at the location,
including such factors as the percentage of an educational program
offered at the location and the financial and administrative capability
of the institution.
Under current practice and under these proposed regulations, a
participating institution that wishes to include in its participation a
location that offers less than 50 percent of an educational program
need not provide any notification or application to the Secretary,
unless the Secretary so requests.
Third, a participating institution must apply for certification if
the institution wishes to continue to participate in a Title IV, HEA
program following a change in ownership that results in a change in
control. The regulations governing institutional eligibility (34 CFR
part 600) contain the requirements governing institutions that change
ownership resulting in a change of control.
New section 498(g) of the HEA requires the Secretary to establish a
schedule for the expiration of the approval of institutions to
participate in the Title IV, HEA programs. Once this schedule is in
place, each program participation agreement will have a specific
expiration date. To continue participating in the Title IV, HEA
programs beyond the expiration date of its program participation
agreement, an institution will need to apply for and be granted
approval for continued participation. The Secretary will notify an
institution well in advance of the expiration date of the institution's
program participation agreement that the institution must apply for and
be granted continued participation. If an institution does not apply
for or is not granted approval for continued participation by the
expiration date of the institution's program participation agreement,
the institution's participation in the Title IV, HEA programs would
expire on that expiration date. In this case, the Secretary may choose
to provisionally certify the institution. Provisional certification
will be addressed in more detail later in this discussion.
The proposed regulations would specify that an institution that
applies for participation in any Title IV, HEA program must apply on
the form prescribed by the Secretary and provide all information and
documentation requested by the Secretary. The Secretary would like to
clarify that an institution may be asked to supply additional
information in support of its application after its initial submission.
This does not represent a change from current procedures.
Section 668.13 Certification Procedures
Currently, the Secretary informally refers to the procedures by
which the Secretary certifies that an institution meets the standards
in subpart B of these regulations and accordingly may participate in a
Title IV, HEA program as the ``certification procedures.'' The
Secretary proposes to add a new Sec. 668.13 to codify these procedures.
This section also would include proposed procedures whereby the
Secretary codifies new statutory provisions governing certification and
provisional certification procedures for participation in a Title IV,
HEA program.
Clearly, an institution may not be certified unless the institution
is eligible under the provisions of 34 CFR part 600. Further, this
section would make clear that an institution could be certified only if
the institution meets all the applicable standards for participation in
subpart B of these regulations.
Finally, because the requirement that each time an institution
seeks to begin to participate in a Title IV, HEA program the specified
individuals must complete ``precertification training'' provided by or
approved by the Secretary is a certification requirement, the Secretary
proposes to move this requirement from the current Sec. 668.12
(Institutional participation agreement) to this section. The Secretary
proposes to amend this requirement to clarify that an institution
subject to this training requirement may not begin participation until
the individuals have completed the training. Under current regulations,
the Secretary specifies that an institution may request an on-site
review (instead of electing to use the precertification training
procedures) before beginning its participation.
In accordance with section 498(g) of the HEA, the Secretary
proposes to delineate the period for which an institution may
participate in a Title IV, HEA program. Generally, this period is the
maximum of four years permitted by the HEA; however, the Secretary may
specify a shorter period as the Secretary deems necessary.
Section 498(h) of the HEA permits the Secretary to provisionally
certify an institution to participate in a Title IV, HEA program in a
number of circumstances. Provisional certification permits the
Secretary to allow an institution that otherwise would not qualify to
participate in a Title IV, HEA program to participate. However, because
such an institution cannot meet all the requirements for ``full''
certification, the institution's participation would be limited. For
example, an institution that is provisionally certified could be
monitored more closely to the extent that the Secretary believes the
institution warrants a greater degree of oversight. Further, in
accordance with the statute, an institution that is provisionally
certified is subject to shorter periods of participation than a fully
certified institution. The Secretary notes that these limitations may
vary, within the limits of the statute, to address the specific
circumstances of the institution. Finally, under the terms of
provisional certification, an institution will not have the right to a
formal appeal under subpart G of this part if the Secretary revokes the
institution's provisional certification; instead, the Secretary
proposes to offer the institution a modified appeal. These limitations
are addressed in more detail later in this discussion.
Under section 498(h) of the HEA, the Secretary may provisionally
certify an institution that: (1) Applies for initial participation in
any Title IV, HEA program; (2) has its administrative capability or
financial responsibility determined by the Secretary for the first
time; (3) undergoes a change of ownership; (4) seeks to renew its
certification and jeopardizes its ability to perform its financial
responsibilities by not meeting the factors of financial responsibility
or standards of administrative capability in proposed Secs. 668.15 and
668.16 (and whose participation has been limited or suspended under
subpart G of this part, or voluntarily enters into provisional
certification); or (5) is a participating institution that was
accredited or preaccredited by a nationally recognized accrediting
agency on the day before the Secretary withdrew recognition of that
agency. In addition, the Secretary is proposing to add, to the list of
institutions that may be provisionally certified, an institution that
allowed its specified period of participation to expire without
reapplying and qualifying for participation in time.
The Secretary intends to use provisional certification as a
mechanism for monitoring an institution that has not previously
participated or one that has changed ownership, until it has time to
establish a track record. In keeping with current practice, the
Secretary does not intend to certify any initial applicant until it has
successfully completed a period of provisional certification. Because
many of the requirements for certification cannot be met until an
institution has participated in the Title IV, HEA programs for a period
of time, an initially participating institution would still have the
opportunity to participate while establishing a record that
demonstrates compliance with all of the proposed current standards for
participation. The Secretary notes that certain factors of financial
responsibility and administrative capability, such as requirements
governing the appropriate handling of Title IV, HEA program funds and
timely submission of required audits and other reports, cannot be
judged until an institution has Title IV, HEA program funds to
administer. In these cases, instead of certifying that an institution
meets all the standards of subpart B, the Secretary certifies that an
institution has demonstrated that it meets all the standards it can
currently and that it will be able to meet all the standards in subpart
B to qualify it for full certification within a period of time
specified by the Secretary. Such an institution will receive a modified
program participation agreement. For the same reasons, the Secretary
also intends to use provisional certification for all institutions that
undergo a change of ownership. Provisional certification would permit
them to participate in Title IV, HEA programs while demonstrating over
time that they can meet the standards for participation under the new
ownership.
In addition, the HEA provides that the Secretary may use
provisional certification for institutions that are currently
participating who will have their financial responsibility and
administrative capability determined for the first time. Some
institutions have been participating in the Title IV, HEA programs
since before the establishment of the financial responsibility and
administrative capability standards, and have never undergone a
certification review. These institutions may be allowed the time
necessary to establish that they can remedy any deficiencies found and
meet the standards for participation.
Finally, under the provisions of the Technical Amendments of 1993,
the Secretary may provisionally certify a participating institution
that is undergoing a certification review if the Secretary believes
that the institution is in a financial or administrative position that
could jeopardize the institution's ability to perform its financial
responsibilities under its program participation agreement. The
Secretary may provisionally certify an institution under this provision
if the institution's participation has been limited or suspended under
subpart G of this part, or voluntarily enters into provisional
certification. Thus, the Secretary proposes to use provisional
certification as a probationary period for some participating
institutions, if the Secretary determines that the institutions are
capable of meeting the standards for full certification by the end of
that period. For example, the Secretary might find that an institution
applying for recertification on its own fails to meet one of the
standards in proposed Sec. 668.15. If the Secretary determines that the
failure could jeopardize the institution's ability to meet its
financial responsibilities, such as the payment of refunds, the
Secretary would provisionally certify the institution.
Finally, the Secretary proposes to use provisional certification
for institutions that seek a renewal of participation in a Title IV,
HEA program after the expiration of a prior period of participation in
that program. The Secretary will examine the reasons for the lapse in
participation to determine if additional safeguards are necessary for
the institution to demonstrate that it is capable of resuming its
participation in the Title IV, HEA programs.
The Secretary does not intend to certify an institution
provisionally if the institution does not meet the financial
responsibility standards, unless the institution provides the Secretary
with certain additional financial guarantees of its ability to continue
operating. The Secretary believes that additional financial guarantees
are necessary in that situation to ensure that funds may be available
to repay liabilities or to pay required refunds that could arise under
the Title IV, HEA programs. The Secretary generally does not intend to
certify an institution provisionally if the institution does not meet
the general standards of financial responsibility or the exceptions to
the general standards of financial responsibility under proposed
Sec. 668.15(d) unless the institution meets three additional
conditions. First, the institution would have to demonstrate to the
satisfaction of the Secretary that it has sufficient financial and
administrative resources to participate in the Title IV, HEA programs
under a funding arrangement other than the Department of Educations's
standard advance funding arrangement. For example, the institution
could be funded through an escrow arrangement where an approved third
party controls the institution's access to Title IV, HEA program funds.
The Secretary believes that it is necessary for the Department of
Education to have the added control over Title IV, HEA program funds
provided by an escrow arrangement. Second, the institution would have
to submit to the Secretary a letter of credit payable to the Secretary
equal to not less than 10 percent of the Title IV, HEA program funds
received by the institution during the last complete award year for
which figures are available; the Secretary believes that 10 percent of
an institution's Title IV, HEA program funds is the minimum necessary
to ensure repayment of liabilities that may be identified during the
institution's period of provisional certification. Further, the
Secretary believes that the amount of Title IV, HEA program funds
received by an institution during the last complete award year for
which figures are available provides the most accurate indication of
the amount of Title IV, HEA program funds the institution will use in
the next award year. Third, the institution would have to demonstrate
that it has met all of its financial obligations during the preceding
two award years, including (but not limited to) the payment of required
refunds and repayments to the Secretary for liabilities and debts
incurred in programs administered by the Secretary. The Secretary
believes that an institution that could meet this proposed standard has
established a track record for meeting its financial obligations.
The Secretary notes that an institution that is applying for
initial participation in the Title IV, HEA programs could not satisfy
the proposed requirement that the institution submit to the Secretary a
letter of credit payable to the Secretary equal to not less than 10
percent of the Title IV, HEA program funds received by the institution
during the last complete award year for which figures are available
because the institution would not have received any Title IV, HEA
program funds during the last award year. The Secretary requests
comments on a comparable way to determine the amount of a letter of
credit for an institution that is applying for initial participation in
the Title IV, HEA programs.
The Secretary also would impose additional conditions on any
institution that has not been considered financially responsible under
proposed Sec. 668.15 at any time within the past five years, or if the
institution is not considered financially responsible for one of the
following reasons (as delineated in Sec. 668.15(c)(2)): (1) The
institution has been limited, suspended, terminated or entered into a
settlement agreement to resolve such an action by the Secretary or a
guaranty agency within the preceding five years; (2) the institution
had an audit finding during its two most recent audits, or a program
review finding during its two most recent program reviews, that
resulted in the institution's being required to repay an amount greater
than five percent of the Title IV, HEA funds that the institution
received for any award year covered by the audit or the program review;
or (3) the institution failed to address satisfactorily any compliance
problems identified in program review or audit reports based upon a
final decision of the Secretary.
An institution in these categories could only be provisionally
certified if, in addition to meeting whatever conditions the Secretary
might reasonably require of a provisionally certified institution, the
institution satisfied one of the following conditions. First, the
institution, or one or more persons or entities that the Secretary
determines to exercise substantial control over the institution, or
both, would have to submit to the Secretary financial guarantees in an
amount determined by the Secretary to be sufficient to satisfy the
institution's potential liabilities arising from the institution's
participation in the Title IV, HEA programs. Second, one or more
persons or entities that the Secretary determines to exercise
substantial control over the institution would have to agree to be
jointly or severally liable for any liabilities arising from the
institution's participation in the Title IV, HEA programs and any civil
and criminal monetary penalties authorized under Title IV of the HEA.
The law permits the Secretary to impose these conditions on these
institutions; the Secretary is announcing that he would always impose
them, because these circumstances are indicative that extra protection
is needed for the institution and their students to be permitted to
benefit from the use of Title IV, HEA program funds.
Generally, provisional certification may be granted for a period of
no longer than three award years. In accordance with section 498(h) of
the HEA, an institution that is applying for initial participation may
be provisionally certified for a period of no longer than one award
year. A participating institution that was accredited or preaccredited
by a nationally recognized accrediting agency on the day before the
Secretary withdrew the Secretary's recognition of that agency may be
provisionally certified for no longer than 18 months after the date
that the Secretary withdrew that recognition. The Secretary has the
authority to specify a shorter period of provisional certification, as
necessary.
In accordance with section 498(h) of the HEA, the Secretary may
revoke an institution's participation in the Title IV, HEA programs, at
any time before the end of a period of provisional certification, if
the Secretary determines that the institution is unable to meet its
responsibilities under its program participation agreement. If the
Secretary makes that determination, the Secretary would notify the
institution of the determination by mail, unless the Secretary chooses
more expeditious means, and revocation would take effect on date that
notice is mailed. The institution would have to adhere to the
requirements of proposed Sec. 668.26 which describes the consequences
of revocation.
Under the terms of the provisional certification, the institution
does not have the right to a formal appeal under subpart G of this part
before the revocation takes effect. However, the Secretary proposes to
allow the institution to submit a written request to reconsider the
revocation within 20 days of the institution's receipt of the
Secretary's notice, after the revocation takes effect. The
institution's request for reconsideration would have to include written
evidence that the revocation is unwarranted.
If the Secretary decides that the revocation is unwarranted, the
institution's provisional certification would be reinstated in
accordance with the time, terms, and conditions set out in the
institution's original provisional certification. If, after
consideration of the institution's submission, the Secretary denies the
institution's request, the institution would not be permitted to
reapply for participation in the Title IV, HEA programs before at least
18 months after the revocation or the expiration of any debarment or
suspension of the institution, whichever is later. Generally, an
institution whose participation has been terminated because the
institution's provisional certification was revoked would be able to
apply for reinstatement after 18 months. However, a debarment or
suspension under E.O. 12549 or the FAR can last 3 or more years. This
change would eliminate any doubt that a debarred or suspended
institution may apply for reinstatement of the institution's
participation during the period of a debarment or suspension. The
Secretary will not accept any application by a debarred or suspended
institution until the debarment or suspension has expired or been
removed.
Section 668.14 Program Participation Agreement.
The Secretary proposes to redesignate Sec. 668.12 as Sec. 668.14.
This section includes provisions dealing with third-party servicers
that were proposed in the NPRM published on February 17, 1994 (in part
II). The Secretary will not repeat the discussion of those provisions
here.
Current regulations governing program participation agreements
state only the basic terms of participation in the Title IV, HEA
programs and the purpose and scope of the agreement between the
Secretary and individual institutions. All of the specific provisions
of the program participation agreement that are listed in section
487(a) of the HEA are not restated in the regulations. Instead, all the
specific statutory provisions are included in the actual agreement
signed between the Secretary and individual institutions. The Secretary
proposes to revise this section of the regulations to include not only
the new provisions of program participation agreements added by the
Amendments of 1992, but also those provisions previously prescribed by
the HEA but not specifically spelled out in this section. The Secretary
will specify which proposed changes have been made to this section as a
result of the Amendments of 1992 to distinguish them from the
provisions that the Secretary proposes to add that already existed
under the HEA, but have not been codified in regulations.
The additional provisions of program participation agreements
enumerated in the HEA, as well as other changes the Secretary is
proposing in order to clarify what the agreements cover and to reflect
new procedures and statutory language, are described below.
By providing a comprehensive list of the provisions of the basic
program participation agreement in one section, thus making reference
to all the provisions more convenient, the Secretary hopes to
facilitate institutions' understanding of their responsibilities with
respect to initial and continued participation in the Title IV, HEA
programs.
The Secretary proposes to clarify the scope of the program
participation agreement. By signing a program participation agreement,
an institution indicates it understands that its initial or continued
participation in the Title IV, HEA programs is contingent on compliance
with the Student Assistance General Provisions regulations, the
regulations of the specific Title IV, HEA programs in which the
institution participates, and any additional requirements specific to
that institution that the Secretary requires the institution to meet.
Further, the Secretary proposes to make clear the long-standing
practice that the program participation agreement applies to each
branch or other additional location of the institution that meets the
applicable requirements of the Student Assistance General Provisions,
unless the Secretary specifies otherwise.
The Secretary proposes to specify that by entering into a program
participation agreement the institution agrees to comply not only with
statutory and regulatory requirements, but also with any special
arrangement, agreement, or limitation. The proposed expansion of this
provision is necessary to make it clear that if it is to participate in
a Title IV, HEA program, an institution must adhere not only to those
requirements listed in the statute and regulations, but to any
conditions of provisional certification, any limitation imposed on the
institution to which the institution has agreed, or any other special
arrangement that the institution makes pursuant to statutory or
regulatory authority under Title IV of the HEA. The Secretary also
believes it is necessary to clarify the Secretary's longstanding
interpretation that to begin or continue to participate in a Title IV,
HEA program, an institution must comply with each requirement
applicable to that program, not just selected provisions.
The Secretary proposes to add a clause specifically requiring that
institutions that receive Title IV, HEA program funds under an advance
payment method must time their requests for funds to meet immediate
programs needs. The Secretary finds that this addition is necessary
because, in the absence of this specifically stated requirement, too
many institutions have drawn down funds in excess of immediate need,
thereby adding unnecessarily to the Federal debt by causing the
Treasury to incur interest costs on funds given to institutions that
were not required to meet immediate needs.
The Amendments of 1992, as clarified by the Technical Amendments of
1993, has removed the requirement that an institution may not request
from or charge any student a fee for processing or handling the Federal
Student Assistance Report, to conform with other statutory provisions
of the Amendments of 1992 that eliminated previous references to that
report. The Secretary would remove the corresponding regulatory
language from this section. No change has been made to the general
requirement that an institution may not request from or charge any
student a fee for processing or handling any application, form, or data
required to determine a student's eligibility for, and amount of, Title
IV, HEA program assistance.
In accordance with the HEA, an institution must establish and
maintain necessary administrative and fiscal procedures and records to
ensure proper and efficient administration of Title IV, HEA program
funds that the institution receives from the Secretary or from
students. Further, the Amendments of 1992 require that the institution
provide, upon request and in a timely manner, information relating to
its administrative capability and financial responsibility of the
institution to the Secretary, the appropriate State postsecondary
review entity designated under Part H of Title IV of the HEA, any
applicable guaranty agency under the FFEL programs, and the
institution's accrediting agency or agencies. The Secretary proposes to
add to this list of agencies the institution's State agency with legal
jurisdiction over the institution and, where appropriate, the State
agency recognized by the Secretary for the approval of public
postsecondary education as an alternative to accreditation or
preaccreditation. The Secretary believes that it is important that
these agencies also have access to information regarding an
institution's financial responsibility and administrative capability.
The HEA requires that an institution must agree to comply with the
Secretary's regulations governing financial responsibility and
administrative capability. Thus, the Secretary would specify that the
institution must agree to comply with proposed-to-be-redesignated
Secs. 668.15 and 668.16.
The HEA requires that an institution must submit reports, as
directed by the Secretary, to the Secretary, or, as appropriate,
holders of student loans under the Title IV, HEA programs, containing
information required to administer the Title IV, HEA programs. The
Secretary considers this provision to be self-explanatory and proposes
to add this statutory requirement to the regulations without
substantive modifications.
The HEA requires that an institution may not provide any statement
to a student or certification to a lender under the FFEL programs that
qualifies a student for loans in excess of the annual and aggregate
limits for which the student is eligible for in accordance with
statutory requirements. The Secretary proposes to extend this
requirement to include unsubsidized Federal Stafford loans.
The HEA requires that an institution must comply with the consumer
information requirements in subpart D of these regulations. The
Secretary considers this provision to be self-explanatory and proposes
to add this statutory requirement to the regulations without
substantive modifications.
The HEA requires that an institution that advertises job placement
rates as a means of procuring enrollment must make available to
prospective students data necessary to substantiate the truthfulness of
the advertisement. In addition, the Amendments of 1992 require that an
institution make available to prospective students the relevant State
licensing requirements for any job for which an institution's
educational program is designed to prepare prospective students. The
HEA also requires that an institution must inform all eligible
borrowers under the FFEL programs of their eligibility for and the
availability of State grant assistance. The Secretary considers this
provision to be self-explanatory and proposes to add this statutory
requirement to the regulations without substantive modifications.
In order to streamline these regulations, the Secretary proposes to
list in one place in this section all the certifications that an
institution must make to participate in a Title IV, HEA program. The
institution would have to agree in its program participation agreement
to provide these certifications. These certifications include the
following: (1) That the institution has in operation a drug abuse
prevention program accessible to any of the institution's officers,
employees, and students; and (2) establishment of a campus security
policy and disclosure requirements as required by section 485(f) of the
HEA. The Secretary considers this provision to be self-explanatory and
proposes to add this statutory requirement to the regulations without
substantive modifications.
The HEA requires that an institution make available to students who
receive Title IV, HEA program aid based on their ability to benefit
from the training offered a program proven successful in assisting
those students to obtain the recognized equivalent of a high school
diploma. The Secretary considers this provision to be self-explanatory
and proposes to add this statutory requirement to the regulations
without substantive modifications.
The Amendments of 1992 require an institution to agree that it will
not deny any form of Federal financial aid to any eligible student
solely on the grounds that the student is participating in a program of
study abroad approved for credit by the institution. The Secretary
considers this provision to be self-explanatory and proposes to add
this statutory requirement to the regulations without substantive
modifications.
The Amendments of 1992 require that as a condition for
participation any institution seeking to participate for the first time
in the Federal Stafford Loan, Federal PLUS, and Federal SLS programs
and any institution participating in those loan programs that changes
ownership resulting in a change of control or changes its status as a
main campus, branch campus, or an additional location, develop and
implement for two years a default management plan. The Secretary
proposes to allow institutions to develop and implement, or submit if
required by the Secretary, a default management plan developed in
accordance with the default reduction measures described in appendix D
of current regulations to meet this requirement.
The Amendments of 1992 require that an institution must acknowledge
the authority of the Secretary, guaranty agencies and lenders as
defined in 34 CFR part 682, nationally recognized accrediting agencies,
the Secretary of Veterans Affairs, and State postsecondary review
entities designated under subpart 1 of part H of Title IV of the HEA,
to share with each other any information pertaining to the
institution's eligibility for or participation in the Title IV, HEA
programs, or any information on fraud and abuse. The Secretary proposes
to add to this list of agencies the institution's State agency with
legal jurisdiction over the institution and, where appropriate, the
State agency recognized by the Secretary for the approval of public
postsecondary education as an alternative to accreditation or
preaccreditation.
The statutory provision that governs the effect of fraud and
criminal conduct by individuals, agencies, or organizations affiliated
with an institution was discussed in the NPRM published on February 17,
1994 (in part II) that deals with third-party servicers.
The Amendments of 1992 require that an institution must timely and
satisfactorily complete any survey conducted as a part of the
Integrated Postsecondary Education Data System (IPEDS), or other
Federal data collection effort on postsecondary institutions. The
Secretary considers this provision to be self-explanatory and proposes
to add this statutory requirement to the regulations without
substantive modifications.
The Amendments of 1992 spell out the requirements imposed on
participating institutions that offer athletically related student aid.
In order to participate in a Title IV, HEA program, an institution that
offers athletically related student aid must compile annually and have
audited independently at least every 3 years, data on the revenues
derived by the institution from and expenses made by the institution
for the institution's intercollegiate athletics activities. This
compilation must include data on total revenues and total expenses,
revenues and expenses attributable to football, revenues and expenses
attributable to men's basketball, revenues and expenses attributable to
women's basketball, revenues and expenses attributable to all other
men's sports combined, and revenues and expenses attributable to all
other women's sports combined. The compilation must also include data
on the total revenues and operating expenses of the institution. The
institution is required to prepare the compilation within 6 months
after the end of the institution's fiscal year. The institution must
make the compilation and, where allowable by State law, the required
audits, available for inspection by the Secretary and the public.
For purposes of this compilation, the Amendments of 1992 define
revenues from intercollegiate athletics activities allocable to a sport
to include without limitation gate receipts, broadcast revenues,
appearance guarantees and options, concessions, and advertising.
Revenues such as student activities fees or alumni contributions not
allocable to a sport must be included in the calculation of total
revenues only. The Amendments of 1992 define expenses for
intercollegiate athletics activities allocable to a sport to include
without limitation grants-in-aid, salaries, travel, equipment, and
supplies. Expenses such as general and administrative overhead that are
not allocable to a sport must be included in the calculation of total
expenses only. Generally, the Secretary is proposing to restate the
language of the statute in the regulations. However, the Secretary
proposes changes to conform with the NCAA's 1989 Financial Audit
Guidelines. In addition to the statutory definition of what is included
in revenues from intercollegiate athletics activities allocable to a
sport, the Secretary proposes to specify that other conference
distributions in addition to broadcast revenues would also be included.
The Secretary also proposes to specify that revenues such as investment
interest income that are not allocable to a sport would be included in
the calculation of total revenues only.
The Amendments of 1992 provide that an institution may not impose
any penalty on any student because of the student's inability to meet
his or her financial obligations to the institution as a result of the
delayed disbursement of a title IV, HEA program loan due to compliance
with statutory and regulatory requirements for the Title IV, HEA
programs, or delays attributable to the institution. The statute
specifies that those prohibited penalties include the assessment of
late fees, the denial of access to classes, libraries, or other
institutional facilities, or the requirement that the student borrow
additional funds. The Secretary proposes to clarify that the
restriction that institutions may not require a student to borrow
additional funds would apply only to funds for which interest or other
charges are assessed. Therefore, this provision would not apply to any
interest-free loans that the institution might require the student to
borrow until other sources of aid are available.
The Amendments of 1992 provide that an institution may not provide
any commission, bonus, or other incentive payment based directly or
indirectly on success in securing enrollments or financial aid to any
persons or entities engaged in any student recruiting or admission
activities. An institution also may not provide such an incentive
payment to any persons or entities engaged in making decisions
regarding the awarding of student financial assistance. The statute
specifies that this requirement does not apply to the recruitment of
foreign students residing in foreign countries who are not eligible to
receive Federal student assistance. The Secretary proposes to extend
this provision to require that institutions also may not contract with
entities that improperly provide, any commission, bonus, or other
incentive payment as delineated in the statute. The Secretary believes
that this provision is necessary to implement more rigid restrictions
than were seen in the past on the practices of ``commissioned
salespersons.'' The Secretary proposes to repeat the language of the
statute with the addition of this change. The Secretary believes it is
clear that this statutory requirement places rigid restrictions on the
practice of recruitment, admission activities, and the awarding of
student financial assistance.
The Secretary is aware that some institutions pay incentives to
recruiters or admissions office employees based on the success of those
persons in enrolling students, provided that the enrolled students
maintain satisfactory progress for and remain enrolled in the
institution for a specified period of time. The Secretary considers
this practice, which commonly is referred to as an incentive based on
``retention,'' to be an example of an activity that is prohibited by
the statute.
During the negotiated rulemaking sessions, the Secretary's
negotiator requested further examples of prohibited activities. A non-
Federal negotiator offered the following examples that the Secretary
believes are not permitted by the statute. (1) An institution might
offer payments or gifts to students for referring other prospective
students for admission to the institution. (2) An institution might
offer payments or gifts to students on the condition that persons whom
the students referred to the institution were actually admitted and
remained enrolled in the institution for a specified period of time.
(3) An institution might present gifts to alumni, such as coffee mugs,
sporting events tickets, or contributions in their name for referring
students to the institution for admission. (4) An institution might pay
bonuses to Directors of Admissions (or other management personnel)
based on the number of enrollments received during a particular
academic year or the number of students who, after enrolling, remained
at the institution until all financial aid had been received. The
Secretary specifically requests comments on these examples and others
that might serve as useful guidelines in these regulations.
The Amendments of 1992 require that an institution comply with
applicable requirements established by all members of the ``triad'';
i.e., the Secretary, State postsecondary review entities, and
nationally recognized accrediting agencies pursuant to part H of title
IV of the HEA. The Secretary considers this provision to be self-
explanatory and proposes to add this statutory requirement to the
regulations without substantive modifications.
The Amendments of 1992 require that an institution comply with the
institutional refund policy established in accordance with Sec. 668.22.
The Secretary considers this provision to be self-explanatory and
proposes to add this statutory requirement to the regulations without
substantive modifications.
Finally, in addition to the statutory requirements for program
participation agreements, an institution would have to agree to be
liable for all improperly spent or unspent funds received under the
title IV, HEA programs, including funds administered by a third-party
servicer, and refunds that the institution or its servicer may be
required to make. This provision was proposed and discussed in the NPRM
published on February 17, 1994 (in part II) that deals with third-party
servicers.
The Amendments of 1992 and the Technical Amendments of 1993 amended
the HEA to require that an institution that has a change in ownership
resulting in a change in control reestablish institutional eligibility
and undergo a certification review before it may participate in any
title IV, HEA programs. Therefore, the Secretary is proposing to remove
the provision in current regulations that permitted the new
participation agreement of an institution that changed ownership to be
effective on the date of the change of ownership. Instead, under the
proposed regulations, the program participation agreement of an
institution that changes ownership would be effective on the date that
the Secretary signs the agreement, just as any other new program
participation agreement would.
The Secretary proposes to specify that a program participation
agreement expires if the institution's participation ends because: (1)
The institution closes or stops providing educational programs for a
reason other than a normal vacation period or a natural disaster that
directly affects the institution or the institution's students; (2) the
institution loses its institutional eligibility under 34 CFR part 600;
(3) the institution's period of participation, as specified under
Sec. 668.13, expires (that is, the four-year limit on participation,
the limits on participation established pursuant to provisional
certification, or shorter periods established by the Secretary), or the
institution's provisional certification is revoked under Sec. 668.13;
(4) the Secretary determines under Sec. 668.13(c) that the institution
that is applying for certification has jeopardized its ability to
perform its financial responsibilities by not meeting the factors of
financial responsibility under Sec. 668.15 or the standards of
administrative capability under Sec. 668.16 (in the case of an
institution whose participation has been limited or suspended under
subpart G of this part, or voluntarily enters into provisional
certification); or (5) the Secretary receives a notice from the
appropriate SPRE that the institution's participation should be
withdrawn.
These provisions would conform to the provisions in proposed
Sec. 668.26 governing the end of an institution's participation in a
title IV, HEA program. The first of these circumstances listed above is
purely a clarification of existing practice. The last three describe
circumstances mandated by the change made to the HEA by the Amendments
of 1992.
Section 668.15 Factors of Financial Responsibility
The Secretary proposes to redesignate Sec. 668.13 as Sec. 668.15.
This section includes provisions dealing with third-party servicers
that were proposed in the NPRM published on February 17, 1994 (in part
II). The Secretary will not repeat the discussion of those provisions
here. However, this third-party servicer NPRM proposed to apply the
general standards of financial responsibility that are proposed in this
NPRM to third-party servicers that contract with lenders or guaranty
agencies to administer any aspect of the title IV, HEA programs.
General
Section 487 of the HEA requires the Secretary to develop
regulations to determine the financial responsibility of an institution
as a part of the Secretary's determination that an institution is able
to participate in a title IV, HEA program. Section 498 of the HEA
mandates some of the standards that the Secretary must use in making a
determination of financial responsibility. In general, section 498 of
the HEA adopted, with modifications, the standards used by the
Secretary in current Sec. 668.13 of the Student Assistance General
Provisions regulations. The Secretary proposes to require an
institution to demonstrate that it is financially responsible under the
proposed requirements in this section.
General Standards of Financial Responsibility
In paragraph (b) of proposed Sec. 668.15, the Secretary would list
general standards of financial responsibility. The first six standards
are applicable to all institutions. Section 498(c)(1) of the HEA
specifies that an institution's financial responsibility must be
determined based on whether the institution is able to provide the
services that the institution claims to provide, to provide
administrative resources necessary to comply with Title IV, HEA program
requirements, and to meet all of the institution's financial
obligations, including refunds and liabilities and debts incurred in
programs administered by the Secretary. These standards were adopted
from current regulations and the Secretary proposes to continue to use
them unchanged.
The Secretary proposes to add to the list of proposed financial
responsibility requirements for all institutions the requirement that
an institution be current on any debt service payments. An institution
normally has variable costs that fluctuate to meet the demand created
by increasing or decreasing volume in those costs such as those for
educational supplies and expenses and instructor salaries associated
with educating an increasing or decreasing number of students. Debt
service represents a fixed cost, such as mortgage or lease payments, to
the institution that generally does not fluctuate with that volume.
Thus, in a situation in which an institution is experiencing a decline
in revenue due to a decrease in new enrollments, debt service would
remain unchanged. The institution's flexibility to deal financially
with the decline is reduced because management typically is unable to
adjust the amount of payment for debt service without the consent of
the creditor to whom the debt is owed. This situation places some
degree of control outside the institution and beyond the scope of
management's ability to deal with a deteriorating situation by reducing
costs. Furthermore, a failure to meet debt service payments might
precipitate collective action on the part of creditors to place the
institution in an involuntary liquidation situation under Federal
bankruptcy laws.
Alternatively, a growing institution usually must take on more debt
to fund its operations. Should the growth fail to continue, the
institution might be unable to service the increasing debt service
associated with its expansion. Thus, the Secretary believes an
institution's failure to remain current on its debt service payments
would be a strong indicator of the institution's inability to meet its
financial obligations.
Section 498(c)(5) of the HEA provides that the Secretary must
establish requirements for an institution to maintain sufficient cash
reserves to ensure repayment of any required refunds. Section 498(c)(5)
of the HEA also provides for an exemption to this requirement which is
discussed below under exceptions to the general standards of financial
responsibility. The Secretary proposes to require an institution to
maintain, at all times, a minimum cash reserve of at least 10 percent
of the institution's total deferred tuition income at the end of the
institution's most recent fiscal year for repayment of refunds. The
cash reserve would have to be maintained in a cash reserve account and
would have to consist of cash or cash equivalents, as those terms are
defined in accordance with generally acceptable accounting principles.
The Secretary believes that it would be unreasonable and unduly
burdensome to require an institution to calculate the percentage of its
cash reserve on a continual basis. Accordingly, the Secretary would
require an institution to determine its total deferred income at the
end of the institution's fiscal year and calculate the percentage based
on that total. Once that percentage is determined, the institution
would have to maintain that amount of cash reserve at all times until a
new calculation is performed at the end of the institution's subsequent
fiscal year. The calculation would be based on the institution's total
deferred tuition income because deferred tuition income is an indicator
of the value of services that the institution will provide for the
coming year. The Secretary requests comment on a comparable way to
determine the appropriate level for the cash reserve.
Ten percent of this amount represents roughly the equivalent of a
month's worth of an institution's revenue. The Secretary considers this
amount a reasonable amount for an institution to have available to pay
refunds in the event of the institution's precipitous closure.
Generally, under this proposal, an institution would demonstrate its
compliance with this provision once a year with the submission of the
institution's audited financial statements. However, because an
institution would be expected to maintain this cash reserve at all
times, the Secretary would reserve the right to evaluate an
institution's compliance with the requirement at any time. Finally, the
proposal to allow cash equivalents to be included in the cash reserve
is consistent with generally accepted accounting principles.
Finally, the Secretary proposes that, in order to be financially
responsible, an institution must not have as part of its audit report
for its most recently completed fiscal year any of the following.
First, the institution's audit would not contain a statement by the
accountant acknowledging substantial doubt about the institution's
ability to continue operating as a going concern. A ``going concern''
statement is a professional opinion rendered by an independent
certified public accountant, commenting on the institution's unstable
financial condition and informing the reader of the possibility that
the institution may not survive the coming fiscal year. Although such a
``going concern'' statement is rarely issued, its presence attests to a
concern held by the auditor that the institution's ability to continue
operating is uncertain. The Secretary believes that if an auditor,
after close examination of the institution's operations, concludes that
such a statement is warranted, this is cause for the Department to
protect its interest in the Title IV, HEA program funds administered by
the institution by requiring the institution to be subject to the
appropriate remedies for establishing financial responsibility, or to
be subject to provisional certification or the proceedings in subpart G
of these regulations.
Second, the institution's audit could not contain a finding of
unauthorized use of donor restricted net assets to meet current
operating expenses. Unauthorized use of donor restricted net assets is
a violation of the restrictions placed on donations by the donor. Any
donor-restricted funds are placed in an endowment fund to be used for
specific purposes, such as providing scholarships. Donor restricted net
assets are most commonly found at nonprofit institutions. The Secretary
believes that if this money is transferred to current funds or total
net assets for current operating expenses, this is not only an
indication of extremely impaired cash flow, but also a violation of an
institution's responsibility as a fiduciary of Title IV, HEA program
funds.
Third, the institution's audit could not contain a disclaimed or
adverse opinion by the accountant. A disclaimed or adverse opinion is
an indicator that the auditor is unable to perform a complete audit of
the institution with the assurance that the audit presents a reliable
presentation of the institution's financial condition. An audit
submitted with such a disclaimer or limitation would cause the
institution's financial report to be rejected by the Secretary. Such a
statement in the auditor's report is an indication that the financial
statement was not prepared in accordance with generally accepted
accounting principles as required in current regulations.
The statute authorizes the Secretary to prescribe criteria for
evaluating operating losses, net worth, asset to liabilities ratios and
operating fund deficits. The Secretary's goal in developing these
proposed regulations is to ensure that institutions are capable to
operate as a fiduciary of Federal funds based on a sufficient financial
base to properly provide education and meet the institution's financial
obligations. The Secretary, therefore, proposes to amend the current
factors of financial responsibility section to establish new financial
responsibility standards as a means of further refining the above
requirements.
The Secretary proposes that, as in the past, failure to meet any
one of the factors may result in initiation of an administrative
proceeding to limit, suspend, fine or terminate an institution. Because
some of these proposed factors are more stringent than those currently
found in the regulations, the Secretary recognizes that an institution
may need a sufficient period of time to adjust its operations in order
to come into compliance with these proposed factors, if they are
adopted. Under this proposal, the Secretary may provisionally certify
institutions that did not meet these proposed standards to provide them
with this additional period of time to comply, provided that the
institution shows that it would have met the current standards.
The Technical Amendments of 1993 require the Secretary to take into
account an institution's total financial circumstances in making a
determination of an institution's financial responsibility. The
Secretary believes that these proposed factors evaluate, both directly
and indirectly, the overall soundness of an institution's financial
condition for the period covered by its audited financial statements
and, therefore, take into account an institution's total financial
condition as required by the Technical Amendments of 1993.
The Technical Amendments of 1993 require that criteria developed
for the determination of an institution's financial responsibility take
into account any differences in generally accepted accounting
principles, including required financial statements, that are
applicable to for-profit and nonprofit institutions. Therefore, in
addition to general standards that all institutions would be required
to meet, the Secretary has proposed standards applicable specifically
to for-profit, nonprofit, and public institutions that the Secretary
believes indicate an equal level of financial responsibility. At the
suggestion of some of the negotiators, the proposed specific standards
of financial responsibility have been organized by type of institution;
i.e., for-profit, nonprofit, and public.
Due to differences in legal and reporting entity, mission, and
accounting format for nonprofit entities and for profit-seeking
entities, there are differing tests of financial responsibility to be
applied. Evaluating a nonprofit entity's overall financial condition is
more complicated because there is no commonly accepted standard of
acceptable financial condition. Generally, a measure of an
institution's financial condition is a measure of an institution's
solvency, or the ability of an institution to adequately cover its
expenditures with revenues. In determining an institution's financial
condition, the Secretary believes it is necessary to look at the
institution's short-term solvency and long-term solvency, which is the
ability of an institution to support an adequate level of services over
the long run, withstanding economic disruption and meeting changing
demands for services.
With accounting for for-profit entities, analysis of financial
statements provides an understanding of an institution's financial
condition through comparisons of key financial ratios that measure the
institution's ability to remain solvent while continuing to provide
educational services at acceptable levels. Examination of financial
information from nonprofit entities requires a review of other
organizational factors that measure the ability of the institution to
provide educational services using a larger and more complex source of
funds. It is therefore necessary to differentiate the standards that
are applicable to profit-seeking entities from the standards that are
applicable to nonprofit entities.
The Secretary will first address the specific standards for for-
profit institutions.
The Secretary proposes to require that a for-profit institution
have, at the end of its latest fiscal year, a ratio of current assets
to current liabilities of at least 1.25:1. One commonly used means of
determining whether or not the institution has sufficient short-term
solvency is use of the ratio of current assets to current liabilities.
For the past fourteen years the Department has used a current assets to
current liabilities ratio of at least 1:1 as an indicator of financial
responsibility. This means that the institution has current assets at
least equal to their current liabilities. In theory, this would
indicate that an institution has sufficient resources to handle not
only debt service, but also other liabilities for at least the coming
fiscal year. The higher the amount of assets, the better the liquidity
position of the institution and, therefore, the better the institution
will be able to handle unforeseen economic conditions. The Secretary
believes that the current 1:1 benchmark offers little or no indication
of adequate short-term solvency. A 1.25:1 benchmark has, therefore,
been proposed for for-profit institutions. Cash is now required to be a
component. The Secretary believes that the proposed increase in current
assets will help to ensure that institutions have sufficient resources
to provide worthwhile education and training.
The Secretary is proposing a higher ratio of current assets to
current liabilities ratio for for-profit institutions than for
nonprofit institutions. The Secretary believes that a higher current
ratio is necessary for for-profit institutions because they will be
less likely, in the event of hampered liquidity, to draw on fund-
raising as a source of cash. This rationale is discussed later as part
of the discussion of the proposed ratio of current assets to current
liabilities for nonprofit institutions.
The Secretary proposes to exclude from the calculation of this
ratio for for-profit institutions, uncollateralized loans receivable
from owners and related parties. Uncollateralized related party loans
are loans that have been made to affiliates, officers, or employees and
have not been secured by tangible assets. In accordance with Accounting
Research Bulletin 43 (ARB43), chapter 3A, paragraph 6, the concept of
current assets contemplates the exclusion from that classification of
such resources as ``* * * (c) receivables arising from unusual
transactions (such as the sale of capital assets, or loans or advances
to affiliates, officers, or employees) that are not expected to be
received within twelve (12) months''. In the event that certain
financial statements present these types of loans on the balance sheet,
they will be disregarded by the Secretary in computation of the current
ratio.
Further, because the proposed cash reserve requirement may cause a
portion of the institution's cash reserves to be classified as a
restricted asset, which would, under generally accepted accounting
principles, be excluded from classification as current assets, the
Secretary's proposal specifies that, for for-profit institutions, the
cash reserves may be included in the institution's current assets in
calculating the institution's current assets to current liabilities
ratio. The Secretary believes that it is appropriate to permit for-
profit institutions to treat the cash reserves as current assets
because the funds are held for the benefit of the students, and
inclusion of those amounts toward demonstrating a 1.25:1 current ratio
still leaves the institution with sufficient unrestricted assets to pay
all current expenses.
The Secretary proposes that a for-profit institution is financially
responsible if it has not had operating losses over both of its two
latest fiscal years that cause an operating loss exceeding 10 percent
of the institution's previous year's tangible net worth for its latest
fiscal year. While it may not be unusual for an institution to record a
loss in any fiscal year, this loss is not harmful so long as the loss
is not excessive, is not indicative of a deteriorating trend in the
institution's financial condition, and the institution otherwise meets
the factors substantiating its financial strength. The Secretary
proposes to define an operating loss, for purposes of these provisions,
as total net income minus extraordinary gains or losses, income or
losses from discontinued operations, prior period adjustments, and the
cumulative effect of changes in accounting principle, estimate, or
reporting entity. The Secretary proposes that the calculation of
tangible net worth shall exclude all assets defined as intangible in
accordance with generally accepted accounting principles. The Secretary
believes this standard will measure whether a profit-seeking entity is
operating from current cash flow to the extent possible. The aggregate
residual effect of these activities on the organization's individual
net assets is represented, along with any interfund transfers that may
have taken place during the period.
The Secretary proposes that a for-profit institution is financially
responsible if it had, for its latest fiscal year, a positive tangible
net worth. The Secretary proposes that, for purposes of this section, a
positive tangible net worth occurs when the institution's tangible
assets exceed its liabilities. Further, the Secretary proposes that the
calculation of tangible net worth shall exclude all assets defined as
intangible in accordance with generally accepted accounting principles.
In applying this proposed standard, the Secretary could consider the
effect of extraordinary gains or losses resulting from unusual and
infrequent events, and could take into consideration the cumulative
effect of changes in accounting principle, estimate or reporting entity
to the extent that such a change results in a more accurate
representation of the institution's financial position in accordance
with generally accepted accounting principles. For the past fourteen
years, the Department has had a standard for net worth that states that
an institution is not financially responsible if it has a deficit net
worth (i.e., the institution's liabilities exceed its assets.), a
measure of long-term solvency. Therefore, an institution with a net
worth of zero meets this current requirement. The proposed change from
penalizing a deficit net worth to requiring a positive net worth is
only a technical change in form that should affect few, if any
institutions.
By excluding all assets classified as intangible, all assets such
as goodwill, organization costs, and covenants-not-to-compete, which
have little market value in the determination of an institution's
overall solvency will be eliminated in the calculation of net worth. In
purchasing a business, the new owner pays an amount and allocates the
market value to individual tangible assets in order to prepare
financial statements. After applying the proper market value to the
various assets, any residual amount that appears on the institution's
balance sheet as goodwill, organization costs, or covenant-not-to-
compete, is classified as an intangible asset.
It is the Secretary's intent to identify those institutions that do
not have sufficient capital assets. For example, businesses that
operate on month-to-month leases with minimum capital actually invested
in the business are a potential risk to students, and ultimately to the
taxpayers in terms of possible collapse and bailout. In these cases
loans to students are often automatically discharged in accordance with
provisions in the HEA. Preventing institutions that have no real assets
from participating in the programs should enhance the gatekeeping
process.
In the case of nonprofit institutions, the Secretary has developed
standards in accordance with Statement of Financial Accounting
Standards No. 117 (FAS 117) that was issued in June 1993 by the
Financial Accounting Standards Board (FASB). FAS 117 altered the
reporting format for not-for-profit organizations after the negotiated
rulemaking process was already well underway. FAS 117 is effective for
annual financial statements issued for fiscal years beginning after
December 15, 1994, except for organizations with less than $5 million
in total assets and less than $1 million in annual expenses. For those
organizations, the Statement is effective for fiscal years beginning
after December 15, 1995 with earlier application encouraged.
The Secretary proposes to require a nonprofit institution to
prepare a classified statement of financial position in accordance with
generally accepted accounting principles to provide the Secretary with
the financial information necessary to determine the institution's
financial responsibility under these proposed regulations. The
Secretary proposes that, alternatively, a nonprofit institution could
provide this information as footnotes to the audit. Although FAS 117
does not require a nonprofit institution to submit a classified
statement of financial position prior to published implementation
dates, it does not prohibit the institution from doing so. The
Secretary notes that a financial statement that is not classified is
not structured to provide the financial information necessary for the
Secretary to determine an institution's compliance with these proposed
regulations; however, the information could be included as footnotes to
the audit.
The Secretary proposes that a nonprofit institution is not
financially responsible if it cannot demonstrate, at the end of its
latest fiscal year, a ratio of current assets to current liabilities of
at least 1:1. The Secretary proposes to not permit a nonprofit
institution to include the cash reserves in the institution's current
assets. The Secretary believes that, because the proposed current
assets to current liabilities ratio for a nonprofit institution is 1:1,
if the institution used designated reserve funds to meet this ratio,
there would be no assurance of solvency.
The importance of a higher current ratio for for-profit
institutions lies in the fact that they are not as likely to be able to
draw on fund raising as a source of cash in the event of hampered
liquidity because donors are less likely to contribute funds to a for-
profit institution where those contributions would not be tax
deductible. Many nonprofit institutions have sufficient support in the
community and from friends and alumni who are willing to donate to the
institution. The cash intake of for-profit institutions is therefore
limited to cash generated through profitability, whereas nonprofit
institutions have an additional source of cash. Endowments, even when
restricted to functions such as providing scholarships, are awarded and
may be taken into cash from operations. Consistent profitable
operations result in a better liquidity position for for-profit
institutions, whereas consistent profitable operations are not
necessary for a nonprofit to remain viable. In addition, it is inherent
in a nonprofit institution that its final cash position not reflect a
profit. In the nonprofit industry, the financial manager has limited
authority. The financial manager may make recommendations, but the
ultimate authority lies with the governing board. There is, therefore,
less control in the hands of financial managers and a corresponding
decrease in their ability to control a liquidity situation.
Lack of liquidity means that the institution is unable to service
its current debt. This can lead to the forced sale of long-term
investments and assets. To the owners of an institution, a lack of
liquidity will mean reduced profitability or it may mean loss of
control or loss of the entire capital investment. To creditors of the
enterprise, it means slow collection of principal and interest due or
even loss of the amounts due them. Students of these institutions can
also be affected by a short-term poor financial condition. These
effects may take the form of inability of the institution to perform
their contract, inability to make refunds due to students or lenders,
or the loss of supplier relationships. Suppliers are interested in an
institution's liquidity position, and if it is found to be inadequate,
it may cease to do business with the institution.
The Secretary proposes that a nonprofit institution is not
financially responsible if it has had a decrease in total net assets at
the end of its latest fiscal year of such significance that, if
continued, would result in a ratio current assets to current
liabilities of less than 1:1. Under this proposal, the Secretary could
consider the effect of extraordinary gains or losses resulting from
unusual and infrequent events, and could take into consideration the
cumulative effect of a change in accounting principle, estimate or
reporting entity to the extent that such a change results in a more
accurate representation of the institution's financial position in
accordance with generally accepted accounting principles. For purposes
of this proposed analysis, the Secretary could exclude unrealized gains
and losses on investments that have been reported as changes in
unrestricted net assets. The standard was revised to reflect the
changes brought about with the issuance of FASB 117 and in order to
provide parity with the for-profit institutions. The concept of net
worth, as it applies to profit-seeking entities, does not exist for a
not-for-profit entity. Upon implementation of FASB 117, fund accounting
will no longer be used for colleges and universities, but these
entities will adopt a format that is more similar to the format for-
profit entities have been using. The term ``fund balance'' will no
longer apply, but will be replaced by total net assets, divided into
unrestricted, temporarily restricted and permanently restricted assets.
For institutions not required to implement FAS 117 prior to the
effective date of these regulations, the regulations applying to
nonprofits currently found in 34 CFR 668.13(c), ``the institution shall
not have a deficit current unrestricted fund balance'', will remain in
effect until the institution adopts FAS 117.
The Secretary requests comments on whether the Secretary should
determine a nonprofit institution to be financially responsible even if
it does not meet these requirements if the institution has an
acceptable ``bond rating''. The Secretary suggests that a type of
acceptable bond rating may be a current general obligation or general
obligation equivalent debt rating (because such a rating is backed by
the full resources of the institution) by a nationally recognized debt
rating organization, approved by the Secretary, that is at least
investment grade.
The Secretary proposes that a public institution is financially
responsible only if the institution has its liabilities backed by the
full faith and credit of the State, or by an equivalent government. The
Secretary is aware that accounting principles for public institutions
differ from those for for-profit and nonprofit institutions. The
Secretary solicits comments on other acceptable measures of a public
institution's financial responsibility that take the applicable
accounting principles into account.
Past Performance of an Institution or Persons Affiliated With An
Institution
The Secretary proposes to remove from the factors of financial
responsibility the provisions in current Sec. 668.13 (c)(4) and (d)(2)
governing the effect on an institution's financial responsibility of
criminal conduct and fraud involving Federal funds. Those provisions
have been superseded by a similar statutory provision that is addressed
in the discussion on proposed Sec. 668.14 governing program
participation agreements.
Under proposed Sec. 668.15(c)(2), an institution would not be
considered financially responsible, despite meeting all other
requirements of this proposed section, if: (1) The institution has been
limited, suspended, terminated, or entered into a settlement agreement,
to resolve such an action by the Secretary or a guaranty agency within
the preceding five years; (2) the institution had an audit finding
during its two most recent audits, or a program review finding during
its two most recent program reviews, that resulted in the institution's
being required to repay an amount greater than five percent of the
Title IV, HEA funds that the institution received for any award year
covered by the audit or the program review; or (3) the institution
failed to address satisfactorily any compliance problems identified in
program review or audit reports based upon a final decision of the
Secretary.
The consequences of this proposed provision are described more
fully earlier in this preamble in the discussion on provisional
certification. Essentially, institutions that fall into one of these
categories not only would not be considered financially responsible,
but could not be provisionally certified without the submission of
certain financial guarantees or personal assumptions of liability
arising from participation in the Title IV, HEA programs.
Exceptions to the General Standards of Financial Responsibility
The Amendments of 1992, as amended by the Technical Amendments of
1993, provide that the Secretary shall determine an institution to be
financially responsible even though it does not meet certain general
standards of financial responsibility, under various conditions.
Section 498(c)(5)(B) of the HEA provides that the Secretary shall
establish a process whereby an institution is exempt from the cash
reserve requirement if the institution is located in, and is legally
authorized to operate within, a State that has a tuition recovery fund
that ensures that the institution is able to pay all required refunds
and the institution contributes to that tuition recovery fund. The
Secretary proposes that an institution is exempt from the proposed cash
reserve requirement if it meets these conditions; however, the
Secretary proposes to stipulate that a State's tuition recovery fund
must be acceptable to the Secretary. The Secretary would like to ensure
that a State's tuition recovery fund truly has the resources to ensure
payment of all required refunds if necessary. To this end, the
Secretary would expect States to provide as much information as
possible to demonstrate that their tuition recovery fund can pay all
required refunds on behalf of an institution that closed precipitously.
The Secretary invites comment on what specific standards should be used
to measure the acceptability of a State's tuition recovery fund.
Section 498(c)(3) of the HEA provides that an institution is
financially responsible even though it does not meet the other general
standards of financial responsibility, under the following
circumstances. First, an institution that is not financially
responsible under the general standards of financial responsibility
(except the cash reserve requirement) is financially responsible if the
institution submits to the Secretary third-party financial guarantees,
such as performance bonds or letters of credit payable to the
Secretary, that equal not less than one-half of the annual potential
Title IV, HEA program liabilities of the institution. The Secretary
proposes that a letter of credit that is payable to the Secretary and
effective for a period of time as determined by the Secretary would be
the only acceptable type of third-party guarantee for this requirement.
The determination by the Secretary that payment from a third-party
guarantee requires that funds become immediately available to make
refunds or to reimburse the Secretary for debts incurred in the
programs. It has been the Secretary's experience that letters of credit
are the only method by which funds do become immediately available;
however, the Secretary requests comments on other standard forms of
publicly guaranteed security that would provide the same level of
security to the Secretary. The Secretary notes that an institution is
liable for all mishandled Title IV, HEA program funds that it receives.
Further, the Secretary believes that the total Title IV, HEA program
funds received by an institution during the last complete award year is
the best indicator of the amount of Title IV, HEA program assistance
that the institution will receive for the next award year. Therefore,
the Secretary proposes to require an institution to submit a letter of
credit equal to not less than one-half of the Title IV, HEA program
funds received by the institution during the last complete award year
for which figures are available in order to meet this requirement.
Second, the Technical Amendments of 1993 provide that an
institution that is not financially responsible under the general
standards of financial responsibility (except the cash reserve
requirement) is financially responsible if it establishes to the
satisfaction of the Secretary, with the support of a financial
statement audited by an independent certified accountant with generally
accepted accounting standards, that the institution has sufficient
resources to ensure against the precipitous closure of the institution,
including the ability to meet all of its financial obligations,
including refunds of institutional charges and repayments to the
Secretary for liabilities and debts incurred in programs administered
by the Secretary. The Secretary proposes to restate the statute,
modifying it only to propose to require that the financial statement be
submitted in accordance with the proposed requirements for
documentation of financial responsibility that will be discussed later.
The Technical Amendments of 1993 further provide that an
institution is not required to meet the general standards of financial
responsibility (except for the cash reserve requirement) if the
institution is an institution that provides a 2-year or 4-year
educational program for which the institution awards an associate or
baccalaureate degree that demonstrates to the satisfaction of the
Secretary that there is not reasonable doubt as to its continued
solvency and ability to deliver quality educational services, it is
current in its payment of all current liabilities, including student
refunds, repayments to the Secretary, payroll, and payment of trade
creditors and withholding taxes, and it has substantial equity in
school-occupied facilities, the acquisition of which was the direct
cause of its failure to meet the current operating ratio requirement.
The Secretary proposes to restate the statute without modification.
Documentation of Financial Responsibility
Section 498(c)(4) of the HEA provides that the determination of an
institution's financial responsibility be based on an audited and
certified financial statement of the institution or, where appropriate,
its parent corporation, conducted by a qualified independent
organization or person in accordance with standards established by the
American Institute of Certified Public Accountants. The statement must
be submitted to the Secretary when the institution is applying to begin
or continue participation in the Title IV, HEA programs. The statute
further provides that the Secretary may require the submission of
additional audits if the first submission does not establish compliance
with the general standards of financial responsibility. Although
audited financial statements should be rendered in a uniform manner,
there is some leeway with regards to contents of the statements. The
Secretary proposes to require institutions to submit financial
statements on an annual basis within four months after the end of the
institution's fiscal year. The Secretary believes that four months from
the end of an institution's fiscal year is a sufficient period of time
for an institution to submit a financial statement. The Secretary also
clarifies that, upon request, the institution must provide or otherwise
make available the accountant's work papers in order to ensure that all
information relevant to preparing an audited financial statement is
readily available. Institutions are already required to provide access
to such information pursuant to current Sec. 668.23, and the Secretary
proposes to reference that access to records in this proposed section.
The Secretary proposes that an institution may be granted a filing
extension to an institution upon a showing of good cause. The Secretary
intends that this extension would be granted on an infrequent basis, as
the Secretary believes it is imperative to have the financial
information from the institution that most accurately reflects the
current financial situation of the institution.
Section 668.16 Standards of Administrative Capability
The Secretary proposes to redesignate Sec. 668.14 as Sec. 668.16.
In matters not governed by specific provisions, section
487(c)(1)(B) of the HEA provides for the establishment of standards of
administrative capability for participating institutions that include
any matter the Secretary deems necessary for the sound administration
of the Title IV, HEA programs. Section 498(d) of the HEA, which was
added by the Amendments of 1992, authorizes the Secretary to establish
procedures and requirements relating to administrative capability,
including the consideration of past performance of institutions or
individuals in control of those institutions and maintenance of
records. In addition, section 498(d) authorizes the Secretary to
establish other reasonable procedures that will contribute to ensuring
that institutions will be administratively capable.
Given this framework, the Secretary proposes to strengthen and
modify the administrative capability standards in the current
regulations by making significant, substantive changes to the
administrative standards as well as some technical changes; the
significant proposed changes to the current regulations are described
below.
The Secretary proposes to clarify the Secretary's current principle
that an institution must demonstrate that it is capable of meeting each
of the administrative standards in this section to be considered
administratively capable. During negotiated rulemaking, alternatives to
requiring that institutions meet each administrative standard were
discussed. Among the options considered were that the various factors
be ``weighted,'' i.e., the Secretary would identify which factors he
considered to be the most critical and would incur the greatest penalty
if they were not met. Some of the negotiators suggested that the
various factors be used only as indicators of capability; that is, the
Secretary would be required to review each institution that did not
comply with one or more standard to determine the seriousness of
noncompliance. However, the negotiators did not reach consensus on an
approach. Therefore, the Secretary is proposing that to be fully
certified as meeting the standards in this section (as well as the
other standards in Subpart B of these regulations) an institution must
demonstrate that it is administratively capable by meeting all the
administrative standards. An institution that fails to demonstrate
compliance with one or two administrative standards could be certified
provisionally (see the earlier discussion on provisional certification)
if the Secretary were to determine the institution capable of meeting
all the standards within a specific time period and that the
noncompliance did not necessitate taking a stronger sanction such as a
fine, limitation, suspension, or termination proceeding against the
institution.
For example, an initial applicant would not be able to demonstrate
compliance with all standards prior to participation. However, the
Secretary expects such an institution to demonstrate that it is capable
of complying with all the standards. Therefore, the Secretary currently
provisionally certifies an initial applicant if the Secretary
determines that the applicant is capable of meeting the current
standards within a specified period of time. The Secretary will
continue this practice, using any additional standards proposed in this
section if they are adopted in final.
The Secretary proposes to make explicit the requirement that, to be
considered administratively capable, an institution must administer all
the Title IV, HEA programs in which it participates in accordance with
all applicable statutory and regulatory provisions and special
arrangements, agreements, and limitations. This expectation has been
implicit. However, the Secretary believes it is important to lay out
this standard together with all the other administrative standards.
The Secretary proposes to clarify what is meant by a capable
individual who is responsible for administering the Title IV, HEA
programs. It is important for each institution that is currently
participating or seeking to participate in the Title IV, HEA programs
to demonstrate that it has staff who are capable of administering the
programs properly. While obviously a number of factors should be
considered in determining what constitutes ``capable,'' the Secretary
believes that one factor that should be addressed in regulations is
whether a financial aid administrator has been certified by his or her
State to have that capability. This factor would apply in a State that
requires financial aid administrators to be certified. The Secretary
also proposes to consider whether an individual has successfully
completed Title IV, HEA program training that the Secretary has
provided or approved. The Secretary is aware that some professional
organizations provide high caliber training in various aspects of the
administration of the Title IV, HEA programs and wishes to allow for
acceptance of that outside training to meet this requirement in the
future. The Secretary welcomes comments on what elements and safeguards
should be present in an acceptable training program for financial aid
administrators. While adequate experience and training are major
considerations in evaluating compliance with this standard, the
Secretary welcomes suggestions regarding any other appropriate factors
that the Department of Education should take into account in
determining an individual's capability.
The Secretary proposes to clarify the factors that are considered
in determining whether a financial aid office is adequately staffed.
The Secretary proposes to specify that in looking at the amount of
funds administered by the institution, the Secretary would also
consider the number of students who receive any student financial
assistance at the institution as it has a direct bearing on whether an
office is adequately staffed. The Secretary also proposes to add
consideration of the degree of office automation in the financial aid
office. While the Secretary has always considered the extent to which
financial aid processing is automated in assessing the adequacy of
financial aid offices, the Secretary believes it is helpful to
acknowledge specifically in the regulations the bearing the degree of
office automation has on the staffing levels of financial aid offices.
During the negotiated rulemaking sessions, discussions were held
regarding the possible development of specific staffing levels, such as
ratios of financial aid staff to the number of financial aid recipients
at an institution, for determining the adequacy of the financial aid
office of an institution participating in the Title IV, HEA programs
for the first time, an institution that undergoes a change of ownership
resulting in a change of control, and an institution that has exhibited
administrative difficulty with other standards in this section. The
Secretary believes that it is not necessary to prescribe specific
staffing levels for participating institutions that have not
experienced administrative problems. However, the Secretary agreed to
solicit comments on the need for an additional method to assess
staffing levels of other institutions.
An institution participating in the Title IV, HEA programs for the
first time has neither the experience in dealing with large numbers of
financial aid recipients nor a record of administering those programs
that can be evaluated. During discussions at the negotiated rulemaking
session, it was suggested that it might be necessary to prescribe a
specific number of staff for the institution's financial aid office
that could serve as a guide for determining whether the institution can
handle the volume of financial aid applications and funds it expects to
receive. This standard would be required until the Secretary is able to
judge the institution's actual administration of the programs.
Similarly, there is no assurance that an institution that changes
ownership will operate with the same staff and procedures and at the
same level of funding as was the case under the previous ownership.
Thus, that institution's former track record could not be relied upon
to predict its continued administrative capability and there might be a
need to be able to evaluate the adequacy of current or anticipated
staffing levels using specific numbers or ratios, just as the
Department would evaluate those of a new participating institution.
Finally, if an institution has documented problems or indicators of
trouble in administering the Title IV, HEA programs, these problems
could well be caused by inadequate staffing levels in the institution's
financial aid office. Requirements for financial aid staff to be
maintained at specific levels might need to be imposed upon the
institution. To address the problems and administer the Title IV, HEA
programs correctly, it is logical to expect an institution to meet
minimum staffing levels that might be adopted.
The Secretary solicits comments on other ways of measuring staff
adequacy at newly participating institutions, institutions that change
ownership resulting in a change of control and participating
institutions with documented administrative problems as well as any
other categories of institutions that should be subject to requirements
for specific staffing levels. The Secretary further invites comment on
how such considerations as the size of the institution, and the volume
of Title IV, HEA program funds administered by the institution should
determine the number or ratio of financial aid staff that the Secretary
should prescribe. For example, the Secretary wishes to know whether a
reasonable ratio of staff to applicants or recipients can be
established, and, if so, what that ratio might be. The Secretary
understands the difficulty inherent in strict application of a
quantitative formula; nevertheless, concern was expressed at the
negotiated rulemaking sessions about having an adequate basis on which
to make fair, worthwhile, and consistent judgments of administrative
capability. The Secretary recognizes that appropriate staffing levels
must include staff not only in the financial aid office but also in the
business office or other offices within an institution, and that the
use of third-party servicers and office automation have a bearing on
those levels. The Secretary asks commenters to address these factors in
their recommendations.
The Secretary proposes to require that to be considered
administratively capable, an institution have written procedures, or
other written information covering, at a minimum, the nature and
frequency of communication of information among all the offices that
have an impact on the administration of the Title IV, HEA programs and
the responsibilities of various offices with respect to the awarding
and delivery of Title IV, HEA program funds and reports to the
Secretary. The Secretary encourages institutions to have specific
written procedures where possible, preferably in procedural manuals,
for this purpose. However, the Secretary recognizes that some of the
information might be found in catalogs, student or administrative
handbooks, or other sources. The Secretary is proposing to add these
provisions because audits and program reviews of Title IV, HEA programs
administered by institutions have shown that lack of written procedures
in these key areas is frequently a contributing factor to a lack of
proper controls, resulting in overawards and inadequate accounting of
expenditures. To ensure that only eligible students receive funds and
in the correct amount, and that borrowers are tracked accurately and
timely, it is essential that each institution be clear about how and
when pertinent information is transmitted from one office to another.
The proposed addition to the regulations includes examples of the types
of information to be transmitted. Similarly, it is critical that each
office that is responsible for the approval and disbursement or
delivery of Title IV, HEA funds have in writing that office's
responsibilities and reporting requirements.
The Secretary proposes to clarify what constitutes division of the
authorizing and disbursing or delivering functions by adding an
example. In the past, there has been virtually no real separation of
these duties in some institutions; this situation has presented an
opportunity for significant abuse. It is important that two different
individuals authorize and disburse or deliver payment, and that an
individual performing one of these functions not have control over the
work activities of the person or persons performing the other. To guard
against collusion, it is also critical that the individuals not be
members of the same family or exercise substantial control over the
institution through a combined ownership interest in the institution.
The terms substantial control and ownership interest are currently
defined in Sec. 668.13. The Secretary considers two individuals to
exercise substantial control through a ``combined'' ownership interest
if the individuals hold together at least a 25 percent ownership
interest in the institution. Thus, an institution would be precluded
from having one individual with a 10 percent ownership interest who
awards Title IV, HEA program assistance and another individual with a
15 percent ownership interest who disburses the funds. This concept is
designed to allow for those employees who participate to a moderate
degree in a profit-sharing plan to be employed in one of the capacities
described in this provision without having a detrimental impact on the
institution's administrative capability. Finally, the Secretary wishes
to clarify that, under both current regulations and the proposed
regulations, it is acceptable for a check that is to be disbursed or
delivered to a student by another office to pass through the office
that authorizes payment, as long as the office that authorizes payment
does no more than deliver the check to the office responsible for
disbursement or delivery to the student.
The Secretary proposes to make explicit that record-keeping is a
basic standard of administrative capability. Those new institutions
that do not have adequate record-keeping capability would not be
approved to participate in the Title IV, HEA programs. The record-
keeping capability of participating institutions would be evaluated
when the institutions seek renewal of their program participation.
The Secretary proposes to revise the satisfactory progress
standards to require that the maximum time frame for completion of an
undergraduate program be no longer than 150 percent of the published
length of the educational program and that increments of the maximum
time frame not exceed the lesser of one academic year or one-half the
published length of the educational program. The establishment of the
maximum time frame must, as usual, take into account a student's
enrollment status. Thus, an institution that offers a four-year degree
program (as listed in the institution's catalog) would have to
establish a maximum time frame of no more than six years for completion
of the program by a full-time student. The time frame could be
proportionally longer for a half-time student. The Secretary emphasizes
that this requirement would set an upper limit on the period of time
for which a student may receive Title IV, HEA program aid. An
institution would not be required to expel or otherwise remove a
student from the educational program after the expiration of this
maximum time frame (unless, of course, the institution has a similar
requirement for students who do not receive Title IV, HEA program
assistance). The Secretary has a longstanding policy under which 150
percent of the length of an educational program is considered to be a
reasonable period in which a serious student should be able to complete
the program. The Secretary notes that this proposed time frame is also
consistent with proposals made by the NPRM implementing the Student
Right-to-Know provisions in section 485(a) of the HEA (57 FR 30826).
The Secretary does not believe that Title IV, HEA program aid should be
provided beyond the point at which a student can reasonably be expected
to complete his or her educational objective.
The Secretary proposes to expand and clarify the requirements for
reporting information about possible fraud or illegal misconduct
related to the Title IV, HEA programs. The proposed regulations would
eliminate the current provision for an institution to refer suspected
instances of fraud or other criminal misconduct involving Title IV, HEA
program assistance to a State or local law enforcement agency rather
than the Office of Inspector General (OIG), if more appropriate.
Instead, the proposed regulations would require the institution to
notify only the OIG. The proposed regulations would also remove a
related requirement--that the institution report to the OIG, for each
calendar year, all relevant referrals to State or local law enforcement
agencies, as this would no longer be necessary if all referrals were
made directly to the OIG. Upon receipt of the information, the OIG will
notify and work with the appropriate officials to resolve the issue.
The Secretary is proposing to amend this section to streamline the
referral process and reduce the burden of reporting information.
Currently, under this provision governing the reporting of
instances of suspected fraud and criminal misconduct, institutions are
required to report only information regarding applicants for Title IV,
HEA program assistance. Another proposed change would expand the
reporting requirement with respect to both the types of misconduct to
be reported and the individuals and entities involved in the
misconduct. In addition to the information currently required, an
institution would be required to report information regarding illegal
conduct involving the eligibility and funding of the institution and
its students through Title IV, HEA programs believed by the institution
to have been committed by any employee, third-party servicer, or other
agent of the institution that acts in a capacity that involves the
administration of the Title IV, HEA programs. This provision would
specify that illegal conduct would include possible fraud,
misrepresentation, conversion or breach of fiduciary responsibility, or
any other illegal conduct. The Secretary believes it is important to
investigate any possible illegal misconduct (i.e., misconduct where
formal criminal charges have not been brought) in addition to possible
criminal misconduct. The intent of this expansion is to specify that
institutions should report not only acts that constitute fraud or
criminal conduct, but any and all other illegal conduct involving Title
IV, HEA programs in which an employee or third-party servicer might
have engaged.
In addition to modifying and expanding some of the existing
administrative capability standards, and making others explicit, the
Secretary proposes to expand the administrative capability standards to
include the general areas that SPREs will review when they become
operational. The Secretary realizes that the SPRE review standards must
be developed in consultation with institutions located in the State and
will apply only to those institutions that trigger reviews; therefore,
those standards may differ greatly from those proposed here for
purposes of evaluating an institution's administrative capability.
However, the Secretary believes that these areas of review have a
significant bearing on an institution's administrative capability and
therefore should be incorporated in the Federal administrative
capability standards.
The Secretary's overriding concern is that the Secretary have
sufficient information on which to make a determination that a new or
currently participating institution is administering or is capable of
administering the Title IV, HEA programs efficiently, effectively, and
correctly. With this in mind, the Secretary solicits comments on
specific ways to quantify these provisions (for example, what a
``significant number of students with special needs'' is) and whether
each of these added requirements should be made applicable to all
institutions or whether these provisions should be made applicable only
to institutions that meet specific criteria or thresholds, e.g.,
institutions with short-term programs, a history of high withdrawal
rates, high default rates, student complaints, etc.
Specifically, the Secretary is proposing to require institutions
that enroll significant numbers of students with special needs to have
and implement a plan that provides access to adequate support services
for those students. The Secretary believes that an institution that
cannot provide adequate peripheral support should not enroll those
special-needs students in significant numbers. In evaluating
administrative capability, the Secretary has looked historically at
withdrawal rates. High withdrawal rates often result in refund and
default problems in the FFEL programs. Some institutions have high
withdrawal rates because they have recruited students who were not able
to complete the program. Student withdrawal for academic reasons has
been addressed by changes to the ability-to-benefit provisions:
students who do not have a high school diploma or the recognized
equivalent now need to pass an independently administered, approved
examination. However, other students who have been admitted have had
the academic capability to succeed, but have been unable to complete
the program because of other factors, such as lack of child care, or
changes in child care arrangements, or lack of adequate transportation.
Some of the negotiators provided the Secretary with examples of
students who could not complete a course of study because of a lack of
information about how to access adequate support services, who
otherwise may not have enrolled in those programs if accurate
information about the restricted availability of those services had
been disclosed. For example, if a school enrolls a significant number
of students who have small children and, therefore, need someone to
look after their children while they are in classes and studying, or
students who have no transportation of their own, it is incumbent upon
the institution to work with these students to ensure they have access
to the ancillary services required in order for them to complete their
education or training. The institution may, but need not, actually
provide the specific services, such as child care, but must, at a
minimum, provide adequate guidance and access to enable their students
to overcome barriers to attendance.
The Secretary is proposing that affected institutions have a plan,
which they may be asked to submit, to demonstrate that they meet this
provision. However, the Secretary is interested in receiving
suggestions about other ways to address the problem of institutions
that recruit and enroll significant numbers of students who need
support services without informing those students about access to the
support services. The Secretary solicits comments regarding how to
determine what constitutes a ``significant number'' of students with
special needs and what special needs should be included. Further, the
Secretary would like to receive proposals for alternate means of
addressing this issue.
The Secretary proposes to require each institution to have
procedures for receiving, investigating, and resolving student
complaints.
The Secretary proposes to require that if the stated objectives of
an educational program are to prepare students for gainful employment,
the institution must be able to show that there is a reasonable
relationship between the length of the program and entry level
requirements for employment. In addition to supporting the length of a
program, the institution should be able to substantiate the need for
the number of hours of training. The Secretary proposes to consider the
relationship between the quantity of training provided in the program
and entry-level requirements to be reasonable if the number of clock
hours in the program does not exceed by more than 50 percent any State
requirement for the minimum number of clock hours necessary to train
the student in the occupation for which the program prepares the
student. For example, the Secretary is aware of an institution that
sought approval of a 600-hour program when the state in which the
institution is located requires only 40 hours of training for entry
level positions for which the program provided training. The Secretary
believes that in situations such as this, the onus is on the
institution to demonstrate the value of the longer program. The
Secretary believes that the excessive length of programs requires a
student to incur additional unnecessary debt.
A corollary requirement is that the need for the training provided
is established. Over the past several years, the Secretary has been
made aware of many schools that have provided three to six months of
training for entry-level jobs, some of which required no external
training before employment, as the employers have internal training
programs or provide on-the-job training. As a basic tenet of student
financial assistance is to enable students who would not otherwise be
able to afford needed training or education to enroll in an appropriate
program, the Secretary believes that if an institution is administering
the Title IV, HEA programs adequately, it can demonstrate that the
training it provides is needed. The Secretary solicits suggestions on
the most appropriate documentation to show the need for the training.
The Secretary proposes to add to the administrative capability
standards the requirement that the institution make information on job
availability and state licensing requirements available to students in
occupational, professional and vocational educational programs. The
Secretary believes that, in order for a prospective occupational,
professional or vocational education student and financial aid
applicant to make an informed decision about enrollment and use of
student financial assistance in a particular program, the applicant
must have access to accurate, up-to-date information on the job market
for that field, and the availability of specific jobs for which he or
she would be adequately prepared after completion of the program.
Similarly, the applicant should have access to information on the
extent to which the educational or training program addresses state
licensing standards, so the informed student can determine, with
reasonable assurance, that necessary topics are covered in the program
and the extent to which additional information, not necessary for state
licensure, is covered. The Secretary notes that this information may be
obtained by the institution from other Federal and State sources, such
as Employment Service or State occupational coordinating committees. An
institution would not be required to produce this information on its
own.
The Secretary proposes to include within the administrative
capability standards a requirement that the institution have
advertising, promotion, and student recruitment practices that
accurately reflect the content and objectives of the educational
programs offered by the institution. The Secretary believes that to
administer the Title IV, HEA programs in a responsible manner, the
institution must advertise its programs and the financial assistance
available in an accurate manner.
The Secretary proposes to specify that an institution provide all
required program and fiscal reports and financial statements in a
timely manner. The Secretary believes strongly that adequate, timely
submission of accurate reports is an essential element in the proper
administration of the Title IV, HEA programs. The failure to meet
requirements for submission of reports is an indication that an
institution's administrative capability is impaired.
The Secretary proposes to include as a specific administrative
standard the requirement that an institution have no outstanding
liabilities owed to the Secretary unless the institution has made
satisfactory arrangements to repay those liabilities and is honoring
those arrangements. The Secretary believes that unless a participating
institution demonstrates it has met all its programmatic, contractual,
and fiscal obligations in the past, and has taken positive steps to
rectify problems and liabilities in the past, there is no reason to
presume that the institution has the capability and willingness to
administer the Title IV, HEA programs responsibly in the future.
The Secretary proposes to take into account whether significant
problems have been identified in final reports and determinations
issued by the Secretary, the OIG, accrediting agencies, SPREs, guaranty
agencies, and State authorizing agencies and findings in criminal,
civil, or administrative proceedings, in addition to financial and
compliance audit reports and program review reports, in assessing an
institution's administrative capability. The Secretary believes that
pertinent information from any of the agencies or proceedings
identified is relevant to determining whether an institution is
administratively capable. An institution should be considered
administratively capable only if there is no evidence of significant
problems in those reviews or proceedings.
The Secretary proposes to add to the administrative capability
standards, the prohibition against debarments, suspensions, and causes
of debarment or suspension under E.O. 12549 and the FAR, 48 CFR subpart
9.4. The Secretary proposes to amend this section to provide that an
institution would not be considered administratively capable if (1)
cause exists for debarring the institution under 34 CFR 85.305, or for
suspending the institution under 34 CFR 85.405, (2) any principal (as
that term is used in 34 CFR part 85) of the institution is debarred or
suspended, or (3) the institution is an affiliate (as that term is used
in 34 CFR part 85) of any person so debarred or suspended. Under these
changes, the Secretary would not certify the administrative capability
of an institution that fits into any of these categories. The Secretary
would not permit such an institution to begin participation in a Title
IV, HEA program, and the Secretary would require a participating
institution to rectify the problem that adversely affects the
institution's administrative capability. A participating institution's
inability or unwillingness to rectify the problem would warrant
initiation of an emergency action, limitation, suspension, or
termination proceeding against the institution under subpart G. The
Secretary expects that such a proceeding would be combined with a
debarment or suspension proceeding under 34 CFR part 85.
These changes are needed to establish appropriate safeguards to
protect the Title IV, HEA programs when serious questions are raised
about the honesty and lawfulness of the conduct of an institution's
owners, officers, directors, management, employees, or affiliates whose
duties involve the administration of or influence over those programs.
The Secretary proposes to require that an institution comply with
any standards regarding completion and placement rates and pass rates
on State licensing examinations established by the State in which an
institution is located as a standard of administrative capability. The
Secretary supports the development of appropriate standards by each
State, as individual States will be able to address local concerns and
conditions in the development of standards. In the absence of such a
State standard, the Secretary believes an institution must comply with
appropriate standards regarding completion rates, placement rates and
pass rates on required State examinations, as established by the
Secretary, in consultation with institutions located in the State.
The Secretary proposes to require as a standard for full
participation in the Title IV, HEA programs that institutions have
default rates that do not exceed 20 percent for the Federal Stafford
Loan and Federal SLS programs, and default rates that do not exceed 15
percent for the Federal Perkins Loan program. For the Federal Stafford
Loan and Federal SLS programs, a 20 percent trigger is currently used
as an indicator of impaired administrative capability. For the Federal
Perkins Loan program, the Secretary has used a 20 percent trigger as an
indicator of impaired administrative capability. The Secretary is
proposing to change this figure to 15 percent for consistency with the
statutory requirement of section 461(g) of the HEA that requires an
institution with a cohort default rate of 15 percent in the Federal
Perkins Loan program to establish a default management plan pursuant to
regulations. Under this proposal, institutions applying for
participation under a change of ownership or for a renewal of their
participation with default rates exceeding these proposed amounts would
be provisionally certified for a lack of administrative capability if
no other serious administrative capability problems were identified
that warranted denying the application. The Secretary notes that, under
this proposal, an institution applying for a renewal of participation
that has a default rate under the Federal Stafford Loan programs that
exceeds 20 percent could submit information demonstrating mitigating
circumstances as provided in Sec. 668.15 of current regulations to
demonstrate that the institution's default rate is not a basis for
denial of full participation. If no other serious administrative
capability problems were identified that warrant denying the
application for full participation, an institution with default rates
over these triggers could receive full participation if it successfully
showed that those mitigating circumstances existed.
In addition, the Secretary is proposing that an institution would
not be considered administratively capable if it has a withdrawal rate
of more than 33 percent. This change from the current regulations,
under which the Secretary considers withdrawal rates of more than 33
percent as an indicator of problems in administrative capability, would
become, like the other standards in this section, absolute requirements
rather than mere indicators. The calculation of this withdrawal rate is
currently made using the formula on the application for participation
in the Title IV, HEA programs.
The Secretary is proposing these changes to the current default
rate and withdrawal rate requirements because the Secretary believes
that these rates are appropriate measures of an institution's past
administrative performance; an institution that administers the Title
IV, HEA programs correctly will, absent mitigating circumstances for
its Federal Stafford Loan and Federal SLS programs default rate, have
default rates and withdrawal rates below these percentages.
The Secretary understands that some currently participating
institutions have rates in excess of these levels. Therefore, the
Secretary anticipates that when these institutions next undergo a
reevaluation of their institutional eligibility, administrative
capability, and financial responsibility, some of them would be
determined not to be administratively capable purely for failure to
meet these standards, even if they meet all the other financial
responsibility and administrative capability standards in these
proposed regulations. In those cases, if there are no other significant
problems, these institutions could be granted provisional certification
so they could continue to participate in the Title IV, HEA programs for
a limited time on a limited basis to allow them to bring their default
or withdrawal rates or both down to an acceptable level. However, an
institution with a high withdrawal rate applying for participation in
the Title IV, HEA programs for the first time would not be approved to
participate in the Title IV, HEA programs. In addition to these default
rates the Secretary plans to establish an appropriate default rate
applicable to the FDSL Program and solicits comments on what that
should be. For example, comments are requested on whether FDSL Program
default rate thresholds should be developed to take into consideration
students who are using income contingent repayment.
Section 668.17 Default Reduction Measures
Default Rates
Because of the changes described above in proposed Sec. 668.16
concerning the effect of default and withdrawal rates on an
institution's administrative capability, the remaining provisions in
current Sec. 668.15 would address default reduction measures for
institutions with high Federal Stafford loan and Federal SLS default
rates. Therefore, the Secretary proposes to redesignate current
Sec. 668.15 as Sec. 668.17 and rename it ``Default reduction
measures.''
The Secretary proposes to clarify that the Secretary notifies an
institution of its Federal Stafford loan and Federal SLS cohort default
rate if that rate exceeds 20 percent for any fiscal year before the
Secretary takes an action against the institution. This change merely
reflects the Secretary's current practice.
The Secretary proposes to remove the option to require an
institution with a Federal Stafford loan and Federal SLS cohort default
rate that exceeds 20 percent for any fiscal year to submit to the
Secretary and guaranty agencies the specific information described in
current Sec. 668.15(b)(2)(ii) concerning pass rates, job placement
rates, and completion rates. These changes are consistent with earlier
statutory and regulatory revisions to current Sec. 668.15 and because
the Secretary rarely asks institutions to submit this information. The
Secretary would reserve the right to request any information the
Secretary deems necessary to make a preliminary determination as to the
appropriate action to be taken by the Secretary regarding the
institution.
Default Management Plan
The Secretary proposes to clarify requirements for implementation
of default management plans for institutions with Federal Stafford loan
and Federal SLS cohort default rates greater than 20 percent for any
fiscal year. The Secretary has required implementation of a default
management plan for institutions with cohort default rates greater than
20 percent since the implementation of the default reduction initiative
in final regulations published June 5, 1989 (54 FR 24114). In the
preamble to the June 5, 1989, final regulations, the Secretary stated
that, in accordance with current Sec. 668.15(e), an institution with a
default rate over 20 percent could be required to implement a default
management plan. The proposed provision specifies that, for an
institution with a Federal Stafford loan and Federal SLS cohort default
rates greater than 20 percent or less than or equal to 40 percent for
any fiscal year, the institution would have to submit a default
management plan that implements the measures described in appendix D to
this part. An institution could only implement a default management
plan that deviates from the measures in appendix D if the institution
submits a justification for the deviation that is approved by the
Secretary. An institution with a Federal Stafford loan and Federal SLS
cohort default rate that exceeds 40 percent for any fiscal year, and,
therefore, is subject to a limitation, suspension, or termination
action under subpart G, would have to implement all of the default
reduction measures described in appendix D to this part no later than
60 days after the institution receives the Secretary's notification of
the institutions cohort default rate. The institution would not be
required to submit any written plans to the Secretary or a guaranty
agency unless specifically requested to do so by the Secretary or
guaranty agency.
End of Participation
Section 435(a)(2) of the HEA provides that an institution's
participation in the FFEL programs ends if the Secretary determines
that the institution's cohort default rate for each of the three most
recent fiscal years for which the Secretary has determined the
institution's rate is equal to or greater than the applicable threshold
rates. Section 435(a)(2)(B) of the HEA sets the threshold rate for
fiscal year 1994 and all subsequent fiscal years at 25 percent.
Consistent with current regulations, institutions may appeal such loss
of participation by demonstrating that mitigating circumstances as
found in current Sec. 668.15 are present.
Currently, an institution may not participate in the FFEL programs
beginning eight calendar days after the date the Secretary notifies the
institution that its cohort default rate exceeds the specified
thresholds. The Secretary proposes to change this provision to require
that an institution may not participate in the FFEL program beginning
with the date that the institution receives notification from the
Secretary that its cohort default rate exceeds the specified
thresholds. The Secretary does not believe it is appropriate to
continue to allow an institution that has lost its participation due to
a high default rate to have the benefit of further Title IV, HEA
program funds unless it successfully appeals. The Secretary proposes to
make corresponding changes throughout this section.
Appeal Procedures
The Technical Amendments of 1993 amended section 435(a) and (m) of
the HEA as those sections relate to institutional appeals of cohort
default rates. These amendments are not reflected in this NPRM but will
be addressed separately. However, the Secretary proposes to remove the
provision that provides that an institution may appeal its loss of
participation in the FFEL programs under the provisions of this section
on the grounds that the institution has reduced its cohort default rate
for each of the two most recent fiscal years for which the Secretary
has calculated a cohort default rate for that institution by 50 percent
of the amount by which its cohort default rate for the previous year
exceeds the applicable threshold percentage specified in this section.
This provision is no longer applicable because it was limited to
notices of loss of eligibility that were received by an institution in
the fiscal year that ended September 30, 1991.
Current regulations allow an institution to appeal its loss of
participation in the FFEL programs under the provisions of this section
on the grounds that, for any twenty-four month period ending not more
than six months prior to the date the institution submits its appeal,
two-thirds or more of the institution's students who are enrolled on at
least a half-time basis are individuals from disadvantaged economic
backgrounds as established by documentary evidence submitted by the
institution such as a Pell Grant Index of zero, or an AGI of less than
the poverty level, as determined by criteria developed by the
Department of Health and Human Services. The Secretary proposes that
the term ``such as'' be eliminated to reflect the current practice;
i.e., the institution must establish the grounds for its appeal based
only on the information specified in the regulations. The Department
would only accept the specific evidence listed in the regulations
although the current regulations suggest that other evidence is
acceptable. This change reflects the current practice of the Secretary.
The Secretary solicits comment on other acceptable forms of acceptable
documentation.
Definitions
The Student Loan Reform Act (Pub. L. 103-66) amended the definition
of cohort default rate to include Federal Consolidation Loans which are
used to repay Federal Stafford and Federal SLS loans. The Secretary
proposes to amend this section to reflect this change.
Definitions applicable to this section would be revised to reflect
changes to the definition of cohort default rate in section 435(m) of
the HEA. In accordance with the statute, as in the past, for any fiscal
year in which 30 or more current and former students at the institution
enter repayment on Federal Stafford or Federal SLS program loans
received for attendance at the institution, the cohort default rate is
the percentage of those current and former students who enter repayment
in that fiscal year on Federal Stafford or Federal SLS program loans
received for attendance at that institution who default before the end
of the following fiscal year. Formerly, for any fiscal year in which
fewer than 30 of the institution's current and former students entered
repayment on a Federal Stafford or Federal SLS loans received for
attendance at the institution, the cohort default rate was the average
over the three most recent fiscal years of the rates calculated in the
manner described for any fiscal year in which 30 or more current and
former students enter repayment on a Federal Stafford or Federal SLS
program loan. The HEA now requires that, for any fiscal year in which
fewer than 30 of the institution's current and former students enter
repayment, the cohort default rate is the percentage of those current
and former students who entered repayment on Federal Stafford loans or
Federal SLS loans in any of the three most recent fiscal years who
default before the end of the fiscal year in which they entered
repayment.
The Technical Amendments of 1993 changed section 435(m)(1)(B) of
the HEA to make clear that the issue of improper loan servicing is only
part of the appeal process and does not relate to the Secretary's
initial release of cohort default rates. Thus, in issuing the rates
initially, the Secretary is not obligated to consider allegations of
improper loan servicing. The Secretary proposes to amend the
regulations to reflect this change by removing the requirement that the
Secretary must exclude any loans that, due to improper servicing or
collection, would result in an inaccurate or incomplete calculation of
the cohort default rate.
Section 435(m) of the HEA requires the addition of the requirement
that a Federal SLS loan not be considered to enter repayment until
after the borrower has ceased to be enrolled in an educational program
leading to a degree or certificate at the eligible institution on at
least a half-time basis (as determined by the institution) and ceased
to be in a period of forbearance based on that enrollment. Section
435(m) further requires that each eligible lender of a Federal SLS loan
to provide the guaranty agency with the information necessary to
determine when the loan entered repayment for purposes of this
definition and requires the guaranty agency to provide that information
to the Secretary.
Section 668.22 Institutional Refunds and Repayments
General
The Amendments of 1992 added section 484B to the HEA to require an
institution to have in place, as of July 23, 1992, a fair and equitable
institutional refund policy as promulgated in that section. The fair
and equitable refund requirements prescribed by law are similar to the
fair and equitable refund requirements prescribed by Sec. 682.606 of
the FFEL program regulations for institutions that participate in the
FFEL programs. The HEA extends this requirement to institutions
participating in any Title IV, HEA program and makes various
modifications.
Under this fair and equitable refund policy, an institution must
make a refund of unearned tuition, fees, room and board, and other
charges to a student who received Title IV, HEA program assistance
(including PLUS loans received on behalf of the student) if the student
does not register for the period of enrollment for which the student
was charged or if the student withdraws, drops out, or is expelled from
the institution before completing the period of enrollment for which he
or she was charged.
The interpretation of the applicability of a fair and equitable
refund policy was the subject of extensive discussions among the
negotiators. The HEA specifically mandates a refund to any student who
received Title IV HEA program assistance. However, at issue during the
negotiations was the fairness and equity in having a refund policy for
students who receive Title IV, HEA program assistance that is different
from the refund policy for those students enrolled in the same
educational program who do not receive Title IV, HEA program
assistance. Several negotiators felt that requiring institutions to
apply the refund requirements found in this proposed section to all
students who attend an institution would be an unauthorized intrusion
by the Secretary into the administrative decisions of an institution.
Many negotiators felt that compliance with a refund requirement that is
applicable to all students would be too costly for an institution.
Therefore, the Secretary proposes to define a fair and equitable
refund policy only with respect to students who receive Title IV, HEA
program assistance. Although the Secretary proposes to limit the scope
of this provision to those recipients, under this proposed provision an
institution would not be prohibited from adopting these refund
requirements for all students.
The Secretary proposes to require that an institution provide a
written statement containing its refund policy to prospective students
and make its policy known to currently enrolled students. This proposal
is based upon requirements currently prescribed by Sec. 682.606 of the
FFEL program regulations. The Secretary proposes to expand this FFEL
provision to require that the written statement must be clear and
conspicuous and must include information on the allocation of refunds
and repayments to sources of aid. In keeping with current FFEL program
regulations, the Secretary proposes that the written statement include
examples of the application of the refund policy. This requirement
would be met if the institution informs students in the written
statement that examples are available and the institution makes the
examples readily available to the student upon request.
As in the current FFEL program regulations, the Secretary proposes
to require an institution to provide the written statement to
prospective students. Section 668.41(b) of current regulations defines
a ``prospective student'' as an individual who has contacted an
institution participating in any Title IV, HEA program for the purpose
of requesting information concerning admission to the institution. The
Secretary believes that a student is a ``prospective student'' if he or
she is not enrolled in an institution and has not entered into any
contractual agreement or incurred a financial obligation to attend an
institution. Therefore, the Secretary proposes to require an
institution to provide this written statement to a student prior to the
earlier of the student's enrollment or the execution of the student's
enrollment agreement. If the institution's refund policy changes, the
institution would have to ensure that all students are made aware of
the new policy and advise the currently enrolled students of any
changes that the institution intended to apply to those students for
their current enrollment period.
The Secretary believes that some institutions have assessed
excessive equipment charges that have increased the total aid received.
For example, some students have been charged as much as ten or fifteen
times an institution's documented equipment costs for kits students
were required to purchase. If the calculation of a refund includes
equipment charges with such an extreme price mark-up, the amount of
money an institution would be permitted to keep is greatly inflated. To
help curb this abuse, the Secretary is proposing to require an
institution to publish in its school catalog or other information
provided to its students, the cost to the student of required supplies
and equipment. Further, the Secretary proposes to require an
institution to substantiate to Department officials, upon the request
of the Secretary, that the costs are reasonably related to the costs of
providing the supplies and equipment to students. This provision would
not require the institution to provide this cost substantiation to
students, but would permit the Secretary to obtain information
regarding the cost of required supplies and equipment to determine
whether an abuse in this area is occurring or has occurred. For
example, this information may be routinely reviewed during a program
review. If the charges for equipment and supplies appear to be
unreasonable, the institution would be required to show that its
charges were reasonably related to the cost of providing those items.
Under this proposal, an institution would not be expected to provide
this information to the Secretary as a regularly scheduled submission,
but only upon request from the Department of Education.
Fair and Equitable Refund Policy
Section 484B of the HEA defines a fair and equitable refund policy
to be one that provides for at least the largest of the amounts
provided under:
(1) The requirements of applicable State law;
(2) The specific refund requirements established by the
institution's nationally recognized accrediting agency and approved by
the Secretary; or
(3) The pro rata refund calculation described in the statute for
students attending the institution for the first time, except that this
pro rata refund calculation does not apply for any student whose
withdrawal date is after the 60 percent point in time in the period of
enrollment for which the student has been charged.
The Secretary intends to clarify that an accrediting agency's
refund policy must contain specific standards. Refund ``guidelines''
developed by an accrediting agency (for example, an accrediting agency
refund policy that only requires an institution to develop its own fair
and equitable refund policy) would not be considered to have standards.
Obviously, an institution would not be considered to be in compliance
with a State's or an approved accrediting agency's refund policy if the
institution adopts a refund policy that is merely similar to the
State's or accrediting agency's but does not incorporate all the
required standards. This policy is consistent with the current
provisions of the FFEL program regulations.
The Secretary recognizes that there may be situations where an
institution's State and accrediting agency do not have specific refund
policies. If a student is not entitled to a pro rata refund, no
specific standard would then exist under the law to ensure that the
student received a fair and equitable refund. Because the Secretary
believes that all recipients of Title IV, HEA program assistance should
be treated fairly, the Secretary is proposing to require an institution
to provide a refund to a student that is the larger of the
institution's refund policy or the specific refund standards contained
in appendix A to this part if an institution's State and accrediting
agency do not have refund standards and the student is not entitled to
a pro rata refund. The NPRM published on January 24, 1994 to implement
the accrediting agency provisions in subpart 2 of part H of the HEA
proposes that the Secretary will not recognize an accrediting agency
unless the agency has a refund policy that provides for a fair and
equitable refund to a student. The Secretary notes that if this
provision of the accreditation agency NPRM is adopted in final
regulations, there would not be a need for the proposed appendix A
requirement once all accrediting agencies have been reviewed and
recognized by the Secretary.
The refund policy proposed to be adopted as appendix A is derived
from the guidelines developed by the National Association of College
and University Business Officers (NACUBO). Currently, under the FFEL
program regulations, an institution must follow the guidelines
developed by NACUBO and restated in appendix A to the FFEL program
regulations (or refund policy standards set by another association of
institutions of postsecondary education and approved by the Secretary)
if neither an institution's State nor its accrediting agency have
refund standards. While the NACUBO standards identify policy standards
that institutions should have for the refund of student charges, the
Secretary's proposed appendix A establishes policy standards that
institutions must have for the refund of student charges. The Secretary
has always considered these standards as mandatory for purposes of the
FFEL program regulations and is, therefore, making that interpretation
clear in these proposed regulations. Further, the Secretary's proposed
appendix A to this part would mandate the percentage of tuition charges
that must be returned to a student who withdraws from an institution at
various intervals during the refund period. In the development of the
actual refund calculation for this policy, the Secretary adapted a
proportionate calculation that is similar to refund policies used by
proprietary institutions. The Secretary believes that this refund
schedule provides a fairer allocation of resources between the
institution and the Title IV, HEA programs than exists under the
shorter refund periods often found at traditional colleges and
universities. This proposed refund policy is not normally as generous
to the student as the pro rata refund policy prescribed by the statute,
because the affected students would not be first time students and,
therefore, would not be entitled to the full protection of the pro rata
refund policy. Under the standards in appendix A, a student who submits
written notice of withdrawal up to one week before the first day of
class would receive a refund of 100 percent of tuition charges. The
refund would be reduced to at least 90 percent if the student submits
written notice of withdrawal between the end of the 100 percent period
and the first 10 percent of the period for which the student was
charged. A student would receive at least a 50 percent refund if he or
she withdraws between the first 10 percent and the first 25 percent of
the period for which the student was charged. Finally, a student would
receive at least a 25 percent refund if he or she withdraws between the
first 25 percent and the first 50 percent of the period for which the
student was charged.
As a part of the refund policy in proposed appendix A, the
Secretary would allow an institution to subtract from the refund to a
student any charges for equipment (including books and supplies) if
there is a separate charge for the equipment and the student actually
obtains the equipment but the student fails to return the equipment
within 20 days after his or her withdrawal. This provision is discussed
further in the explanation on pro rata refunds.
An institution must determine whether a student withdrew prior to
the 60 percent point in time in the period of enrollment for which the
student has been charged when determining whether the pro rata refund
calculation is applicable to a student. The Secretary proposes to
define ``the 60 percent point in time in the period of enrollment for
which the student has been charged'' based upon whether the educational
program in which the student is enrolled is measured in credit hours or
clock hours. In the case of an educational program that is measured in
credit hours, this point would be the point in calendar time when 60
percent of the period of enrollment for which the student has been
charged has elapsed. In the case of an educational program that is
measured in clock hours, this point would be the point in time when the
student completes 60 percent of the clock hours scheduled for the
period of enrollment for which the student is charged.
For instance, if the student's period of enrollment in an
educational program that is measured in credit hours is scheduled to
last 5 months (20 weeks), the 60 percent point of the period is at 12
weeks. However, in the case of a program measured in clock hours, the
Secretary believes that it is more accurate to use the number of
completed clock hours to determine the percentage of enrollment. For
instance, if the student is scheduled to complete 900 clock hours, the
60 percent point of the period of enrollment occurs when the student
has completed 540 clock hours. The Secretary wishes to emphasize that
the definition of the determination of the 60 percent point in time in
the period of enrollment for which the student has been charged is
different from the determination of ``the portion of the period of
period of enrollment for which the student has been charged that
remains'' that is used to calculate the refund after the institution
has determined that the pro rata refund calculation is to be used. The
proposed definition of the latter term will be discussed later.
In determining the largest refund to a student, the Secretary
proposes to require an institution to determine the largest refund for
each student. An institution would not be permitted to determine which
refund is generally the most generous and use that refund calculation
for all students. The Secretary believes that current computer
technology enables an institution to automate this determination
through the use of computer software.
Pro Rata Refund
The Secretary notes that although the statutory requirements for
pro rata refunds supersede the pro rata regulations found in the FFEL
program regulations, institutions have been advised to follow guidance
given for implementation of the FFEL program regulations as ``safe-
harbor'' guidance for implementation of the statutory requirements for
pro rata refunds. The Secretary intends that final regulations for pro
rata refunds developed as a result of this NPRM and any guidance given
for implementation of these regulations will replace the required pro
rata refund policy for an institution that is required to use a pro
rata refund policy because the institution has a cohort default rate
that exceeds 30 percent under the FFEL programs.
A ``pro rata refund,'' as defined in statute, is required for a
student attending an institution for the first time, unless another
applicable refund is greater. The pro rata refund may not be less than
that portion of the tuition, fees, room, board, and other charges
assessed the student by the institution equal to the portion of the
period of enrollment for which the student has been charged that
remains on the withdrawal date. The pro rata refund is then rounded
downward to the nearest 10 percent of that period. The pro rata refund
is then reduced for any unpaid charges and a reasonable administrative
fee. The administrative fee may not exceed the lesser of one hundred
dollars or five percent of the tuition, fees, room and board, and other
charges assessed the student.
The Secretary proposes to permit institutions to subtract certain
amounts of institutional charges from the refund to the student. The
Secretary wishes to clarify that these proposed regulations would
permit an institution to subtract charges or portion of charges from a
pro rata refund only if the charges are included in the calculation of
the pro rata refund.
Under the statute, an institution may subtract any unpaid charges
owed to the institution by the student. The Secretary is proposing to
define unpaid charges by using the definition for an ``unpaid amount of
a scheduled cash payment'' published in the Federal Register on June 8,
1993 (58 FR 32188). Although those final regulations discussed the
unpaid amount of a scheduled cash payment as being excluded from the
amount the institution may retain for institutional charges, rather
than for the purpose of excluding any unpaid balance from the refund to
the student, the Secretary believes it is appropriate to adopt the same
definition to define these unpaid charges. In accordance with the
current regulations, a student's scheduled cash payment would be
defined as the amount of institutional charges that is not paid for by
financial aid. An institution could count any late disbursements of
Title IV aid as financial aid for this purpose (i.e., the amount of the
late disbursement would not be included as part of the student's
scheduled cash payment.) Any amount of the scheduled cash payment that
has not been paid would be the amount of unpaid charges owed by the
student. The treatment of unpaid charges for refunds other than pro
rata refunds is addressed later in this discussion.
The statute also permits an institution to subtract a reasonable
administrative fee from the refund owed to a student. This
administrative fee must be a real charge and documented as such. An
institution may not automatically subtract the lesser of five percent
of the tuition, fees, room and board, and other charges assessed the
student or one hundred dollars if no such administrative fee actually
exists.
The Secretary proposes to add to the list of permitted subtractions
from the refund to a student any application fee charged by the
institution. The Secretary believes that an application fee is a fee
incurred separately from a student's charges for an enrollment period,
and therefore, should not be included in the refund to the student.
In addition, for institutions whose students are issued meal
credits that can be spent irregularly throughout the enrollment period
(e.g., coupons or meal tokens) the Secretary proposes to allow an
institution to deduct from the refund owed under this paragraph the
portion of ``board'' charges (i.e., meal tickets) that has been
expended by the student that exceeds the portion attributable to the
period for which the student attended at the time of withdrawal. For
example, if a student withdrew at the 50 percent point in time in the
period of enrollment for which the student has been charged but had
used 60 percent of the meal tickets, the institution could subtract
from the refund to the student the value of the meal tickets
attributable to that 10 percent of the period of enrollment that the
student did not attend. If a student used less than the attributable
value of the meal tickets at the time of his or her withdrawal, an
institution would not be permitted to subtract any amount from the
refund to the student. An institution would not be permitted to
subtract any amount from the refund to the student in cases where
students have unlimited use of meal tickets.
The Secretary intends to continue the current policy regarding the
inclusion of books, supplies, and other equipment in the pro rata
refund calculation consistent with guidance given to institutions that
were required to use a pro rata refund policy because the institution
had a default rate that exceeds 30 percent and was required to
calculate a pro rata refund for a student who received a loan under the
FFEL programs. As is currently the case, an institution is required to
include the full amount of charges for equipment in the calculation of
pro rata refund if a separate charge exists for the equipment by the
institution or if the institution requires the student to purchase the
equipment from a certain vendor. The Secretary believes that by
charging students a separate equipment charge or by requiring students
to purchase the equipment from a single vendor (for example, a school
book store) the equipment charges are being mandated by the institution
and should be treated as institutional costs. In effect, the
institution is the sole source of the equipment. If an institution does
not have a separate charge for equipment and the student has the option
of purchasing the equipment from more than one source, the institution
would not have to include the equipment charge in the pro rata refund
calculation. An institution would have to be able to demonstrate that
its students have the option of purchasing the equipment from other
sources that are easily accessible to the student and that the students
are advised that an option is available.
The Secretary proposes to allow an institution to subtract from the
refund to a student any charges for equipment (including books and
supplies) that a student could have returned for credit but did not do
so. Under this provision, there would have to be a separate charge for
the equipment, and the student must actually have obtained the
equipment but failed to return the equipment within 20 days after his
or her withdrawal. This provision was suggested by one of the
negotiators and is based upon California law. By consensus of the
negotiators, this provision would be extended to situations where the
equipment and supplies are sold by an affiliate or related entity of
the institution. If the student does not return the equipment, the
institution could subtract from the pro rata refund owed to the student
the documented cost to the institution of equipment issued to the
student. The student would be liable for the amount, if any, by which
the documented cost for equipment exceeds the amount of the student's
pro rata refund.
Under this proposal, if some or all of the equipment is not
actually received by the student, the institution would have to include
in the pro rata refund calculation 100 percent of the amount paid for
that portion of the equipment. Further, if an institution gives a
student the option to return the equipment, the institution would not
be permitted to subtract the cost of the equipment from the refund to
the student if the student chooses to return the equipment and does so
within 20 days of his or her withdrawal. The Secretary believes that 20
days provides the student with a sufficient period of time to return
equipment without delaying the refund to the student.
The Secretary proposes that any equipment returned by a student
must be in good condition allowing for reasonable wear and tear. The
Secretary notes that there may be restrictions under State laws that
prevent an institution from accepting returned equipment due to health
and sanitary reasons. Other conditions might also limit the return of
equipment. For example, a workbook that has been written in or a
damaged text book might not be reusable. The Secretary solicits
comments on whether this provision should be expanded to identify other
conditions that could affect the institution's ability to reissue
equipment.
The Secretary notes that, because an institution must include the
charges listed above in the calculation of a pro rata refund and is
then permitted to subtract the charges or a portion of the charges from
this refund, in many cases it appears that an institution could retain
more than the actual charge to the student. For example, if an
institution that charges a $100 administrative fee calculates a pro
rata refund to a student, a portion of the $100 charge would be
refunded to the student in accordance with the pro rata refund formula,
and a portion of the charge would be retained by the institution. Yet,
in addition, the institution could then be permitted to subtract the
full $100 from the refund to the student. The Secretary requests
comments on whether it may be more appropriate to require institutions
to exclude these charges from the refund calculation entirely rather
than subtracting the charge after performing the calculation. The
Secretary also requests comment on whether some other means should be
adopted to eliminate this potential ``double counting'' of charges.
For purposes of determining a pro rata refund, the Secretary
proposes to exclude from the ``room charges'' that are to be included
in the refund calculation, any room charges for off-campus housing that
are passed through the institution in their entirety to an entity that
is not under the control of, related to, or affiliated with the
institution. The Secretary recognizes that an institution may enter
into an agreement with an outside agency to provide lodging for
students. Under such an arrangement, the institution is merely a
conduit that passes the room charges along to the other entity, yet
those charges appear as institutional charges on student accounts. In
these cases, the independence of the entities and the students'
continuing right to occupy the housing after the students withdraw
warrant the exclusion of the room charges from the refund calculation.
The Secretary also proposes to exclude from the pro rata refund
calculation charges for group health insurance that are mandatory for
all students in the calculation of a pro rata refund so long as the
coverage remains in effect for the students throughout the period for
which the student was charged. The Secretary notes that the inclusion
of these group health insurance charges in the refund calculation could
cancel insurance coverage that might otherwise be extended to the
student beyond the student's withdrawal date.
The Secretary proposes to define a student attending an institution
for the first time as a student who has not previously attended at
least one class at the institution. A student who received a refund of
100 percent of his or her tuition and fees (less any permitted
administrative fee) under the institution's refund policy for previous
attendance at the institution would also be considered a first-time
student.
The Secretary believes that a first-time student at an institution
is a student who is attending that institution, as opposed to any
institution, for the first time. Therefore, if the student has not
previously attended at least one class at a specific institution, the
Secretary would consider the student to be attending that institution
for the first time. If a student transfers to another institution, he
or she would count as a first-time student at the new institution, if
he or she has not previously attended at least one class at the new
institution. If a student attends an institution, withdraws from the
institution (and receives less than a 100 percent refund), and then
returns to the same institution, the student would not be treated as a
first-time student for his or her second period of attendance. The
Secretary believes that if a student has previously received a 100
percent refund at an institution, for purposes of this definition, the
student should be treated as if he or she had not previously attended
the institution.
The Secretary proposes that a student should remain a first-time
student until the student withdraws from the institution after
attending at least one class, or completes the period of enrollment for
which he or she has been charged, whichever occurs first. Therefore,
the shortest amount of time a student could remain a first-time student
is the period until he or she withdraws after attending one class. The
longest amount of time a student could remain a first-time student is
the period until his or her completion of the period of enrollment for
which he or she has been charged.
The Secretary proposes to adopt for all the Title IV, HEA programs
the requirement currently found in the FFEL program regulations that an
institution's payment to a lender of the portion of a refund allocable
to a Title IV, HEA program cannot be delayed because of a delay in the
return of equipment. The provision would apply to the portion of the
refund due to any Title IV, HEA program.
In the actual calculation of a refund under the pro rata refund
provisions of section 484B of the HEA, the amount of the refund is
based on ``the portion of the period of enrollment for which the
student has been charged that remains [after the student stopped
attending].'' Under the law, ``the portion of the period of enrollment
for which the student has been charged that remains'' in an educational
program measured in credit hours is determined by dividing the number
of weeks that the student did not complete by the total number of weeks
in the program. For a clock-hour program, the determination is made by
dividing the number of clock hours not completed by the total number of
clock hours. For a correspondence program, the determination is made by
dividing the number of lessons not completed by the total number of
lessons. The Secretary has merely repeated that language here. The
Secretary would like to note that ``the portion of the period of
enrollment for which the student has been charged that remains'' is
used to calculate the pro rata refund to a student and is distinct from
the determination of the 60 percent point in time in the period of
enrollment for which the student has been charged that is used to
determine whether the pro rata refund calculation is applicable. The
definition of ``the 60 percent point in time in the period of
enrollment for which the student has been charged'' was discussed
earlier in the summary.
Period of Enrollment for Which the Student Has Been Charged
Generally, the Secretary proposes to define ``the period of
enrollment for which the student has been charged,'' as the actual
period for which an institution charges a student. However, the
Secretary proposes to establish a minimum period of enrollment for
which the student has been charged to prevent institutions from
establishing very short periods to minimize the program charges that
would be subject to pro rata refunds for first-time students. In the
case of an educational program that is measured in credit hours and
uses semesters, trimesters, quarters, or other academic terms, the
minimum period would be the semester, trimester, quarter, or other
academic term. In the case of an educational program that is measured
in credit hours and does not use semesters, trimesters, quarters, or
other academic terms, or an educational program that is measured in
clock hours, the minimum period would be the lesser of the length of
the educational program or an academic year. This proposed definition
is based on the current policy for the FFEL programs that sets minimum
certification periods for loans. This policy was designed partly to
prevent institutions from circumventing the refund provisions currently
found in Sec. 668.22. The Secretary invites comments on whether other
safeguards are needed to prevent institutions from circumventing the
pro rata refund requirements.
The Secretary notes that there may be institutions that use
different periods for categories of charges. For example, an
institution may charge by the academic year for tuition, but by the
academic term for books and supplies. The Secretary, therefore,
proposes that, for purposes of determining refunds under this section,
``the period of enrollment for which the student has been charged'' is
the longest period for which the student is charged. The institution
must include any charges assessed the student for that period of
enrollment or any portion of that period of enrollment in calculating
the refund. In the example above, since the institution charged for the
entire academic year for tuition, the institution would have to
determine the actual total charge for books and supplies for the
academic year in order to determine the refund to the student. If, in
the example above, the institution did not charge for books and
supplies after the first academic term, the institution would only
include the charges for the first academic term when calculating the
refund for the academic year.
The Secretary also proposes to use the period of enrollment for
which the student has been charged, instead of the payment period
concept currently used, to determine the return of refunds and
repayments to the Title IV, HEA programs. In doing away with the
concept of a payment period for purposes of the calculation of refunds,
the Secretary also proposes to do away with the practice of attributing
Title IV, HEA program assistance when determining the return of refunds
and repayments to the Title IV, HEA programs. The Secretary believes
that the premise for the calculation of a pro rata refund, (i.e., the
refund is to be determined for the percentage of a period of enrollment
for which the student has been charged that remains) dictates that the
institution should look at the amount of Title IV, HEA program
assistance received for that same percentage of the period. The
Secretary believes that adopting the use of the period of enrollment
for which the student has been charged to determine the return of all
refunds and repayments to the Title IV, HEA programs greatly simplifies
these determinations.
Overpayments
The Secretary proposes to restructure and revise the current
provisions relating to overpayments and the repayments to Title IV, HEA
programs of institutional refunds and overpayments. This preamble
addresses those areas of these current provisions that have been
significantly revised.
No changes are proposed to the procedures by which an institution
determines if a student has received an overpayment for
noninstitutional costs.
Repayments to Title IV, HEA Programs of Institutional Refunds and
Overpayments
The Secretary proposes to remove the fraction that is currently
used to determine the portion of the refund that an institution must
return to the Title IV, HEA programs. Section 485 of the HEA now
specifies the order of return of refunds to the Title IV, HEA programs.
Further, the Technical Amendments of 1993 changed section 485 of the
HEA to specify that an institution is to return a refund to other
sources of student assistance only after the refund has been returned
to the Title IV, HEA programs (see the discussion below concerning
allocations.) The Secretary proposes to make a conforming change by
removing the fraction currently used to determine the portion of an
overpayment that an institution must return to the Title IV, HEA
programs.
The June 8, 1993, final regulations modified the definition of
institutional refund to require an institution to exclude any unpaid
charges owed to the institution by a student in determining the amount
the institution may retain for institutional charges. These proposed
regulations would retain this provision. However, because the HEA now
specifies that an institution is permitted to subtract any unpaid
charges owed by a student from the calculated refund to the student in
calculating a pro rata refund, the requirements of the June 8, 1993,
final regulations regarding the treatment of unpaid charges have been
superseded and are inapplicable only in this case. That is, the
institution is not required to exclude any unpaid balance owed to the
institution by the student when the institution determines the amount
the institution may retain for institutional charges when calculating a
pro rata refund under section 484B of the HEA. The Secretary notes that
the requirements of Sec. 668.22 of the June 8, 1993, final regulations
continue to be in effect for all other refunds calculated in accordance
with section 484B of the HEA.
The Secretary proposes that if the amount of a refund owed to a
student is $25 or less, the institution would not be required to pay
the refund. The Secretary believes that the administrative cost to
institutions to make refunds of such a small amount may be greater than
the refunds themselves. This consideration is of particular concern at
institutions that have low tuition charges resulting in small refunds
that are administratively burdensome and costly to the institution.
Allocation of Refunds and Overpayments
Section 485 of the HEA specifies the order of return of refunds to
the various sources of aid and to the student. A refund owed to a
student who received funds under any Title IV, HEA program is to be
returned to the Title IV, HEA programs from which the student received
aid in the following order until the amounts received by the student
from those programs are eliminated. (1) The FFEL programs; (2) The FDSL
Program; (3) The Federal Perkins Loan Program; (4) The Federal Pell
Grant Program; (5) The FSEOG Program; (6) All other sources of aid; (7)
The student. The Secretary proposes to make clear the longstanding
policy that, after balances resulting from the FSEOG Program are
eliminated, balances on aid received from all other Title IV, HEA
programs must be eliminated before the State and private sources of aid
are refunded. For consistency and to reduce administrative burden, the
Secretary proposes to apply this order of return to repayment of
overpayments also except that, in accordance with current regulations,
no amount of a repayment may be allocated to the Federal Stafford Loan,
Federal PLUS, and Federal SLS programs.
The Secretary also would make clear that refunds would be returned
to eliminate outstanding balances of Title IV, HEA program aid received
for the period of enrollment for which the refunds are made. The
Secretary does not believe that refunds should be used to eliminate,
for example, outstanding balances on loans made for prior years.
Section 485 of the HEA does not specify an order of return for
refunds under the FFEL programs. The Secretary proposes a specified
order of return for FFEL program funds. Refunds would be returned to
eliminate outstanding balances on: (1) Federal SLS loans; (2)
unsubsidized Federal Stafford loans; (3) subsidized Federal Stafford
loans; and (4) Federal PLUS loans, in that order. The Secretary
believes that this order is beneficial to the student and that by
mandating the order of return of FFEL program funds, the interest of
the student would be protected. The Secretary wishes to clarify that
when returning any FFEL program funds, an institution may return the
gross amount of a loan (including the guaranty and origination fee) if
the institution so chooses, to serve as a deterrent to default on the
small remaining amount. This ``extra'' amount would be used to reduce
the next source of aid on the list.
The Secretary wishes to clarify that this order must be used if
Title IV, HEA program funds are received, whether they are applied
toward institutional charges or disbursed to the student for living
expenses. Even if all Title IV, HEA program funds are disbursed to the
student for living expenses, if a refund is owed when the student
withdraws from the institution, the refund must first be returned to
the Title IV, HEA programs from which the student received aid in the
order specified.
Financial Aid
No proposed changes are being made to the definition of financial
aid.
Refund Dates
The Secretary proposes to apply to all the Title IV, HEA programs
the definition (with some revisions) of ``withdrawal date'' that
currently applies to the FFEL programs. Only significant revisions are
discussed. The definition of ``drop out date'' found in the current
Sec. 668.22 would be incorporated into this definition. Currently, the
FFEL program regulations define the withdrawal date for a student who
has not returned to an institution after the expiration of an approved
leave of absence as the first day of the leave of absence. The
Secretary proposes to use, instead, the last recorded date of class
attendance by a student, as documented by the institution. The
negotiators reached consensus that it is fair to define the withdrawal
date for a student who failed to return from an approved leave of
absence in the same way as the withdrawal date is defined for a student
who drops out, because the student's period of attendance was only
extended on the understanding that he or she would be returning by a
specified date. Further, the Secretary proposes to clarify that a
student who returns to an institution after the expiration of a leave
of absence during an award year or, for the FFEL programs, during a
period of enrollment in which the student was granted the leave of
absence, the student may not receive additional Title IV, HEA program
assistance for coursework that he or she has not completed.
Currently, the FFEL program regulations define the withdrawal date
for a student who is enrolled in an educational program that consists
predominantly of correspondence courses as 60 days after the due date
of a required lesson that the student failed to submit in accordance
with the established schedule for lessons. The Secretary believes it is
more reasonable to define the withdrawal date in this case as the date
of the last submission of a lesson by the student if the student failed
to submit the subsequent lesson in accordance with the established
schedule for lessons.
The Secretary proposes to add the requirement that a leave of
absence may not exceed the length of time between the beginning of the
leave of absence and the institution's next period of enrollment, if
the institution's next period of enrollment after the start of the
leave of absence begins more than thirty days after the beginning of
the leave of absence due to a period of nonenrollment (i.e., summer
break) that prevents a student from enrolling in any coursework. The
Secretary proposes to add this provision to address graduate programs
that do not have summer school sessions, thereby preventing students
from re-enrolling during this time. As the determination of a student's
withdrawal date is necessary to determine when a refund must be paid to
a student, the Secretary believes it would be unfair to penalize an
institution for failure to pay timely refunds to a student who is
deemed to have ``withdrawn'' only because he or she cannot return to
the institution from a leave of absence because classes are not in
session. This provision would not additionally limit the length of a
student's leave of absence which could be up to sixty days or six
months under the specified conditions.
The Secretary notes that this proposed definition of a leave of
absence is a departure from current Federal Pell Grant Program policy.
Currently, for purposes of the Federal Pell Grant Program, a student
who is granted a leave of absence is considered to be no longer
enrolled in the institution. The Secretary specifically request
comments on the effects of this proposed change on institutional
procedures in relation to the Federal Pell Grant Program.
The Secretary proposes to require an institution to pay a refund to
a student within a specified period of time. The Secretary believes
that 30 days is a sufficient period of time for an institution to
complete the administrative procedures necessary for payment of a
refund to a student. This requirement would be in addition to other
requirements, which would not change, for timely payment of refunds to
a lender under the FFEL programs.
Section 668.23 Audits, Records, and Examinations
This section includes provisions dealing with third-party servicers
that were proposed in the NPRM published on February 17, 1994 (in part
II). The Secretary will not repeat the discussion of those provisions
here.
The Secretary proposes to extend the requirements of this section
to foreign institutions as that term would be defined in 34 CFR 600.52
of the regulations governing institutional eligibility under the HEA,
published in the Federal Register on February 10, 1994 (59 FR 6446).
Participating institutions, like institutions in the United States,
would accordingly be required to have compliance audits performed, be
subject to program reviews and other investigations, and maintain
records under the provisions of this section. The Secretary believes
these steps provide the best means for evaluating a foreign
institution's compliance with the requirements for participation in the
Title IV, HEA programs.
Section 487(c) of the HEA requires the Secretary to prescribe
regulations as may be necessary to provide for a compliance audit of an
institution with regard to any funds received under the Title IV, HEA
programs on at least an annual basis.
The Secretary notes that, currently, the Department of Education
could not properly and effectively review the volume of audits that the
Department would receive if every institution submitted an audit report
on at least an annual basis. The Secretary is concerned that an effort
that extensive could diminish the resources needed to concentrate on
timely review of those institutions that pose the greatest financial
risk to the government and the taxpayer. The Secretary proposes to
exempt from some or all of the audit requirements of this section
certain categories of institutions that pose no serious threat to the
integrity of the Title IV, HEA programs. The Secretary proposes that an
institution, other than an institution that is participating in the
Title IV, HEA programs for the first time, have the audit performed at
least once every two years if it meets the following conditions: (1)
The institution received less than $100,000 in total annual funding
under the Title IV, HEA programs for the period covered by the audit;
or (2) the institution had no deficiencies identified in the audit
report most recently submitted to the Department if that audit report
was submitted in a timely fashion. The Secretary bases this amount on
the amount that would exempt entities from the audit requirements of
the Single Audit Act. The Secretary also believes that an institution
that had no deficiencies identified in its most recently submitted
audit report will continue to perform at a level that does not warrant
as great a degree of oversight. In addition, an institution would not
be required to have a compliance audit for any year in which the
institution receives less than $25,000 in total annual funding under
the Title IV, HEA programs. This proposal would establish in
regulations the Secretary's current practice. Institutions that do not
handle large amounts of Title IV, HEA program funds do not put a large
amount of Title IV, HEA program funds at risk.
The Secretary notes that in spite of these exemptions the Secretary
would reserve the right to require an institution to have a compliance
audit performed annually from any institution as the Secretary deems
necessary. Further, the Secretary proposes to require an institution
participating in the Title IV, HEA programs for the first time to have
an audit performed at least once a year for the first five years of its
participation. The Secretary believes it is important to monitor an
institution more closely if the institution has not previously
participated in the programs and has not had an opportunity to
establish a record of consistent compliance with Title IV, HEA program
requirements.
Section 487(c) of the HEA requires that an audit performed in
accordance with this section must cover the period since the most
recent audit. The Secretary proposes to specify, for clarification,
that an institution's first audit for a Title IV, HEA program must
cover the institution's activities from the beginning of the
institution's participation in that program.
Rather than continuing to specify deadlines in regulations for the
submission of audit reports, the Secretary proposes to require an
institution to submit its audit to the Department's Inspector General
by the deadlines established in the audit guides developed by the
Department's Office of Inspector General. Beyond establishing deadlines
for the submission of audit reports, these guides will provide for
certain extensions beyond establishing deadlines for valid reasons.
These guides are developed in consultation with the academic community.
Section 487(c) of the HEA requires the Secretary to make the
results of compliance audits available to cognizant guaranty agencies
and eligible lenders under the FFEL programs, State agencies, and
designated SPREs. The Secretary proposes to add nationally recognized
accrediting agencies to this list, because of the role of accrediting
agencies in assisting the Secretary with regard to institutional
participation in the Title IV, HEA programs. The Secretary proposes to
require institutions to provide copies of their audit reports to these
entities upon request.
The Secretary proposes to add a requirement that specifies that an
institution must establish and maintain, on a current basis, financial
and other institutional records necessary to determine the
institutional eligibility, financial responsibility, and administrative
capability of the institution. The Secretary believes it is essential
for the Department to have access to this information when evaluating
an institution's compliance with the requirements of the provisions
governing the institutional eligibility, financial responsibility, and
administrative capability of the institution. Further, an institution
needs to maintain this information because, under its program
participation agreement, the institution must agree to make the
information available to appropriate authorities specified there (see
the discussion on proposed Sec. 668.14).
The Secretary proposes to require that all records required under
the applicable Title IV, HEA program regulations be retained by the
institution for at least five years from the time the record is
established unless specific program regulations require that a record
be kept for a period of time longer than five years. Five years is the
standard period of time that institutions are required to keep most
records under the Title IV, HEA programs. The Secretary believes that
this is a reasonable period of time to require institutions to maintain
most records so that the Department is able to evaluate the past
performance of an institution.
Section 668.26 End of an Institution's Participation in the Title IV,
HEA Programs
The Secretary proposes to clarify the purpose of the section
currently titled ``Loss of institutional eligibility to participate in
the Title IV, HEA programs'' by changing the title to ``End of an
institution's participation in the Title IV, HEA programs.'' The
Secretary proposes to specify the date on which an institution's
participation ends under a variety of circumstances to reflect
statutory changes and to make clear existing practice. The Secretary
has clarified in these proposed regulations the end of participation
date currently used by the Department to be the date that: The
institution closes or stops providing educational programs (the
Secretary proposes, consistent with provisions proposed to be included
in the regulations governing institutional eligibility under the HEA,
to specify that this closure must be for a reason other than a normal
vacation period or a natural disaster that directly affects the
institution or the institution's students); the institution loses its
institutional eligibility under 34 CFR part 600; the institution's
participation is terminated under the proceedings in subpart G of this
part; or the institution's program participation agreement is
terminated or expires.
The Secretary proposes to specify that an institution's
participation ends on the date that an institution's period of
participation, as specified under proposed Sec. 668.13 governing
certification procedures, expires, or the institution's provisional
certification is revoked in accordance with the procedures outlined in
that proposed section. This change would be made pursuant to provisions
of section 498(g) and (h) of the HEA.
The Secretary proposes to specify that an institution's
participation in the FFEL programs ends on the date that the Secretary
has determined that the institution's cohort default rate, for each of
the three most recent fiscal years for which the Secretary has
determined the institution's rate, is equal to or greater than the
threshold rates listed under proposed Sec. 668.17(c)(2). This change
simply makes the provisions of proposed Sec. 668.26 consistent with
those of proposed Sec. 668.17.
Finally, the Secretary proposes to specify that an institution's
participation ends on the date that the Secretary receives a notice
from the appropriate SPRE that the institution's participation should
be withdrawn. This change is mandated by section 494C(h) of the HEA.
The Secretary proposes to add to the requirements for an
institution when the institution's participation in a Title IV, HEA
program ends, that the institution shall, if the institution's
participation in the NEISP or SSIG Program ended, inform immediately
the State in which the institution is located of that fact. Further,
notwithstanding the requirements for the treatment of Title IV, HEA
program funds found in this section, the institution must follow the
instructions of that State concerning the end of that participation.
The Secretary also proposes to add that if the institution's
participation in all the Title IV, HEA programs end has ended, the
institution must inform the Secretary of how the institution will
arrange for the collection of any outstanding loans made under the
National Defense/Direct Student Loan and ICL programs. These changes
are necessary to make the Student Assistance General Provisions
regulations consistent with specific program regulations.
Subpart G--Fine, Limitation, Suspension and Termination Proceedings
Section 668.81 Scope and Special Definitions
The Secretary proposes to make technical changes to this section
consistent with changes proposed throughout these proposed regulations.
The Secretary proposes to clarify in this section that the procedures
under this section do not apply in the case of an institution that
fails to qualify for provisional certification because the institution
does not meet the factors of financial responsibility. In addition, the
procedures under this section would not apply in the case of an
institution where the institution's period of provisional certification
has expired, nor would they apply in the case of an institution that
has its provisional certification revoked. These changes are necessary
to make the scope of Subpart G of these regulations consistent with
provisions in section 498(g) and (h) of the HEA.
Section 690.83 Submission of Reports
Section 487(c)(7) of the HEA provides that, if, in the course of
any audit conducted after December 31, 1988 pursuant to the audit
requirements of section 487(c) of the HEA and Department regulations
implementing those requirements, the Department discovers or is
informed of any Title IV, HEA program assistance (specifically, Federal
Pell Grant Program funds) that an institution has provided to its
students in accordance with program requirements, but the institution
has not previously received credit or reimbursement for these
disbursements, the institution may offset the amount of those
disbursements against liabilities owed under the audit, or if no
liabilities arise from the audit, may receive reimbursement from the
Department for those amounts.
The HEA requires that the development of NPRMs for implementation
of changes made by the Amendments to Parts B (Federal Family Education
Loan programs), G (general provisions relating to the student
assistance programs) or H (Program Integrity Triad) of Title IV of the
HEA, is subject to the negotiated rulemaking process. Although this
provision relates directly to the Federal Pell Grant Program, it is
contained in Part G of the HEA. Therefore, it has been included in this
NPRM instead of the Federal Pell Grant Program NPRM, which was not
subject to the negotiated rulemaking process.
The Secretary proposes that, notwithstanding the regulatory
requirements for submission of reports, if an institution demonstrates
to the satisfaction of the Secretary that the institution has provided
Federal Pell Grants in accordance with the Federal Pell Grant Program
regulations, but has not received credit or payment for those grants,
the institution may receive payment or a reduction in accountability
for those grants. The institution would have to demonstrate that it
qualifies for a credit or payment by means of a finding contained in an
audit report as initially submitted to the Department that was
conducted after December 31, 1988. The audit would have to have been
timely submitted in accordance with 34 CFR 668.23(c), with respect to
grants made during the period of that audit. The Secretary specifies
that, in determining whether the institution qualifies for a payment or
reduction in accountability, the Secretary would take into account any
liabilities of the institution arising from that audit or any other
source. The Secretary collects those liabilities by offset in
accordance with 34 CFR part 30.
Executive Order 12866
These proposed regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those determined by the
Secretary to be necessary for administering this program effectively
and efficiently. Burdens specifically associated with information
collection requirements, if any, are identified and explained elsewhere
in this preamble under the heading Paperwork Reduction Act of 1980.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these proposed regulations, the Secretary has
determined that the benefits of the proposed regulations justify the
costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental function.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the program.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. The small entities affected by these proposed regulations are
small institutions of postsecondary education. These regulations make
modifications that reduce potential abuse in the Title IV, HEA
programs. These changes will not impose excessive regulatory burdens or
require unnecessary Federal supervision. The regulations would impose
minimal requirements to ensure the proper expenditure of program funds.
Paperwork Reduction Act of 1980
Sections 668.8, 668.12, 668.13, 668.14, 668.15, 668.16, 668.17,
668.22, 668.23, 668.26, 690.83 and Appendix A contain information
collection requirements. As required by the Paperwork Reduction Act of
1980, the Department of Education will submit a copy of these sections
to the Office of Management and Budget (OMB) for its review. (44 U.S.C.
3504(h)).
This NPRM contains provisions that would affect postsecondary
institutions who wish to participate in the Title IV student financial
assistance programs. Annual public reporting and recordkeeping burden
contained in the collection of information proposed in these
regulations is estimated to be 10,488 hours, including the time for
searching existing data sources, gathering and maintaining the data
needed, completing and reviewing the collection of information, and
submitting materials.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 3002, New Executive
Office Building, Washington D.C. 20503; Attention Daniel J. Chenok.
Invitation to Comment
Interested persons are invited to submit comments and
recommendations regarding these proposed regulations.
All comments submitted in response to these proposed regulations
will be available for public inspection, during and after the comment
period, in room 4318, Regional Office Building 3, 7th and D Streets,
SW., Washington, DC, between the hours of 8:30 a.m. and 4 p.m., Monday
through Friday of each week except Federal holidays.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority of the United States.
List of Subjects
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.
34 CFR Part 690
Education of disadvantaged, Grant programs--education, Reporting
and recordkeeping requirements, Student aid.
(Catalog of Federal Domestic Assistance Numbers: 84.007 Supplemental
Educational Opportunity Grant Program; 84.032 Guaranteed Student
Loan Program; 84.032 PLUS Program; 84.032 Supplemental Loans for
Students Program; 84.033 College Work-Study Program; 84.038 Perkins
Loan Program; 84.063 Pell Grant Program; 84.069 State Student
Incentive Grant Program; and 84.226 Income Contingent Loan Program)
Dated: February 16, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary proposes to amend parts 668 and 690 of Title 34 of
the Code of Federal Regulations as follows:
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
1. The authority citation for Part 668 is revised to read as
follows:
Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099c, and
1141, unless otherwise noted.
2. Section 668.1 is amended by revising paragraph (b) (2) and (3);
removing paragraph (b)(4); and revising paragraph (c) to read as
follows:
Sec. 668.1 Scope.
* * * * *
(b) * * *
(2) A proprietary institution of higher education as defined in 34
CFR 600.5; and
(3) A postsecondary vocational institution as defined in 34 CFR
600.6.
(c) The Title IV, HEA programs include--
(1) The Federal Pell Grant Program (20 U.S.C. 1070a et seq.; 34 CFR
part 690);
(2) The National Early Intervention Scholarship and Partnership
(NEISP) Program (20 U.S.C. 1070a-21 et seq.; 34 CFR part 693);
(3) The Presidential Access Scholarship (PAS) Program (20 U.S.C.
1070a-31 et seq.; 34 CFR part 691);
(4) The Federal Supplemental Educational Opportunity Grant (FSEOG)
Program (20 U.S.C. 1070b et seq.; 34 CFR part 676);
(5) The State Student Incentive Grant (SSIG) Program (20 U.S.C.
1070c et seq.; 34 CFR part 692);
(6) The Federal Stafford Loan Program (20 U.S.C. 1071 et seq.; 34
CFR part 682);
(7) The Federal Supplemental Loans for Students (Federal SLS)
Program (20 U.S.C. 1078-1; 34 CFR part 682);
(8) The Federal PLUS Program (20 U.S.C. 1078-2; 34 CFR part 682);
(9) The Federal Consolidation Loan Program (20 U.S.C. 1078-3; 34
CFR part 682);
(10) The Federal Work-Study (FWS) Program (42 U.S.C. 2751 et seq.;
34 CFR part 675);
(11) The Federal Direct Student Loan (FDSL) Program (20 U.S.C.
1087a et seq.; 34 CFR part 685); and
(12) The Federal Perkins Loan Program (20 U.S.C. 1087aa et seq.; 34
CFR part 674).
(Authority: 20 U.S.C. 1070 et seq.)
3. Section 668.2 is revised to read as follows:
Sec. 668.2 General definitions.
(a) The following definitions are contained in the regulations for
Institutional Eligibility under the Higher Education Act of 1965, as
Amended, 34 CFR part 600:
Accredited
Award year
Branch campus
Clock hour
Correspondence course
Educational program
Eligible institution
Federal Family Education Loan (FFEL) programs
Incarcerated student
Institution of higher education
Legally authorized
Nationally recognized accrediting agency
Nonprofit institution
One-year training program
Postsecondary vocational institution
Preaccredited
Proprietary institution of higher education
Recognized equivalent of a high school diploma
Recognized occupation
Regular student
Secretary
State
Telecommunications Course
(b) The following definitions apply to all Title IV, HEA programs:
Academic year: (1) A period that begins on the first day of classes
and ends on the last day of classes or examinations and that is a
minimum of 30 weeks of instructional time during which a full-time
student is expected to complete at least--
(i) Twenty-four semester or trimester hours or 36 quarter hours in
an educational program whose length is measured in credit hours; or
(ii) Nine hundred clock hours in an educational program whose
length is measured in clock hours.
(2) For purposes of this definition--
(i) A week is a consecutive seven-day period; and
(ii) The Secretary considers a week of instructional time to be any
week in which at least one day of regularly scheduled instruction,
examinations, or preparation for examinations occurs. Instructional
time does not include periods of orientation, counseling, vacation, or
other activity not related to class preparation or examinations.
(Authority: 20 U.S.C. 1088)
Campus-based programs: (1) The Federal Perkins Loan Program (34 CFR
part 674);
(2) The Federal Work-Study (FWS) Program (34 CFR part 675); and
(3) The Federal Supplemental Educational Opportunity Grant (FSEOG)
Program (34 CFR part 676).
Defense loan: A loan made before July 1, 1972, under Title II of
the National Defense Education Act of 1958.
(Authority: 20 U.S.C. 421-429)
Dependent student: Any student who does not qualify as an
independent student (see Independent student).
Designated department official: An official of the Department of
Education to whom the Secretary has delegated responsibilities
indicated in this part.
Direct loan: A loan made under Title IV-E of the HEA after June 30,
1972, that does not satisfy the definition of ``Federal Perkins loan.''
(Authority: 20 U.S.C. 1087aa et seq.)
Enrolled: The status of a student who--
(1) Has completed the registration requirements (except for the
payment of tuition and fees) at the institution he or she is attending;
or
(2) Has been admitted into an educational program offered
predominantly by correspondence has submitted one lesson, completed by
him or her after acceptance for enrollment and without the help of a
representative of the institution.
Federal Consolidation Loan Program: The loan program authorized by
Title IV-B, section 428C, of the HEA that encourages the making of
loans to borrowers for the purpose of consolidating their repayment
obligations, with respect to loans received by those borrowers while
they were students, under the Federal Insured Student Loan (FISL)
Program as defined in 34 CFR part 682, the Federal Stafford Loan,
Federal PLUS (as in effect before October 17, 1986), Federal SLS, ALAS
(as in effect before October 17, 1986), Federal Direct Student Loan,
and Federal Perkins Loan programs, and under the Health Professions
Student Loan (HPSL) Program authorized by subpart II of part C of Title
VII of the Public Health Service Act, for parent Federal PLUS borrowers
whose loans were made after October 17, 1986, and for Higher Education
Assistance Loans (HEAL) authorized by subpart I of part A of Title VII
of the Public Health Services Act.
(Authority: 20 U.S.C. 1078-3)
Federal Direct PLUS loan: A Federal PLUS loan made under the
Federal Direct Student Loan Program.
(Authority: 20 U.S.C. 1078-2 and 1087a et seq.)
Federal Direct Stafford loan: A Federal Stafford loan made under
the Federal Direct Student Loan Program.
(Authority: 20 U.S.C. 1071 et seq. and 1087a et seq.)
Federal Direct Student loan: A loan made under Title IV-D of the
HEA after July 23, 1992.
(Authority: 20 U.S.C. 1087a et seq.)
Federal Direct Student Loan (FDSL) Program: The student loan
program authorized on July 23, 1992, by Title IV-D of the HEA.
(Authority: 20 U.S.C. 1087a et seq.)
Federal Pell Grant Program: The grant program authorized by Title
IV-A-1 of the HEA.
(Authority: 20 U.S.C. 1070a)
Federal Perkins loan: A loan made under Title IV-E of the HEA to
cover the cost of attendance for a period of enrollment beginning on or
after July 1, 1987, to an individual who on July 1, 1987, had no
outstanding balance of principal or interest owing on any loan
previously made under Title IV-E of the HEA.
(Authority: 20 U.S.C. 1087aa et seq.)
Federal Perkins Loan Program: The student loan program authorized
by Title IV-E of the HEA after October 16, 1986.
(Authority: 20 U.S.C. 1087aa-1087ii)
Federal PLUS loan: A loan made under the Federal PLUS Program.
(Authority: 20 U.S.C. 1078-2)
Federal PLUS Program: The loan program authorized by Title IV-B,
section 428B, of the HEA, that encourages the making of loans to
parents of dependent undergraduate students. Before October 17, 1986,
the PLUS Program also provided for making loans to graduate,
professional, and independent undergraduate students. Before July 1,
1993, the PLUS Program also provided for making loans to parents of
dependent graduate students.
(Authority: 20 U.S.C. 1078-2)
Federal SLS loan: A loan made under the Federal SLS Program.
(Authority: 20 U.S.C. 1078-1)
Federal Stafford loan: A loan made under the Federal Stafford Loan
Program.
(Authority: 20 U.S.C. 1071 et seq.)
Federal Stafford Loan Program: The loan program authorized by Title
IV-B (exclusive of sections 428A, 428B, and 428C) that encourages the
making of subsidized Federal Stafford and unsubsidized Federal Stafford
loans as defined in 34 CFR part 682 to undergraduate, graduate, and
professional students.
(Authority: 20 U.S.C. 1071 et seq.)
Federal Supplemental Educational Opportunity Grant (FSEOG) Program:
The grant program authorized by Title IV-A-2 of the HEA.
(Authority: 20 U.S.C. 1070b et seq.)
Federal Supplemental Loans for Students (Federal SLS) Program: The
loan program (formerly called the ALAS Program) authorized by Title IV-
B, section 428A, of the HEA that encourages the making of loans to
graduate, professional, independent undergraduate, and certain
dependent undergraduate students.
(Authority: 20 U.S.C. 1078-1)
Federal Work Study (FWS) Program: The part-time employment program
for students authorized by Title IV-C of the HEA.
(Authority: 42 U.S.C. 2751-2756b)
FFELP loan: A loan made under the FFEL Program.
(Authority: 20 U.S.C. 1071 et seq.)
Full-time student: An enrolled student who is carrying a full-time
academic workload (other than by correspondence) as determined by the
institution under a standard applicable to all students enrolled in a
particular educational program. The student's workload may include any
combination of courses, work, research or special studies that the
institution considers sufficient to classify the student as a full-time
student. However, for an undergraduate student, an institution's
minimum standard must equal or exceed one of the following minimum
requirements:
(1) 12 semester hours or 12 quarter hours per academic term in an
educational program using a semester, trimester, or quarter system.
(2) 24 semester hours or 36 quarter hours per academic year for an
educational program using credit hours but not using a semester,
trimester, or quarter system, or the prorated equivalent for a program
of less than one academic year.
(3) 24 clock hours per week for an educational program using clock
hours.
(4) In an educational program using both credit and clock hours,
any combination of credit and clock hours where the sum of the
following fractions is equal to or greater than one:
(i) For a program using a semester, trimester, or quarter system--
Number of credit hours per term (12) + Number of clock hours per week
(24).
(ii) For a program not using a semester, trimester, or quarter
system--
Number of semester or trimester hours per academic year (24) + Number
of quarter hours per academic year (36) + Number of clock hours per
week (24).
(5) A series of courses or seminars which equals 12 semester hours
or 12 quarter hours in a maximum of 18 weeks.
(6) The work portion of a cooperative education program in which
the amount of work performed is equivalent to the academic workload of
a full-time student.
HEA: The Higher Education Act of 1965, as amended.
(Authority: 20 U.S.C. 1070 et seq.)
Income Contingent Loan (ICL) Program: The student loan program
authorized by Title IV-D of the HEA prior to July 23, 1992.
(Authority: 20 U.S.C. 1087a et seq.)
Independent student: A student who qualifies as an independent
student under section 480(d) of the HEA.
(Authority: 20 U.S.C. 1087vv)
Initiating official: The designated department official authorized
to begin an emergency action under Sec. 668.83.
National Defense Student Loan Program: The student loan program
authorized by Title II of the National Defense Education Act of 1958.
(Authority: 20 U.S.C. 421-429)
National Direct Student Loan (NDSL) Program: The student loan
program authorized by Title IV-E of the HEA between July 1, 1972, and
October 16, 1986.
(Authority: 20 U.S.C. 1087aa-1087ii)
National Early Intervention Scholarship and Partnership (NEISP)
Program: The scholarship program authorized by chapter 2 of subpart 1
of Title IV-A of the HEA.
(Authority: 20 U.S.C. 1070a-21 et seq.)
Output document: The Student Aid Report (SAR), Electronic Student
Aid Report (ESAR), or other document or automated data generated by the
Department of Education's central processing system or Multiple Data
Entry processing system as the result of the processing of data
provided in a Free Application for Federal Student Aid (FAFSA).
Parent: A student's natural or adoptive mother or father. A parent
also includes a student's legal guardian who has been appointed by a
court and who is specifically required by the court to use his or her
own resources to support the student.
Participating institution: An eligible institution that meets the
standards for participation in Title IV, HEA programs in subpart B and
has a current program participation agreement with the Secretary.
Payment period: (1) With respect to the Federal Pell Grant and PAS
programs, a payment period as defined in 34 CFR 690.2 and 691.2;
(2) With respect to the campus-based programs, a payment period as
defined in 34 CFR 674.2, 675.2, and 676.2.
Presidential Access Scholarship (PAS) Program: The scholarship
program authorized by chapter 3 of subpart 1 of Title IV-A of the HEA.
(Authority: 20 U.S.C. 1070a-31 et seq.)
Show-cause official: The designated department official authorized
to conduct a show-cause proceeding for an emergency action under
Sec. 668.83.
State Student Incentive Grant (SSIG) Program: The grant program
authorized by Title IV-A-3 of the HEA.
(Authority: 20 U.S.C. 1070c et seq.)
Third-party servicer: An individual or a State or private, profit
or nonprofit organization that enters into a contract with an eligible
institution to administer, through either manual or automated
processing, any aspect of the institution's participation in any Title
IV, HEA program. The Secretary considers administration of
participation in a Title IV, HEA program to--
(1) Include performing any function required by any statutory
provision of or applicable to Title IV of the HEA, any regulatory
provision prescribed under that statutory authority, or any applicable
special arrangement, agreement, or limitation, such as, but not
restricted to--
(i) Processing student financial aid applications;
(ii) Performing need analysis;
(iii) Determining student eligibility and related activities;
(iv) Certifying loan applications;
(v) Processing output documents for payment to students;
(vi) Receiving, disbursing, or delivering Title IV, HEA program
funds, excluding lock-box processing of loan payments and normal bank
electronic fund transfers;
(vii) Conducting activities required by the provisions governing
student consumer information services in subpart D of this part;
(viii) Preparing and certifying requests for advance or
reimbursement funding;
(ix) Loan servicing and collection;
(x) Preparing and submitting notices and applications required
under 34 CFR part 600 and subpart B of this part; and
(xi) Preparing a Fiscal Operations Report and Application to
Participate--FISAP;
(2) Exclude the following functions--
(i) Publishing ability-to-benefit tests;
(ii) Performing functions as a Multiple Data Entry Processor (MDE);
(iii) Financial and compliance auditing;
(iv) Mailing of documents prepared by the institution; and
(v) Warehousing of records; and
(3) Notwithstanding the exclusions referred to in paragraph (2) of
this definition, include any activity comprised of any function
described in paragraph (1) of this definition.
(Authority: 20 U.S.C. 1088)
Undergraduate student: A student enrolled in an undergraduate
educational program at an institution who--
(1) Has not earned a baccalaureate or first professional degree;
and
(2) Is in an undergraduate educational program that usually does
not exceed 4 academic years, or is enrolled in a 4- to 5-academic-year
program designed to lead to a first degree. A student enrolled in a
program of any other length is considered an undergraduate student for
only the first four academic years of that program.
U.S. citizen or national: (1) A citizen of the United States; or
(2) A person defined in the Immigration and Nationality Act, 8
U.S.C. 1101(a)(22), who, though not a citizen of the United States,
owes permanent allegiance to the United States.
(Authority: 8 U.S.C. 1101)
Valid institutional student information report (valid ISIR): A
valid institutional student information report as defined in 34 CFR
690.2 for purposes of the Federal Pell Grant Program and in 34 CFR
691.2 for purposes of the PAS Program.
Valid student aid report (valid SAR): A valid student aid report
(valid SAR) as defined in 34 CFR 690.2 for purposes of the Federal Pell
Grant Program and in 34 CFR 691.2 for purposes of the PAS program.
(Authority: 20 U.S.C. 1070 et seq., unless otherwise noted)
4. Section 668.8 is revised to read as follows:
Sec. 668.8 Eligible program.
(a) General. An eligible program is an educational program that--
(1) Is provided by a participating institution; and
(2) Satisfies the other relevant requirements contained in this
section.
(b) Definitions. For purposes of this section--
(1) The Secretary considers the ``equivalent of an associate
degree'' to be--
(i) An associate degree; or
(ii) The successful completion of at least a two-year program that
is acceptable for full credit toward a bachelor's degree and qualifies
a student for admission into the third year of a bachelor's degree
program;
(2) A ``week'' is a consecutive seven-day period; and
(3) The Secretary considers a ``week of instruction'' to be any
week in which at least one day of regularly scheduled instruction,
examinations, or preparation for examinations occurs. Instruction does
not include periods of orientation, counseling, vacation, or other
activity not related to class preparation or examinations.
(c) Institution of higher education. An eligible program provided
by an institution of higher education must--
(1) Lead to an associate, bachelor's, professional, or graduate
degree;
(2) Be at least a two-academic-year program that is acceptable for
full credit toward a bachelor's degree; or
(3) Be at least a one-academic-year training program that leads to
a certificate, degree, or other recognized educational credential and
that prepares a student for gainful employment in a recognized
occupation.
(d) Proprietary institution of higher education and postsecondary
vocational institution. An eligible program provided by a proprietary
institution of higher education or postsecondary vocational
institution--
(1)(i) Must require a minimum of 15 weeks of instruction, beginning
on the first day of classes and ending on the last day of classes or
examinations;
(ii) Must be at least 600 clock hours, 16 semester or trimester
hours, or 24 quarter hours;
(iii) Must provide undergraduate training that prepares a student
for gainful employment in a recognized occupation; and
(iv) May admit as regular students persons who have not completed
the equivalent of an associate degree;
(2) Must--
(i) Require a minimum of 10 weeks of instruction, beginning on the
first day of classes and ending on the last day of classes or
examinations;
(ii) Be at least 300 clock hours, 8 semester or trimester hours, or
12 quarter hours;
(iii) Provide training that prepares a student for gainful
employment in a recognized occupation; and
(iv) (A) Be a graduate or professional program; or
(B) Admit as regular students only persons who have completed the
equivalent of an associate degree; or
(3) For purposes of the Federal Stafford Loan, Federal PLUS, and
Federal SLS programs only, must--
(i) Require a minimum of 10 weeks of instruction, beginning on the
first day of classes and ending on the last day of classes or
examinations;
(ii) Be at least 300 clock hours but less than 600 clock hours;
(iii) Provide undergraduate training that prepares a student for
gainful employment in a recognized occupation;
(iv) Admit as regular students some persons who have not completed
the equivalent of an associate degree; and
(v) Satisfy the requirements of paragraph (e) of this section.
(e) Qualitative factors. (1) An educational program that satisfies
the requirements of paragraph (d)(3) (i) through (iv) of this section
qualifies as an eligible program only if--
(i) The program has a substantiated completion rate of at least 70
percent, as calculated under paragraph (f) of this section;
(ii) The program has a substantiated placement rate of at least 70
percent, as calculated under paragraph (g) of this section;
(iii) The number of clock hours provided in the program does not
exceed by more than 50 percent the minimum number of clock hours
required for training in the recognized occupation for which the
program prepares students, as established by the State in which the
program is offered, if the State has established such a requirement;
and
(iv) The program has been in existence for at least one year. The
Secretary considers an educational program to have been in existence
for at least one year only if an institution has been legally
authorized to provide, and has continuously provided, the program
during the 12 months (except for normal vacation periods and, at the
discretion of the Secretary, periods when the institution closes due to
a natural disaster that directly affects the institution or the
institution's students) preceding the date on which the institution
applied for eligibility for that program.
(2) An institution shall substantiate the calculation of its
completion and placement rates by having the certified public
accountant who prepares its audit report required under Sec. 668.23
certify the accuracy of the institution's calculations. That
certification must be included with the institution's audit report and
in the documentation submitted to the Secretary in support of the
institution's application for eligibility of the program.
(f) Calculation of completion rate. An institution shall calculate
its completion rate for an educational program for any award year as
follows:
(1) Determine the number of regular students who were enrolled in
the program during the award year.
(2) Subtract from the number of students determined under paragraph
(f)(1) of this section, the number of regular students who, during that
award year, withdrew from, dropped out of, or were expelled from the
program and were entitled to and actually received, in a timely manner
in accordance with Sec. 668.22(i)(3), a refund of 100 percent of their
tuition and fees (less any permitted administrative fee) under the
institution's refund policy.
(3) Subtract from the total obtained under paragraph (f)(2) of this
section the number of students who were enrolled in the program at the
end of that award year.
(4) Determine the number of regular students who, during that award
year, received the degree, certificate, or other recognized educational
credential awarded for successfully completing the program.
(5) Divide the number determined under paragraph (f)(4) of this
section by the total obtained under paragraph (f)(3) of this section.
(g) Calculation of placement rate. (1) An institution shall
calculate its placement rate for an educational program for any award
year as follows:
(i) Determine the number of students who, during the award year,
received the degree, certificate, or other recognized educational
credential awarded for successfully completing the program.
(ii) Subtract from the number determined under paragraph (g)(1)(i)
of this section the number of students described in paragraph (g)(1)(i)
of this section who were employed by the institution either before or
after their receipt of the degree, certificate, or other recognized
educational credential.
(iii) Of the total obtained under paragraph (g)(1)(ii) of this
section, determine the number of students who, within 180 days of the
day they received their degree, certificate, or other recognized
educational credential, obtained gainful employment in the recognized
occupation for which they were trained or in a related comparable
recognized occupation and, on the date of this calculation, are
employed or have been employed for at least 13 weeks following receipt
of the credential from the institution.
(iv) Divide the number of students determined under paragraph
(g)(1)(iii) of this section by the total obtained under paragraph
(g)(1)(ii) of this section.
(2) An institution shall document that each student described in
paragraph (g)(1)(iii) of this section obtained gainful employment in
the recognized occupation for which he or she was trained or in a
related comparable recognized occupation. Examples of satisfactory
documentation of a student's gainful employment include, but are not
limited to--
(i) A written statement from the student's employer;
(ii) Signed copies of State or Federal income tax forms; and
(iii) Written evidence of payments of Social Security taxes.
(h) Eligibility for Federal Pell Grant and FSEOG programs. In
addition to satisfying other relevant provisions of this section, an
educational program qualifies as an eligible program for purposes of
the Federal Pell Grant or FSEOG Program only if the educational program
is an undergraduate program.
(i) Flight training. In addition to satisfying other relevant
provisions of this section, for a program of flight training to be an
eligible program, it must have a current valid certification from the
Federal Aviation Administration.
(j) English as a second language (ESL). (1) In addition to
satisfying the relevant provisions of this section, an educational
program that consists solely of instruction in ESL qualifies as an
eligible program if--
(i) The institution admits to the program only students who the
institution determines need the ESL instruction to use already existing
knowledge, training, or skills; and
(ii) The program leads to a degree, certificate, or other
recognized educational credential.
(2) An institution shall test each student at the end of the
educational program to substantiate that the student has attained
adequate proficiency in written and spoken English to use already
existing knowledge, training, or skills. The institution shall identify
the test or tests given to the students and the basis for the judgment
that the student has attained the adequate proficiency.
(3) An institution shall document its determination that ESL
instruction is necessary to enable each student enrolled in its ESL
program to use already existing knowledge, training, or skills with
regard to the students that it admits to its ESL program under
paragraph (j)(1)(i) of this section.
(4) An ESL program that qualifies as an eligible program under this
paragraph is eligible for purposes of the Federal Pell Grant Program
only.
(k) Undergraduate educational program in credit hours. If an
institution offers an undergraduate educational program in credit
hours, the institution must use the formula contained in paragraph (l)
of this section to determine whether that program satisfies the
requirements contained in paragraph (c)(3) or (d) of this section, and
the number of credit hours in that educational program for purposes of
the Title IV, HEA programs, unless--
(1) The program is at least two academic years in length and
provides an associate degree, a bachelor's degree, a professional
degree, or an equivalent degree as determined by the Secretary; or
(2) Each course within the program is acceptable for full credit
toward that institution's associate degree, bachelor's degree,
professional degree, or equivalent degree as determined by the
Secretary, provided that the institution's degree requires at least two
academic years of study.
(l) Formula. For purposes of determining whether a program
described in paragraph (k) of this section satisfies the requirements
contained in paragraph (c)(3) or (d) of this section, and the number of
credit hours in that educational program with regard to the Title IV,
HEA programs--
(1) A semester hour must include at least 30 clock hours of
instruction;
(2) A trimester hour must include at least 30 clock hours of
instruction; and
(3) A quarter hour must include at least 20 hours of instruction.
(Authority: 20 U.S.C. 1070a, 1070b, 1070c-1070c-2, 1085, 1087aa-
1087hh, 1088, 1091, and 1141; 42 U.S.C. 2753)
Secs. 668.12-668.16 [Redesignated as Secs. 668.14-668.18]
5. Sections 668.12 through 668.16 are redesignated as Secs. 668.14
through 668.18, respectively.
6. A new Sec. 668.12 is added to read as follows:
Sec. 668.12 Application procedures.
(a) Applications for initial participation. An institution that
wishes to participate in a Title IV, HEA program must first apply to
the Secretary for a certification that the institution meets the
standards in this subpart.
(b) Applications for continued participation. A participating
institution must apply to the Secretary for a certification that the
institution continues to meet the standards in this subpart upon the
request of the Secretary or if the institution wishes to--
(1) Continue to participate in a Title IV, HEA program beyond the
scheduled expiration of the institution's current period of
participation in the program;
(2) Include in the institution's participation in a Title IV, HEA
program--
(i) A branch campus that is not currently included in the
institution's participation in the program; or
(ii) Another location that is not currently included in the
institution's participation in the program, if--
(A) That location offers 100 percent of an educational program; or
(B) The Secretary requires the institution to apply for
certification under paragraph (c) of this section;
(3) Reestablish participation in a Title IV, HEA program following
a change in ownership that results in a change in control according to
the provisions of 34 CFR part 600.
(c) Notification and application requirements for additional
locations. (1) A participating institution must notify the Secretary,
in writing, if the institution wishes to--
(i) Include in its participation in a Title IV, HEA program a
location that is not currently included in the institution's
participation in the program and that offers at least 50 percent, but
less than 100 percent, of an educational program; or
(ii) Continue to include in its participation in a Title IV, HEA
program a location that--
(A) Offers at least 50 percent, but less than 100 percent, of an
educational program; and
(B) Has changed its name, location, or address.
(2) The Secretary considers the submission of the required
notification under 34 CFR 600.30 with respect to that location to
satisfy the notification requirement of this paragraph.
(3) The Secretary may require the institution to apply for a
certification that the institution continues to meet the requirements
of this subpart.
(d) Notification and application requirements for changes in name,
location, or address. (1) A participating institution must notify the
Secretary, in writing, if the institution wishes to continue to
participate in a Title IV, HEA program following a change in name,
location or address of the institution or continue to include in the
institution's participation--
(i) A branch campus that has changed its name, location, or
address; or
(ii) Another location that has changed its name, location, or
address if that location offers 100 percent of an educational program.
(2) The Secretary considers the submission of the required
notification under 34 CFR 600.30 with respect to that location to
satisfy the notification requirement of this paragraph.
(e) Required forms and information. An institution that applies for
participation under paragraph (a) or (b) of this section must--
(1) Apply on the form prescribed by the Secretary; and
(2) Provide all the information and documentation requested by the
Secretary to certify that the institution meets the standards of this
subpart.
(Authority: 20 U.S.C. 1099c)
7. A new Sec. 668.13 is added to read as follows:
Sec. 668.13 Certification procedures.
(a) Requirements for certification. The Secretary certifies that an
institution meets the standards of this subpart only if--
(1) The institution is an eligible institution;
(2) The institution meets the standards of this subpart;
(3) Each branch campus to be included in the institution's
participation meets the applicable standards of this subpart; and
(4)(i) Except as provided in paragraph (a)(4)(ii) of this section,
in the case of an institution seeking to participate for the first time
in the Federal Pell Grant Program, the campus-based programs, the FDSL
Program, or the Federal Stafford Loan, Federal SLS, or Federal PLUS
Program, the institution requires the following individuals to complete
Title IV, HEA program training provided or approved by the Secretary:
(A) The individual designated by the institution under
Sec. 668.16(b)(1).
(B)(1) In the case of a for-profit institution, the chief
administrator of the institution; or
(2) In the case of an institution other than a for-profit
institution, the chief administrator of the institution, or another
administrative official of the institution designated by the chief
administrator.
(ii) If either one of the two individuals who is otherwise required
to complete training under paragraph (a)(4)(i) of this section has
previously completed Title IV, HEA program training provided or
approved by the Secretary, the institution may elect to request an on-
site Title IV, HEA program certification review by the Secretary
instead of requiring that individual to complete again the Title IV,
HEA program training provided or approved by the Secretary.
(iii) An institution may not begin participation in the applicable
Title IV, HEA program or programs--
(A) In the case of an institution that requires individuals to
complete training in accordance with paragraph (a)(4)(i) of this
section, until the individuals complete the required training; or
(B) In the case of an institution that requests an on-site review
in accordance with paragraph (a)(4)(ii) of this section, until the
Secretary conducts the review and notifies the institution that it is
in compliance with Title IV, HEA program requirements.
(b) Period of participation. If the Secretary certifies that an
institution meets the standards of this subpart, the Secretary also
specifies the period for which the institution may participate in a
Title IV, HEA program. An institution's period of participation expires
four years after the date that the Secretary certifies that the
institution meets the standards of this subpart, except that the
Secretary may specify a shorter period.
(c) Provisional certification. (1) The Secretary may provisionally
certify an institution if--
(i) The institution seeks initial participation in a Title IV, HEA
program;
(ii) The Secretary is determining for the first time whether the
institution meets the factors of financial responsibility under
Sec. 668.15 and the standards of administrative capability under
Sec. 668.16;
(iii) The institution is an eligible institution that has undergone
a change in ownership that results in a change in control according to
the provisions of 34 CFR part 600;
(iv) The institution is a participating institution--
(A) That is applying for a certification that the institution meets
the standards of this subpart;
(B) That the Secretary determines has jeopardized its ability to
perform its financial responsibilities by not meeting the factors of
financial responsibility under Sec. 668.15 or the standards of
administrative capability under Sec. 668.16; and
(C) Whose participation has been limited or suspended under Subpart
G of this part, or voluntarily enters into provisional certification;
(v) The institution seeks a renewal of participation in a Title IV,
HEA program after the expiration of a prior period of participation in
that program; or
(vi) The institution is a participating institution that was
accredited or preaccredited by a nationally recognized accrediting
agency on the day before the Secretary withdrew the Secretary's
recognition of that agency according to the provisions contained in 34
CFR part 603.
(2) If the Secretary provisionally certifies an institution, the
Secretary also specifies the period for which the institution may
participate in a Title IV, HEA program. Except as provided in
paragraphs (c)(3) and (4) of this section, a provisionally certified
institution's period of participation expires--
(i) Not later than 12 months from the date on which the Secretary
provisionally certified an institution under paragraph (c)(1)(i) of
this section;
(ii) Not later than 36 months from the date on which the Secretary
provisionally certified an institution under paragraphs (c)(1) (ii),
(iii), (iv), or (v) of this section; and
(iii) If the Secretary provisionally certified an institution under
paragraph (c)(1)(vi) of this section, not later than 18 months after
the date that the Secretary withdrew recognition from the institution's
nationally recognized accrediting agency.
(3) Notwithstanding the maximum periods of participation provided
for in paragraph (c)(2) of this section, if the Secretary provisionally
certifies an institution, the Secretary may specify a shorter period of
participation for that institution.
(4) For the purposes of this section, ``provisional certification''
means that the Secretary certifies that an institution has demonstrated
to the Secretary's satisfaction that the institution--
(i) Is capable of meeting the standards of this subpart within a
specified period; and
(ii) Is able to meet the institution's responsibilities under its
program participation agreement, including compliance with any
additional conditions specified in the institution's program
participation agreement that the Secretary requires the institution to
meet in order for the institution to participate under provisional
certification.
(d) Requirements for provisional certification to participate on a
limited basis for institutions that are not financially responsible.
Notwithstanding paragraph (c)(1) of this section, the Secretary does
not provisionally certify an institution that--
(1) Fails to meet the general standards of financial responsibility
in Sec. 668.15(b), unless the institution--
(i) Demonstrates to the satisfaction of the Secretary that it has
sufficient financial and administrative resources to participate in the
Title IV, HEA programs under a funding arrangement other than the
Department of Education's standard advance funding arrangement;
(ii) Submits to the Secretary a letter of credit payable to the
Secretary equal to not less than 10 percent of the Title IV, HEA
program funds received by the institution during the last complete
award year for which figures are available; and
(iii) Demonstrates that it has met all of its financial obligations
during the preceding two award years, including (but not limited to)
the payment of required refunds and repayments to the Secretary for
liabilities and debts incurred in programs administered by the
Secretary; or
(2) Is not financially responsible under Sec. 668.15(c)(2), or has
been determined not to be financially responsible under Sec. 668.15 at
any time during the five-year period preceding the Secretary's decision
to certify the institution provisionally unless--
(i) The institution, or one or more persons or entities that the
Secretary determines under the provisions of Sec. 668.15 exercise
substantial control over the institution, or both, submit to the
Secretary financial guarantees in an amount determined by the Secretary
to be sufficient to satisfy the institution's potential liabilities
arising from the institution's participation in the Title IV, HEA
programs; or
(ii) One or more persons or entities that the Secretary determines
under the provisions of Sec. 668.15 exercise substantial control over
the institution agree to be jointly or severally liable for any
liabilities arising from the institution's participation in the Title
IV, HEA programs and civil and criminal monetary penalties authorized
under Title IV of the HEA.
(e) Revocation of provisional certification. (1) If, before the
expiration of a provisionally certified institution's period of
participation in a Title IV, HEA program, the Secretary determines that
the institution is unable to meet its responsibilities under its
program participation agreement, the Secretary may revoke the
institution's provisional certification for participation in that
program.
(2)(i) If the Secretary revokes the provisional certification of an
institution under paragraph (e)(1) of this section, the Secretary sends
the institution a notice by registered mail, return receipt requested.
The Secretary also may transmit the notice by other, more expeditious
means, if practical.
(ii) The revocation takes effect on the date that the Secretary
mails the notice to the institution.
(iii) The notice states the basis for the revocation, the
consequences of the revocation to the institution, and that the
institution may request the Secretary to reconsider the revocation. The
consequences of a revocation are described in Sec. 668.26.
(3)(i) An institution may request reconsideration of a revocation
under this section by submitting to the Secretary, within 20 days of
the institution's receipt of the Secretary's notice, written evidence
that the revocation is unwarranted. The institution must file the
request with the Secretary by hand-delivery, mail, or facsimile
transmission.
(ii) The filing date of the request is the date on which the
request is--
(A) Hand-delivered;
(B) Mailed; or
(C) Sent by facsimile transmission.
(iii) Documents filed by facsimile transmission must be transmitted
to the Secretary in accordance with instructions provided by the
Secretary in the notice of revocation. An institution filing by
facsimile transmission is responsible for confirming that a complete
and legible copy of the document was received by the Secretary.
(iv) The Secretary discourages the use of facsimile transmission
for documents longer than five pages.
(4)(i) The Secretary promptly considers an institution's request
for reconsideration of a revocation and notifies the institution, by
registered mail, return receipt requested, of the Secretary's final
decision. The Secretary also may transmit the notice by other, more
expeditious means, if practical.
(ii) If the Secretary determines that the revocation is warranted,
the Secretary's notice informs the institution that the institution may
apply for reinstatement of participation only after the later of the
expiration of--
(A) Eighteen months after the effective date of the revocation; or
(B) A debarment or suspension of the institution under Executive
Order 12549 or the Federal Acquisition Regulations, 48 CFR part 9,
subpart 9.4.
(iii) If the Secretary determines that the revocation of the
institution's provisional certification is unwarranted, the Secretary's
notice informs the institution that the institution's provisional
certification is reinstated, effective on the date that the Secretary's
original revocation notice was mailed, for a specified period of time.
(5)(i) The mailing date of a notice of revocation or a request for
reconsideration of a revocation is the date evidenced on the original
receipt of mailing from the U.S. Postal Service.
(ii) The date on which a request for reconsideration of a
revocation is submitted is--
(A) If the request was sent by a delivery service other than the
U.S. Postal Service, the date evidenced on the original receipt by that
service; and
(B) If the request was sent by facsimile transmission, the date
that the document is recorded as received by facsimile equipment that
receives the transmission.
(Authority: 20 U.S.C. 1099c and E.O. 12549 (3 CFR, 1986 Comp., p.
189) and 12689 (3 CFR, 1989 comp., p.235)
8. Newly designated Sec. 668.14 is revised to read as follows:
Sec. 668.14 Program participation agreement.
(a)(1) An institution may participate in any Title IV, HEA program,
other than the SSIG and NEISP programs, only if the institution enters
into a written program participation agreement with the Secretary, on a
form approved by the Secretary. A program participation agreement
conditions the initial and continued participation of an eligible
institution in any Title IV, HEA program upon compliance with the
provisions of this part, the individual program regulations, and any
additional conditions specified in the program participation agreement
that the Secretary requires the institution to meet.
(2) An institution's program participation agreement applies to
each branch campus and other location of the institution that meets the
applicable requirements of this part unless otherwise specified by the
Secretary.
(b) By entering into a program participation agreement, an
institution agrees that--
(1) It will comply with any statutory provision of or applicable to
Title IV of the HEA, any regulatory provision prescribed under that
statutory authority, or any applicable special arrangement, agreement,
or limitation, including the requirement that the institution will use
funds it receives under any Title IV, HEA program and any interest or
other earnings thereon, solely for the purposes specified in and in
accordance with that program;
(2) As a fiduciary responsible for administering Federal funds, if
the institution is permitted to request funds under a Title IV, HEA
program advance payment method, the institution will time its requests
for funds under the program to meet the institution's immediate Title
IV, HEA program needs;
(3) It will not request from or charge any student a fee for
processing or handling any application, form, or data required to
determine a student's eligibility for, and amount of, Title IV, HEA
program assistance;
(4) It will establish and maintain such administrative and fiscal
procedures and records as may be necessary to ensure proper and
efficient administration of funds received from the Secretary or from
students under the Title IV, HEA programs, together with assurances
that the institution will provide, upon request and in a timely manner,
information relating to the administrative capability and financial
responsibility of the institution to--
(i) The Secretary;
(ii) The State postsecondary review entity designated under subpart
1 of part H of Title IV of the HEA for the State or States in which the
institution or any of the institution's branch campuses or other
locations are located;
(iii) A guaranty agency, as defined in 34 CFR part 682, that
guarantees loans made under the Federal Stafford Loan, Federal PLUS,
and Federal SLS programs for attendance at the institution or any of
the institution's branch campuses or other locations;
(iv) The nationally recognized accrediting agency that accredits or
preaccredits the institution or any of the institution's branch
campuses, other locations, or educational programs;
(v) The State agency that legally authorizes the institution and
any branch campus or other location of the institution to provide
postsecondary education; and
(vi) In the case of a public postsecondary vocational educational
institution that is approved by a State agency recognized for the
approval of public postsecondary vocational education, that State
agency;
(5) It will comply with the provisions of Sec. 668.15 relating to
factors of financial responsibility;
(6) It will comply with the provisions of Sec. 668.16 relating to
standards of administrative capability;
(7) It will submit reports to the Secretary and, in the case of an
institution participating in the Federal Stafford Loan, Federal PLUS,
Federal SLS, or the Federal Perkins Loan Program, to holders of loans
made to the institution's students under that program at such times and
containing such information as the Secretary may reasonably require to
carry out the purpose of the Title IV, HEA programs;
(8) It will not provide any statement to any student or
certification to any lender under the Federal Stafford Loan, Federal
PLUS, or Federal SLS Program that qualifies the student for a loan or
loans in excess of the amount that the student is eligible to borrow in
accordance with sections 425(a), 428(a)(2), 428(b)(1) (A) and (B), and
428H of the HEA;
(9) It will comply with the requirements of subpart D of this part
concerning institutional and financial assistance information for
students and prospective students;
(10) In the case of an institution that advertises job placement
rates as a means of attracting students to enroll in the institution,
it will make available to prospective students, at or before the time
that those students apply for enrollment--
(i) The most recent available data concerning employment
statistics, graduation statistics, and any other information necessary
to substantiate the truthfulness of the advertisements; and
(ii) Relevant State licensing requirements of the State in which
the institution is located for any job for which an educational program
offered by the institution is designed to prepare those prospective
students;
(11) In the case of an institution participating in the Federal
Stafford Loan, Federal PLUS, or Federal SLS Program, the institution
will inform all eligible borrowers, as defined in 34 CFR Part 682,
enrolled in the institution about the availability and eligibility of
those borrowers for State grant assistance from the State in which the
institution is located, and will inform borrowers from another State of
the source for further information concerning State grant assistance
from that State;
(12) It will provide the certifications described in paragraph (c)
of this section;
(13) In the case of an institution whose students receive financial
assistance pursuant to section 484(d) of the HEA, the institution will
make available to those students a program proven successful in
assisting students in obtaining the recognized equivalent of a high
school diploma;
(14) It will not deny any form of Federal financial aid to any
eligible student solely on the grounds that the student is
participating in a program of study abroad approved for credit by the
institution;
(15) In the case of an institution seeking to participate for the
first time in the Federal Stafford Loan, Federal PLUS, and Federal SLS
programs, the institution has included a default management plan as
part of its application under Sec. 668.12 for participation in those
programs and will use the plan for at least two years from the date of
that application. The Secretary considers the requirements of this
paragraph to be satisfied by a default management plan developed in
accordance with the default reduction measures described in appendix D
of this part;
(16) In the case of an institution that changes ownership that
results in a change of control, or that changes its status as a main
campus, branch campus, or an additional location, the institution will,
to participate in the Federal Stafford Loan, Federal PLUS, and Federal
SLS programs, develop a default management plan for approval by the
Secretary and implement the plan for at least two years after the
change in control or status. The Secretary considers the requirements
of this paragraph to be satisfied by a default management plan
developed in accordance with the default reduction measures described
in appendix D of this part;
(17) The Secretary, guaranty agencies and lenders as defined in 34
CFR part 682, nationally recognized accrediting agencies, the Secretary
of Veterans Affairs, State postsecondary review entities designated
under subpart 1 of part H of Title IV of the HEA, State agencies
recognized under 34 CFR part 603 for the approval of public
postsecondary vocational education, and State agencies that legally
authorize institutions and branch campuses or other locations of
institutions to provide postsecondary education, have the authority to
share with each other any information pertaining to the institution's
eligibility for or participation in the Title IV, HEA programs or any
information on fraud and abuse;
(18) It will not knowingly--(i) Employ in a capacity that involves
the administration of the Title IV, HEA programs or the receipt of
funds under those programs, an individual who has been convicted of, or
has pled nolo contendere or guilty to, a crime involving the
acquisition, use, or expenditure of Federal, State, or local government
funds, or has been administratively or judicially determined to have
committed fraud or any other material violation of law involving
Federal, State, or local government funds;
(ii) Contract with an institution or third-party servicer that has
been terminated under section 432 of the HEA for a reason involving the
acquisition, use, or expenditure of Federal, State, or local government
funds, or that has been administratively or judicially determined to
have committed fraud or any other material violation of law involving
Federal, State, or local government funds; or
(iii) Contract with or employ any individual, agency, or
organization that has been, or whose officers or employees have been--
(A) Convicted of, or pled nolo contendere or guilty to, a crime
involving the acquisition, use, or expenditure of Federal, State, or
local government funds; or
(B) Administratively or judicially determined to have committed
fraud or any other material violation of law involving Federal, State,
or local government funds;
(19) It will complete, in a timely manner and to the satisfaction
of the Secretary, surveys conducted as a part of the Integrated
Postsecondary Education Data System (IPEDS) or any other Federal
collection effort, as designated by the Secretary, regarding data on
postsecondary institutions;
(20) In the case of an institution that offers athletically related
student aid, it will comply with the provisions of paragraph (d) of
this section;
(21) It will not impose any penalty, including, but not limited to,
the assessment of late fees, the denial of access to classes,
libraries, or other institutional facilities, or the requirement that
the student borrow additional funds for which interest or other charges
are assessed, on any student because of the student's inability to meet
his or her financial obligations to the institution as a result of the
delayed disbursement of the proceeds of a Title IV, HEA program loan
due to compliance with statutory and regulatory requirements of or
applicable to the Title IV, HEA programs, or delays attributable to the
institution;
(22) It will not provide, nor contract with any entity that
provides, any commission, bonus, or other incentive payment based
directly or indirectly on success in securing enrollments or financial
aid to any persons or entities engaged in any student recruiting or
admission activities or in making decisions regarding the awarding of
student financial assistance, except that this requirement shall not
apply to the recruitment of foreign students residing in foreign
countries who are not eligible to receive Federal student assistance;
(23) It will meet the requirements established pursuant to Part H
of Title IV of the HEA by the Secretary, State postsecondary review
entities designated under subpart 1 of Part H of Title IV of the HEA,
and nationally recognized accrediting agencies;
(24) It will comply with the institutional refund policy
established in Sec. 668.22; and
(25) It is liable for all--(i) Improperly spent or unspent funds
received under the Title IV, HEA programs, including any funds
administered by a third-party servicer; and
(ii) Refunds that the institution or its servicer may be required
to make.
(c) In order to participate in any Title IV, HEA program (other
than the SSIG and NEISP programs), the institution must certify that
it--
(1) Has in operation a drug abuse prevention program that the
institution has determined to be accessible to any officer, employee,
or student at the institution; and
(2)(i) Has established a campus security policy in accordance with
section 485(f) of the HEA; and
(ii) Has complied with the disclosure requirements of Sec. 668.48
as required by section 485(f) of the HEA.
(d) In order to participate in any Title IV, HEA program (other
than the SSIG and NEISP programs), an institution that offers
athletically related student aid must--
(1) Cause an annual compilation, independently audited not less
often than every 3 years, to be prepared within 6 months after the end
of the institution's fiscal year, of--
(i) The revenues derived by the institution from the institution's
intercollegiate athletics activities, according to the following
categories:
(A) Total revenues.
(B) Revenues from football.
(C) Revenues from men's basketball.
(D) Revenues from women's basketball.
(E) Revenues from all other men's sports combined.
(F) Revenues from all other women's sports combined;
(ii) Expenses made by the institution for the institution's
intercollegiate athletics activities, according to the following
categories:
(A) Total expenses.
(B) Expenses attributable to football.
(C) Expenses attributable to men's basketball.
(D) Expenses attributable to women's basketball.
(E) Expenses attributable to all other men's sports combined.
(F) Expenses attributable to all other women's sports combined; and
(iii) The total revenues and operating expenses of the institution;
and
(2) Make the compilation and, where allowable by State law, the
audits, required by paragraph (d)(1) of this section available for
inspection by the Secretary and the public.
(e) For the purposes of paragraph (d) of this section--
(1) Revenues from intercollegiate athletics activities allocable to
a sport shall include without limitation gate receipts, broadcast
revenues and other conference distributions, appearance guarantees and
options, concessions, and advertising;
(2) Revenues such as student activities fees, alumni contributions,
and investment interest income that are not allocable to a sport shall
be included in the calculation of total revenues only;
(3) Expenses for intercollegiate athletics activities allocable to
a sport shall include without limitation grants-in-aid, salaries,
travel, equipment, and supplies; and
(4) Expenses such as general and administrative overhead that are
not allocable to a sport shall be included in the calculation of total
expenses only.
(f)(1) A program participation agreement becomes effective on the
date that the Secretary signs the agreement.
(2) A new program participation agreement supersedes any prior
program participation agreement between the Secretary and the
institution.
(g)(1) Except as provided in paragraphs (h) and (i) of this
section, the Secretary terminates a program participation agreement
through the proceedings in subpart G of this part.
(2) An institution may terminate a program participation agreement.
(3) If the Secretary or the institution terminates a program
participation agreement under paragraph (g) of this section, the
Secretary establishes the termination date.
(h) An institution's program participation agreement automatically
expires on the date that--
(1) The institution changes ownership that results in a change in
control as determined by the Secretary under 34 CFR part 600; or
(2) The institution's participation ends under the provisions of
Sec. 668.26(a) (1), (2), (4), or (7).
(i) An institution's program participation agreement no longer
applies to or covers a location of the institution as of the date on
which that location ceases to be a part of the participating
institution.
(Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099a-3, 1099c,
and 1141)
9. Newly redesignated Sec. 668.15, is revised to read as follows:
Sec. 668.15 Factors of financial responsibility.
(a) General. To begin and to continue to participate in any Title
IV, HEA program, an institution must demonstrate to the Secretary that
the institution is financially responsible under the requirements
established in this section.
(b) General standards of financial responsibility. In general, the
Secretary considers an institution to be financially responsible only
if it--
(1) Is able to provide the services described in its official
publications and statements;
(2) Is able to provide the administrative resources necessary to
comply with the requirements of this subpart;
(3) Is able to meet all of its financial obligations, including but
not limited to--
(i) Refunds that it is required to make; and
(ii) Repayments to the Secretary for liabilities and debts incurred
in programs administered by the Secretary;
(4) Is current on any debt service payments;
(5) Maintains, at all times, a minimum cash reserve equal to at
least 10 percent of the institution's total deferred tuition income at
the end of the institution's most recent fiscal year for repayment of
refunds. The cash reserve must be maintained in a cash reserve account,
consisting of cash or cash equivalents as defined in accordance with
generally accepted accounting principles;
(6) Has not had, as part of the audit report for the institution's
most recently completed fiscal year--
(i) A statement by the accountant acknowledging substantial doubt
about the institution's ability to continue operation as a going
concern;
(ii) A finding of unauthorized use of donor restricted net assets
to meet current operating expenses; and
(iii) A disclaimed or adverse opinion by the accountant;
(7) For a for-profit institution--(i) Demonstrates at the end of
its latest fiscal year, a ratio of current assets to current
liabilities of at least 1.25:1. For purposes of this section, the
calculation of this ratio must exclude uncollateralized loans
receivable from owners and related parties. Should application of
paragraph (b)(5) of this section cause a portion of the institution's
cash reserves to be classified as a restricted asset, those cash
reserves may be included in current assets in calculating the
institution's current ratio;
(ii) Has not had operating losses over both of its two latest
fiscal years that causes an operating loss exceeding 10 percent of the
institution's previous year's tangible net worth for its latest fiscal
year. For purposes of this subsection, an operating loss will be
calculated by subtracting from total net income: extraordinary gains or
losses; income or losses from discontinued operations; prior period
adjustments; and, the cumulative effect of changes in accounting
principle, estimate or reporting entity. The calculation of tangible
net worth must exclude all assets defined as intangible in accordance
with generally accepted accounting principles; and
(iii) Had, for its latest fiscal year, a positive tangible net
worth. For purposes of this section, a positive tangible net worth
occurs if the institution's tangible assets exceed its liabilities. The
calculation of tangible net worth must exclude all assets defined as
intangible in accordance with generally accepted accounting principles.
In applying this standard, the Secretary may consider the effect of
extraordinary gains or losses resulting from unusual and infrequent
events, and may take into consideration the cumulative effect of
changes in accounting principle, estimate or reporting entity to the
extent that such a change results in a more accurate representation of
the institution's financial position in accordance with generally
accepted accounting principles;
(8) For a nonprofit institution--(i) Prepares a classified
statement of financial position in accordance with generally accepted
accounting principles or provides the required information as footnotes
to the audit;
(ii) Demonstrates at the end of its latest fiscal year, a ratio of
current assets to current liabilities of at least 1:1;
(iii) Has not had, at the end of its latest fiscal year, a decrease
in total net assets of such significance that, if continued, would
result in a ratio of current assets to current liabilities of less than
1:1. The Secretary may consider the effect of extraordinary gains or
losses resulting from unusual and infrequent events, and may take into
consideration the cumulative effect of a change in accounting
principle, estimate or reporting entity to the extent that such a
change results in a more accurate representation of the institution's
financial position in accordance with generally accepted accounting
principles. For purposes of this analysis, the Secretary may exclude
unrealized gains and losses on investments that have been reported as
changes in unrestricted net assets; and
(9) For a public institution, has its liabilities backed by the
full faith and credit of a State, or by an equivalent governmental
entity.
(c) Past performance of an institution or persons affiliated with
an institution. An institution is not financially responsible if--
(1) A person who exercises substantial control over the institution
or any member or members of the person's family alone or together--
(i)(A) Exercises or exercised substantial control over another
institution or a third-party servicer that owes a liability for a
violation of a Title IV, HEA program requirement; or
(B) Owes a liability for a violation of a Title IV, HEA program
requirement; and
(ii) That person, family member, institution, or servicer is not
making payments in accordance with an agreement to repay that
liability; or
(2) The institution has--
(i) Been limited, suspended, terminated, or entered into a
settlement agreement to resolve a limitation, suspension, or
termination action initiated by the Secretary or a guaranty agency (as
defined in 34 CFR part 682) within the preceding five years;
(ii) Had--
(A) An audit finding, during its two most recent audits of its
conduct of the Title IV, HEA programs, that resulted in the
institution's being required to repay an amount greater than five
percent of the funds that the institution received under the Title IV,
HEA programs for any award year covered by the audit; or
(B) A program review finding, during its two most recent program
reviews, of its conduct of the Title IV, HEA programs that resulted in
the institution's being required to repay an amount greater than five
percent of the funds that the institution received under the Title IV,
HEA programs for any award year covered by the program review;
(iii) Been cited during the preceding five years for failure to
submit acceptable audit reports required under this part or individual
Title IV, HEA program regulations in a timely fashion; or
(iv) Failed to address satisfactorily any compliance problems
identified in program review or audit reports based upon a final
decision of the Secretary issued pursuant to subpart G or subpart H of
this part.
(d) Exceptions to the general standards of financial
responsibility. (1) An institution is not required to meet the standard
in paragraph (b)(5) of this section if the Secretary determines that
the institution--
(i) Is located in, and is legally authorized to operate within, a
State that has a tuition recovery fund that is acceptable to the
Secretary and ensures that the institution is able to pay all required
refunds; and
(ii) Contributes to that tuition recovery fund.
(2) The Secretary considers an institution to be financially
responsible, even if the institution is not otherwise financially
responsible under paragraphs (b) (1) through (4) and (b) (6) through
(9) of this section, if the institution--
(i) Submits to the Secretary an irrevocable letter of credit that
is acceptable and payable to the Secretary equal to not less than one-
half of the Title IV, HEA program funds received by the institution
during the last complete award year for which figures are available; or
(ii) Establishes to the satisfaction of the Secretary, with the
support of a financial statement submitted in accordance with paragraph
(e) of this section, that the institution has sufficient resources to
ensure against the precipitous closure of the institution, including
the ability to meet all of its financial obligations, including refunds
of institutional charges and repayments to the Secretary for
liabilities and debts incurred in programs administered by the
Secretary.
(3) An institution is not required to meet the standard in
paragraphs (b)(7)(i) and (b)(8)(ii) of this section if the institution
is an institution that provides a 2-year or 4-year educational program
for which the institution awards an associate or baccalaureate degree
that demonstrates to the satisfaction of the Secretary that--
(i) There is not reasonable doubt as to its continued solvency and
ability to deliver quality educational services;
(ii) It is current in its payment of all current liabilities,
including student refunds, repayments to the Secretary, payroll, and
payment of trade creditors and withholding taxes; and
(iii) It has substantial equity in school-occupied facilities, the
acquisition of which was the direct cause of its failure to meet the
current operating ratio requirement.
(4) The Secretary may determine an institution to be financially
responsible even if the institution is not otherwise financially
responsible under paragraph (c)(1) of this section if--
(i) The institution notifies the Secretary, in accordance with 34
CFR 600.30, that the person referenced in paragraph (c)(1) of this
section exercises substantial control over the institution; and
(ii)(A) The person repaid to the Secretary a portion of the
applicable liability, and the portion repaid equals or exceeds the
greater of--
(1) The total percentage of the ownership interest held in the
institution or third-party servicer that owes the liability by that
person or any member or members of that person's family, either alone
or in combination with one another;
(2) The total percentage of the ownership interest held in the
institution or servicer that owes the liability that the person or any
member or members of the person's family, either alone or in
combination with one another, represents or represented under a voting
trust, power of attorney, proxy, or similar agreement; or
(3) Twenty-five percent, if the person or any member of the
person's family is or was a member of the board of directors, chief
executive officer, or other executive officer of the institution or
servicer that owes the liability, or of an entity holding at least a 25
percent ownership interest in the institution that owes the liability;
(B) The applicable liability described in paragraph (c)(1) of this
section is currently being repaid in accordance with a written
agreement with the Secretary; or
(C) The institution demonstrates why--
(1) The person who exercises substantial control over the
institution should nevertheless be considered to lack that control; or
(2) The person who exercises substantial control over the
institution and each member of that person's family nevertheless does
not or did not exercise substantial control over the institution or
servicer that owes the liability.
(e) Documentation of financial responsibility. (1) The Secretary
determines whether an institution is financially responsible under this
section by evaluating documents submitted by the institution and
information obtained from other sources, including outside sources of
credit information. To enable the Secretary to make this determination,
the institution shall submit to the Secretary for its two latest
complete fiscal years, a set of financial statements of the
institution, prepared in accordance with generally accepted accounting
principles appropriate to that institution as established by the
American Institute of Certified Public Accountants, audited by an
independent certified public accountant in accordance with generally
accepted auditing standards, and accordingly including such tests of
the institution's accounting records and such other auditing procedures
that the independent auditor considered necessary in the circumstances.
The Secretary may also require the institution to submit or otherwise
make available the accountant's work papers. If an institution submits
audited consolidated financial statements of its parent corporation for
the Secretary to use in determining the institution's level of
financial responsibility, the consolidated financial statements must be
supplemented with consolidating schedules showing the consolidation of
each of the parent corporation's subsidiaries (each separate
institution participating in the Title IV, HEA programs must be shown
separately), intercompany eliminating entries, and derived consolidated
totals. The Secretary may also require the institution to submit
additional substantive information.
(2) An institution shall submit the documents required in paragraph
(e)(1) of this section annually within four months after the end of the
institution's fiscal year, unless the Secretary requests a more
frequent submission. Upon a showing of good cause, the Secretary may
grant a filing extension to an institution.
(f) Definitions and terms. For the purposes of this section--
(1)(i) An ownership interest is a share of the legal or beneficial
ownership or control of, or a right to share in the proceeds of the
operation of, an institution, institution's parent corporation, a
third-party servicer, or a third-party servicer's parent corporation;
(ii) The term ownership interest includes, but is not limited to--
(A) An interest as tenant in common, joint tenant, or tenant by the
entireties;
(B) A partnership; and
(C) An interest in a trust;
(iii) The term ownership interest does not include any share of the
ownership or control of, or any right to share in the proceeds of the
operation of--
(A) A mutual fund that is regularly and publicly traded;
(B) An institutional investor; or
(C) A profit-sharing plan, provided that all employees are covered
by the plan;
(2) The Secretary generally considers a person to exercise
substantial control over an institution or third-party servicer, if the
person--
(i) Directly or indirectly holds at least a 25 percent ownership
interest in the institution or servicer;
(ii) Holds, together with other members of his or her family, at
least a 25 percent ownership interest in the institution or servicer;
(iii) Represents, either alone or together with other persons,
under a voting trust, power of attorney, proxy, or similar agreement
one or more persons who hold, either individually or in combination
with the other persons represented or the person representing them, at
least a 25 percent ownership in the institution or servicer; or
(iv) Is a member of the board of directors, the chief executive
officer, or other executive officer of--
(A) The institution or servicer; or
(B) An entity that holds at least a 25 percent ownership interest
in the institution or servicer; and
(3) The Secretary considers a member of a person's family to be a
parent, sibling, spouse, child, spouse's parent or sibling, or
sibling's or child's spouse.
(Authority: 20 U.S.C. 1094 and 1099c and Section 4 of Pub. L. 95-
452, 92 Stat. 1101-1109)
10. Newly designated Sec. 668.16 is revised to read as follows:
Sec. 668.16 Standards of administrative capability.
To begin and to continue to participate in any Title IV, HEA
program, an institution shall demonstrate to the Secretary that the
institution is capable of adequately administering that program under
each of the standards established in this section. The Secretary
considers an institution to have that administrative capability if the
institution--
(a) Administers the Title IV, HEA programs in accordance with any
statutory provisions of or applicable to Title IV of the HEA, any
regulatory provisions prescribed under that statutory authority, or any
applicable special arrangement, agreement or limitation;
(b)(1) Designates a capable individual to be responsible for
administering all the Title IV, HEA programs in which it participates
and for coordinating those programs with the institution's other
Federal and non-Federal programs of student financial assistance. The
Secretary considers an individual to be ``capable'' under this
paragraph if the individual is certified by the State in which the
institution is located, if the State requires certification of
financial aid administrators. The Secretary may consider other factors
in determining whether an individual is capable, including, but not
limited to, the individual's successful completion of Title IV, HEA
program training provided or approved by the Secretary;
(2) Uses an adequate number of qualified persons to administer the
Title IV, HEA programs in which the institution participates. The
Secretary considers the following factors to determine whether an
institution uses an adequate number of qualified persons--
(i) The number and types of programs in which the institution
participates;
(ii) The number of applications evaluated;
(iii) The number of students who receive any student financial
assistance at the institution and the amount of funds administered;
(iv) The financial aid delivery system used by the institution; and
(v) The degree of office automation used by the institution in the
administration of the Title IV, HEA programs;
(3) Communicates to the individual designated to be responsible for
administering Title IV, HEA programs, all the information received by
any institutional office that bears on a student's eligibility for
Title IV, HEA program assistance; and
(4) Has written procedures for or written information indicating--
(i) The nature and frequency of communication of pertinent
information among all the offices that have an impact on the
administration of the Title IV, HEA programs. Examples of this
information may include information on a student's admissions status,
enrollment status, attendance (if applicable), prior or concurrent
attendance at another postsecondary institution, satisfactory academic
progress, and payment or disbursement status; and
(ii) The responsibilities of the various offices with respect to
the approval, disbursement, and delivery of Title IV, HEA program
assistance and the preparation and submission of reports to the
Secretary;
(c)(1) Administers Title IV, HEA programs with adequate checks and
balances in its system of internal controls; and
(2) Divides the functions of authorizing payments and disbursing or
delivering funds so that no office has responsibility for both
functions with respect to any particular student aided under the
programs. For example, the functions of authorizing payments and
disbursing or delivering funds must be divided so that for any
particular student aided under the programs, the two functions are
carried out by at least two organizationally independent individuals
who are not members of the same family, as defined in Sec. 668.15, or
who do not together exercise substantial control, as defined in
Sec. 668.15, over the institution;
(d) Establishes and maintains records required under this part and
the individual Title IV, HEA program regulations;
(e) Establishes, publishes, and applies reasonable standards for
measuring whether an otherwise eligible student is maintaining
satisfactory progress in his or her educational program. The Secretary
considers an institution's standards to be reasonable if the
standards--
(1) Conform with the standards of satisfactory progress of the
nationally recognized accrediting agency that accredits or preaccredits
the institution, if the institution is accredited or preaccredited, and
if the agency has those standards;
(2) For a student enrolled in an eligible program who is to receive
assistance under a Title IV, HEA program, are the same as or stricter
than the institution's standards for a student enrolled in the same
educational program who is not receiving assistance under a Title IV,
HEA program;
(3) Include the following elements:
(i) Grades, work projects completed, or comparable factors that are
measurable against a norm.
(ii) A maximum time frame in which a student must complete his or
her educational program. The time frame must be--
(A) Based on the student's enrollment status;
(B) For an undergraduate program, no longer than 150 percent of the
published length of the educational program; and
(C) Divided into increments, not to exceed the lesser of one
academic year or one-half the published length of the educational
program.
(iii) A schedule established by the institution designating the
minimum percentage or amount of work that a student must successfully
complete at the end of each increment to complete his or her
educational program within the maximum time frame.
(iv) A determination at the end of each increment by the
institution whether the student has successfully completed the
appropriate percentage or amount of work according to the established
schedule.
(v) Consistent application of standards to all students within
categories of students, e.g., full-time, part-time, undergraduate, and
graduate students, and educational programs established by the
institution.
(vi) Specific policies defining the effect of course incompletes,
withdrawals, repetitions, and noncredit remedial courses on
satisfactory progress.
(vii) Specific procedures under which a student may appeal a
determination that the student is not making satisfactory progress.
(viii) Specific procedures for reinstatement of aid; and
(4) Meet or exceed the requirements of Sec. 668.7(c);
(f) Develops and applies an adequate system to identify and resolve
discrepancies in the information that the institution receives from
different sources with respect to a student's application for financial
aid under Title IV, HEA programs. In determining whether the
institution's system is adequate, the Secretary considers whether the
institution obtains and reviews--
(1) All student aid applications, need analysis documents,
Statements of Educational Purpose, Statements of Registration Status,
and eligibility notification documents presented by or on behalf of
each applicant;
(2) Any documents, including any copies of State and Federal income
tax returns, that are normally collected by the institution to verify
information received from the student or other sources; and
(3) Any other information normally available to the institution
regarding a student's citizenship, previous educational experience, or
other factors relating to the student's eligibility for funds under the
Title IV, HEA programs;
(g) Refers to the Office of Inspector General of the Department of
Education for investigation--
(1) After conducting the review of an application provided for
under paragraph (f) of this section, any information indicating that an
applicant for Title IV, HEA program assistance may have engaged in
fraud or other criminal misconduct in connection with his or her
application. The type of information that an institution must refer is
that which is relevant to the eligibility of the applicant for Title
IV, HEA program assistance, or the amount of the assistance. Examples
of this type of information are--
(i) False claims of independent student status;
(ii) False claims of citizenship;
(iii) Use of false identities;
(iv) Forgery of signatures or certifications; and
(v) False statements of income; and
(2) Any information indicating that any employee, third-party
servicer, or other agent of the institution that acts in a capacity
that involves the administration of the Title IV, HEA programs, or the
receipt of funds under those programs, may have engaged in fraud,
misrepresentation, conversion or breach of fiduciary responsibility, or
other illegal conduct involving the Title IV, HEA programs. The type of
information that an institution must refer is that which is relevant to
the eligibility and funding of the institution and its students through
the Title IV, HEA programs;
(h) Provides adequate financial aid counseling to eligible students
who apply for Title IV, HEA program assistance. In determining whether
an institution provides adequate counseling, the Secretary considers
whether its counseling includes information regarding--
(1) The source and amount of each type of aid offered;
(2) The method by which aid is determined and disbursed, delivered,
or applied to a student's account; and
(3) The rights and responsibilities of the student with respect to
enrollment at the institution and receipt of financial aid. This
information includes the institution's refund policy, its standards of
satisfactory progress, and other conditions that may alter the
student's aid package;
(i) Has and implements a plan, designed by the institution for the
student population served by the institution, that demonstrates that
for an institution that enrolls a significant number of students with
special support service needs (including, but not limited to, child
care and transportation), the institution has provided these students
with information about how to access to appropriate support services
that will foster the students' opportunity to complete the educational
program;
(j) Has procedures for receiving, investigating, and resolving
student complaints;
(k) If the stated objectives of an educational program of the
institution are to prepare a student for gainful employment in a
recognized occupation--
(1) Demonstrates a reasonable relationship between the length of
the program and entry level requirements for the recognized occupation
for which the program prepares the student. The Secretary considers the
relationship to be reasonable if the number of clock hours provided in
the program does not exceed by more than 50 percent the minimum number
of clock hours required for training in the recognized occupation for
which the program prepares the student, as established by the State in
which the program is offered, if the State has established such a
requirement; and
(2) Establishes the need for the training for the student to obtain
employment in the recognized occupation for which the program prepares
the student;
(l) Makes readily available to students information on--
(1) Market and job availability for occupational, professional, and
vocational educational programs offered by the institution; and
(2) The relationship of mandatory and elective course components of
occupational, professional, and vocational educational programs to
specific licensure standards of the State in which the institution is
located in specific occupations;
(m) Has advertising, promotion, and student recruitment practices
that accurately reflect the content and objectives of the educational
programs offered by the institution;
(n) Has provided all program and fiscal reports and financial
statements required for compliance with the provisions of this part and
the individual program regulations in a timely manner;
(o) Has no outstanding liabilities owed to the Secretary, unless
the institution has made satisfactory arrangements to repay those
liabilities and is honoring those arrangements;
(p) Shows no evidence of significant problems identified in--
(1) Reviews of the institution conducted by the Secretary, the
Department of Education's Office of Inspector General, nationally
recognized accrediting agencies, guaranty agencies as defined in 34 CFR
part 682, State postsecondary review entities designated under subpart
1 of part H of Title IV of the HEA, the State agency or official by
whose authority the institution is legally authorized to provide
postsecondary education, or any other law enforcement agency; or
(2) Any findings made in any criminal, civil, or administrative
proceeding;
(q) Is not, and does not have any principal or affiliate of the
institution (as those terms are defined in 34 CFR part 85) that is--
(1) Debarred or suspended under Executive Order (E.O.) 12549 (3
CFR, 1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR),
48 CFR part 9, subpart 9.4; or
(2) Engaging in any activity that is a cause under 34 CFR 85.305 or
85.405 for debarment or suspension under E.O. 12549 (3 CFR, 1986 Comp.,
p. 189) or the FAR, 48 CFR part 9, subpart 9.4;
(r) Complies with any standards established by the State in which
the institution is located or, if no standards exist in the State in
which the institution is located, by the Secretary regarding completion
rates, placement rates, and pass rates on required State examinations;
(s) Has a cohort default rate--
(1) As defined in Sec. 668.17, on loans made under the Federal
Stafford Loan and Federal SLS programs to students for attendance at
that institution that does not exceed 20 percent; and
(2) As defined in 34 CFR 674.5, on loans made under the Federal
Perkins Loan Program to students for attendance at that institution
that does not exceed 15 percent;
(t)(1) For an institution that has a common academic year for a
majority of its students, does not have more than 33 percent of the
regular students who are enrolled on the first day of classes of an
academic year withdraw from enrollment at that institution during that
academic year; or
(2) For an institution that does not have a common academic year
for a majority of its students, does not have more than 33 percent of
the regular students who are enrolled on the first day of classes of
any eight-month period withdraw during that period; and
(u) Does not otherwise appear to lack the ability to administer the
Title IV, HEA programs competently.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c; Section 4 of Pub. L.
95-452, 92 Stat. 1101-1109; E.O. 12549 (3 CFR, 1986 Comp., p. 189),
12689 (3 CFR, 1989 Comp., p. 235)
11. Newly designated Sec. 668.17 is revised to read as follows:
Sec. 668.17 Default reduction measures.
(a) Default rates. If the Federal Stafford loan and Federal SLS
cohort default rate for an institution exceeds 20 percent for any
fiscal year, the Secretary notifies the institution of that rate and
may, after consultation as the Secretary deems appropriate with
cognizant guaranty agencies take one or more of the following actions:
(1) Initiate a proceeding under Subpart G of this part to limit,
suspend, or terminate the participation of the institution in the Title
IV, HEA programs, if--
(i) The institution's Federal Stafford loan and Federal SLS cohort
default rate exceeds 40 percent for any fiscal year after 1989 and has
not been reduced by an increment of at least 5 percent from its rate
for the previous fiscal year (e.g., a 50-percent rate was not reduced
to 45 percent or below); or
(ii) The institution's Federal Stafford loan and Federal SLS cohort
default rate exceeds--
(A) 60 percent for fiscal year 1989;
(B) 55 percent for fiscal year 1990;
(C) 50 percent for fiscal year 1991;
(D) 45 percent for fiscal year 1992; or
(E) 40 percent for any fiscal year after fiscal year 1992.
(2) To help the Secretary make a preliminary determination as to
the appropriate action to be taken by the Secretary regarding the
institution, require the institution to submit to the Secretary and one
or more guaranty agencies, as defined in 34 CFR 682, any information
relating to that determination, as reasonably required by the
Secretary, within a time frame specified by the Secretary.
(b) Default management plan. If the Federal Stafford loan and
Federal SLS cohort default rate for an institution--
(1) Is greater than 20 percent but less than or equal to 40
percent, the institution must submit a default management plan that
implements the measures described in appendix D of this part. An
institution that wishes to submit a default management plan that
deviates from the measures described in appendix D of this part must
submit a justification for the deviation that includes a rationale
explaining why the measures from which the plan deviates are not
appropriate for the institution's specific situation. The institution
must implement the default management plan upon notification from the
Secretary that the plan has been approved; or
(2) Exceeds 40 percent for any fiscal year, the institution must
implement all of the default management reduction measures described in
appendix D of this part no later than 60 days after the institution
receives the Secretary's notification of the institution's cohort
default rate. An institution is not required to submit any written
plans to the Secretary or a guaranty agency unless the Secretary or
guaranty agency specifically requests the institution to do so.
(c) End of participation. (1) Except as provided in paragraph
(c)(6) of this section, an institution's participation in the FFEL
programs ends if the Secretary determines that the institution's cohort
default rate, for each of the three most recent fiscal years for which
the Secretary has determined the institution's rate, is equal to or
greater than the applicable threshold rates.
(2) For purposes of the determinations made under paragraph (c)(1)
of this section, the threshold rates are--
(i) 35 percent for each of fiscal years 1991 and 1992;
(ii) 30 percent for fiscal year 1993; and
(iii) 25 percent for fiscal year 1994 and all subsequent fiscal
years.
(3) Except as provided in paragraph (c)(7) of this section, an
institution whose participation ends under paragraph (c)(1) of this
section may not participate in the FFEL programs beginning with the
date that the institution receives notification from the Secretary that
its cohort default rate exceeds the thresholds specified in paragraph
(c)(2) of this section and continuing--
(i) For the remainder of the fiscal year in which the Secretary
determines that the institution's participation has ended under
paragraph (c)(1) of this section; and
(ii) For the two subsequent fiscal years.
(4) An institution whose participation in the FFEL programs ends
under paragraph (c)(1) of this section may not participate in the FFEL
programs until the institution--
(i) Receives notification from the Secretary that the notice ending
the institution's participation is withdrawn pursuant to paragraph
(d)(6) of this section; or
(ii) Following the period described in paragraph (c)(3) of this
section, satisfies the Secretary that the institution meets all
requirements for participation in the FFEL programs and executes a new
agreement with the Secretary for participation in the FFEL programs.
(5) If the Secretary withdraws the notification of an institution's
loss of participation pursuant to paragraph (d)(6) of this section, the
participation of the institution is restored effective as of the date
that the institution received notification from the Secretary of the
loss of participation.
(6) Until July 1, 1994, the provisions of paragraph (c)(1) of this
section 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 (25 U.S.C.
1801(a)(4)), or a Navajo community college under the Navajo Community
College Act (25 U.S.C. 640a-640c).
(7)(i) If the Secretary's designated department official receives
written notice from an institution whose participation ends under
paragraph (c)(1) of this section, within seven calendar days from the
date on which the institution receives notification from the Secretary
that its cohort default rate exceeds the thresholds specified in
paragraph (d)(2) of this section, that the institution intends to
appeal the end of participation under paragraph (d) of this section,
the institution may, notwithstanding Sec. 668.26(d) continue to
participate in the FFEL programs until no later than the 30th calendar
day following the date on which the institution receives notification
from the Secretary that its cohort default rate exceeds the thresholds
specified in paragraph (c)(2) of this section, except as provided in
paragraph (c)(7)(ii) of this section.
(ii) If an institution satisfies the conditions in paragraph
(c)(7)(i) of this section for participating in the FFEL programs until
the 30th calendar day following the date on which the institution
receives notification from the Secretary that its cohort default rate
exceeds the thresholds specified in paragraph (c)(2) of this section,
the institution may, notwithstanding Sec. 668.26(d), continue to
participate in the FFEL programs after that date, until the Secretary
issues a decision on the institution's appeal, if the institution, by
the 30th calendar day following the date on which the institution
receives notification from the Secretary that its cohort default rate
exceeds the thresholds specified in paragraph (c)(2) of this section,
files an appeal that is complete in all respects in accordance with
paragraph (d) of this section. However, the appeal of an institution
relying on paragraph (d)(1)(i) of this section is not considered
incomplete by virtue of a guaranty agency's not having yet complied
with--or having failed to comply with--34 CFR 682.401(b)(14), which
requires the agency to respond to an institution's request for
verification of data within 15 working days, if the institution
submitted that request within 10 working days from the date on which
the institution received notification from the Secretary that its
cohort default rate exceeds the thresholds specified in paragraph
(c)(2) of this section, and the institution simultaneously submitted a
copy of that request to the Secretary's designated Department official.
When the institution receives the guaranty agency's response, to
complete its appeal, the institution must submit the verified data to
the Secretary's designated Department official within five working days
in order to continue participating in the FFEL programs until the
Secretary issues a decision on the institution's appeal.
(d) Appeal procedures. (1) An institution may appeal the loss of
participation in the FFEL programs under paragraph (c)(1) of this
section by submitting an appeal in writing to the Secretary's
designated Department official that is postmarked no later than 30 days
after it receives notification of its loss of participation. The
institution may appeal on the grounds that--
(i)(A) The calculation of the institution's cohort default rate for
any of the three fiscal years relevant to the end of participation is
not accurate; and
(B) A recalculation with corrected data verified by the cognizant
guaranty agency or agencies would produce a cohort default rate for any
of those fiscal years that is below the threshold percentage specified
in paragraph (c)(2) of this section;
(ii) The institution meets the following criteria:
(A)(1) Fifteen percent or fewer of the institution's students who
are enrolled on at least a half-time basis receive Federal Stafford or
Federal SLS loans for any twenty-four month period ending not more than
six months prior to the date the institution submits its appeal; or
(2) For any twenty-four month period ending not more than six
months prior to the date the institution submits its appeal, two-thirds
or more of the institution's students who are enrolled on at least a
half-time basis are individuals from disadvantaged economic
backgrounds, as established by documentary evidence submitted by the
institution. Such evidence must relate to qualification by those
students for an Expected Family Contribution (EFC) (formerly
institutions were required to use the Pell Grant index), as defined in
34 CFR 690.2, of zero for the applicable award year or attribution to
those students of an adjusted gross income of the student and his or
her parents or spouse, if applicable, reported for the applicable award
year of less than the poverty level, as determined under criteria
established by the Department of Health and Human Services; and
(B)(1) Two-thirds or more of the institution's students who were
enrolled on a full-time basis in any twenty-four month period ending
not more than six months prior to the date the institution submits its
appeal completed the educational programs in which they were enrolled.
This rate is calculated by comparing the number of students who were
classified as full-time at their initial enrollment in the institution,
and were originally scheduled, at the time of enrollment, to complete
their programs within the relevant twenty-four month period, with the
number of these students who received a degree, certificate, or other
recognized educational credential from the institution; transferred
from the institution to a higher level educational program at another
institution for which the prior program provided substantial
preparation; or, at the end of the twenty-four month period, remained
enrolled and were making satisfactory academic progress toward
completion of their educational programs. The calculation does not
include students who did not complete their programs because they left
the institution to serve in the armed forces; and
(2) The institution had a placement rate of two-thirds or more with
respect to its former students who received a degree, certificate, or
other recognized educational credential from the institution in any
twenty-four month period ending not more than six months prior to the
date the institution submits its appeal. This rate is calculated by
determining the percentage of all those students who, based on evidence
submitted by the institution, are on that date employed, or had been
employed for at least 13 weeks following receipt of the credential from
the institution, in the occupation for which the institution provided
training, or are enrolled or had been enrolled for at least 13 weeks
following receipt of the credential from the institution, in a higher
level educational program at another institution for which the prior
educational program provided substantial preparation.
(2) For purposes of paragraph (d)(1)(iii)(A) of this section, a
student is originally scheduled, at the time of enrollment, to complete
the educational program on the date when the student will have been
enrolled in the program for the amount of time normally required to
complete the program. The ``amount of time normally required to
complete the program'' is the period of time specified in the
institution's enrollment contract, catalog, or other materials, for
completion of the program by a full-time student, or the period of time
between the date of enrollment and the anticipated graduation date
appearing on the student's loan application, if any, whichever is less.
(3) An appeal submitted under paragraph (d)(1)(i) of this section
is considered to be filed in a timely manner if the institution submits
a letter of appeal by the 30-day deadline notifying the Secretary's
designated department official that it is appealing on this basis,
including with that letter a copy of the institution's request to each
cognizant guaranty agency for verification of the cohort default rate
data, and submits the verified data to the Secretary's designated
Department official within five working days of its receipt from the
guaranty agency. For purposes of paragraph (d)(4) of this section, the
institution's appeal is not considered complete until the institution
submits the verified data to the Secretary's designated Department
official.
(4) The Secretary issues a decision on the institution's appeal
within 45 days after the institution submits a complete appeal that
addresses the applicable criteria in paragraphs (d)(1)(i) through (iii)
of this section to the Secretary's designated Department official.
(5) The Secretary's decision is based on the consideration of
written material submitted by the institution. No oral hearing is
provided.
(6) The Secretary withdraws the notification of loss of
participation in the FFEL programs sent to an institution under
paragraph (c)(1) of this section, if the Secretary determines that the
institution's appeal satisfies one of the grounds specified in
paragraphs (d)(1) (i) through (iii) of this section.
(7) (i) An institution that appeals under paragraph (d)(1)(i) of
this section must submit a written request to the guaranty agency or
agencies that guaranteed the loans used in the calculation of its
cohort default rate to verify the data used to calculate its cohort
default rate and simultaneously provide a copy of that request to the
Secretary's designated Department official.
(ii) The written request must include the names and social security
numbers of the borrowers the institution wishes the agency to verify
and detailed information on the nature of the suspected inaccuracy in
the data the institution is requesting the agency to verify.
(8) An institution must include in its appeal a certification by
the institution's chief executive officer that all information provided
by the institution in support of its appeal is true and correct.
(9) An institution that appeals on the ground that it meets the
criteria contained in paragraph (d)(1)(iii) of this section must
include in its appeal the following information:
(i) For purposes of paragraph (d)(1)(iii)(A)(1) of this section--
(A) The number of students who were enrolled on at least a half-
time basis at the institution in the relevant twenty-four month period;
and
(B) The name, address, and social security number of each of the
institution's current and former students who received Federal Stafford
or Federal SLS loans during that twenty-four month period.
(ii) For purposes of paragraph (d)(1)(iii)(A)(2) of this section:
(A) The number of students who were enrolled on at least a half-
time basis at the institution in the relevant twenty-four month period;
and
(B) The name, address, social security number and Expected Family
Contribution (EFC) (formerly institutions were required to use the Pell
Grant index), if applicable, of each student from a disadvantaged
economic background who was enrolled on at least a half-time basis at
the institution in the relevant twenty-four month period and the
measure and data used to determine that the student is from a
disadvantaged economic background.
(iii) For purposes of paragraph (d)(1)(iii)(B)(1) of this section--
(A) The number of students who were enrolled on a full-time basis
at the institution in the relevant twenty-four month period;
(B) For each of those former students who received a degree,
certificate, or other recognized educational credential from the
institution, the student's name, address, and social security number;
(C) For each of those former students who transferred to a higher
level educational program at another institution, the name, address,
social security number of the student, and the name and address of the
institution to which the student transferred and the name of the higher
level program; and
(D) For each of those students who remained enrolled and was making
satisfactory academic progress toward completion of the educational
program, the student's name, address, and social security number.
(iv) For purposes of paragraph (d)(1)(iii)(B)(2) of this section--
(A) The number of students who received a degree, certificate, or
other recognized educational credential at the institution in the
relevant twenty-four month period;
(B) For each of those former students who is employed or had been
employed for at least 13 weeks following receipt of a degree,
certificate or other credential from the institution, the student's
name, address, and social security number, the employer's name and
address, the student's job title, and the dates the student was so
employed; and
(C) For each of those former students who enrolled in a higher
level educational program at another institution for which the
appealing institution's educational program provided substantial
preparation, the former student's name, address, and social security
number, the subsequent institution's name and address, the name of the
educational program, and the dates the former student was so enrolled.
(e) Definitions. The following definitions apply to this section
and Sec. 668.90:
(1)(i)(A) For purposes of the Federal Stafford loan and Federal SLS
cohort default rate, except as provided in paragraph (e)(1)(ii) of this
section, the term cohort default rate means--
(1) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on Federal Stafford loans
or Federal SLS loans (or on the portion of a Federal Consolidation Loan
that is used to repay such loans) received for attendance at the
institution, the percentage of those current and former students who
enter repayment in that fiscal year on such loans who default before
the end of the following fiscal year; and
(2) For any fiscal year in which fewer than 30 of the institution's
current and former students enter repayment on Federal Stafford loans
or Federal SLS loans (or on the portion of a Federal Consolidation Loan
that is used to repay such loans) received for attendance at the
institution, the percentage of those current and former students who
entered repayment on Federal Stafford loans or Federal SLS loans in any
of the three most recent fiscal years, who default before the end of
the fiscal year immediately following the year in which they entered
repayment.
(B) In determining the number of students who default before the
end of that following fiscal year, the Secretary includes only loans
for which the Secretary or a guaranty agency has paid claims for
insurance.
(ii) (A) In the case of a student who has attended and borrowed at
more than one institution, the student (and his or her subsequent
repayment or default) is attributed to each institution for attendance
at which the student received a loan that entered repayment in the
fiscal year.
(B) A loan on which a payment is made by the institution, its
owner, agent, contractor, employee, or any other affiliated entity or
individual, in order to avoid default by the borrower, is considered as
in default for purposes of this definition.
(C) Any loan that has been rehabilitated under section 428F of the
HEA before the end of that following fiscal year is not considered as
in default for purposes of this definition.
(D) For the purposes of this definition, a loan made in accordance
with section 428A of the HEA (or a Federal Consolidation Loan a portion
of which is used to repay a Federal SLS loan) shall not be considered
to enter repayment until after the borrower has ceased to be enrolled
in an educational program leading to a degree, certificate, or other
recognized educational credential at the participating institution on
at least a half-time basis (as determined by the institution) and
ceased to be in a period of forbearance based on such enrollment. Each
eligible lender of a loan made under section 428A (or a Federal
Consolidation Loan a portion of which is used to repay a Federal SLS
loan) of the HEA shall provide the guaranty agency with the information
necessary to determine when the loan entered repayment for purposes of
this definition, and the guaranty agency shall provide that information
to the Secretary.
(iii) (A) A cohort default rate of an institution applies to all
locations of the institution as the institution exists on the first day
of the fiscal year for which the rate is calculated.
(B) A cohort default rate of an institution applies to all
locations of the institution from the date the institution is notified
of that rate until the institution is notified by the Secretary that
the rate no longer applies.
(iv) (A) For an institution that changes its status from that of a
location of one institution to that of a free-standing institution, the
Secretary determines the cohort default rate based on the institution's
status as of October 1 of the fiscal year for which a cohort default
rate is being calculated.
(B) For an institution that changes its status from that of a free-
standing institution to that of a location of another institution, the
Secretary determines the cohort default rate based on the combined
number of students who enter repayment during the applicable fiscal
year and the combined number of students who default during the
applicable fiscal years from both the former free-standing institution
and the other institution. This cohort default rate applies to the new,
consolidated institution and all of its current locations.
(C) For free-standing institutions that merge to form a new,
consolidated institution, the Secretary determines the cohort default
rate based on the combined number of students who enter repayment
during the applicable fiscal year and the combined number of students
who default during the applicable fiscal years from all of the
institutions that are merging. This cohort default rate applies to the
new consolidated institution.
(D) For a location of one institution that becomes a location of
another institution, the Secretary determines the cohort default rate
based on the combined number of students who enter repayment during the
applicable fiscal year and the number of students who default during
the applicable fiscal years from both of the institutions in their
entirety, not limited solely to the respective locations.
(2) Fiscal year means the period from and including October 1 of a
calendar year through and including September 30 of the following
calendar year.
(i) Federal SLS Program participation. An institution loses its
participation in the Federal SLS Program if the Secretary determines
that the institution's cohort default rate for the most recent fiscal
year for which that rate is available is equal to or greater than 30
percent. However, the institution's loss of participation does not
apply to a student who is not an undergraduate student or who has
received a Federal SLS loan previously for enrollment in the same
educational program at the institution (except that previous receipt of
a Federal SLS loan shall not qualify a student for a Federal SLS loan
with respect to an extension of the duration of that educational
program that was effected on or after November 8, 1989).
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
12. Section 668.22 is revised to read as follows:
Sec. 668.22 Institutional refunds and repayments.
(a) General. (1) An institution shall have a fair and equitable
refund policy under which the institution makes a refund of unearned
tuition, fees, room and board, and other charges to a student who
received Title IV, HEA program assistance, or whose parent received a
Federal PLUS loan on behalf of the student if the student--
(i) Does not register for the period of enrollment for which the
student was charged; or
(ii) Withdraws, drops out, is expelled from the institution or
otherwise fails to complete the program on or after his or her first
day of class of the period of enrollment for which he or she was
charged.
(2) The institution shall provide a clear and conspicuous written
statement containing its refund policy, including the allocation of
refunds and repayments to sources of aid, together with examples of the
application of this policy, to a prospective student prior to the
earlier of the student's enrollment or the execution of the student's
enrollment agreement. The institution shall make its policy known to
currently enrolled students. The institution shall include in its
statement the procedures that a student must follow to obtain a refund,
but the institution shall return the portion of a refund allocable to
the Title IV, HEA programs in accordance with paragraph (f) of this
section whether the student follows those procedures or not. If the
institution changes its refund policy, the institution shall ensure
that all students are made aware of the new policy.
(3) The institution shall publish the costs of required supplies
and equipment and shall substantiate to the Secretary upon request that
the costs are reasonably related to the cost of providing the supplies
and equipment to students.
(b) Fair and equitable refund policy. (1) For purposes of paragraph
(a) of this section, an institution's refund policy is fair and
equitable if the policy provides for a refund of at least the larger of
the amount provided under--
(i) The requirements of applicable State law;
(ii) The specific refund standards established by the institution's
nationally recognized accrediting agency if those standards are
approved by the Secretary;
(iii) The pro rata refund calculation described in paragraph (c) of
this section, for any student attending the institution for the first
time whose withdrawal date is on or before the 60 percent point in time
in the period of enrollment for which the student has been charged; or
(iv) For purposes of determining a refund when the pro rata refund
calculation under paragraph (b)(1)(iii) of this section does not apply,
and no standards for refund calculations exist under paragraph (b)(1)
(i) and (ii) of this section, the larger of--
(A) The specific refund standards contained in Appendix A to this
part; or
(B) The institution's refund policy.
(2) For purposes of paragraph (b)(1)(iii) of this section, ``the 60
percent point in time in the period of enrollment for which the student
has been charged'' is--
(i) In the case of an educational program that is measured in
credit hours, the point in calendar time when 60 percent of the period
of enrollment for which the student has been charged, as defined in
paragraph (d) of this section, has elapsed; and
(ii) In the case of an educational program that is measured in
clock hours, the point in time when the student completes 60 percent of
the clock hours scheduled for the period of enrollment for which the
student is charged as defined in paragraph (d) of this section.
(3) The institution must determine which policy under paragraph
(b)(1) of this section provides for the largest refund to that student.
(c) Pro rata refund. (1) Pro rata refund, as used in this section,
means a refund by an institution to a student attending that
institution for the first time of not less than that portion of the
tuition, fees, room, board, and other charges assessed the student by
the institution equal to the portion of the period of enrollment for
which the student has been charged that remains on the withdrawal date,
rounded downward to the nearest 10 percent of that period, less--
(i) (A) Any unpaid amount of a scheduled cash payment for the
period of enrollment for which the student has been charged. A
scheduled cash payment is the amount of institutional charges that is
not paid for by financial aid for the period of enrollment for which
the student has been charged exclusive of--
(1) Any amount scheduled to be paid by Title IV, HEA program
assistance that the student has been awarded that is payable to the
student even though the student has withdrawn; and
(2) Late disbursements of loans made under the Federal Stafford
Loan, Federal SLS, and Federal PLUS programs in accordance with 34 CFR
682.207(d).
(B) The unpaid amount of a scheduled cash payment is computed by
subtracting the amount paid by the student for the period of enrollment
for which the student has been charged from the scheduled cash payment
for the period of enrollment for which the student has been charged;
(ii) A reasonable administrative fee not to exceed the lesser of--
(A) Five percent of the tuition, fees, room and board, and other
charges assessed the student; or
(B) One hundred dollars;
(iii) Any application fee charged by the institution; and
(iv) The portion of ``board'' charges (i.e., meal tickets) that
have been expended by the student that exceed the portion attributable
to the period for which the student attended at the time of withdrawal.
The institution must include in the refund any unexpended ``board''
credits.
(2) (i) For purposes of this section, ``other charges assessed the
student by the institution'' include, but are not limited to, charges
for any equipment (including books and supplies) issued by an
institution to the student. The institution may deduct from the refund
owed under this paragraph the documented cost to the institution of
equipment issued to the student if the institution specifies in the
enrollment agreement a separate charge for equipment which the student
actually obtains or if the institution refers the student to a vendor
operated by an affiliated or related entity and the student does not
return the equipment in good condition, allowing for reasonable wear
and tear, within 20 days following the date of the student's
withdrawal. The student shall be liable for the amount, if any, by
which the documented cost for equipment not returned in good condition
exceeds the refund under this paragraph. Equipment is not considered to
be returned in good condition if the equipment cannot be reused because
of clearly recognized health and sanitary reasons, and this fact is
clearly and conspicuously disclosed in the enrollment agreement.
(ii) An institution may not delay its payment of the portion of a
refund allocable under this section to a Title IV, HEA program or a
lender under 34 CFR 682.607 by reason of the process for return of
equipment prescribed in paragraph (c)(4)(i) of this section.
(3) For purposes of this section--
(i) ``Room'' charges do not include charges that are passed through
the institution from an entity that is not under the control of,
related to, or affiliated with the institution; and
(ii) ``Other charges assessed the student by the institution'' do
not include fees for group health insurance, if this insurance is
required for all students and the purchased coverage remains in effect
for the student throughout the period for which the student was
charged.
(4) (i) For purposes of this section, a student attending an
institution for the first time is a student who--
(A) Has not previously attended at least one class at the
institution; or
(B) Received a refund of 100 percent of his or her tuition and fees
(less any permitted administrative fee) under the institution's refund
policy for previous attendance at the institution.
(ii) A student remains a first-time student until the student
either--
(A) Withdraws, drops out, or is expelled from the institution after
attending at least one class; or
(B) Completes the period of enrollment for which he or she has been
charged.
(5) For purposes of paragraph (c)(1) of this section, ``the portion
of the period of enrollment for which the student has been charged that
remains'' is determined--
(i) In the case of an educational program that is measured in
credit hours, by dividing the total number of weeks comprising the
period of enrollment for which the student has been charged into the
number of weeks remaining in that period as of the student's withdrawal
date;
(ii) In the case of an educational program that is measured in
clock hours, by dividing the total number of clock hours comprising the
period of enrollment for which the student has been charged into the
number of scheduled clock hours remaining to be completed by the
student in that period as of the student's withdrawal date; and
(iii) In the case of an educational program that consists
predominantly of correspondence courses, by dividing the total number
of lessons comprising the period of enrollment for which the student
has been charged into the number of lessons not submitted by the
student.
(d) Period of enrollment for which the student has been charged.
(1) For purposes of this section, ``the period of enrollment for which
the student has been charged,'' means the actual period for which an
institution charges a student, except that the minimum period must be--
(i) In the case of an educational program that is measured in
credit hours and uses semesters, trimesters, quarters, or other
academic terms, the semester, trimester, quarter or other academic
term; or
(ii) In the case of an educational program that is measured in
credit hours and does not use semesters, trimesters, quarters, or other
academic terms, or an educational program that is measured in clock
hours, the lesser of the length of the educational program or an
academic year.
(2) If an institution charges by different periods for different
charges, the ``period of enrollment for which the student has been
charged'' for purposes of this section is the longest period for which
the student is charged. The institution must include any charges
assessed the student for the period of enrollment or any portion of
that period of enrollment when calculating the refund.
(e) Overpayments. (1) An institution shall determine whether a
student has received an overpayment for noninstitutional costs for the
period of enrollment for which the student has been charged if--
(i) The student officially withdraws, drops out, or is expelled on
or after his or her first day of class of that period; and
(ii) The student received Title IV, HEA program assistance other
than from the FWS, Federal Stafford Loan, Federal PLUS, or Federal SLS
Program for that period.
(2) (i) To determine if the student owes an overpayment, the
institution shall subtract the noninstitutional costs that the student
incurred for that portion of the period of enrollment for which the
student has been charged from the amount of all assistance (other than
from the FWS, Federal Stafford Loan, Federal PLUS, or Federal SLS
Program) that the institution disbursed to the student.
(ii) Noninstitutional costs may include, but are not limited to,
room and board for which the student does not contract with the
institution, books, supplies, transportation, and miscellaneous
expenses.
(f) Repayments to Title IV, HEA programs of institutional refunds
and overpayments. (1)(i) An institution shall return a portion of the
refund calculated in accordance with paragraph (b) of this section to
the Title IV, HEA programs if the student to whom the refund is owed
received assistance under any Title IV, HEA program other than the FWS
Program.
(ii) The portion of the refund that an institution shall return to
the Title IV, HEA programs may not exceed the amount of assistance that
the student received under the Title IV, HEA programs other than under
the FWS Program for the period of enrollment for which the student has
been charged.
(2) For purposes of this section, except for the calculation of a
pro rata refund required under paragraph (b)(1)(iii) of this section--
(i) An institutional refund means the amount paid for institutional
charges for the period of enrollment for which the student has been
charged minus the amount that the institution may retain under
paragraph (f)(2)(iii) of this section for the portion of the period of
enrollment for which the student has been charged that the student was
actually enrolled at the institution;
(ii) An institution may not include any unpaid amount of a
scheduled cash payment in determining the amount that the institution
may retain for institutional charges. A scheduled cash payment is the
amount of institutional charges that has not been paid by financial aid
for the period of enrollment for which the student has been charged,
exclusive of--
(A) Any amount scheduled to be paid by Title IV, HEA program
assistance that the student has been awarded that is payable to the
student even though the student has withdrawn; and
(B) Late disbursements of loans made under the Federal Stafford,
Federal SLS, and Federal PLUS programs in accordance with 34 CFR
682.207(d);
(iii) In determining the amount that the institution may retain for
the portion of the period of enrollment for which the student has been
charged during which the student was actually enrolled, an institution
shall--
(A) Compute the unpaid amount of a scheduled cash payment by
subtracting the amount paid by the student for that period of
enrollment for which the student has been charged from the scheduled
cash payment for the period of enrollment for which the student has
been charged; and
(B) Subtract the unpaid amount of the scheduled cash payment from
the amount that may be retained by the institution according to the
institution's refund policy; and
(iv) An institution shall return the total amount of Title IV, HEA
program assistance (other than amounts received from the FWS Program)
paid for institutional charges for the period of enrollment for which
the student has been charged if the unpaid amount of the student's
scheduled cash payment is greater than or equal to the amount that may
be retained by the institution under the institution's refund policy.
(3)(i) A student must repay to the institution or to the Title IV,
HEA programs a portion of the overpayment as determined according to
paragraph (e) of this section. The institution shall make every
reasonable effort to contact the student and recover the overpayment in
accordance with program regulations (34 CFR parts 673, 674, 675, 676,
690, and 691).
(ii) The portion of the overpayment that the student or the
institution (if the institution recovers the overpayment) shall return
to the Title IV, HEA programs may not exceed the amount of assistance
received under the Title IV, HEA programs other than the FWS, Federal
Stafford Loan, Federal PLUS, or Federal SLS Program for the period of
enrollment for which the student has been charged.
(iii) Unless otherwise provided for in applicable program
regulations--
(A) If the amount of the overpayment is less than $100, the student
is considered not to owe an overpayment, and the institution is not
required to contact the student or recover the overpayment; and
(B) If the amount of the refund is $25 or less, the institution is
not required to pay the refund.
(g) Allocation of refunds and overpayments. (1) Except as provided
in paragraph (g)(2) of this section, if a student who received Title
IV, HEA program assistance (other than assistance under the FWS
Program) is owed a refund calculated in accordance with paragraph (b)
of this section, or if a student who received Title IV, HEA program
assistance (other than assistance under the FWS, Federal Stafford Loan,
Federal PLUS, or Federal SLS Program) must repay an overpayment
calculated in accordance with paragraph (e) of this section, an
institution shall allocate that refund and any overpayment collected
from the student in the following order:
(i) To eliminate outstanding balances on Federal SLS loans received
by the student for the period of enrollment for which he or she was
charged.
(ii) To eliminate outstanding balances on unsubsidized Federal
Stafford loans received by the student for the period of enrollment for
which he or she was charged.
(iii) To eliminate outstanding balances on subsidized Federal
Stafford loans received by the student for the period of enrollment for
which he or she was charged.
(iv) To eliminate outstanding balances on Federal PLUS loans
received on behalf of the student for the period of enrollment for
which he or she was charged.
(v) To eliminate outstanding balances on Federal Direct Stafford
loans received by the student for the period of enrollment for which he
or she was charged.
(vi) To eliminate outstanding balances on Federal Direct PLUS loans
received on behalf of the student for the period of enrollment for
which he or she was charged.
(vii) To eliminate outstanding balances on Federal Perkins loans
received by the student for the period of enrollment for which he or
she was charged.
(viii) To eliminate any amount of Federal Pell Grants awarded to
the student for the period of enrollment for which he or she was
charged.
(ix) To eliminate any amount of Federal SEOG Program aid awarded to
the student for the period of enrollment for which he or she was
charged.
(x) To eliminate any amount of other assistance awarded to the
student under programs authorized by Title IV of the HEA for the period
of enrollment for which he or she was charged.
(xi) To repay required refunds of other Federal, State, private, or
institutional student financial assistance received by the student.
(xii) To the student.
(2) The institution must apply the allocation policy described in
paragraph (g)(1) of this section consistently to all students who have
received Title IV, HEA program assistance and must conform that policy
to the following:
(i) No amount of the refund or of the overpayment may be allocated
to the FWS Program.
(ii) No amount of overpayment may be allocated to the Federal
Stafford Loan, Federal PLUS, or Federal SLS Program.
(iii) The amount of the Title IV, HEA program portion of the refund
allocated to the Federal Stafford Loan, Federal PLUS, and Federal SLS
programs must be returned to the appropriate borrower's lender by the
institution in accordance with program regulations (34 CFR part 682).
(iv) The amount of the Title IV, HEA program portion of the refund
allocated to the Title IV, HEA programs other than the FWS, Federal
Stafford Loan, Federal PLUS, and Federal SLS programs must be returned
to the appropriate program account or accounts by the institution
within 30 days of the date that the student officially withdraws or is
expelled or the institution determines that a student has unofficially
withdrawn.
(v) The amount of the Title IV, HEA program portion of the
overpayment allocated to the Title IV, HEA programs other than the FWS,
Federal Stafford Loan, Federal PLUS, and Federal SLS programs must be
returned to the appropriate program account or accounts within 30 days
of the date that the student repays the overpayment.
(h) Financial aid. For purposes of this section ``financial aid''
is assistance that a student has been or will be awarded (including
Federal PLUS loans received on the student's behalf) from Federal;
State; institutional; or other scholarship, grant, or loan programs.
(i) Refund dates--(1) Withdrawal date. (i) Except as provided in
paragraphs (i)(1) (ii) and (iii) of this section, a student's
withdrawal date is the earlier of--
(A) The date that the student notifies an institution of the
student's withdrawal, or the date of withdrawal specified by the
student, whichever is later; or
(B) If the student drops out of the institution without notifying
the institution (does not withdraw officially), the last recorded date
of class attendance by the student, as documented by the institution.
(ii) If the student has not returned to the institution at the
expiration of a leave of absence approved under paragraph (i)(2) of
this section, the student's withdrawal date is the last recorded date
of class attendance by the student, as documented by the institution.
If the student returns to the institution after the expiration of the
leave of absence but during the award year or (for the Federal Stafford
Loan, Federal PLUS, and Federal SLS programs) during the period of
enrollment in which the student was granted the leave of absence, the
student may not receive additional Title IV, HEA program assistance for
coursework that he or she has not completed.
(iii) If the student is enrolled in an educational program that
consists predominantly of correspondence courses, the student's
withdrawal date is normally the date of the last lesson submitted by
the student, if the student failed to submit the subsequent lesson in
accordance with the schedule for lessons established by the
institution. However, if the student establishes in writing, within 60
days of the date of the last lesson that he or she submitted, a desire
to continue in the program and an understanding that the required
lessons must be submitted on time, the institution may restore that
student to ``in school'' status for purposes of funds received under
the Title IV, HEA programs. The institution may not grant the student
more than one restoration to ``in school'' status on this basis.
(2) Leaves of absence. A student who has been absent from an
institution and has been granted a leave of absence by the institution,
in accordance with this paragraph, is not considered to have withdrawn
from the institution for purposes of this section. In any twelve-month
period, an institution may grant a single leave of absence to a student
provided that--
(i) The student has made a written request to be granted a leave of
absence;
(ii) The leave of absence involves no additional charges by the
institution to the student; and
(iii) The leave of absence does not exceed--
(A) Sixty days;
(B) Six months, under either of the following circumstances:
(1) The student's educational program does not consist
predominantly of correspondence courses, and the institution's next
period of enrollment after the start of the leave of absence would
begin more than 60 days after the first day of the leave of absence.
(2) The leave of absence is requested because of the student's
medically determinable condition, in which case the student must
provide the institution with a written recommendation from a physician
for a leave of absence longer than 60 days; or
(C) The length of time between the beginning of the leave of
absence and the institution's next period of enrollment, under the
following circumstance: The institution's next period of enrollment
after the start of the leave of absence begins more than thirty days
after the beginning of the leave of absence, and a corresponding period
of nonenrollment (i.e., summer break) prevents a student from enrolling
in any coursework.
(3) Timely payment. An institution shall pay a refund that is due--
(i) If a student officially withdraws or is expelled, within 30
days after the student's withdrawal date;
(ii) If a student drops out, within 30 days of the earliest of
the--
(A) Date on which the institution determines that the student
dropped out;
(B) Expiration of the academic term in which the student withdrew;
or
(C) Expiration of the period of enrollment for which the student
has been charged; or
(iii) If a student does not return to the institution before the
expiration of an approved leave of absence under paragraph (i)(2) of
this section, within 30 days after the last day of the leave of
absence.
(Authority: 20 U.S.C. 1091b, 1092, 1094)
13. Section 668.23 is revised to read as follows:
Sec. 668.23 Audits, records, and examinations.
(a) An institution or a foreign institution as defined 34 CFR
600.52 that participates in the Federal Perkins Loan, FWS, FSEOG,
Federal Stafford Loan, Federal PLUS, Federal Pell Grant, PAS, or FDSL
Program shall comply with the regulations for that program concerning--
(1) Fiscal and accounting systems;
(2) Program and fiscal recordkeeping; and
(3) Record retention.
(b) (1) An institution or a foreign institution as defined 34 CFR
600.52 that participates in any Title IV, HEA program shall cooperate
with an independent auditor, the Secretary, the Department of
Education's Inspector General, the Comptroller General of the United
States, or their authorized representatives, a guaranty agency in whose
program the institution participates, and the appropriate State
postsecondary review entity designated under subpart 1 of part H of
Title IV of the HEA, in the conduct of audits, investigations, and
program reviews authorized by law.
(2) A third-party servicer shall cooperate with an independent
auditor, the Secretary, the Department of Education's Inspector
General, and the Comptroller General of the United States, or their
authorized representatives, a guaranty agency in whose program the
institution contracting with the servicer participates, and the State
postsecondary review entity designated under subpart 1 of part H of
Title IV of the HEA, in the conduct of audits, investigations, and
program reviews authorized by law.
(3) The institution's or servicer's cooperation must include--
(i) Providing timely access, for examination and copying, to the
records (including computerized records) required by the applicable
regulations and to any other pertinent books, documents, papers,
computer programs, and records;
(ii) Providing reasonable access to personnel associated with the
institution's or servicer's administration of the Title IV, HEA
programs for the purpose of obtaining relevant information. In
providing reasonable access, the institution or servicer shall not--
(A) Refuse to supply any relevant information;
(B) Refuse to permit interviews with those personnel that do not
include the presence of the institution's or servicer's management; and
(C) Refuse to permit interviews with those personnel that are not
tape recorded by the institution or servicer.
(c)(1)(i) An institution or a foreign institution as defined 34 CFR
600.52 that participates in the FDSL, Federal Perkins Loan, FWS, FSEOG,
Federal Stafford Loan, Federal PLUS, Federal SLS, Federal Pell Grant,
or PAS Program shall have performed a financial and compliance audit of
its Title IV, HEA programs.
(ii) A third-party servicer that administers funds or determines
student eligibility shall have a financial and compliance audit
performed of every aspect of the servicer's administration of the
participation in the Title IV, HEA programs of each institution with
which the servicer has a contract, unless--
(A) The servicer contracts with only one participating institution;
and
(B) The audit of that institution's participation involves every
aspect of the servicer's administration of that Title IV, HEA program.
(iii) To meet the requirements of paragraph (c)(1)(ii) of this
section, a third-party servicer that contracts with more than one
participating institution may submit a single financial and compliance
audit report that covers every aspect of the servicer's administration
of the participation in the Title IV, HEA programs for each institution
with which the servicer contracts.
(iv) The audit required under paragraph (c)(1) (i) or (ii) of this
section shall be conducted by an independent auditor in accordance with
the general standards and the standards for financial and compliance
audits in the U.S. General Accounting Office's (GAO's) Standards for
Audit of Governmental Organizations, Programs, Activities, and
Functions. (This publication is available from the Superintendent of
Documents, U.S. Government Printing Office, Washington, DC 20402.)
(2) (i) The institution shall have an audit performed at least once
every year.
(ii) The servicer shall have an audit performed at least once every
year.
(3) If the institution is participating in the Title IV, HEA
programs for the first time, the institution shall have the audit
performed at least once every year for the first five years of the
institution's participation.
(4) Notwithstanding paragraph (c)(2) of this section--
(i) The institution shall have an audit performed at least once
every two years if--
(A) The institution receives less than $100,000 in total annual
funding under the Title IV, HEA programs for the period covered by the
audit; or
(B) The institution had no deficiencies identified in its most
recently submitted audit report and that report was submitted in a
timely fashion; and
(ii) The servicer shall have an audit performed at least once every
two years if--
(A) The servicer administers less than $1,000,000 under the Title
IV, HEA programs for the period covered by the audit; or
(B) The servicer had no material exceptions identified in the
servicer's most recently submitted audit report and that report was
submitted in a timely fashion.
(5) (i) The institution is not required to have an audit performed
for any year in which the institution receives less than $25,000 in
total annual funding under the Title IV, HEA programs.
(ii) The servicer is not required to have an audit performed for
any year in which the servicer administers less than $250,000 under the
Title IV, HEA programs.
(6) (i) The institution's first audit must cover the institution's
activities for the entire period of time since the institution began to
participate in the Title IV, HEA program for which the audit is
performed. Each subsequent audit must cover the institution's
activities for the entire period of time since the preceding audit.
(ii) The servicer's first audit must cover the servicer's
activities for its first full fiscal year beginning after the effective
date of these regulations, and include any period from the effective
date to the beginning of the first full fiscal year. Each subsequent
audit that the servicer has performed must cover the servicer's
activities for the entire period of time since the servicer's preceding
audit.
(7) Notwithstanding paragraph (c) (4) and (5) of this section, the
Secretary may, as the Secretary deems necessary, request any
institution or third-party servicer to have an audit performed on an
annual basis.
(8) The institution or servicer, as applicable, shall submit its
audit report to the Department of Education's Inspector General in
accordance with the deadlines established in audit guides developed by
the Department of Education's Office of Inspector General.
(9) The Secretary may require the institution or servicer to
provide, upon request, to cognizant guaranty agencies and eligible
lenders under the FFEL programs, State agencies, nationally recognized
accrediting agencies, and State postsecondary review entities
designated under subpart 1 of part H of Title IV of the HEA, the
results of any audit conducted under this section.
(d) Procedures for audits are contained in audit guides developed
by, and available from, the Department of Education's Office of
Inspector General. These audit guides do not impose any requirements
beyond those imposed under applicable statutes and regulations and
GAO's Standards for Audit of Governmental Organizations, Programs,
Activities, and Functions.
(e) (1) An institution, a foreign institution as defined 34 CFR
600.52, or a third-party servicer that has an audit conducted in
accordance with this section shall--
(i) Give the Secretary and the Inspector General access to records
or other documents necessary to review the audit; and
(ii) Include in any arrangement with an individual or firm
conducting an audit described in this section a requirement that the
individual or firm shall give the Secretary and the Inspector General
access to records or other documents necessary to review the audit.
(2) A third-party servicer shall give the Secretary and the
Inspector General access to records or other documents necessary to
review an institution's audit.
(3) An institution shall give the Secretary and the Inspector
General access to records or other documents necessary to review a
third-party servicer's audit.
(f) The Secretary considers the audit requirement in paragraph (c)
of this section to be satisfied by an audit conducted in accordance
with--
(1) The Single Audit Act (Chapter 75 of title 31, United States
Code); or
(2) Office of Management and Budget Circular A-133, ``Audits of
Institutions of Higher Education and Other Nonprofit Organizations.''
(g) Upon written request, an institution, a foreign institution as
defined 34 CFR 600.52, or a third-party servicer shall give the
Secretary access to all Title IV, HEA program and fiscal records,
including records reflecting transactions with any financial
institution with which the institution or servicer deposits or has
deposited any Title IV, HEA program funds.
(h)(1) In addition to the records required under the applicable
program regulations and this part, for each recipient of Title IV, HEA
program assistance, the institution or foreign institution as defined
34 CFR 600.52 shall establish and maintain, on a current basis, records
regarding--
(i) The student's admission to, and enrollment status at, the
institution;
(ii) The educational program and courses in which the student is
enrolled;
(iii) Whether the student is maintaining satisfactory progress in
his or her educational program;
(iv) Any refunds due or paid to the student, the Title IV, HEA
program or accounts, and the student's lender under the Federal
Stafford Loan, Federal PLUS, and Federal SLS programs;
(v) The student's placement by the institution in a job if the
institution provides a placement service and the student uses that
service;
(vi) The student's prior receipt of financial aid (see
Sec. 668.19);
(vii) The verification of student aid application data; and
(viii) Financial and other institutional records necessary to
determine the institutional eligibility, financial responsibility, and
administrative capability of the institution.
(2)(i) An institution or a foreign institution as defined 34 CFR
600.52 shall establish and maintain records regarding the educational
qualifications of each regular student it admits, whether or not the
student receives Title IV, HEA program assistance, that are relevant to
the institution's admission standards.
(ii) An institution or a foreign institution as defined 34 CFR
600.52 at which only certain educational programs have been determined
eligible shall establish and maintain records regarding the admission
requirements and educational qualifications of each regular student
enrolled in the eligible program or programs, whether the student
received Title IV, HEA program assistance or not.
(3) Records required under applicable program regulations and this
part shall be--
(i) Systematically organized;
(ii) Readily available for review by the Secretary at the
geographical location where the student will receive his or her degree
or certificate of program or course completion; and
(iii) Retained by the institution for the longer of at least five
years from the time the record is established or the period of time
required under the applicable program regulations of this part.
(Authority: 20 U.S.C. 1088, 1094, 1099c, 1141 and section 4 of Pub.
L. 95-452, 92 Stat. 1101-1109)
14. Section 668.26, as proposed to be redesignated in a Notice of
Proposed Rulemaking published on February 17, 1994 (59 FR 8061), is
revised to read as follows:
Sec. 668.26 End of an institution's participation in the Title IV, HEA
programs.
(a) An institution's participation in a Title IV, HEA program ends
on the date that--
(1) The institution closes or stops providing educational programs
for a reason other than a normal vacation period or a natural disaster
that directly affects the institution or the institution's students;
(2) The institution loses its institutional eligibility under 34
CFR part 600;
(3) The institution's participation is terminated under the
proceedings in subpart G of this part;
(4) The institution's period of participation, as specified under
Sec. 668.13, expires, or the institution's provisional certification is
revoked under Sec. 668.13;
(5) The institution's program participation agreement is terminated
or expires under Sec. 668.14;
(6) The institution's participation ends under Sec. 668.17(c); or
(7) The Secretary receives a notice from the appropriate State
Postsecondary Review Entity designated under subpart 1 of part H of
Title IV of the HEA that the institution's participation should be
withdrawn.
(b) If an institution's participation in a Title IV, HEA program
ends, the institution shall--
(1) Immediately notify the Secretary of that fact;
(2) Submit to the Secretary within 45 days after the date that the
participation ends--
(i) All financial, performance, and other reports required by
appropriate Title IV, HEA program regulations; and
(ii) A letter of engagement for an independent audit of all funds
that the institution received under that program, the report of which
shall be submitted to the Secretary within 45 days after the date of
the engagement letter;
(3) Inform the Secretary of the arrangements that the institution
has made for the proper retention and storage for a minimum of five
years of all records concerning the administration of that program;
(4) If the institution's participation in the Federal Perkins Loan
or FDSL Program ended, inform the Secretary of how the institution will
provide for the collection of any outstanding loans made under that
program;
(5) If the institution's participation in the NEISP or SSIG Program
ended--
(i) Inform immediately the State in which the institution is
located of that fact; and
(ii) Notwithstanding paragraphs (c) through (e) of this section,
follow the instructions of that State concerning the end of that
participation;
(6) If the institution's participation in all the Title IV, HEA
programs ended, inform the Secretary of how the institution will
provide for the collection of any outstanding loans made under the
National Defense/Direct Student Loan and ICL programs; and
(7) Continue to distribute refunds according to Sec. 668.22.
(c) If an institution closes or stops providing educational
programs for a reason other than a normal vacation period or a natural
disaster that directly affects the institution or the institution's
students, the institution shall--
(1) Return to the Secretary, or otherwise dispose of under
instructions from the Secretary, any unexpended funds that the
institution has received under the Title IV, HEA programs for
attendance at the institution, less the institution's administrative
allowance, if applicable; and
(2) Return to the appropriate lenders any Federal Stafford Loan and
Federal SLS program proceeds that the institution has received but not
delivered to, or credited to the accounts of, students attending the
institution.
(d)(1) An institution may use funds that it has received under the
Federal Pell Grant or PAS Program or a campus-based program or request
additional funds from the Secretary, under conditions specified by the
Secretary, if the institution does not possess sufficient funds, to
satisfy any unpaid commitment made to a student under that Title IV,
HEA program only if--
(i) The institution's participation in that Title IV, HEA program
ends during a payment period;
(ii) The institution continues to provide, from the date that the
participation ends until the scheduled completion date of that payment
period, educational programs to otherwise eligible students enrolled in
the formerly eligible programs of the institution;
(iii) The commitment was made prior to the end of the
participation; and
(iv) The commitment was made for attendance during that payment
period or a previously completed payment period.
(2) An institution may credit to a student's account or deliver to
the student the proceeds of a disbursement of a Federal Stafford or
Federal SLS loan to satisfy any unpaid commitment made to the student
under the Federal Stafford Loan or Federal SLS Program only if--
(i) The institution's participation in that Title IV, HEA program
ends during a period of enrollment;
(ii) The institution continues to provide, from the date that the
participation ends until the scheduled completion date of that period
of enrollment, educational programs to otherwise eligible students
enrolled in the formerly eligible programs of the institution;
(iii) The commitment was made prior to the end of the
participation;
(iv) The commitment was made for attendance during that period of
enrollment; and
(v) The proceeds of the first disbursement of the loan were
delivered to the student or credited to the student's account prior to
the end of the participation.
(3) An institution may use funds that it has received under the
FDSL Program or request additional funds from the Secretary, under
conditions specified by the Secretary, if the institution does not
possess sufficient funds, to credit to a student's account or deliver
to the student the proceeds of a disbursement of a Federal Direct
Student loan only if--
(i) The institution's participation in the FDSL Program ends during
a period of enrollment;
(ii) The institution continues to provide, from the date that the
participation ends until the scheduled completion date of that period
of enrollment, educational programs to otherwise eligible students
enrolled in the formerly eligible programs of the institution;
(iii) The loan was made for attendance during that period of
enrollment; and
(iv) The proceeds of the first disbursement of the loan were
delivered to the student or credited to the student's account prior to
the end of the participation.
(e) For the purposes of this section--
(1) A commitment under the Federal Pell Grant and PAS programs
occurs when a student is enrolled and attending the institution and has
submitted a valid Student Aid Report to the institution or when an
institution has received a valid institutional student information
report;
(2) A commitment under the campus-based programs occurs when a
student is enrolled and attending the institution and has received a
notice from the institution of the amount that he or she can expect to
receive and how and when that amount will be paid; and
(3) A commitment under the Federal Stafford and Federal SLS
programs occurs when the Secretary or a guaranty agency notifies the
lender that the loan is guaranteed.
(Authority: 20 U.S.C. 1094, 1099a-3)
15. Section 668.81, as proposed to be amended in a Notice of
Proposed Rulemaking published on February 17, 1994 (59 FR 8062), is
further amended by removing paragraph (a)(2); redesignating paragraph
(a)(1) introductory text as paragraph (a) introductory text;
redesignating paragraphs (a)(1)(i) through (iv) as paragraphs (a)(1)
through (4), respectively; removing the word ``or'' after the semi-
colon in paragraph (c)(1); revising paragraph (c)(2); adding paragraphs
(c)(3) and (4); and revising paragraph (d) to read as follows:
Sec. 668.81 Scope and special definitions.
* * * * *
(c) * * *
(2) An institution fails to qualify for initial certification or
provisional certification to participate in any Title IV, HEA program
because the institution does not meet the factors of financial
responsibility and standards of administrative capability contained in
subpart B of this part;
(3) A participating institution's or a provisionally certified
participating institution's period of participation, as specified under
Sec. 668.13, has expired; or
(4) A participating institution's provisional certification is
revoked under the procedures in Sec. 668.13.
(d) This subpart does not apply to a determination by the Secretary
of the system to be used to disburse Title IV, HEA program funds to a
participating institution (i.e., advance payments and payments by way
of reimbursements).
* * * * *
16. A new Appendix A to Part 668 is added to read as follows:
Appendix A to Part 668--Standards for Acceptable Refund Policies by
Participating Institutions
For purposes of Sec. 668.22(b)(1)(iv)(A), the Secretary
considers an institution to have a fair and equitable refund policy
if the institution uses a policy that meets the minimum requirements
of this appendix. These requirements are a modified version of
guidelines developed by the National Association of College and
University Business Officers. These requirements do not affect an
institution's obligation to comply with other Department of
Education regulations.
(I) The governing board of the institution must review and
approve the schedule of all institutional charges and refund
policies applicable to students. The pricing of services and refund
policies have important consequences to students, parents, the
institution, and society; as such, pricing and refund policies must
receive board attention and approval.
(II) The institution must seek consumer views in the process of
establishing and amending charge and refund structures. Decisions
regarding institutional funds are ultimately the sole responsibility
of the institution's legally designated fund custodians. However,
consumer concerns do affect decision making, and involving consumers
in decision making related to charges and refunds is an essential
approach for assessing student needs and creating public awareness
of institutional requirements.
(III) The institution must publish a current schedule of all
student charges (including the costs of required supplies and
equipment), publish a statement of the purpose for such charges and
related refund policies, have those statements readily available
free of charge to current and prospective students, and substantiate
that the costs of required supplies and equipment are reasonably
related to the cost of providing the supplies and equipment to the
students. Students and parents have a right to know what charges
they will be expected to pay and what will or will not be refunded.
They also have a right to know what services accompany payment of
the charges. Informational materials published free for students and
prospective students are ideal for this purpose.
(IV) The institution must clearly designate all optional charges
as ``optional'' in all published schedules and related materials.
Charges that are mandatory and charges that are optional must be
plainly differentiated in all printed materials. Statements
accompanying the schedule may include institutional endorsements of
the optional program or service. The institution must state clearly
in its schedule if a charge is optional for some students but
required for others.
(V) The institution must clearly identify charges and deposits
that are nonrefundable as ``nonrefundable'' on all published
schedules. Institutions determine on an individual basis which of
their charges are refundable or nonrefundable. In general, admission
fees, application fees, laboratory fees, facility and student
activity fees, and other similar charges are not refundable. These
fees are generally charged to cover the cost of activities such as
processing applications and other student information, reserving
academic positions and establishing the limits of institutional
programs and services, reserving housing space, and otherwise
setting the fixed costs of the institution for the coming academic
periods.
Institutions determine on an individual basis which of their
deposits are refundable or nonrefundable. Some deposits will be
nonrefundable or will be credited to a student's account (e.g.,
tuition deposits). Others are refundable according to the terms of
the deposit agreement (e.g., deposits for breakage).
(VI) The institution must refund housing rental charges, less a
deposit, as long as written notification of cancellation is made
prior to a well-publicized date that provides reasonable opportunity
to make the space available to other students. Written notification
on or before the beginning of the term of the contract is necessary
to ensure utilization of housing units. During the term of the
contract, room charges are generally not refundable. However, based
on the program offered, space availability, debt service
requirements, State and local laws, and other individual
circumstances, institutions may provide for some more flexible
refund guideline for housing.
(VII) The institution must refund board charges in full, less a
deposit, if written notification of cancellation is made prior to a
well-publicized date that falls on or before the beginning of the
term of the contract. Subsequent board charges should be refunded on
a pro rata basis. It is reasonable to make a refund for those goods
and services not consumed. The deposit should reflect that portion
of an institution's costs that are fixed for the term of the
contract.
(VIII) The institutional refund policy must include the
following requirements:
A. The institution must refund 100 percent of the tuition
charges, less an administrative fee that does not exceed the lesser
of $100 or 5 percent of the tuition, if the student submits written
notice of cancellation on or before one week preceding the first day
of classes for the period of enrollment for which the student was
charged.
B. The institution must refund at least 90 percent of the
tuition charges if the student submits written notice of
cancellation between the end of the period of time specified in
(VIII) A. and the end of the first 10 percent (in time) of the
period of enrollment for which the student was charged.
C. The institution must refund at least 50 percent of the
tuition charges if the student submits written notice of
cancellation between the end of the first 10 percent (in time) of
the period of enrollment for which the student was charged and the
end of the first 25 percent (in time) of that period of enrollment.
D. The institution must refund at least 25 percent of the
tuition charges if the student submits written notice of
cancellation between the end of the first 25 percent (in time) of
the period of enrollment for which the student was charged and the
end of the first 50 percent (in time) of the period of enrollment.
E. The institution may deduct from the refund owed under this
paragraph the documented cost to the institution of equipment issued
to the student if the institution specifies in the enrollment
agreement a separate charge for equipment that the student actually
obtains or if the institution refers the student to a vendor
operated by an affiliated or related entity and the student does not
return the equipment in good condition, allowing for reasonable wear
and tear, within 20 days following the date of the student's
withdrawal. The student shall be liable for the amount, if any, by
which the documented cost for equipment exceeds the refund under
this paragraph. Equipment is not considered to be returned in good
condition if the equipment cannot be reused because of clearly
recognized health and sanitary reasons, and this fact is clearly and
conspicuously disclosed in the enrollment agreement.
(IX) The institution must assess no penalty charges where the
institution, as opposed to the student, is in error. Penalty
charges, such as those involving late registration fees, change-of-
schedule fees, and late payment fees, must not be assessed if it is
determined that the student is not responsible for the action
causing the charges to be levied.
(X) The institution must advise students that any notifications
of withdrawal or cancellation and requests for refund must be in
writing and addressed to the designated institution officer. A
student's written notification of withdrawal or cancellation and
request for a refund provides an accurate record of transactions and
also ensures that the request will be processed on a timely basis.
Acceptance of oral requests is an undesirable practice.
(XI) The institution must pay or credit refunds due in
accordance with Sec. 668.22(h)(4).
(XII) The institution must publicize, as a part of its
dissemination of information on charges and refunds, that an appeals
process exists for students or parents who believe that individual
circumstances warrant exceptions from published policy. The
informational materials must include the name, title, and address of
the official responsible for handling appeals. Although charges and
refund policies should reflect extensive consideration of student
and institutional needs, it will not be possible to encompass in
these structures the variety of personal circumstances that may
exist or develop. Institutions are required to provide a system of
due process to their students, and charges and refund policies are
legitimately a part of that process. Students and parents should be
informed regularly of procedures for requesting information
concerning exceptions to published policies.
PART 690--FEDERAL PELL GRANT PROGRAM
17. The heading for part 690 is revised to read as set forth above.
18. The authority citation for part 690 continues to read as
follows:
Authority: 20 U.S.C. 1070a through 1070a-6, unless otherwise
noted.
19. Section 690.83 is amended by adding a new paragraph (e) to read
as follows:
Sec. 690.83 Submission of reports.
* * * * *
(e) (1) Notwithstanding paragraphs (a), (b), (c) (1) or (2), or (d)
of this section, if an institution demonstrates to the satisfaction of
the Secretary that the institution has provided Federal Pell Grants in
accordance with this part but has not received credit or payment for
those grants, the institution may receive payment or a reduction in
accountability for those grants in accordance with paragraph (e) of
this section.
(2) The institution must demonstrate that it qualifies for a credit
or payment by means of a finding contained in an audit report as
initially submitted to the Department that was conducted after December
31, 1988 and timely submitted in accordance with 34 CFR 668.23(c), with
respect to grants made during the period of that audit.
(3) In determining whether the institution qualifies for a payment
or reduction in accountability, the Secretary takes into account any
liabilities of the institution arising from that audit or any other
source. The Secretary collects those liabilities by offset in
accordance with 34 CFR part 30.
* * * * *
(Authority: 20 U.S.C. 1070a, 1094, 1226a-1)
Note: This appendix will not appear in the Code of Federal
Regulations.
Appendix to Preamble
Subparts A and B of the Student Assistance General Provisions
Regulations
I. Academic Year
A. Section 481(d)(2) of the HEA provides that an ``academic
year'' must require a minimum of 30 weeks of instruction time in
which a student is expected to complete at least 24 semester or
trimester hours or 36 quarter hours at an institution that measures
program length in credit hours or at least 900 clock hours at an
institution that measures program length in clock hours.
Issues that the community was asked to address and the
community's views:
1. How should prorations be calculated? For example, if 22 weeks
are offered, how does an institution determine the portion of an
academic year that applies?
Prorations of an academic year in educational programs
shorter than an academic year should be based solely on the number
of credit or clock hours provided, without regard to the number of
weeks required. Proration should not be used for educational
programs of one academic year or longer. Attempts to prorate the
length of an academic year using both weeks and credit or clock
hours would be inconsistent and confusing, because credit or clock
hours are not always evenly distributed over the calendar length of
an educational program. [Kansas City]
Prorations should be based on the minimum number of
clock or credit hours that a full-time student in an eligible
program is scheduled to take in an academic year. Prorations should
not be based on the number of weeks in the academic year. A minority
opposed inclusion of a reference to ``eligible program'' in this
recommendation. [Atlanta]
2. What is a week? How should portions of a week be treated?
A week should include any week during a portion of
which the educational process takes place. [Kansas City]
A majority of participants recommended that an
instructional week be defined in terms of a fixed standard of clock
hours of instruction. Thus, for example, if regulations define an
instructional week as the completion of 30 clock hours, a student
who completes 90 clock hours of instruction in two calendar weeks
should be considered to have completed the equivalent of three
instructional weeks. [New York]
A week should be defined as a seven-day period that can
begin on any day of the week. The seven-day periods continue for 30
periods of time. [San Francisco]
A ``week'' should be defined as either each seven-day
period within an enrollment period; or each seven-day period (within
an enrollment period) during which any instruction occurred.
[Atlanta]
3. What is instructional time? Should periods provided for
orientation, testing, and vacation count?
Instructional time should be measured on the basis of
calendar weeks that begin on Monday and end on Sunday. Instructional
time should consist of a period of continuous enrollment beginning
with the first week of classes and ending with the conclusion of the
period of enrollment, including any normally scheduled breaks in the
academic calendar. [Kansas City]
Instructional time should include time spent reading
and taking examinations. [New York]
The interests of students, institutions, and other
constituents need to be considered in determining instructional
time. Some participants recommended that the determination be left
to accrediting agencies. Other participants recommended that the
determination be left to the Secretary. [San Francisco]
4. What consideration should be given to programs with condensed
class schedules, or to weekend programs?
Because instructional time should be measured on the
basis of periods of continuous enrollment, special consideration for
condensed schedules or weekend programs is unnecessary. [Kansas
City]
The interests of students, institutions, and other
constituents need to be considered in determining how to treat
condensed schedules and weekend programs. Some participants
recommended that the determination be left to accrediting agencies.
Other participants recommended that the determination be left to the
Secretary. [San Francisco]
Condensed programs that include the equivalent of the
workload of a regular academic-year program should be considered to
meet the definition of academic year. [Atlanta]
5. How does the new definition affect less-than-full-time
students?
The definition does not affect part-time students.
[Kansas City]
A student who completes fewer than the required minimum
number of clock or credit hours during the 30-week period should be
considered less-than-full-time. [San Francisco]
The length of the academic year is irrelevant to
determining the enrollment status of students. Enrollment status is
determined by the length of time (in terms of credit or clock hours)
that a student takes to complete a ``program.'' [Atlanta]
II. Eligible Program
A. Effective July 1, 1993, section 481(b) and (c) of the HEA
require a proprietary institution of higher education or a
postsecondary vocational institution to provide an eligible program
of training that prepares students for gainful employment in a
recognized occupation. Section 481(e) of the HEA requires an
eligible program to consist of at least 600 clock hours, 16 semester
hours, or 24 quarter hours offered during a minimum of 15 weeks, if
the program admits students who have not completed the equivalent of
an associate degree. An eligible program must consist of at least
300 clock hours, eight semester hours, or 12 quarter hours offered
during a minimum of ten weeks, if the program is an undergraduate
program requiring the equivalent of an associate degree for
admission or if the program is a graduate or professional program.
The Secretary is required to develop regulations to determine
the quality of educational programs of less than 600 clock hours.
Those regulations must, at a minimum, require those educational
programs to have verified completion and placement rates of at least
70 percent. An educational program of more than 300 clock hours and
less than 600 clock hours that meets the Secretary's regulations
qualifies for eligibility under the Federal Family Education Loan
programs even if the educational program is not an undergraduate
program requiring the equivalent of an associate degree for
admission, and even if the educational program is not a graduate or
professional program.
Issues that the community was asked to address and the
community's views:
1. What is the equivalent of an associates degree?
An associates degree should be a degree which meets the
degree requirements of any State for an associate degree. [Kansas
City]
An associates degree should represent the completion of
any educational program that meets State licensure requirements and
that equals at least the length of a typical associate degree
program. [Kansas City]
An associates degree should represent the completion of
any educational program leading to a vocational objective if the
program is at least 1,800 clock hours, (60 or 48) semester hours, or
(90 or 64) quarter hours. (The variation in credit hours depends on
whether the negotiators decide to use the number of credits required
to earn an associate degree or the number of credits required for
completion of at least two academic years.) [Kansas City]
An associates degree should represent the completion of
an educational program that is at least two academic years in
length. [Kansas City]
An associates degree should represent the completion of
an educational program leading to licensure in an occupation, if a
community college offers an associate degree program for that
occupation. [Kansas City]
An associates degree should be determined by the
professional judgment of the Secretary. [Kansas City]
An associates degree should be determined by an
institution's State licensing agency. [Kansas City]
An associates degree should consist of previous
training in the same field of study as that for which the eligible
program prepares training. [Kansas City]
An associates degree should, for occupations with
apprenticeship programs, require the completion of five-year
apprenticeship programs. [Kansas City]
An associates degree should represent the completion of
the equivalent of two years of successful academic work in a
postsecondary environment or a professional license that required a
specific period of training and perhaps work experience. [New York]
An associates degree should represent the completion of
the equivalent of at least two academic years of study, subject to
compliance with applicable State laws and regulations. [San
Francisco]
An associates degree should represent the completion of
60 semester hours or the equivalent. [Atlanta]
2. What are other measures of ``quality'' for programs of less
than 600 hours?
An educational program should be considered to satisfy
the Secretary's quality measures if a program that prepares students
for State licensure in an occupation; a program that prepares
students for certification by a nationally recognized professional
or industry association; or a program that is approved by a
nationally recognized accrediting agency or association. [Kansas
City]
No additional measures should be included. [New York,
Atlanta]
3. How should the required job placement and graduation rates be
calculated? How often should the rates be calculated?
The methodology and timing for the calculations should
be identical to those required under the Carl D. Perkins Vocational
and Applied Technology Education Act and the Student Right-to-Know
and Campus Security Act. [Kansas City]
Calculation of completion rates should be based on the
formula used under the Student Right-to-Know and Campus Security
Act, except that the calculation should not include time-specific
constraints. [New York]
Calculation of placement rates should be based on the
formula used under the Student Right-to-Know and Campus Security
Act, except that only completers should be counted in the
denominator. No time frame should be used in the calculation. [New
York]
Regulations should define completion rate, graduation
rate, and full-time employment (which should specify a period of
time in a job). [San Francisco]
Calculations should be based over a two-three year
period to reflect long-term trends and avert the adverse impact of
short-term problems such as those caused by economic conditions.
Institutions that fall below the minimum rates ought to be provided
appeal procedures. [San Francisco]
Because there are many State regulations and
accrediting agency standards governing this area, institutions
should be allowed to follow the most restrictive ones. Institutions
following the most restrictive regulations and standards should not
be required to maintain multiple sets of documentation demonstrating
compliance with a variety of regulations and standards. [San
Francisco]
The cohort for calculation of placement rates should
include placement in jobs related to the occupation for which
students are trained. [San Francisco]
In calculating placement rates, students should be
counted as employed if they obtain jobs within 180 days of
graduation. Students should be counted as employed if they obtain
jobs in the field for which they were trained or a related field.
Students (such as those in continuing education or in the military)
who are not looking for a job should be excluded from the
calculation. The calculation should be based on a percentage of
graduates. Incarcerated or physically incapacitated students should
be excluded from the calculation. [Atlanta]
4. What documentation is required to support the institution's
completion and job placement rates?
Documentation should be identical to that required
under the Carl D. Perkins Vocational and Applied Technology
Education Act and the Student Right-to-Know and Campus Security Act.
[Kansas City]
Documentation should be any documentation required by
the institution's State or accrediting agency. The rates can be
verified through required compliance audits. [New York]
Calculations should be included in the Fiscal Operations Report
and Application to Participate (FISAP) for the campus-based
programs. The time-frame for reporting this data should be
relatively short, to ensure that the data is relevant. [San
Francisco]
A student's placement information should be maintained
in each student's file. Placement information should be available
for the purposes of audits. [San Francisco]
Institutions should maintain employment records on file
to confirm placements. Employment records should not be submitted to
the Department of Education. [Atlanta]
III. Program Participation Agreement
A. Section 487(a)(5) requires an institution to provide
assurances that the institution will provide, upon request and in a
timely fashion, information relating to its administrative
capability and financial responsibility to the Secretary, the
designated State postsecondary review entity designated under
subpart 1 of part H of Title IV of the HEA, the appropriate guaranty
agency, and accrediting agency or association.
Issues that the community was asked to address and the
community's views:
1. How should agencies obtain this information from
institutions?
Other agencies should obtain the information through
IPEDS or accrediting agency annual reports. [San Francisco]
Requests should be made in writing to the Chief
Executive Officer and the Chief Financial Officer of the
institution. [Kansas City]
2. Should there be a standard information-sharing format?
There should be a standard information sharing format
provided that the institution is allowed to report using its
accounting system. [Kansas City]
There needs to be a standard information sharing format
that can be completed readily and corresponds to the institution's
fiscal year. [New York]
The Department should provide a single form that can be
used for all agencies. [Atlanta]
B. Section 487(a)(8)(B) requires institutions that advertise job
placement rates to make available to prospective students relevant
State licensing requirements for any job for which the course of
instruction is designed to prepare the student.
Issues that the community was asked to address and the
community's views:
1. How often should institutions be required to update licensing
data?
Institutions should update the data whenever State
licensing agencies require that updates or regulation must occur.
[San Francisco, Kansas City, Atlanta]
Information always needs to be current. [New York]
2. Should there be a standard format for providing this
information to prospective students?
A typical brochure should be used to convey information
to students. [San Francisco]
There should not be a standard format for providing
this information to prospective students. [Kansas City, New York,
Atlanta]
The institution should use the States required format
for providing consumer data to students. If the Secretary requires
additional information, the information should be consistent with
the formats that the institution already uses. [Kansas City]
C. Section 487(a)(13) provides that an institution may not deny
Federal financial aid to an eligible student because the student is
studying abroad in a program approved for credit by the home
institution.
Issues that the community was asked to address and the
community's views:
1. Should a consortium agreement be required?
A consortium agreement should not be required. [Kansas
City, San Francisco]
A consortium agreement should be used for pre-approved
work. Institutions need to ensure that two institutions are not
giving aid at the same time. [New York]
A consortium agreement should be required if the
student is paying tuition at the home institution and a second
institution is involved. Otherwise no consortium agreement should be
required. [Atlanta]
2. Does the study-abroad program have to be part of the
student's program at the home institution?
The study abroad program need not be a part of the
student's program at the home institution, but must count toward a
degree at the institution. [Kansas City]
The study abroad program should be a part of the
student's home program. [San Francisco, Atlanta]
An institution should not be obligated to enter into an
agreement with a student who wants to study abroad. [New York]
3. How should the term ``approved for credit'' be defined?
The term ``approved for credit'' should mean that
credits are fully transferable (accepted for credit) into an
eligible program offered by the home institution. [Kansas City]
``Approved for credit'' should mean used toward a
degree as defined by the institution. [San Francisco]
``Approved for credit'' should mean that it is
determined in advance that the credit is accepted at the home
institution. [Atlanta]
4. Should a standard format be developed for institutions to
report study abroad programs?
A standard format for institutions to report study
abroad programs is not needed. It does not appear that any reporting
is required. [Kansas City, New York, San Francisco, Atlanta]
D. Section 487(a)(14)(A) requires a new institution or an
institution that undergoes a change of ownership or changes its
status as a parent or subordinate institution to develop a Default
Management Plan to participate in the FFEL program. The Secretary
must approve the plan and the plan must be implemented for two years
after the institution is initially certified as an eligible
institution or for two years after its change of ownership or
status.
Issues that the community was asked to address and the
community's views:
1. Should the criteria in Appendix D of current regulations be
used as the basis for the Secretary's approval of default plans?
Unless otherwise required, an institution should use
Appendix D or submit any other approved default management plan.
[Kansas City, Atlanta]
If a new institution uses Appendix D, it is subject to
things it can't do as a new institution. What is in Appendix D that
isn't in the new regulations already? New institutions will certify
that they will adopt the stipulated plan they have in place (that
has approval from the appropriate State and or accrediting body.)
[New York]
2. Should there be other criteria?
Other criteria should include: a) more follow up once
the student leaves the institution; and b) additional cooperation
with all partners in the program, i.e., lenders, institutions, and
secondary markets. The Department should reassess the method for
determining cohort default rate. It is not fair for most
institutions. [San Francisco]
No other criteria is needed. [Atlanta]
E. Section 487(a)(18)(A) requires an institution that offers
athletically-related student aid to compile annually data on
expenses and revenues of athletic activities and expenses and
revenues of the institution.
1. How should the terms ``revenues'' and ``expenses'' be
defined?
There should be coordination with NCAA regulations and
audit guides. [San Francisco]
Institutions should be allowed to use the accounting
principles and terms they are currently using to define ``revenues''
and ``expenses.'' [Kansas City]
F. Section 487(a)(19) provides that if a student is unable to
meet his or her financial obligation to the institution because of a
delay in the disbursement of proceeds of a Title IV, HEA program
loan (due to compliance with Title IV requirements or delays
attributable to the institution), the institution may not penalize
the student in any way, including assessing a late fee; denying the
student access to class, the library, or other facilities; or
requiring that the student borrow additional funds.
1. How should the term ``denial of access to classes'' be
interpreted?
``Denial of access'' should mean the student is not
given access to equipment or supplies. [San Francisco]
2. What should be considered as a condition to meet the
definition of a ``delay in the delivery of proceeds?''
This section should not apply to: 1) delays by lenders
or guarantors in delivering loan proceeds which are not caused by
the necessity of complying with Title IV requirements; and 2) delays
attributable to the student's not providing information by known,
published, or noticed deadlines, that the institution, lender, or
guarantor must have in order to comply with Title IV requirements.
(Example, IRS 1040 forms for verification.)
The Secretary should regulate in such a way that it is clear
that institutions may charge reasonable interest on unpaid bills
where the delay in Title IV delivery is attributed to the student or
an agency other than the institution. [Kansas City]
This section does not address delays for which the
student has not met public deadlines or performed all obligations
necessary to ensure the delivery of timely aid. [Kansas City]
If the student does not provide documents, it is not
applicable. It should relate only to a 30 day delayed disbursement.
[Atlanta]
No constraints should be put on a student for the delay
of that portion of tuition covered by the first-time Stafford loan
or in the case of institutional delay. [New York]
Consideration should be given to the laws of various
states since they differ as to when a student must meet his or her
financial obligation at an institution. [San Francisco]
3. If a delay is caused by the lender or institution can the
guarantee agency take actions that are prohibited under other
circumstances?
No, a guaranty agency should not be allowed to take
action if the delay is caused by the lender or institution. [New
York]
G. Section 487(a)(20) prohibits an institution from
paying a commission, bonus or other incentive payment based directly
or indirectly on success in securing enrollments or financial aid to
any person or entity engaged in any student recruiting or admission
activities or in making decisions regarding the awarding of student
financial assistance.
Issues that the community was asked to address and the
community's views:
1. How should the Department determine that an institution is
not providing commissions, bonuses, and other incentive payments?
Compliance should be determined through the audit
process. Auditors check employment and payroll records. [San
Francisco, Atlanta]
2. If an institution awards merit pay to salaried employees in
increments as the student successfully completes portions of the
course, graduates, or gets placed in a job, would the institution be
in compliance?
Institutions should be allowed to provide merit
incentives to employees as long as it cannot be attached to the
enrollment process (i.e., servicing retaining, and placing students
after the first day of class at the institution.) [Kansas City]
Salaried employees should be rewarded for retention. Any
compensation (non-salaried) for the enrollment of financial aid
students is illegal. There appears to be opposition to compensating
for the ``warm body count'' and financial aid packages, but it does
seem that the statute allows for a legitimate basis for compensation
above base salary for areas such as retention, however defined, and/
or completion rates. [New York]
As the intent appears to be elimination of head count
recruitment commissions, bonuses on merit pay may be made as long as
they are not made solely as the basis of recruitment of the student.
The Department should define who is an employee. [Atlanta]
The institution would be in compliance if an
institution awards merit pay to salaried employees in increments as
the student successfully completes portions or the course,
graduates, or gets placed in a job. [Kansas City]
IV. Annual Audits
A. The Secretary is authorized to prescribe regulations for
institutional and third-party servicer audits. Section
487(c)(1)(A)(i) requires an annual audit of the financial condition
of the institution in its entirety and an annual audit of the
institution's compliance with the requirements governing the Title
IV programs. The institution must make these audits available to
cognizant guaranty agencies, eligible lenders, State agencies, and
the State review entities designated under subpart 1 of part H of
Title IV of the HEA.
Issues that the community was asked to address and the
community's views:
1. To what extent, if any, should the annual audit requirement
be waived or limited? Should this requirement for annual audits be
waived for institutions participating in the Quality Assurance
Program?
Annual financial audit should be waived in all
instances except in the case of new institutions, institutions
undergoing a change in ownership, institutions with a cohort default
rate in excess of 25 percent for one year, and institutions that did
not satisfy all factors of financial responsibility in their most
recent financial statement issued to the Department. Furthermore,
institutions would be required to submit no more than two
consecutive annual audits before being considered released from the
annual audit requirement.
Annual compliance audit should be waived for all institutions
except in the case of new institutions, institutions undergoing a
change of ownership, and institutions which have undergone a
compliance audit within the past three years which resulted in Title
IV liabilities in excess of one percent of Title IV funds disbursed.
A further suggestion was made to truncate the audit requirements
if the Secretary continues to require an annual audit. A minority of
the group felt that annual audits, both financial and compliance,
should be required and not waived. Those institutions that meet
quality assurance criteria would be required to submit a short form
audit on a biannual basis. [Atlanta]
No further burden should be placed on institutions than
their State already requires or than the IRS requires of them. If
someone else wants the audit, the Department should be responsible
for distributing them. There should be diminishing filing
requirements based upon performance evaluation factors and general
longevity of institutions to exempt an institution from an annual
audit. A minority suggested that pledged assets be accepted at some
level in lieu of a certified annual audit. [New York]
The annual audit requirement could be waived in certain
areas, e.g., the institution could be exempt from the student
compliance components but not from a financial audit if the
institution is in the quality assurance program. [San Francisco]
The Department should develop a set of guidelines that
would permit exemptions. [Atlanta]
2. How should guaranty agencies, lenders, and other parties
request audit information from institutions?
An audit correction action plan should be sent to
guaranty agencies and lenders. Requests should be in writing with
explanations of why the request is made. Freedom of Information Act
procedures could be used. Requests should be made to the appropriate
official on campus. Information may not be given to any third-party
without the approval of the institution. [San Francisco]
Requests should be in writing to the Chief Executive
Officer and the Chief Financial Officer. A minority of the group
believed that all requests should be made in writing to the Chief
Financial Officer only. [Kansas City]
Institutions should be notified of any requests for
information and when information is released to appropriate
agencies. The information should be released only to the parties
already listed in the statute. [Kansas City]
Information should be provided to guaranty agencies,
lenders, and other parties upon request. [Atlanta]
B. In matters not governed by specific provisions, section
487(c)(1)(B) provides for the establishment of standards of
financial responsibility and administrative capability that include
any matter the Secretary deems necessary for the sound
administration of the financial aid programs (such as the pertinent
actions of any owner, shareholder, or person exercising control over
an eligible institution.)
Issues that the community was asked to address and the
community's views:
1. What other administrative capability or financial
responsibility standards should be considered?
Agencies other than the Department that are permitted
to request the same information should only be allowed to request
documents used by the Department. [New York]
No other standards of financial responsibility should
be considered. [Kansas City, San Francisco]
V. Institutional Refund Policy
Section 484B(b)(2) requires that each institution participating
in any Title IV, HEA program shall have a fair and equitable refund
policy under which the institution refunds unearned tuition, fees,
room and board, and other charges, to a student who received Title
IV assistance (including Federal PLUS loans received on the
student's behalf) for a student who does not register for the period
of attendance for which assistance was intended or withdraws or
otherwise fails to complete the period of enrollment for which
assistance is provided.
An institution's refund policy is considered to be fair and
equitable if the policy provides for a refund in an amount of at
least the largest of the amounts provided under--
(1) The requirements of applicable State law;
(2) The specific refund standards established by the
institution's nationally recognized accrediting agency if those
standards are approved by the Secretary;
(3) The pro rata refund calculation described in the statute for
any student whose withdrawal date is on or before the 60 percent
point in time in the period of enrollment for which the student has
been charged.
The term ``pro rata refund,'' means a refund by the institution
to a student attending that institution for the first time of not
less than that portion of the tuition, fees, room, board, and other
charges assessed the student by the institution equal to the portion
of the period of enrollment for which the student has been charged
that remains on the last recorded day of attendance by the student,
rounded downward to the nearest 10 percent of that period, less any
unpaid charges owed by the student for the period of enrollment for
which the student has been charged, and less a reasonable
administrative fee not to exceed the lesser of five percent of the
tuition, fees, room and board, and other charges assessed the
student, or $100.
``The portion of the period of enrollment for which the student
has been charged that remains,'' is determined--
(1) In the case of an educational program that is measured in
credit hours, by dividing the total number of weeks comprising the
period of enrollment for which the student has been charged into the
number of weeks remaining in that period as of the last recorded day
of attendance by the student;
(2) In the case of an educational program that is measured in
clock hours, by dividing the total number of clock hours comprising
the period of enrollment for which the student has been charged into
the number of clock hours remaining to be completed by the student
in that period as of the last recorded day of attendance by the
student; and
(3) In the case of a correspondence program, by dividing the
total number of lessons comprising the period of enrollment for
which the student has been charged into the number of lessons not
submitted by the student.
Issues that the community was asked to address and the
community's views:
1. How should the ``60 percent point in time'' be determined?
Should this be based on scheduled time in the program or actual
attendance?
The ``60 percent point in time'' should be based on
scheduled time in the program, not on actual attendance. [Kansas
City, San Francisco, Atlanta]
In the absence of formal withdrawal by the student, it
is up to the institution to devise a mechanism to determine the last
date of attendance. [Kansas City]
2. How should the term ``student who is attending the
institution for the first time'' be defined? Should this mean the
first time ever or the first time at the institution?
Only first year, first-time students should be
considered ``first time.'' [San Francisco]
``A student who is attending such institution for the
first time'' should be defined as the first time ever rather than
the first time at an institution. Some attendees favored defining
``first time'' as the first time at the institution. Pro ration
should continue until the student finishes his or her first period
of enrollment for which they have been charged, or until the student
has withdrawn from that term, class, or program for which they have
been charged. If the student re-enters the institution, they would
not be considered a first time student. [Kansas City]
``First-time student'' is a student at that particular
institution in their first scheduled period of enrollment for which
the student has been charged. [New York, Atlanta]
``First-time student'' should be defined as a student
enrolled for the first time at the institution in an eligible
program. [Atlanta]
The regulations should not determine a minimum program
length to consider a student as attending at a prior institution or
current institution. [Kansas City]
If a student enrolls for any period of time, drops out,
then returns, they are not considered enrolled for the first time
for the second enrollment period. If standard terms of enrollment
are used, the student should be considered first time for the first
term of enrollment for which they were charged. If standard terms
are not used, the lesser of 60 percent of the first academic year or
60 percent of the program should be used. [Atlanta]
3. How should the term ``period of enrollment for which the
student has been charged'' be defined?
The term ``period of enrollment for which the student
has been charged'' should be left to the institution to define based
on scheduled time. [New York]
The ``period of enrollment for which the student has
been charged'' should be defined based on full charges for the
increment of the enrollment period defined by the institution as the
``period for charges.'' [Kansas City]
The ``period of enrollment for which the student has
been charged'' should be defined as the length of time for which the
student was initially charged. For example, for an institution that
charges by semester, the first semester the student was charged is
the relevant period of enrollment. [Atlanta]
The ``period of enrollment for which the student has
been charged'' should be defined as a minimum of one academic term,
quarter, or semester or, for clock hour institutions, as a minimum
of one-third of an academic year. If the institution charges for a
full program, the length of the program should be defined as an
academic period. [Kansas City]
The ``period of enrollment for which the student has
been charged'' should be defined as the length for which a student
would be eligible to receive Title IV assistance. [San Francisco]
4. Should the regulations address specific requirements
regarding the treatment of equipment or book costs to be included in
pro rata refund calculations?
Books and supplies should be excluded from the pro rata
calculation. Only fees for services rendered over time, e.g., lab
fees, should be included. Exclude ``up front'' fees (application)
and books, supplies, and equipment up to a certain dollar amount.
There is a difference between a service fee and a purchase of
supplies, equipment, and books. Purchases should be excluded. [New
York]
The regulations should state that equipment, books
supplies, telephone charges, parking fines, etc. should not be
included with pro rata requirements. [Kansas City, Atlanta]
Charges for equipment, instructional materials, etc.
should not be included in the calculation for refund purposes if
separately charged by the institution. [San Francisco]
If books and supplies are provided by the institution
and the institution has delivered the books and supplies to the
student, the books and supplies should be excluded from the pro rata
refund policy. [Kansas City]
Certain fees assessed by the institution should be
included in the pro rata refund where the students do not realize
the benefits over the enrollment period to include one time charges,
i.e., application fee, orientation charges, testing fees, and
deferred payment fees. Other charges assessed by the institution
should be excluded from the pro rata refund when the student does
not realize the benefit over the enrollment period to include fines,
penalties, and individual charges (i.e., parking fines, and health
center charges.) Books and supplies should not be included in pro
rata refund unless they are considered a mandatory charge by the
institution (i.e, not when the student has the option of buying from
the institution or some other source.) [Atlanta]
If all equipment and books are purchased at one time or
issued to the student before he or she terminates his or her
enrollment, the cost should be included in the refund. The
institution should charge the whole amount which is not returnable.
Equipment must be returned and able to be used again. If equipment
has not yet been issued, the student would be eligible for a 100
percent refund. [San Francisco]
5. Should the regulations address a time frame for student
refunds? Should the regulations have a minimum program length that a
student must complete before the student will not be considered to
be attending ``for the first time?''
The time frame for all refunds should be uniformly 60
days from the date the institution becomes aware that a student has
withdrawn. [San Francisco]
The regulations should indicate the time frame for
issuing student refunds to be the same as current refund
requirements- within 60 days of determination that a refund is in
order. [Kansas City]
Refunds should be made 30 days from date of
determination. [San Francisco]
Regulations should not address a time frame for refunds
since it is already addressed by the State or accrediting agencies.
[Atlanta]
6. Should the regulations address how institutions will account
for credit balances? Should these funds be kept in a restrictive
account rather than the institution's general operating account?
The regulations should not address how institutions
account for credit balances nor restrictive or general operating
accounts. A minority of the group felt that students with a
baccalaureate degree should be exempt from the language. [Kansas
City]
The group recommends that regulations remain silent on
the method by which institutions account for credit balances. [San
Francisco, Atlanta]
After all returns have been made to the Federal program
from which the funds came, there should be a reasonable period of
time for the student to request his account balance if there are
educational costs outstanding. [San Francisco]
7. Since the statute would imply than an institution is required
to calculate all three policies and make the payment on the one most
generous, should the institution be allowed to determine which is
generally most generous an make that the official refund policy?
Institutions should be allowed to determine the refund
policy that is generally most generous and use that policy.
Institutions would define ``generally most generous.'' [Kansas City,
San Francisco, Atlanta]
The Department should issue guidelines for institutions
to use in determining which method to use. If the institutions use
average costs in awarding and packaging, average costs should be
used in refunds. [San Francisco]
Institutions should not be allowed to determine which
refund is ``generally most generous.'' This is inconsistent with the
statute. The statute does, however, permit institution to develop an
algorithm that integrates the three refund policies and yields the
calculation ``most generous'' to each individual student. The
requirements should apply only to the calculation of refunds for
students who are recipients of financial aid under Title IV. [Kansas
City]
8. How should ``fair and equitable'' be defined?
Fair and equitable'' should be defined as most generous
to the student. [San Francisco]
It is not necessary to define ``fair and equitable''
separately from the requirements of the statute and the regulations.
The Student Commission addresses adequately the definition of ``fair
and equitable.'' [Kansas City, Atlanta]
The statutory mandates requiring pro rata refund should
be viewed as a limitation and not as an example for the purposes of
Title IV refund only. [Kansas City]
VI. Student Consumerism Requirements
A. Under section 485(a), additional provisions have been added
to the list of information an institution must disclose, upon
request, to students and prospective students as part of the student
consumerism requirements.
The institution's refund policy must identify that refunds will
be credited in the following order:
(a) To outstanding balances on Federal Family Education Loans;
(b) To outstanding balances on Federal Direct Loans;
(c) To outstanding balances on Federal Perkins Loans;
(d) To awards under Federal Pell Grants program;
(e) To awards under Federal SEOG program;
(f) To awards under Federal Work Study program;
(g) To other Title IV assistance; and
(h) To the student.
Issues that the community was asked to address and the
community's views:
1. Should regulations require institutions to publicize how
refunds will be processed and what refunds students are entitled to
receive in the event that the institution closes?
Regulations should require institutions to publicize
how refunds will be processed and what funds students are entitled
to receive in the event the institution closes. [Kansas City]
Institutions should not have to publicize how refunds
will be processed and what funds students are entitled to receive in
the event the institution closes. This is not a consumer information
issue. This is information to be disbursed if the institution
closes. Information should be available to students upon request. A
statement could be put in the catalog that will lead the student to
ask relevant questions. The Department should work with State
Agencies to develop plans that should be made available to students
on request. There is very little probability that certain strong
institutions will close. All institutions should not be required to
disclose this. [San Francisco, Atlanta]
2. Should consumer information address teachouts or other State
or accrediting agency mandated requirements to protect student
consumers in the case of school closure?
Consumer information should not address teachouts or
other state or accrediting agency mandated requirements to protect
student consumers in the case of institution closure. [Kansas City,
Atlanta]
3. Should institutional discretion be permitted when determining
the order in which loan funds under the FFEL program are returned?
Institutional discretion should be permitted when
determining the order in which loan funds under the FFEL program are
returned. [Kansas City, San Francisco, Atlanta]
4. Should guarantee and origination fees be included in the
refund to totally pay off a FFEL program loan?
Guaranty and origination fees should not be included in
the refund to totally payoff an FFEL program loan. [Kansas City]
Guaranty and origination fees should be included in the
refund to totally payoff an FFEL program loan. [Atlanta]
The full amount should be included in the refund as a
deterrent to default on the small remaining amount. This should be
done at the institution's discretion. Institutions should not be
required to pay back money they have not received, i.e., guaranty
and origination fees. Institution should be permitted to include
these fees if they choose. [San Francisco]
5. How should the guaranty agencies monitor students to ensure
that multiple FFEL funds are treated as one for the purposes of
billing and deferments from one lender?
Guaranty agency monitoring of students to ensure that
multiple FFEL funds are treated as one for the purpose of billing
and deferments from one lender should be handled under the FFEL
program. This is not a consumer information issue. [Kansas City, San
Francisco]
Guaranty agency monitoring of students to ensure that
multiple FFEL funds are treated as one for the purpose of billing
and deferments from one lender should be done through the National
Student Loan Data Bank. Agencies should identify all loans obtained
through that agency. [Atlanta]
VII. Institutional Eligibility and Certification Procedures--
Part H, Subpart 3
A. Section 498(a), (b), and (f) of the HEA establish application
requirements and procedures for the Secretary to use to determine an
institution's legal authority to operate within a State,
accreditation, financial responsibility, and administrative
capability.
Issues that the community was asked to address and the
community's views:
1. What information should the Secretary require on the form to
supplement the specific information required by the statute?
Information should include documentation of an
institution's accreditation or preaccreditation, degree-granting
authority, authority to provide postsecondary education, and State
licensure. [Kansas City]
With one exception, participants were satisfied that
information currently collected on the Department's application
forms is adequate, and new requirements would needlessly add burden.
One participant recommended a separate application for proprietary
institutions. [New York]
Specific categories should be established for different
types of institutions and academic functions. Information should
include the names and social security numbers of key administrative
personnel and board members. [San Francisco]
Provided that new information required by statute is
collected (financial statements, description of student aid
processing at the institution, information on main and branch
campuses, and information on the institution's third-party
servicers), information currently collected is sufficient. However,
additional information should be collected on whether an
institution's owner has had substantial control over a closed
institution that owes refunds to students or lenders. [Atlanta]
2. Should the Audit Guide be revised to require the auditor to
verify the information on the application form?
Participants recommended no changes in the audit guide.
[Kansas City, New York, San Francisco, Atlanta]
A minority of participants indicated that there should
be changes, without specifying what changes are needed. [Kansas
City]
B. Section 498(c)(1) addresses financial responsibilities and
requires an institution to show that it is able to provide promised
services, to provide administrative resources necessary to Title IV
duties, and the meet all of its financial obligations including
refunds and repayments to the Secretary for Title IV liabilities.
Issues that the community was asked to address and the
community's views:
1. What information should be required from an institution to
permit the Secretary to determine that the institution provides the
services described in its official publications and statements?
No additional information needs to be collected from
institutions. [Kansas City, San Francisco]
If the Secretary needs additional information, the
Secretary should be able to collect it from data made available
through State and accrediting functions. [Kansas City, New York,
Atlanta]
The best way to obtain information would be through
site visits. [New York, Atlanta]
The Department needs to take action on institutions
with failing financial statements, rather than simply collect them.
[New York]
The establishment of uniform financial standards would
be difficult, because different standards need to apply to different
types of institutions. [New York]
2. What supporting information should be submitted to establish
that an institution has the administrative resources to comply with
its program responsibilities?
The financial information concerning each branch campus
of an institution should be evaluated, without simply relying on the
financial information of an institution as a whole. [New York]
Employee biographies with social security numbers
should be provided. [San Francisco]
3. What level of financial resources are needed to demonstrate
that an institution can meet potential refund and repayment
obligations, and should institutions be required to set aside funds
for these purposes?
An institution should be able to provide for the
payment of refunds that could occur over a 30-day period, but the
institution should not be required to set aside funds specifically
for this purpose. [Kansas City]
The statutory provisions for institutions to maintain
cash reserves unless they are covered by State tuition recovery
plans should be sufficient. [New York]
No requirements are necessary. The Department should
have the discretion to review and establish amounts when necessary.
[San Francisco]
C. Section 498(c)(2) requires that, notwithstanding section
498(c)(1), if an institution fails to meet the criteria prescribed
by the Secretary with respect to operating losses, net worth, asset-
to-liabilities ratios, or operating fund deficits, the institution
must provide the Secretary with satisfactory evidence of its
financial responsibility in accordance with section 498(c)(3).
Issues that the community was asked to address and the
community's views:
1. What standards should be set for each of these criteria?
One standard should not be applicable to all
institutions. [New York]
Institutions should be allowed to explain their
financial statements before decisions in this area are reached. [New
York]
The institutions financial condition should be examined
over a certain time period so that decisions regarding its financial
responsibility are based on a trend. [New York]
The Department should particularly consider an
institution's statement of cash flow. [New York]
Ratios that are used to measure stability in the
business world should be used. [New York]
Current standards should be used with Departmental
discretion. [San Francisco]
Standards for these criteria should be: a ratio of
assets to liabilities of 1:1, showing a positive net worth, and not
having two consecutive years of negative operating cash flow or its
equivalent for fund accounting purposes. These should be indicators
of financial responsibility, not absolute minimums. The importance
of each criteria should be given its proper weight. [Atlanta]
D. Section 498(c)(3) provides that the Secretary may find an
institution to be financially responsible, notwithstanding failure
under 498(c)(1) and 498(c)(2), if the institution; (1) Provides
third-party guarantees of at least one-half of annual potential
liabilities, (2) is backed by the full faith and credit of a State
or its equivalent, (3) establishes that it is a going concern
capable of meeting all its obligations, or (4) has met comparable
standards set by the Secretary.
Issues that the community was asked to address and the
community's views:
1. What type of third-party guarantees will be acceptable to the
Secretary?
Acceptable third-party guarantees should include bonds,
institutional collateral, or a tuition recovery fund. [New York]
Acceptable third-party guarantees should include
performance bonds, letters of credit, or other comparable
instruments. [Kansas City, Atlanta]
Acceptable third-party guarantees should include
performance bonds, letters of credit, third-party escrow
arrangements, and certificates of deposit. [San Francisco]
2. Under what conditions will each type of instrument be used?
These measures should be used for institutions that
close or institutions that don't properly repay any required
refunds. [New York]
These measures should be used only if the institution
can find no other way to prove its financial status. The institution
should have an opportunity to negotiate with the Department before
the third-party guarantees are imposed. [Kansas City]
These measures should be used anytime the Secretary
determines that the institution is not meeting its financial
responsibilities. [San Francisco]
These measures should be used if an institution fails
to satisfy a liability established by the Secretary after an
administrative review process. [Atlanta]
3. How does the Secretary determine the amount equal to one-half
of the annual potential liabilities of an institution, which is the
minimum guarantee amount?
This should be determined based on the institution's
retention or refund history. [New York]
The annual potential liability should be defined as the
sum of the difference between charges paid by the student
(regardless of the source of payment) and the pro rata amounts
earned by the institution according to its applicable refund policy.
[Atlanta]
The annual potential liability should be based upon the
institution's annual Title IV funds multiplied by one-half of its
withdrawal rate. [San Francisco]
4. What standards will be used to determine when guarantees in
excess of the minimum amount will be required for an institution
that fails to demonstrate financial responsibility?
Guarantees in excess of the minimum amount should be
required if the institution must also have funds to make teach out
arrangements. [New York]
Guarantees in excess of the minimum amount should not
be imposed. [Kansas City, Atlanta]
Guarantees in excess of the minimum amount should be
required when the institution cannot meet its current financial
obligations. [Atlanta]
5. How can an institution that does not demonstrate financial
responsibility otherwise show that it is capable of meeting all of
its financial obligations.
All factors must be analyzed as a whole. [New York]
The Department should use the process used by
accrediting agencies to determine financial responsibility. [New
York]
Institutions should be considered financially
responsible if they are on reimbursement. [Kansas City, Atlanta]
Institutions should be considered financially
responsible if they are funded through an escrow arrangement. [San
Francisco, Atlanta]
E. Section 498(c)(4) provides that the determination that an
institution has met certain standards of financial responsibility
will be based on an audited and certified financial statement, done
in accordance with standards of the American Institute of Certified
Public Accountants. Additional audits may be required.
Issues that the community was asked to address and the
community's views:
1. When would the Secretary require additional audits, and what
additional items should be required for such audits?
The Department should be able to request a more
detailed audit of a particular segment of the audited financial
statement. [New York]
The Department should take into account the cost of
requests for additional information. [New York]
The Department should be able to request the more
frequent submission of audited financial statements in cases of
fraud, abuse, or a negative program review finding. For additional
submissions requested at the Secretary's discretion, it is suggested
that the Secretary be willing to look at something other than a full
audited financial statement. [Kansas City]
At the discretion of the Secretary, additional reports
could include CPA prepared pro forma statements, cash forecasts,
enrollment forecasts, and operating budgets with comparisons of
actual to budget. [San Francisco]
There should be no need for interim reports since they
are now required annually. If interim information is requested, it
should be unaudited. However, if an institution is seeking relief
from a previously imposed fiscal restriction before its next
scheduled statement, the interim statement should be audited.
[Atlanta]
2. What guidelines and time periods should be set for
provisional certification?
Each institution should be treated on a case-by-case
basis subject to the Secretary's discretion. [New York]
A two-year time period should be used for provisional
certification. [New York]
The time period should not exceed three-years and the
institution should have the ability to achieve full certification
sooner. [San Francisco]
F. Section 498(c)(5) provides that an institution must maintain
sufficient cash reserves to ensure repayment of any required
refunds. Institutions that participate in and contribute to a State
tuition recovery fund would be exempt from this requirement.
Issues that the community was asked to address and the
community's views:
1. What are sufficient cash reserves? How are they measured,
what types of funds may be included, and how are they protected from
use for other purposes?
Sufficient cash reserves should be defined as a certain
percent of unearned tuition based on the institution's refund
history and established only when there is an indication of a
problem or high-risk institution. This could be part of provisional
certification. [New York]
Sufficient cash reserves should be defined as 100
percent of any unearned tuition liability from Title IV awards. A
minority of the group thought an amount to cover loans where the
loan guarantee might be invalidated because of fraud should also be
included. Cash reserves should include cash, accounts receivable,
and liquid assets that can be converted to cash within 30 days.
[Kansas City]
If the institution has been timely (60 days) in
processing refunds for one year, no cash reserves should be
required. If the institution has not been timely, an increasing
percentage should be reserved based on the total Title IV funds
processed by the institution. The regulations should be written to
provide incentives for institutions with a good performance record.
The Department should take into account whether the refunds were
delinquent because of personnel problems as compared to a poor
financial position. When an institution is required to reserve cash,
any earnings should accrue to the institution. Letters of credit
should be permitted as a substitute for a cash reserve. [San
Francisco]
A cash reserve is sufficient if it equals anticipated
refund to be paid during a 30 day period based on the average of
refunds paid during the preceding 12 month period. Cash reserves are
defined as cash and cash equivalents plus other current assets that
can be converted to cash within 30 days. Segregation of the cash
reserve is not required by law nor is it desirable. [Atlanta]
2. What are the components of a state tuition recovery fund that
demonstrates that an institution contributing to the fund will be
able to pay refunds?
If an institution contributes to a State tuition
recovery fund they should be exempt automatically from this
requirement. [New York]
The components of a State tuition recovery fund that
will demonstrate that an institution contributing to the fund will
be able to pay refunds are those tuition recovery components that
will pay a lender the required refund and/or pay the student the
required refund. [Atlanta]
3. What information must institutions provide to permit the
Secretary to determine that an institution will be able to use the
tuition recovery fund to pay refunds if the institution itself is
unable to do so?
An institution should provide a letter from the State
that confirms that they will be able to use the State tuition
recovery fund to pay refunds. [New York]
An institution should provide a description of the
legal structure of the fund and audited financial statements so the
Secretary may determine that the institution will be able to use the
tuition recovery fund. [San Francisco]
4. Should the Secretary compile and maintain a list of State
tuition recovery funds if that meets the requirements that permit an
institution's participation in that fund to operate in lieu of its
cash reserve requirements?
The Secretary should compile and maintain a list of
State tuition recovery funds that meet the requirements that permit
an institution's participation in that fund to operate in lieu of
the cash reserve requirements. [New York, San Francisco, Atlanta]
An institution should provide the name and address of
the State tuition recovery fund to confirm that they will be able to
use the State tuition recovery fund to pay refunds. [Atlanta]
G. Section 498(d) authorizes the Secretary to establish
procedures and standards relating to administrative capability,
including the consideration of past performance of institutions or
individuals in control of such institutions and maintenance of
records.
Issues that the community was asked to address and the
community's views:
1. What measures of past performance will be used, and what time
periods should be included in the review?
No other standards of administrative capability or
financial responsibility should be considered. There is an
inundation of oversight responsibility and the requirements placed
on institutions is sufficient. [Kansas City, San Francisco, Atlanta]
In certain cases, institutional administrators should
meet a minimum experience requirement (e.g., five years of prior
experience in administration.) [San Francisco]
School owners, corporate directors and officers, and
the chief school administrator should be required to monitor and
investigate school compliance, take whatever steps are within the
person's authority to effect the correction of non-compliance, and
report to the Department, the accrediting agency, and the State
licensing agency any non-compliance that has not been corrected.
California law requires this. [San Francisco]
The current Sec. 668.14 and Sec. 668.15 should be used
to measure administrative capability with the exception of the
withdrawal rates. [Kansas City]
A minority of the group recommended that the Secretary
look into all complaints filed against institutions with the local
law enforcement authorities even though the complaint may not
warrant pulling of an institution's license or loss of
accreditation. [Kansas City]
The Department should look at the past two audits to
see that performance reviews have corrected all the deficiencies as
a basis that the institution is administratively capable. This
should not be determined arbitrarily, but should be determined by a
review. [New York]
Research data is needed to establish a basis for past
performance. Other measures of past performance that should be used:
Placement, default and withdrawal rates, past performance reviews
and implementation of recommendations, personnel turnover, and
faculty/student ratio. [San Francisco]
Default rates, course completion and withdrawal rates,
and job placement rates must be considered together. These should be
triggers that, in certain combinations, should cause more review of
administrative capability. Mitigating circumstances must be
considered. [New York]
Standards for default rates, course completion and
withdrawal rates, and job placement rates should be applicable to
all institutions. No new standards should be set without historical
data. [San Francisco]
Student or consumer complaints against an institution
should be taken into consideration if a pattern of legitimate
complaints indicate a need for review by an outside entity. [New
York]
There should be no standard measure of an institution's
administrative capability with respect to student or consumer
complaints against an institution. The Department should review
trends and the nature of complaints. [San Francisco]
H. Section 498(g) provides that the Secretary may certify an
institution's eligibility for a period not to exceed four years.
Issues that the community was asked to address and the
community's views:
1. Should the Secretary adopt rules addressing the length of a
period of eligibility and if so what should these standards be?
The four-year periods of eligibility should be based on
award years. [Kansas City]
Any schedule developed for the review of institutions
for this purpose should be published. [New York]
Regulations and standards in this area are not
necessary; the statute is specific enough. [San Francisco]
In cases where the eligibility process requires a site
visit, and the Secretary is unable to perform the site visit in a
timely manner, eligibility should continue beyond the expiration
date until the eligibility process is completed. [Atlanta]
I. Section 498(h) provides that the Secretary may provisionally
certify an institution for not more than one year for initial
certification, or three years under certain conditions. Provisional
certification may be withdrawn if the institution is unable to meet
its responsibilities. Also, if an accrediting agency's recognition
is withdrawn, the Secretary may continue the eligibility of
accredited institutions for up to 18 months.
Issues that the community was asked to address and the
community's views:
1. What standards should be used to determine whether an
institution may be granted provisionally certification?
An institution could be provisionally certified if it
does not meet the third criterion for financial responsibility in
section 498(c) of the HEA. [Kansas City]
For an initial application, the Secretary should rely
on the statutory language. [New York]
An institution should be provisionally certified if it
is unable to meet a regulatory standard for a reason beyond the
institution's control. [New York]
The Secretary should use the same standards that are
used for determining financial responsibility and administrative
capability. [San Francisco]
An institution that meets all requirements for
certification other than the completion of a required site visit
should be provisionally certified if the Secretary is unable to
conduct the site visit in a timely manner. [Atlanta]
2. What procedures and standards should the Secretary use to
decide whether an institution that has received provisional
certification is unable to meet its responsibilities?
Before revoking an institution's participation, the
Secretary should conduct proceedings for a hearing, and should
provisionally certify an institution until the completion of those
proceedings. [New York]
The Secretary should use the same standards that are
used for determining financial responsibility and administrative
capability. [San Francisco]
The Secretary should use the results of audits, audited
financial statements, and program reviews to determine whether to
certify an institution provisionally and conduct a site visit at the
institution. [Atlanta]
3. Under what circumstances should the Secretary continue the
eligibility of accredited institutions where their accrediting
agency loses its recognition? Should the period of extension be the
same for all institutions?
According to a minority of participants, an institution
identified as having administrative capability problems should be
provisionally certified for no more than one year. [Kansas City]
All institutions should be provisionally certified for
18 months, and the Secretary should ensure that a process is
available for such institutions to become accredited by another
agency. [San Francisco]
Eligibility should be continued in all cases and for
the same period of time for all institutions. The Secretary should
notify an institution promptly of the Secretary's action, the
institution should promptly apply for accreditation with another
agency and notify the institution of that fact, and the institution
should make a good-faith effort to expedite its accreditation.
[Atlanta]
[FR Doc. 94-3879 Filed 2-25-94; 8:45 am]
BILLING CODE 4000-01-P
