[Federal Register Volume 59, Number 82 (Friday, April 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10139]
[[Page Unknown]]
[Federal Register: April 29, 1994]
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Part VII
Department of Education
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34 CFR Part 600
Institutional Eligibility Under the Higher Education Act of 1965, as
Amended; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 600
RIN 1840-AB87
Institutional Eligibility Under the Higher Education Act of 1965,
as Amended
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the regulations governing institutional
eligibility under the Higher Education Act of 1965, as amended (HEA).
The regulations implement new HEA statutory provisions that were added
by the Higher Education Amendments of 1992 and the Higher Education
Technical Amendments of 1993. In general, these new statutory
provisions tightened the eligibility requirements for institutions
participating in the student financial assistance programs authorized
under title IV of the HEA (title IV, HEA programs). The regulations
also clarify existing provisions, and, in keeping with the statutory
changes, tighten procedures governing institutional eligibility
determinations.
EFFECTIVE DATE: These regulations take effect on July 1, 1994, with the
exception of Secs. 600.5, 600.7, 600.10, 600.20, 600.30, 600.31 which
will become effective after the information collection requirements
contained in these sections have been submitted by the Department of
Education and approved by the Office of Management and Budget under the
Paperwork Reduction Act of 1980. If you want to know the effective date
of these provisions of the regulations, call or write the Department of
Education contact person. A document announcing the effective date will
be published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Cheryl Leibovitz, U.S. Department
of Education, 400 Maryland Avenue, SW., room 4318, Regional Office
Building 3, Washington, DC 20202. 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 8 p.m., Eastern time, Monday through Friday.
SUPPLEMENTARY INFORMATION: The Institutional Eligibility regulations
contain requirements that apply to all postsecondary educational
institutions that seek initial or continued eligibility to apply to
participate in the programs authorized by the HEA.
On February 10, 1994, the Secretary published a notice of proposed
rulemaking (NPRM) for this part in the Federal Register, 59 FR 6446-
6465. The NPRM included a discussion of major issues surrounding the
proposed changes that will not be repeated here. The following list
summarizes those issues and identifies the pages of the preamble to the
NPRM on which a discussion of those issues can be found.
Definitions in Sec. 600.2 (pages 6446-6447).
Institution of higher education in Sec. 600.4 (pages 6447-6448).
Proprietary institution of higher education in Sec. 600.5 (pages
6448-6450).
Conditions of institutional ineligibility in Sec. 600.7 (pages
6450-6451).
Treatment of a branch campus in Sec. 600.8 (page 6451).
Written agreement between an eligible institution and another
institution or organization in Sec. 600.9 (page 6451).
Date, extent, duration, and consequence of eligibility in
Sec. 600.10 (pages 6451-6452).
Special rules regarding institutional accreditation or
preaccreditation in Sec. 600.11 (page 6452).
Change in ownership resulting in a change of control in Sec. 600.31
(pages 6452-6454).
Eligibility of additional locations in Sec. 600.32 (page 6454).
Loss of eligibility in Sec. 600.40 (page 6454).
Termination and emergency action proceedings in Sec. 600.41 (page
6454).
The following discussion describes the significant changes since
publication of the NPRM and the manner in which certain critical
provisions will be initially implemented. They are discussed in the
order in which they appear in the text of the regulations. If a
provision applies 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.
Section 600.5 Proprietary Institution of Higher Education
With regard to the two-year rule, the Secretary provides exceptions
to the requirement that the program an institution lists on its initial
eligibility application be substantially the same as the program it
offered for two years preceding that application. An institution may
satisfy the two-year rule even if it substantially changed the subject
matter of its program over the two-year period if that change was made
because of new technology or the requirements of other Federal
agencies. In addition, an applicant institution may count as part of
the two-year rule any period during which it was a branch campus.
These changes also apply to the two-year rule for postsecondary
vocational institutions in Sec. 600.6.
The Secretary changed the manner in which an institution calculates
whether it satisfies the 85 percent rule. Instead of determining the
amount of title IV, HEA program funds it received over an award year
and the amount of revenues it received over a fiscal year in the
fraction set forth in Sec. 600.5(d), institutions will use their latest
fiscal year to determine both amounts. Instead of determining the
amount of title IV, HEA program funds received on a cash basis of
accounting and the amount of revenue received on an accrual basis of
accounting, institutions will use a cash basis of accounting for both
title IV, HEA program funds and revenues. Institutions must report to
the Department of Education that they do not satisfy the 85 percent
rule no later than 90 days after the last day of their fiscal year, and
institutions that fail to satisfy the 85 percent rule will become
ineligible on the last day of their fiscal year.
Institutions may choose to have either the auditor who prepares its
financial statement audit or the auditor who prepares its title IV, HEA
program compliance audit certify to the accuracy of its computations
under the 85 percent rule, and the auditor must submit that
certification as part of that audit report. If the auditor determines
that the institution did not accurately calculate whether it satisfied
the 85 percent rule, the auditor must include in the audit the correct
amount of title IV, HEA program funds and revenues the institution
received in the fiscal year, and the correct ratio under Sec. 600.5(d).
The Secretary proposed in Sec. 600.5(d)(2)(v) that title IV, HEA
program funds will be presumed to be used to satisfy tuition, fees and
other institutional charges unless these charges were satisfied with
grant funds provided by sources independent of the institution. This
provision is changed so that the presumption would also not apply to
institutional charges that were satisfied with money provided through
job training contracts under Federal, State, and local training
programs described in Sec. 600.7(d).
When these regulations become effective on July 1, 1994, a
proprietary institution must determine whether it qualifies as an
eligible proprietary institution for award year 1994-95 under the 85
percent rule. The Secretary has developed special rules for this
initial determination.
If an institution's latest complete fiscal year ended during the
period of October 1, 1993 through June 30, 1994, the institution shall
use that fiscal year to determine whether the institution satisfies the
85 percent rule. Such an institution must notify the Secretary no later
than September 30, 1994 if it fails to satisfy the 85 percent rule, and
if the institution fails to satisfy that rule, it becomes ineligible on
June 30, 1994. Therefore, as a general matter, it will be liable for
all title IV, HEA program funds it disbursed to its students for award
year 1994-95.
If an institution's latest complete fiscal year ends before October
1, 1993, the institution shall use the fiscal year that ends between
July 1, 1994 and September 30, 1994 as its latest fiscal year to
determine whether the institution satisfies the 85 percent rule. The
institution must notify the Secretary if it fails to satisfy the 85
percent rule within 90 days following the end of that fiscal year, and
if it fails to satisfy that rule, it becomes ineligible on the last day
of its fiscal year.
Section 600.7 Conditions of Institutional Ineligibility
In order to qualify as an eligible institution, starting in award
year 1994-95, an institution must not, inter alia, be in violation of
the limitations set forth in Sec. 600.7. The provisions in that section
implement the provisions in sections 481(a)(3) and 481(a)(4) of the
HEA. The former section was effective on October 1, 1992 while the
latter section was effective on July 23, 1992. Accordingly,
institutions were subject to those provisions as of those dates. Until
July 1, 1994, the Secretary will view an institution as not violating
those statutory limitations if the institution can demonstrate, under a
plausible interpretation of those statutory provisions, that it did not
violate those limitations.
Section 600.7 becomes effective on July 1, 1994, and
Sec. 600.7(a)(1)(i) implements section 481(a)(3). Under
Sec. 600.7(a)(1)(i), the Secretary evaluates an institution's
eligibility on the basis of the institution's actions over the latest
complete award year. Accordingly, as of July 1, 1994, the latest
complete award year is the 1993-94 award year. Thus, for determining
whether an institution qualifies as an eligible institution during
award year 1994-95, the institution will use award year 1993-94 for
purposes of determining whether more than 50 percent of its courses
were correspondence courses, whether 50 percent or more of its enrolled
regular students were enrolled in correspondence courses, whether 25
percent or more of its enrolled regular students were incarcerated, and
whether 50 percent or more of its enrolled regular students had neither
a high school diploma or its recognized equivalent.
Waivers
An institution loses its eligibility if more than 50 percent of its
regular students are enrolled in correspondence courses. However, an
institution that offers a 2-year associate-degree or 4-year bachelor's-
degree program may receive a waiver of that limitation for ``good
cause.'' To receive a waiver, an institution can demonstrate ``good
cause'' if the students enrolled in the institution's correspondence
courses receive no more than five (5) percent of the title IV, HEA
program funds received by all the students at that institution during
its latest award year.
An institution loses its eligibility if more than 50 percent of its
regular students do not have a high school diploma or its recognized
equivalent (ability to benefit [ATB] students). However, a nonprofit
institution may receive a waiver of this limitation if its enrollment
of ATB students exceeded 50 percent of its total enrollment because it
served a substantial number of ATB students through contracts with
Federal, State, or local government agencies during its latest complete
award year.
To receive a waiver, the contract must provide job training for
low-income individuals who are in need of that training. An example of
such a contract is a job training contract under the Job Training
Partnership Act (JTPA).
In addition, an institution may receive a waiver only if no more
than 40 percent of its enrollment of regular students consists of ATB
students who are not being served under the above-described contracts.
If the Secretary grants a waiver to an institution under
Sec. 600.7, the waiver will extend indefinitely provided that the
institution satisfies the waiver requirements in each award year. If an
institution fails to satisfy the waiver requirements for an award year,
the institution becomes ineligible on June 30 of that award year.
Section 600.9 Written Agreements
This section has been changed to provide that an eligible
institution may not contract with an ineligible institution for the
latter to provide any portion of an educational program if the
ineligible institution had ever been terminated from participation in
the title IV, HEA programs, or had ever withdrawn from such
participation while under a termination, show-cause, suspension, or
similar type proceeding initiated by a State licensing agency,
accrediting agency, guaranty agency, or the Department of Education.
Section 600.30 Institutional Notification Requirements
A substantial number of institutions are structured as, or owned
by, partnerships or limited partnerships. Customarily, the governance
of a partnership is vested in the ``general partners'' rather than in a
``board of directors,'' and the management is under the control of one
or more of the general partners rather than under an ``executive
officer.'' Accordingly, the term ``a general partner'' is added to
Sec. 600.30(a)(7)(iv) to clarify that the Secretary considers a person
who is a general partner to be exercising substantial control over the
institution.
Section 600.31 Change of Ownership Resulting in a Change in Control
Commenters expressed apprehension about how the change of ownership
rules affect sales in which the parties make the sale conditional upon
securing the Department of Education's certification for the
institution under the new ownership. The regulation has been changed to
provide that the Secretary will review an application filed with
respect to a transfer that is subject to any contingency, provided that
the sale was otherwise completed. A transfer that is otherwise final is
considered completed even if the seller retains a security interest in
the institution or its assets to assure satisfaction of payment of the
purchase price.
Section 498(i)(3) of the HEA provides that the transfer of the
interest of an owner upon his or her death to a family member or to a
current owner may be excluded from its purview. This exclusion would
apply readily to the kind of unexpected transfers of control that would
occur of necessity upon the death of an actively-managing principal of
an institution owned by a closely-held corporation. The regulation is
changed to adopt the same description of the family of the owner as
that used in Sec. 600.30(f).
The regulation is modified to state that a change of ownership and
control of a closely-held corporation occurs when a person who holds or
acquires a legal or beneficial ownership interest in that corporation
acquires or relinquishes control of 50 percent or more of the total
outstanding voting stock of the corporation.
The regulation treats the change of control of a registrant with
the Securities and Exchange Commission (SEC) as a change of ownership
and control within the meaning of section 498(i) of the HEA. For other
corporations not closely held, the regulation treats as a change of
ownership and control any action by which a person who has or thereby
acquires a legal or beneficial ownership interest in that corporation
obtains both ownership of 25 percent of the voting stock of the
corporation, or the right under a proxy, power of attorney, or similar
agreement to vote that share, and actual control. Conversely,
relinquishing that control would also constitute a change within the
meaning of this section.
The regulation clarifies that a change from a taxable to a tax-
exempt entity that qualifies under section 501(c)(3) of the Internal
Revenue Code, or vice versa, constitutes a change of ownership and
control under this section of the regulations.
Section 600.32 Eligibility of Additional Locations
Section 600.32 has been revised to clarify that the provisions of
Secs. 600.8 and 600.10 also apply to the eligibility of additional
locations.
Section 600.40 Loss of Eligibility
The loss of eligibility because of a violation of the 85 percent
rule was discussed earlier in connection with Sec. 600.5.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 546 parties
submitted comments on the proposed regulations. An analysis of the
comments and of the changes in the regulations since publication of the
NPRM follows. Substantive issues are discussed under the section of the
regulations to which they pertain.
Technical and other minor changes--and suggested changes the
Secretary is not legally authorized to make under applicable statutory
authority--are not addressed.
Comments and Responses
Section 600.2. Definitions
Branch Campus
Comments: Nearly all commenters confused the definition of the term
``branch campus'' with the provisions governing additional locations.
One commenter asked whether an institution's branch campus could be
located in a foreign country.
Discussion: The Secretary defined the term ``branch campus''
narrowly in the NPRM and in this final regulation to enable
institutions to expand to serve the legitimate needs of students and
communities not in close proximity to their main campuses without
having to undergo a full certification review. Under section 498(j) of
the HEA, as amended by the Higher Education Technical Amendments of
1993, to participate in the title IV, HEA programs, a branch campus
must be certified by the Secretary under the provisions of subpart 3 of
part H of title IV of the HEA. Thus, it must separately meet all of the
applicable requirements for participation contained in the Student
Assistance General Provisions regulations, 34 CFR part 668. Because a
full certification review is a complicated and lengthy process, the
Secretary believes that a broad definition of branch campus would
capture numerous off-campus sites of institutions and would seriously
deter institutions from expanding to serve the legitimate needs of
students and communities not in close proximity to their main campuses.
The narrow definition avoids this adverse impact. Instead, additional
locations of an institution will not necessarily be treated as branch
campuses and thus will be subject to more moderate provisions elsewhere
in this part, including in Sec. 600.32.
A branch campus located in a foreign country may not qualify as an
eligible branch campus under the HEA because one of the statutory
requirements for eligibility (other than for purposes of the Federal
Family Education Loan programs) is that the branch be located in a
State.
Changes: None.
Correspondence Course
Comments: A commenter suggested that the Secretary classify a
course offered partly by correspondence and partly in residential
training as a correspondence course only if the course is more than 50
percent correspondence.
Discussion: In the preamble to the NPRM, the Secretary indicated
that a program that is part correspondence and part residential is
considered to be a correspondence program because ``This
straightforward interpretation eliminates the need for the Secretary to
address all the troublesome issues involving the quantity of education
that an institution claims to provide in a correspondence program.''
The Secretary is still of that view.
Changes: None.
Incarcerated Student
Comments: Two commenters commended the Secretary's exclusion of
persons in half-way houses or home detention or sentenced to serve on
weekends from the definition of ``incarcerated student.'' They noted
that this exclusion helps to reduce burden by eliminating the need to
identify and track these individuals.
Discussion: The Secretary appreciates the support for this
provision.
Changes: None.
Recognized Equivalent of a High School Diploma
Comments: A few commenters suggested broadening the definition of
students who excelled academically in high school. They suggested that
persons in the upper quartile of their high school graduating class and
persons who have passed standardized tests be considered as having
excelled in high school. One commenter asked the Secretary to remove
this provision because it could potentially be open to abuse.
Other commenters noted that the Secretary proposed to consider an
academic transcript resulting from the successful completion of a two-
year transfer program to be the recognized equivalent of a high school
diploma and suggested that the following transcripts also be so
recognized: the transcript of a student who completed at least one
semester or quarter of a two-year transfer program; and the transcript
of a student enrolled in a two-year program if most of the credits in
that program could be transferred to a bachelor's degree program.
Discussion: The Secretary believes that the recognized equivalent
of a high school diploma is generally a GED and the two provisions
discussed by the commenter apply only in exceptionally limited
circumstances. Therefore, the Secretary does not believe it useful to
expand either provision at this time. The Secretary has reconsidered
his position and no longer believes that a student's class standing in
high school is an adequate indication that the student excelled in high
school. The final rules reflect the Secretary's current policy in this
area.
Changes: None.
Sections 600.4, 600.5, and 600.6 Institution of Higher Education,
Proprietary Institution of Higher Education, and Postsecondary
Vocational Institution
Comments: Several commenters noted that while section 496(e) of the
HEA required an institution to submit a dispute with an accrediting
agency regarding its loss of accreditation to initial arbitration prior
to bringing other legal action, the NPRM proposed requiring the
institution to agree to binding arbitration. Most of these commenters
were concerned that requiring binding arbitration would violate an
institution's right to have its case reviewed in court. Other
commenters noted that while institutions have to agree to binding
arbitration, accrediting agencies do not have to so agree. Another
commenter asked whether an institution would retain its institutional
eligibility under this part while it undergoes binding arbitration.
Discussion: In the NPRM, the Secretary stated that he proposed that
an institution agree to binding arbitration ``so that any legal action
after arbitration would be limited to whether the arbitrator's decision
was arbitrary or capricious. The Secretary believes that this approach
best carries out the purpose of section 496(e) by limiting, to the
maximum extent possible, litigation in this area.'' The Secretary is
still of this view.
The Secretary recognizes that the HEA does not specifically require
an accrediting agency to agree to binding arbitration but anticipates
that accrediting agencies will agree to such arbitration without the
necessity of a regulatory requirement since it significantly limits the
cost and length of appeals of their final decisions. Moreover, if an
accrediting agency does not agree to binding arbitration, institutions
will be free to appeal their final adverse decisions in federal courts.
If an institution loses its accreditation as a result of a final
accrediting agency action, it loses its eligibility under this part
because of its lack of accreditation. If it takes that accrediting
agency to binding arbitration, it will not regain that eligibility
unless the arbitrator requires the agency to restore the institution's
accreditation.
Changes: None.
Section 600.5 Proprietary Institution of Higher Education
Two-year rule
Comment: Several commenters questioned how the Secretary would
determine whether a program offered for two years prior to an
institution's initial eligibility application was substantially the
same as a program it listed in its application for approval.
Other commenters were concerned that a new institution would not be
able to make substantive changes in curriculum to keep up with new
technology and changes in industry and marketplace requirements. One
commenter explained that other Federal agencies may have regulations
that affect course content and length and suggested that if the
Secretary retained language prohibiting institutions from changing
courses substantially in content and length, the provision be revised
to allow for course content and length changes necessitated by
regulations of other Federal agencies. Another commenter was concerned
that a new institution would never be able to change its courses. Other
commenters suggested that accrediting agencies and State Postsecondary
Review Entities (SPREs) would monitor program integrity and quality and
a shorter period than two years could be used.
Discussion: As the Secretary indicated in the preamble to the NPRM,
the purpose behind this provision is to prevent an institution from
offering a minimal program during the first two years of its existence
and then expanding its programs when it becomes eligible to participate
in the title IV, HEA programs. The Secretary believes that the best way
to support this purpose is to require an institution to offer over the
two-year period a training program that is substantially the same in
terms of subject matter and length as the training program it offers
when it applies for institutional eligibility. However, the Secretary
agrees with the point made by some commenters that some flexibility
should be provided with regard to the subject matter of a program to
take into account new technology and requirements of other Federal
agencies. The Secretary does not agree with the suggestion that an
institution should be able to make substantive changes in the subject
matter of a program because of changes in market conditions.
The Secretary considers programs to be substantially the same if
they are listed within the same generic series and codes defined in
Chapter I, Academic and Occupationally Specific Programs, published by
the Secretary in the Classification of Instructional Programs, Second
Edition (1990).
The Secretary considers a program to be substantially the same in
terms of length as the program the institution is currently offering if
the program offered over the two-year period would qualify the
applicant to be an eligible proprietary institution of higher education
or eligible postsecondary vocational institution. Thus, in general, the
program must provide at least 20 weeks of instructional time and at
least 16 semester hours, 24 quarter hours, or 600 clock hours.
Changes: The Secretary will permit an institution to demonstrate
that the subject matter of its program changed substantially over the
two-year period because of new technology or the requirements of other
Federal agencies.
Comment: A number of commenters suggested that the institutional
portions of programs, such as the Federal SEOG and Federal Perkins
programs, should not be included in the numerator since the money comes
from the institution and not the Federal Government.
Discussion: The Secretary agrees. An institution should not include
institutional matching funds in the numerator as part of its title IV,
HEA program funds.
Changes: None.
Comment: A number of commenters discussed the presumption that
title IV, HEA program funds are used to satisfy tuition, fees and other
institutional charges unless these charges were satisfied with grant
funds provided by sources independent of the institution. Commenters
suggested that the above presumption should not apply if the tuition,
fees and other institutional charges were satisfied with money provided
by other Federal agencies, such as the Department of Veterans Affairs,
or through job training contracts under Federal, State, or local
training programs, such as the Job Training Partnership Act (JTPA).
Discussion: The Secretary agrees with the commenters with regard to
funds received by an institution under a job training contract under
Federal, State, or local training programs since the Congress in the
Higher Education Technical Amendments of 1993 provided for an exception
to the ability to benefit (ATB) enrollment limitation for institutions
serving ATB students under such contracts.
Changes: Section 600.5(d)(2)(v) has been amended to allow an
institution to consider that a student's tuition, fees and other
institutional charges were satisfied from funds provided under
contracts described in Sec. 600.7(d).
Comment: A number of commenters suggested that the definition of
``revenue'' in the denominator used in Sec. 600.5(d)(1) is too narrow
and should be expanded.
Discussion: As indicated in the preamble to the NPRM, the Secretary
believes the definition of the term ``revenue'' establishes a
reasonable middle ground between counting only the income received from
students' tuition and fees and counting as revenue income from
businesses that are owned and operated by the institution, regardless
of the relationship between the educational institution and the
businesses.
Changes: None.
Comment: A number of commenters suggested that revenue from
contract training (on or off-site) provided by the institution to
business and industry be included as revenue in the denominator in
Sec. 600.5(d)(1) since this type of training is directly related to the
curriculum offered by the institution.
Discussion: An institution can count as revenue only tuition, fees,
and institutional charges for students enrolled in eligible programs at
the institution, and funds received for activities that are necessary
to the education or training of those students enrolled in eligible
programs. Therefore, whether an institution can count as revenue in the
denominator of the fraction in Sec. 600.5(d)(1) the revenue described
by the commenters depends on whether an institution's contract training
programs qualify as eligible programs.
Changes: Section 600.5(d)(1) has been amended to clarify this
requirement.
Comment: Several commenters suggested that an institution should be
allowed to include institutional charges that were paid by
institutional scholarships and loans as revenue in the denominator of
the fraction contained in Sec. 600.5(d)(1). One commenter said that his
school awarded $1,000 institutional scholarships to all students in the
second year of their program. The commenter felt strongly that his
institution should be able to include these scholarships as
institutional revenues.
Discussion: An institution is not prohibited from including
institutional charges that were paid by institutional scholarships and
institutional loans as revenue in the denominator of the fraction
contained in Sec. 600.5(d)(1), provided that the scholarships and loans
are valid and not just part of a scheme to artificially inflate an
institution's tuition and fee charges. For this purpose, the Secretary
does not consider institutional loans to be real unless such loans are
routinely repaid by the student borrowers. The Secretary does not
consider institutional scholarships to be valid if every student
receives such a scholarship so that no student ever pays the claimed
tuition and fee charges. The Secretary considers the above-described
practice of the commenter to be a classic example of this scheme.
In this connection, the Secretary will scrutinize institutions that
raise their tuition and fee charges to avoid the 85 percent rule but
can show no actual payment of those additional charges, or payment
through ``artificial'' institutional scholarships and loans.
Changes: None.
Comment: A number of commenters suggested that non-need-based title
IV, HEA program assistance, such as funds under the Federal PLUS Loan
Program, the Federal SLS Program, and the unsubsidized Federal Stafford
Loan Program, should not be included in the numerator of the 85 percent
rule calculation because it is unrealistic to penalize an institution
whose students chose to borrow under these programs.
Discussion: The statutory provision that established the 85 percent
rule, section 481(b)(6) of the HEA, provides that an eligible
proprietary institution must have at least 15 percent of its revenues
that ``are not derived from funds provided under this title,'' i.e.,
title IV of the HEA. Section 481(b)(6) does not differentiate between
``need-based'' title IV, HEA program funds and non-need-based title IV,
HEA program funds. However, when determining the amount of title IV,
HEA program funds derived from FFEL programs or the Federal Direct Loan
Program, the institution should only include loan proceeds disbursed to
students. It should not include the face amount of a loan because that
amount includes loan origination fees and loan guarantee fees that are
not disbursed to students.
Changes: None.
Comment: A number of commenters pointed out problems with the
fraction the Secretary proposed to determine whether an institution
satisfies the 85 percent rule. The commenters noted that the title IV,
HEA program funds in the numerator were reported on an award year basis
but the revenues in the denominator were reported on a fiscal year
basis. The commenters indicated that when the institution's fiscal year
does not coincide with an award year, the computation would not provide
reliable results.
In addition, a number of commenters raised concerns that the
information reported in the numerator and denominator would be produced
under two different methods of accounting. Several auditing
organizations noted that the title IV, HEA program funds must be
reported in the numerator on a cash basis of accounting (received).
They further noted that the revenue figure in the denominator would be
verified through the use of a financial statement audit, and in
accordance with Generally Accepted Accounting Principles (GAAP),
financial statements are prepared on an accrual basis of accounting.
The commenters concluded that it does not make sense to compare the
amount determined in the numerator with the amount determined in the
denominator when each number is determined under a different basis of
accounting.
Discussion: The Secretary agrees with the commenters about the
deficiencies in the proposed rule and has made the following changes.
First, the Secretary agrees that there should be a common reporting
period for the numerator and the denominator. The Secretary will not
require institutions to change their fiscal year to parallel an award
year. Therefore, although the Secretary will be giving up a degree of
oversight, the Secretary will allow institutions to use their fiscal
year as the reporting period for the numerator as well as the
denominator.
Second, since institutions must report and account for title IV,
HEA program funds on a cash basis, the institution must also account
for revenue in the denominator on a cash basis. Under a cash basis of
accounting, the institution reports revenues on the date that the
revenues are actually received.
An institution's computation must be verified as part of the
institution's title IV, HEA program compliance audit or as part of its
financial statement audit. The institution may choose which audit will
include the verification.
Changes: Section 600.5 is amended as follows: institutions will
report title IV, HEA program funds in the numerator of the fraction set
forth in Sec. 600.5(d) on a fiscal year basis and that fiscal year will
be the same fiscal year used to report revenues in the denominator of
that fraction; institutions will report revenues in the denominator on
a cash basis of accounting; and institutional computations will be
verified in financial statement audits or title IV, HEA program
compliance audits.
Comment: Several commenters suggested that 30 or 60 days after an
award year or fiscal year does not provide enough time for an
institution to compute its percentage of title IV, HEA program funds
because of possible year-end adjustments and because the institution's
computation must be verified by the financial audit.
Discussion: The Secretary agrees with the commenters that
institutions may need an additional period to take possible year-end
adjustments into account. Therefore, the Secretary will allow an
institution up to 90 days from the last day of its fiscal year to
report that it fails to satisfy the 85 percent rule. However, if an
institution determines that it fails to satisfy the 85 percent rule, it
will be ineligible as of the last day of that fiscal year; therefore
the longer an institution takes to report its ineligibility, the
greater its potential liability for improperly disbursed title IV, HEA
program funds.
The Secretary believes that an institution does not need to wait
for an audit to determine the percent of its revenue that was derived
from title IV, HEA program funds. The institution should be keeping
track of these amounts over the course of its fiscal year to avoid
becoming ineligible. Moreover, since an institution must now determine
its revenues on a cash accounting basis, it is relatively easy for an
institution to know its position relative to the 85 percent rule.
Changes: An institution will have 90 days from the last day of its
fiscal year to report its ineligibility to the Department of Education
under the 85 percent rule.
Comment: A number of commenters suggested that although an
institution may give its best efforts to track revenues and keep within
the guidelines of the 85 percent rule, the institution will not know
positively of the result until its annual audited financial statement
is completed. The commenters suggested that given the dire consequences
of having title IV, HEA program funds exceed 85 percent of its
revenues, and the fact that a great many students could be potentially
harmed by such precipitous action, the Secretary should add a provision
that allows an institution to voluntarily refund any excess money to
bring its percentage in compliance with the 85 percent rule.
Discussion: The purpose of the 85 percent rule is to preclude the
participation in the title IV, HEA programs of proprietary institutions
of higher education whose overwhelming source of revenue is title IV,
HEA program funds. The repayment of title-IV, HEA program funds to the
Department of Education is not consistent with that statutory purpose.
Moreover, since a refund of title IV, HEA program funds would reduce
both the numerator and denominator of the fraction used to determine
this rule, any conforming refund would involve a significantly large
amount of money.
Changes: None.
Section 600.7 Conditions of Institutional Ineligibility
Comment: As a general rule, an institution may not have 50 percent
or more of its students enrolled in correspondence courses and retain
its eligibility under the HEA. However, as a result of the Higher
Education Technical Amendments of 1993, the Secretary may waive this
requirement for an institution that offers a 2-year associate-degree or
4-year bachelor's-degree program for ``good cause.'' In the NPRM, the
Secretary solicited comments as to what should be considered ``good
cause''.
One comment was received on this provision. The commenter suggested
that a waiver should be granted for ``good cause'' only if the students
attending the institution's correspondence courses received a minimal
percent of the title IV, HEA programs at that institution.
Discussion: The Secretary agrees with the commenter's suggestion.
Changes: Section 600. 7(b)(3) has been amended to provide that the
Secretary will waive this requirement for an institution that offers a
2-year associate-degree or 4-year bachelor's-degree program if the
students enrolled in the institution's correspondence courses receive
no more than 5 percent of the title IV, HEA program funds received by
students at that institution.
Comment: One commenter suggested that an institution should not
permanently lose its eligibility if its current owner or Chief
Executive Officer (CEO) has been found guilty of a crime involving
title IV, HEA program funds and that owner or CEO disassociates himself
or herself from the institution. The commenter also asked for
clarification as to what is meant by ``judicially determined to have
committed fraud.''
Discussion: The Secretary believes that if the current owner or CEO
of an institution has been found guilty of a crime involving title IV,
HEA program funds, that institution should no longer be eligible to
participate in the title IV, HEA programs. The phrase ``judicially
determined to have committed fraud'' means that a court of competent
jurisdiction has made such a finding.
Changes: None.
Comment: Section 481(a)(3)(D) of the HEA provides that an
institution that does not offer an associate or bachelor's degree is
not an eligible institution if more than 50 percent of its enrollment
consists of students without a high school diploma or its recognized
equivalent (ATB students). As a result of an amendment by the Higher
Education Technical Amendments of 1993, the Secretary may waive the
limitation for nonprofit institutions. However, to receive a waiver,
the institution must demonstrate to the satisfaction of the Secretary
that it exceeds the limitation because it serves, through contracts
with Federal, State, or local government agencies, significant numbers
of ATB students.
In the NPRM, the Secretary requested comments regarding the
conditions under which the Secretary should grant this waiver. Comments
were particularly requested on the purpose of the referenced contracts,
what constitutes a ``significant'' number of ATB students, and the
duration of a waiver.
Two commenters suggested that an institution should receive a
waiver if the purpose of the referenced contracts is to provide job
training for low-income people who are in need of such services.
One commenter suggested that 20 to 25 percent of an institution's
enrollment constitutes a significant number, another suggested 40
percent, and yet another suggested 50 percent.
One commenter suggested that a waiver should be issued for a period
of one year at a time, renewable on a yearly basis, depending upon
graduation and employment rates. A second commenter suggested that a
waiver should be issued for the duration of the certification agreement
period. A third commenter suggested that the waiver should be issued
for the period in which the institution is in good standing with its
accrediting agency.
Discussion: For purposes of granting this waiver, the Secretary
agrees with the commenters regarding the type of contract that supports
a waiver. The Secretary thus agrees that the contracts must provide job
training for low-income individuals who are in need of such services.
An example of such a contract is a job training contract under the Job
Training Partnership Act (JTPA).
Further, to receive a waiver, an institution must demonstrate that
its enrollment of ATB students exceeded 50 percent of its total
enrollment because it served a substantial number of those students
through contracts. That is, the institution must demonstrate cause and
effect; it exceeded the statutory limit because it served a significant
number of ATB students through contracts.
An institution cannot satisfy this waiver provision simply by
demonstrating it served a large number of ATB students under a
contract. For example, if an institution's enrollment of ATB students
who were not served under contract exceeded 51 percent of its total
enrollment, that institution would not satisfy the waiver requirement
regardless of the number of additional ATB students it served under
contract. Similarly, if an institution's enrollment of ATB students who
were not served under contract equaled 50 percent of its total
enrollment, so that one additional ATB student would put the
institution over the 50 percent limitation, the institution would not
satisfy the waiver requirement regardless of the number of additional
ATB students it served under contract. In neither case did the
institution's enrollment of ATB students exceed 50 percent of its total
enrollment because it served a significant number of ATB students under
contract.
In view of the above, the critical factor in whether an institution
qualifies for a waiver is the percentage of its enrollment who are ATB
students not being served under contract.
An institution is evaluated to determine whether it falls within
the limitation set forth in Sec. 600.7(a)(1)(i) on an award-year basis.
If the Secretary grants a waiver to an institution under this section,
the waiver will extend indefinitely provided that the institution
satisfies the waiver requirements in each award year. If an institution
fails to satisfy the waiver requirements for an award year, the
institution becomes ineligible on June 30 of that award year. (This
policy is applicable to all waivers provided for under Sec. 600.7.)
Changes: An institution may receive a waiver if the contracts
provide job training for low-income individuals who are in need of such
services. An institution may not receive a waiver if its enrollment of
ATB students who are not being served under contract exceeds 40 percent
of its total enrollment. If the Secretary grants a waiver to an
institution under this section, the waiver will extend indefinitely
provided that the institution satisfies the waiver requirements in each
award year. If an institution fails to satisfy the waiver requirements
for an award year, the institution becomes ineligible on June 30 of
that award year.
Section 600.9 Written Agreement Between an Eligible Institution and
Another Institution or Organization
Comment: One commenter suggested that the provision that requires
an eligible institution to give credit to students enrolled in a
contracted program on the same basis as if it provided that program
itself be modified to make an exception in the case of study abroad
programs approved for credit by the eligible institution.
Discussion: The Secretary believes that this rule should apply to
all contracted programs, including contracted programs involving study
abroad.
Changes: None.
Comment: One commenter noted that this section prevents an eligible
institution from entering into an agreement with an ineligible
institution if that institution had its eligibility to participate in
the title IV, HEA programs terminated by the Secretary. The commenter
suggested that this provision be expanded to prevent an eligible
institution from entering into an agreement with an ineligible
institution that withdrew from participating in the title IV, HEA
programs under a show-cause or suspension order issued by the
institution's State licensing agency, accrediting agency, guarantor,
State Postsecondary Review Entity (SPRE), or the Secretary. On the
other hand, another commenter suggested removing this provision
entirely since it could eliminate teachout agreements when institutions
close and could prevent students from participating in valuable
educational programs.
Discussion: The Secretary agrees with the commenter's suggestion
that it is inappropriate for an eligible institution to contract with
an ineligible institution that had its eligibility to participate in
the title IV, HEA programs terminated or that withdrew from
participating in the title IV, HEA programs under a termination, show-
cause, suspension, or similar type proceeding initiated by the
institution's State licensing agency, accrediting agency, guarantor, or
SPRE, or by the Secretary. Moreover, the Secretary believes that this
limitation should also apply to contracts under which the ineligible
institution provides 25 percent or less of the eligible institution's
program. The Secretary believes that there are a sufficient number of
eligible institutions to allow teachouts of students whose institutions
closed.
Changes: Section 600.9 is amended to preclude an eligible
institution from contracting any portion of its educational program to
an ineligible institution that had its participation in the title IV,
HEA programs terminated by the Secretary, or that withdrew from that
participation under termination, show-cause, suspension, or similar
type proceeding initiated by the institution's State licensing agency,
accrediting agency, guarantor, or SPRE, or by the Secretary.
Section 600.10 Date, Extent, Duration, and Consequences of Eligibility
Comment: Several commenters suggested that it is unfair to require
that certain new educational programs have to be approved by the
Secretary as eligible programs before students enrolled in those
programs would be eligible to receive title IV, HEA program funds. The
commenters felt that this would place an undue burden on the
institution and the students the institution is attempting to serve by
creating delays in new program implementation.
Discussion: Prior to the issuance of the Institutional Eligibility
regulations in April of 1988, it was the Secretary's practice to
require institutions to apply to the Department of Education to have
any new program designated as an eligible program before students
enrolled in that program could receive title IV, HEA program funds. The
Secretary changed this practice in the regulation to reduce the burden
on institutions and the Department of Education.
Under current regulations, an institution could determine on its
own whether a new educational program qualified as an eligible program.
However, the institution would be liable for all title IV, HEA program
funds it disbursed to students enrolled in a new program if the
institution incorrectly determined that the program qualified as an
eligible program.
The Secretary has found that this new practice has not worked out.
The Secretary has found that when institutions have made incorrect
determinations regarding whether a new educational program is an
eligible program, the liability associated with that incorrect
determination was usually too high to be repaid. Moreover, this
practice is inconsistent with the new emphasis on ``gatekeeping'' as
evidenced in Program Integrity Triad legislation, particularly with
respect to the certification process.
The Secretary has found that most problems in this area come from
an institution offering new, short-term vocational programs. Therefore
in the NPRM, the Secretary has not required preapproval for new
programs leading to an associate degree or higher, or new vocational
programs similar to the ones the institution already provides. The
Secretary retains this position in the final rule and believes that
this procedure provides a proper balance between the need of
institutions to provide title IV, HEA program funds to students
enrolled in new programs, and the need to limit abusive practices of
certain institutions.
Changes: None.
Section 600.20 Application Procedures
Comment: Several commenters expressed concern about when and how to
apply for renewal of eligibility. One commenter believed that
institutions should have to apply to have eligibility extended to
educational programs.
Discussion: With regard to an institution's eligibility for
purposes of the title IV, HEA programs, Sec. 600.10(d)(1) provides that
an institution's eligibility designation for the title IV, HEA programs
will expire when the institution's program participation agreement
expires. Section 498(g) of the HEA requires the Secretary to establish
a schedule for the expiration of those program participation
agreements. When this schedule is established, the Secretary will
notify each institution well in advance of the scheduled expiration of
its program participation agreement of the need to reapply in order to
continue its eligibility designation without interruption. Similarly,
the Secretary will provide each institution with the necessary
information about the forms to use and the date by which the
application must be submitted.
Once an institution has undergone a reapproval review, if it is
approved, it will receive a program participation agreement with a
specific expiration date. Thereafter, it is the institution's
responsibility to reapply for approval to continue its eligibility to
participate in the title IV, HEA programs beyond the expiration date.
The Secretary has addressed the addition of new educational
programs in connection with Sec. 600.10(c).
Changes: None.
Section 600.30 Notification Requirements
Comments: Several commenters noted that institutions would be
required to notify the Secretary of certain changes within 10 days of
occurrence, but that it was unclear whether such changes would
necessitate the filing of a new application and reestablishing
eligibility, especially with respect to such changes as changes in
boards of directors and percent of ownership interest.
Discussion: Section 600.30 specifies the institutional changes of
which the Secretary must be advised. Upon receipt of the notification,
the Secretary will advise the institution of any additional information
that needs to be provided and whether the institution needs to file an
application. Section 600.20 identifies those key circumstances in which
an institution is always required to file an application. However, the
Secretary retains the authority to request that an institution undergo
a reevaluation of institutional eligibility and certification whenever
warranted. It should be noted that the new institutional eligibility
application will consist of a cover sheet plus separate schedules that
deal with the institution's additional locations, educational programs,
boards of directors, etc. Thus an institution that has a change in its
board of directors or a change in the address of one of its locations
may be asked to submit an application, but that application may consist
only of the application cover sheet and the appropriate schedule(s).
In summary, Secs. 600.20, 600.21, and 600.30 taken together explain
what an institution is required to do and when.
Changes: None.
Section 600.31 Change in Ownership Resulting in a Change in Control
Comment: A commenter expressed the view that the statute did not
require that divisions, mergers or consolidations of public or private
non-profit institutions be treated as changes of ownership under
section 498(i) of the HEA and objected to their inclusion in the
requirements of this section of the regulation. The basis for the
comment is the list of examples in section 498(e) of the HEA of an
``ownership interest.'' The commenter noted that these examples are not
typical of the ownership of public or non-profit entities.
Discussion: The Secretary disagrees with the commenter. As
indicated in section 498(e) of the HEA, the list of examples provided
is not exclusive, and the examples of change of ownership and control
included in section 498(i) of the HEA include transactions that public
and non-profit institutions undergo, such as sales, mergers, and
divisions. Therefore, such changes of ownership and control are covered
by Sec. 600.31 and could cause the eligibility of those institutions to
lapse.
With regard to changes of ownership of non-profit institutions,
where the non-profit institution is incorporated as a stock
corporation, the same bright lines used to identify changes of
ownership constituting changes of control for other stock corporations
will apply. For non-profit institutions organized as member
corporations, the corresponding interest is the membership interest,
and those rules should apply in the same way to changes in the
membership of the non-profit institutions. Changes of ownership and
control also occur with regard to institutions that are owned by non-
profit corporations; changes in the persons or individuals who by
virtue of their membership in the non-profit corporation own the
institution can result in a change of ownership and control of that
institution. The bright lines that identify changes of ownership and
control of other corporations apply to changes in the membership of
non-profit corporations as well.
In connection with any change of ownership, whether a transfer of
the assets and educational enterprise of an institution to another
institution is a change within this section, or is subject to
Sec. 600.32 turns on whether the institution continues to function as a
separate educational enterprise after the transfer. If the entity that
acquires the institution continues the operation of that institution
not as a separate institution but as part of another institution, the
transaction would be considered an acquisition of an additional
location and would be subject to Sec. 600.32.
Changes: None.
Comment: Commenters expressed apprehension about how the change of
ownership rules affect sales in which the parties make the sale
conditional upon securing the Department's certification for the
institution under the new ownership. Commenters believed that the
proposal that the Department would not review the school under the new
ownership until the sale has been completed would tend to foster
undesirable disruption of title IV, HEA program funding and pose a
threat to continued training of students enrolled at the time of the
sale. Commenters urged adoption of a procedure in which the Department
would review a proposed transfer of ownership before the consummation
of the sale, so that the sale could be aborted if certification were
denied. A commenter suggested consideration of a preapproval procedure
described as used by other agencies in which the Department would
review a proposed sale, and, if the institution under the new ownership
would qualify for certification, offer the certification on the
condition that the sale be fully consummated promptly.
Discussion: The Secretary recognizes the importance of reducing
possible interruption in funding to the extent consistent with the
conduct of a responsible review of the financial and administrative
capability of the school under new ownership.
The Department currently reviews only transfers that have taken
effect, and thereby have caused the eligibility and certification of
the institution to lapse, even if the transfer is subject to a
condition subsequent, such as obtaining the Department's approval and
certification. The Department has taken this position because it
ensures that the parties submit only transfers under which the
purchaser has conducted the requisite due diligence to ensure that
approval and certification will be granted. The Secretary believes this
position is fair because the regulations state fully the standards
under which the qualifications of the school for certification will be
measured, and because virtually all the information on which approval
of the institution under new ownership depends is fully available to,
and in many instances derived directly from, the institution.
The Secretary sees no reason why a purchaser should not be able and
expected to have made a fully informed decision to purchase before
submitting the application for certification. Unfortunately, in the
past, purchasers have often engaged in wholly inadequate due diligence,
given scant professional attention to the requirements for
participation in the student assistance programs, and presented
seriously deficient applications for approval. These deficiencies
unnecessarily consume Department review resources and needlessly delay
approval decisions for the institution. Lack of competent due diligence
also results in other purchasers purporting to be unaware of problems
with the qualifications of the institution they have purchased that are
serious enough to make Department approval impossible. The Secretary's
procedure for review of change of ownership applications will foster
responsible and effective due diligence by the purchaser.
Changes: The regulation provides that the Secretary will review an
application filed with respect to a transfer that is subject to any
contingency, provided that the sale was otherwise completed. A transfer
that is otherwise final is considered completed even if the seller
retains a security interest in the institution or its assets to assure
satisfaction of payment of the purchase price.
Comment: Several commenters believed that a transfer of ownership
to a person who had been engaged in management of the school should not
be considered a change within the meaning of section 498(i) of the HEA.
Others urged excluding transfers of ownership interests among current
shareholders, particularly if the institution was owned by a close
corporation and the shareholders had held those interests for several
years or the shareholder acquiring the controlling interest had been
engaged in managing of that institution. Other commenters urged that
transfers of controlling ownership interests from the owner upon
retirement to a shareholder currently involved in management of the
school be excluded from changes in ownership within the meaning of
section 498(i) of the HEA.
Discussion: Section 498(i) of the HEA requires an institution to
reestablish its educational credentials and its administrative and
financial capability after a change of ownership and control. Transfers
of ownership commonly take place between those holding the controlling
interest in the institution and individuals who have been managing the
institution. While there may often be a continuity of management and
administration through such transfers of ownership, the financial
capability of the institution after the current managers assume
controlling ownership interests may be dramatically different than
under the prior owner, particularly where the transaction is structured
as an asset sale rather than a stock transaction. The fact that the new
owner already had an ownership interest, or was involved in management
of the institution, or both, does not provide assurance that scrutiny
can responsibly be waived for those reasons.
Section 498(i)(3) of the HEA does provide that the transfer of the
interest of an owner upon his or her death to a family member or to a
current owner may be excluded from its purview. This exclusion would
apply readily to the kind of unexpected transfers of control that would
occur of necessity upon the death of an actively-managing principal of
an institution owned by a closely-held corporation. However, the
rationale for deferring to this humanitarian objective of facilitating
a smooth transition in this narrow circumstance does not support
waiving otherwise-mandated scrutiny in a broader range of transfers
involving corporations that are not closely held, or planned transfers
to those who have neither an ownership interest nor any managerial
involvement in the institution. The Secretary considers it prudent to
limit the waiver at this time only to those transfers of the interest
of a deceased or retiring owner either to one who is a current manager
and owner of the institution or to an immediate family member, and to
evaluate the consequences of this kind of waiver, before considering
further waivers.
Changes: The regulation is changed to adopt the same description of
the family of the owner as that used in Sec. 600.31(f).
Comment: Most commenters welcomed the adoption of bright-line tests
for identifying changes of ownership and control, and the use of the
acquisition or relinquishment of a 50 percent interest in the
institution or its owner was generally agreed as a suitable line. Some
commenters stressed the importance of looking to control rather than
simply percentage of ownership interest, and urged that a transfer of
ownership interest between active and passive investors be disregarded
if the transfer did not change the control of the institution.
Discussion: In proposing that the term ``control'' as used in
section 498(i) of the HEA and current regulations be interpreted with
reference to SEC regulations, 17 CFR part 230.405, the Secretary
intended to recognize that ``the power to direct or cause the direction
of the management and policies, whether through the ownership of voting
securities, by contract, or otherwise,'' included the power held by a
managing partner or active investor to effectively direct the decisions
and policies of the partnership or corporation. Therefore, the intent
and effect of the proposed rule was to recognize that a transfer of an
ownership interest to one who holds some ownership interest and who
already had the power to direct the management of the entity does not
constitute a change of ownership resulting in a change in control. Such
transfers do not fall within the purview of this section.
Although there appeared to be general support for adoption of the
50 percent standard for identifying the possession of ownership and
control of a closely-held corporation, the manner in which this was
described suggested some need to reaffirm how the test would actually
apply.
In interpreting section 498(i) of the HEA, which does not itself
define change of ownership resulting in a change in control, but gives
as examples of such changes a list taken almost verbatim from
Department regulations in effect for many years, the Secretary
considers Congress to have intended that the mandate of section 498(i)
of the HEA be applied in situations that would have triggered changes
under the Department's regulations. Like the SEC definition of control,
with which businessmen and practitioners can be expected to be already
thoroughly familiar, both the proposed rule and current Department
regulations focus on the acquisition--through ``any action''--of ``new
authority to control the actions of the institution'' by one with a
legal or beneficial ownership interest in the entity. A person may
already have acquired an ownership interest and then acquire such new
authority, or may in a single transaction acquire both an ownership
interest and control. In either case, the transaction changes the
control group for that institution to a degree that warrants the
scrutiny mandated in section 498(i) of the HEA. Actions by which a
person who has no legal or beneficial ownership interest gains or loses
``control'' are not changes of ownership and control within the meaning
of the regulation unless the person acquires an ownership interest in
that action.
Therefore, the 50-percent test is simply meant to identify those
situations in which a person becomes owner or controller of the
majority of the voting stock of a closely-held corporation. Conversely,
the power to direct the management and decisions of the corporation can
reasonably be presumed to change, and therefore to warrant scrutiny of
the continued capability of the institution, when a person who held
control of the majority of the stock loses that control, even if no
other single person thereby gains that control. The test is met
therefore when a person with an ownership interest in any amount
acquires control of 50 percent of the outstanding voting stock of the
corporation, or when a person who has an ownership interest and control
of 50 percent of the voting stock relinquishes that degree of control.
Very small changes in ownership and/or control can be enough to change
control. To control a closely-held corporation, a person who already
holds an ownership interest need not acquire an additional 50 percent
share in order to control the corporation; a shareholder with ownership
or control of 49 percent of the voting stock need only acquire either
ownership or control of another percent of that stock to achieve at
very least equal power with any other person, and by acquiring an added
two percent, would hold greater power than any other person to direct
the management and policies of the corporation. Relinquishing those
minor shares of control results in the person having less than control
of a majority of the voting stock of the corporation, and causes a
change of ownership and control of the corporation.
Changes: The regulation is modified to state that a change of
ownership and control of a closely-held corporation occurs when a
person who holds or acquires a legal or beneficial ownership interest
in that corporation acquires or relinquishes control of 50 percent or
more of the total outstanding voting stock of the corporation.
Comments: Commenters generally agreed that for those corporations
whose stock is registered with the SEC, using the events that would
constitute a change of control of the corporation so as to trigger an
obligation to file an SEC Form 8-K would be a suitable bright line for
identifying changes of ownership and control within the meaning of
section 498(i) of the HEA for institutions owned by those corporations.
Commenters differed in their reactions to the proposal to adopt a 25
percent ownership interest with actual control as the test for
corporations that are neither closely held nor registrants with the
SEC. Still others thought that the 25 percent test should be used even
for SEC registered corporations. Other commenters believed that the 50
percent test applied to closely-held corporations should be used for
all others as well.
Discussion: As noted earlier and as apparent from a number of the
comments, SEC registrants already have an obligation, with which they
are presumably comfortable and familiar, to notify the SEC when
management identifies a change of control, which presumably is
invariably accompanied by, or presupposes, the acquisition of an
ownership interest. Because of this obvious familiarity of the affected
parties, the relative similarities of the objectives of the two rules,
and the difficulty in creating any new bright line that would be
meaningful in this area, adopting the SEC test makes good sense for
publicly-traded corporations.
For corporations that are neither closely held nor publicly traded,
creating a bright line is difficult, and it is desirable therefore to
use, to the extent practical, regulatory standards that have already
applied to this category of institutions. As the Secretary noted in
proposing the rule, Department regulations have recognized that a
person who holds or acquires the power to vote a 25 percent ownership
interest may reasonably be presumed to have the ability to ``affect
substantially the actions of the institution.'' (See 34 CFR part
668.13(c)(5)(i), [or, in the words of the proposed Sec. 668.15(c)(1),
(f)(2), to ``exercise substantial control over an institution.''
February 28, 1994, 59 FR 9568-69].) ``Substantial'' control may differ
from control, and the presumptions in that section are warranted for
persons with records of misfeasance with title IV, HEA program funds,
but may not warrant the disruption of mandated scrutiny for transfers
of ownership and control involving other persons. Because of the wide
variety of circumstances and institutions that may be neither closely
held nor publicly traded, the use of this same bright line where it is
also accompanied by real control--judged by the facts of the particular
case--seems a fair test that should be consistent with, and build on,
current standards. Acquisition of a 25 percent ownership interest, or
the right to vote such an interest, with actual control, constitutes a
change within the meaning of section 498(i) of the HEA for these
corporations. Holding or acquiring such an ownership share would not
constitute a change of control if another person nevertheless had the
power to control the corporation.
Changes: The regulation treats the change of control of a
registrant with the SEC as a change of ownership and control within the
meaning of section 498(i) of the HEA. For other corporations not
closely held, the regulation treats as a change of ownership and
control any action by which a person who has or thereby acquires a
legal or beneficial ownership interest in that corporation obtains both
ownership of 25 percent of the voting stock of the corporation, or the
right under a proxy, power of attorney, or similar agreement to vote
that share, and actual control. Conversely, relinquishing that control
would also constitute a change within the meaning of this section.
Comment: Some commenters believe that a change from a for-profit to
a nonprofit status should not be considered a change of ownership and
control within the meaning of section 498(i) of the HEA at all; others
thought that so long as management remained the same, or the facility,
staff, and management remained the same, that the regulations should
not treat changes in tax-filing status as significant under section
498(i) of the HEA. Other commenters felt strongly that a change from
for-profit to nonprofit status should be considered a change of
ownership and control within the scope of this section, and noted the
various changes already made in the Higher Education Amendments of
1992, and in particular those proposed in regulations, that were
designed to prevent program weaknesses and abuse among for-profit
institutions. The commenter stated that these measures would readily be
frustrated by unscrutinized conversion to nonprofit status, and would
be contrary to the objectives of increasing protection for students and
the public. The commenter believed that there was little reason to
expect that the institution would improve its financial strength by
such a conversion, and that it may in fact have increased its
liabilities in the process, yet under the proposed financial
responsibility standards, the school upon conversion would claim the
benefit of a more lenient financial responsibility test than that which
it would have faced had it remained a for-profit entity.
Discussion: The Secretary recognizes that institutions that change
from for-profit to nonprofit status may well retain the very same
faculty, management, programs and facilities. The very fact that the
institution retains these characteristics through the conversion,
however, points out the logic of ensuring that section 498(i) of the
HEA be applied to these conversions in a way that is consistent with
congressional intent to impose a range of precautions and restrictions
on for-profit vocational schools.
Based on the strong congressional intent evidenced in these
statutory changes to restrict title IV, HEA program participation by
proprietary trade schools, the Secretary considers it reasonable to
treat changes in business form by such institutions to a status to
which those restrictions do not necessarily apply as significant
changes warranting the same scrutiny section 498(i) of the HEA dictates
for other, perhaps far less consequential changes in governance by
schools. Moreover, a change from taxable to nonprofit, tax-exempt
status contains sufficient elements of a change in ownership and
control to fall within the scope of section 498(i) of the HEA. Although
changes in the form of incorporation from for-profit to nonprofit are
governed by a variety of State laws, only those nonprofit organizations
that meet the further restrictions of section 501(c)(3) of the Internal
Revenue Code qualify to participate in the title IV, HEA programs as
nonprofit institutions. (See 34 CFR 600.2 and 600.6(a).) To so qualify,
a corporation must not merely ensure that its net earnings do not
benefit private individuals, but that, unlike a general corporation
that may engage in any lawful business, this nonprofit institution must
be organized and operated exclusively for educational or other
qualifying purposes. Furthermore, unlike other corporations, including
those nonprofit institutions that are not tax-exempt, the incorporators
or shareholders must forego any residual claim to a distribution of
corporate assets upon dissolution of the corporation. Acceptance of
these restrictions include relinquishment both of ownership rights and
the independence in choice of business objectives and method of
operation formerly enjoyed.
Therefore, although a corporation may affect the change in form
from taxable to tax-exempt, nonprofit status with little formality, and
may not be required, under local law, to reconstitute itself as a new
or different corporation, these consequences of the change make it a
change cognizable under section 498(i) of the HEA.
The Secretary is charged by section 498(h)(1)(B)(ii) of the HEA
with provisionally certifying institutions that undergo a change of
ownership and control. Provisional certification means, as the
Department has spelled out in proposed Sec. 668.13(c)(4)(ii), 59 FR
9564, certification subject to conditions, and the change from for-
profit to nonprofit status warrants adopting as those conditions of the
required provisional certification those restrictions that would have
applied to the institution had it remained a for-profit entity. The
Secretary therefore expects to include such provisions for a limited
period in certifications given to converting schools.
Changes: The regulation clarifies that a change from a taxable to a
tax-exempt entity that qualifies under 501(c)(3) of the Internal
Revenue Code, or vice versa, constitutes a change of ownership and
control under this section of the regulations.
Section 600.32 Eligibility of Additional Locations
Comments: Nine commenters expressed concern that the provisions
governing the acquisition of an institution that owes a liability on
improperly expended or unspent title IV, HEA program funds would
discourage the practice of ``teaching out.'' A commenter suggested that
the Secretary should not apply the ``two-year rule'' to the acquisition
of an institution owing a liability on title-IV, HEA program funds,
even if the liability is not being paid properly. Another commenter
suggested that the Secretary make clear that the eligibility of
additional locations under this section is also subject to the
provisions of Secs. 600.8 (concerning the treatment of branch campuses)
and 600.10 (which contains provisions governing the date, extent,
duration, and consequences of the eligibility of an institution with
respect to the institution's locations).
Discussion: The Secretary does not agree with the first two
commenters for the same reasons that were given by the Secretary when
this provision was originally published as a final regulation in the
Federal Register of July 31, 1991. (See 56 FR 36685.) In the three
years since the implementation of those regulations, the Secretary has
seen no evidence that the provisions discourage ``teach-outs'' to
students, or that the application of the ``two-year rule'' has not
served its purpose. The Secretary agrees with the last commenter that
clarification is necessary with regard to the relationship of this
section to Secs. 600.8 and 600.10.
Changes: This section has been revised to make clear that the
provisions of Secs. 600.8 and 600.10 also apply to the eligibility of
additional locations.
Section 600.40 Loss of Eligibility
Comments: A number of commenters suggested that to avoid an
institution's sudden closure and the consequent interruption of the
education of currently enrolled students, there should be some
provision for those students to receive aid to complete their
educational program even after the institution has lost its
eligibility.
Discussion: Under Sec. 668.25 of the current Student Assistance
General Provisions regulations, and proposed 34 CFR 668.26 (see 59 FR
pages 9580-9581) that will go into effect on July 1, 1994, provisions
have been made to pay title IV, HEA program funds to students enrolled
in institutions that are terminated. Under those sections, if
termination became effective during a payment period and a student had
received a commitment to receive title-IV, HEA Program funds for that
payment period before the effective date of termination, the student
would receive those funds for that payment period as long as the
institution continued to provide instruction to the student during that
payment period.
Changes: None.
Comments: Several commenters suggested that the end of the
applicable award or fiscal year should not be used as the effective
date for loss of eligibility as a result of a violation of the
requirement to derive more than 85 percent of an institution's revenues
from title IV, HEA program funds. They pointed out that the loss of
eligibility has the effect of causing an institution to be liable for
any title IV, HEA program funds disbursed or delivered after that date
but before a compliance audit substantiating the institution's
calculations is performed. These commenters suggested that institutions
not be held liable for any such disbursements or deliveries of those
funds made before the date on which calculations are audited.
Discussion: These comments have been addressed in connection with
Sec. 600.5.
Changes: None.
Section 600.41 Termination and Emergency Action Proceedings
Comments: Three commenters supported the Secretary's proposed
position in this section to use a show-cause proceeding for
terminations of institutional eligibility only in instances where
neither the facts nor the law would be in dispute during the
proceeding. Two commenters objected to the use of a show-cause
proceeding (in place of a proceeding under 34 CFR part 668, subpart G)
for terminations of institutional eligibility for a violation under
Secs. 600.5(a)(8) or 600.7(a), claiming that violations of these
provisions could involve questions of fact that are in dispute. A
commenter also objected to the use of a show-cause proceeding (in place
of a proceeding under 34 CFR part 668, subpart G) for terminations for
loss of accreditation, preaccreditation, or State legal authorization.
One commenter suggested that the Secretary always use a proceeding
under 34 CFR part 668, subpart G, for violations of provisions in part
600. One commenter suggested that the Secretary always use a show-cause
proceeding, rather than a proceeding under 34 CFR part 668, subpart G,
for terminations of institutional eligibility.
Discussion: The Secretary reiterates that because an institution
itself reports that it is not in compliance with the applicable
eligibility requirements of Secs. 600.5 or 600.7, there is no question
of fact in dispute in a termination action taken on those grounds. The
Secretary continues to believe that a termination proceeding under 34
CFR part 668, subpart G, is neither necessary nor cost effective when
facts are not in dispute. The Secretary agrees, however, that it is
appropriate to use the provisions of 34 CFR part 668, subpart G, when
the Secretary undertakes to terminate an institution's eligibility when
the facts giving rise to that termination are in dispute. However, even
with regard to these institutions, the Secretary may take an emergency
action against such an institution if that action is considered
warranted, and if the institution challenges the emergency action, that
dispute is heard in a show-cause proceeding.
Changes: None.
Regulatory Flexibility Act Certification
Comment: In the NPRM, the Secretary certified that the proposed
regulations would not have a significant economic impact on a
substantial number of small entities. Several commenters suggested that
this statement was erroneous and that these rules will definitely have
a significant impact on institutions, especially the smaller ones that
are not computerized.
Discussion: The Secretary recognizes that the regulations will have
an impact on small institutions. However, based on Department estimates
of the impact, the Secretary does not believe that the impact will be
disproportionately or economically significant. The Secretary therefore
reaffirms his certification that the regulations would not have a
significant economic impact or a substantial significant economic
impact on a substantial number of small entities. To the extent that
commenters are able to provide additional information on the economic
impact of the regulations, the Secretary invites the commenters to
submit this information so that it may be considered in reviewing the
regulations to reduce regulatory burden.
Changes: None.
Paperwork Reduction Act of 1980
Comment: In the NPRM, the Secretary provided an estimate for the
total number of burden hours associated with these regulations. Several
commenters suggested that this estimate was understated.
Discussion: In estimating the total number of burden hours
associated with these regulations, the Secretary considers the best
information that is available to the Department and computes the
estimate based on that information. The commenters have complained
about the burden but have not provided sufficient additional
information to support a revised computation of burden hours. The
Secretary appreciates the comments and recognizes that the requirements
of the statute and regulations impose a burden. As a result of the
comments and revisions to the regulations, the Department is modifying
the burden estimates. The total annual reporting and recordkeeping
burden that would result from the collection of the information is
20,375 burden hours for this package.
Changes: None.
Executive Order 12866
These final 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 final 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 were identified and explained in the NPRM.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these regulations, the Secretary has determined
that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal government in the
exercise of their governmental functions.
Paperwork Reduction Act of 1980
Sections 600.5, 600.7, 600.10, 600.20, 600.30, and 600.31, 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)).
These regulations contain records that will affect postsecondary
institutions that wish to participate in the title IV, HEA programs. An
estimate of the total annual reporting and recordkeeping burden that
will result from the collection of the information is 1.96 hours per
response for 10,720 respondents for a total burden of 21,035 burden
hours for this package.
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, DC 20503; Attention: Daniel J. Chenok.
Comments on this burden estimate should be submitted by May 31, 1994.
Assessment of Educational Impact
In the NPRM, the Secretary requested comments on whether the
proposed regulations would require transmission of information that is
being gathered by or is available from any other agency or authority of
the United States.
Based on the response to the proposed rules and on its own review,
the Department has determined that the regulations in this document do
not 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 in 34 CFR Part 600
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements, Student
aid.
(Catalog of Federal Domestic Assistance Number does not apply)
Dated: April 20, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends part 600 of title 34 of the Code of Federal
Regulations as follows:
PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED
1. The authority citation for part 600 is revised to read as
follows:
Authority: 20 U.S.C. 1088, 1091, 1094, 1099b, 1099c, and 1141,
unless otherwise noted.
2. Subparts A through D of part 600 are revised to read as follows:
Subpart A--General
Sec.
600.1 Scope.
600.2 Definitions.
600.3 [Reserved].
600.4 Institution of higher education.
600.5 Proprietary institution of higher education.
600.6 Postsecondary vocational institution.
600.7 Conditions of institutional ineligibility.
600.8 Treatment of a branch campus.
600.9 Written agreement between an eligible institution and another
institution or organization.
600.10 Date, extent, duration, and consequence of eligibility.
600.11 Special rules regarding institutional accreditation or
preaccreditation.
Subpart B--Procedures for Establishing Eligibility
600.20 Application procedures.
600.21 Eligibility notification.
Subpart C--Maintaining Eligibility
600.30 Institutional notification requirements.
600.31 Change in ownership resulting in a change of control.
600.32 Eligibility of additional locations.
Subpart D--Loss of Eligibility
600.40 Loss of eligibility.
600.41 Termination and emergency action proceedings.
Subpart A--General
Sec. 600.1 Scope.
This part establishes the rules and procedures that the Secretary
uses to determine whether an educational institution qualifies in whole
or in part as an eligible institution of higher education under the
Higher Education Act of 1965, as amended (HEA). An eligible institution
of higher education may apply to participate in programs authorized by
the HEA (HEA programs).
(Authority: 20 U.S.C. 1088, 1094, 1099b, 1099c, and 1141)
Sec. 600.2 Definitions.
The following definitions apply to terms used in this part:
Accredited: The status of public recognition that a nationally
recognized accrediting agency grants to an institution or educational
program that meets the agency's established requirements.
Award year: The period of time from July 1 of one year through June
30 of the following year.
Branch Campus: A location of an institution that is geographically
apart and independent of the main campus of the institution. The
Secretary considers a location of an institution to be independent of
the main campus if the location--
(1) Is permanent in nature;
(2) Offers courses in educational programs leading to a degree,
certificate, or other recognized educational credential;
(3) Has its own faculty and administrative or supervisory
organization; and
(4) Has its own budgetary and hiring authority.
Clock hour: A period of time consisting of--
(1) A 50- to 60-minute class, lecture, or recitation in a 60-minute
period;
(2) A 50- to 60-minute faculty-supervised laboratory, shop
training, or internship in a 60-minute period; or
(3) Sixty minutes of preparation in a correspondence course.
Correspondence course: (1) A ``home study'' course provided by an
institution under which the institution provides instructional
materials, including examinations on the materials, to students who are
not physically attending classes at the institution. When students
complete a portion of the instructional materials, the students take
the examinations that relate to that portion of the materials, and
return the examinations to the institution for grading.
(2) A home study course that provides instruction in whole or in
part through the use of video cassettes or video discs in an award year
is a correspondence course unless the institution also delivers the
instruction on the cassette or disc to students physically attending
classes at the institution during the same award year.
(3) A course at an institution that may otherwise satisfy the
definition of a ``telecommunications course'' is a correspondence
course if the sum of telecommunications and other correspondence
courses offered by that institution equals or exceeds 50 percent of the
total courses offered at that institution.
(4) If a course is part correspondence and part residential
training, the Secretary considers the course to be a correspondence
course.
Educational program: A legally authorized postsecondary program of
organized instruction or study that leads to an academic, professional,
or vocational degree, or certificate, or other recognized educational
credential. However, the Secretary does not consider that an
institution provides an educational program if the institution does not
provide instruction itself (including a course of independent study),
but merely gives credit for one or more of the following: instruction
provided by other institutions or schools; examinations provided by
agencies or organizations; or other accomplishments such as ``life
experience.''
Eligible institution: An institution that--
(1) Qualifies as--
(i) An institution of higher education, as defined in Sec. 600.4;
(ii) A proprietary institution of higher education, as defined in
Sec. 600.5; or
(iii) A postsecondary vocational institution, as defined in
Sec. 600.6; and
(2) Meets all the other applicable provisions of this part.
Federal Family Education Loan (FFEL) programs: The loan programs
(formerly called the Guaranteed Student Loan (GSL) programs) authorized
by title IV-B of the HEA, including the Federal Stafford Loan, Federal
PLUS, Federal Supplemental Loans for Students (Federal SLS), and
Federal Consolidation Loan programs, in which lenders use their own
funds to make loans to enable students or their parents to pay the
costs of the students' attendance at eligible institutions. The Federal
Stafford Loan, Federal PLUS, Federal SLS, and Federal Consolidation
Loan programs are defined in 34 CFR part 668.
Incarcerated student: A student who is serving a criminal sentence
in a Federal, State, or local penitentiary, prison, jail, reformatory,
work farm, or other similar correctional institution. A student is not
considered incarcerated if that student is in a half-way house or home
detention or is sentenced to serve only weekends.
Legally authorized: The legal status granted to an institution
through a charter, license, or other written document issued by the
appropriate agency or official of the State in which the institution is
physically located.
Nationally recognized accrediting agency: An agency or association
that the Secretary recognizes as a reliable authority to determine the
quality of education or training offered by an institution or a program
offered by an institution. The Secretary recognizes these agencies and
associations under the provisions of 34 CFR part 602 and publishes a
list of the recognized agencies in the Federal Register.
Nonprofit institution: An institution that--
(1) Is owned and operated by one or more nonprofit corporations or
associations, no part of the net earnings of which benefits any private
shareholder or individual;
(2) Is legally authorized to operate as a nonprofit organization by
each State in which it is physically located; and
(3) Is determined by the U.S. Internal Revenue Service to be an
organization to which contributions are tax-deductible in accordance
with section 501(c)(3) of the Internal Revenue Code (26 U.S.C.
501(c)(3)).
One-academic-year training program: An educational program that is
at least one academic year as defined under 34 CFR 668.2.
Preaccredited: A status that a nationally recognized accrediting
agency, recognized by the Secretary to grant that status, has accorded
an unaccredited public or private nonprofit institution that is
progressing toward accreditation within a reasonable period of time.
Recognized equivalent of a high school diploma: The following are
the equivalent of a high school diploma--
(1) A General Education Development Certificate (GED);
(2) A State certificate received by a student after the student has
passed a State-authorized examination that the State recognizes as the
equivalent of a high school diploma;
(3) An academic transcript of a student who has successfully
completed at least a two-year program that is acceptable for full
credit toward a bachelor's degree; or
(4) For a person who is seeking enrollment in an educational
program that leads to at least an associate degree or its equivalent
and who has not completed high school but who excelled academically in
high school, documentation that the student excelled academically in
high school and has met the formalized, written policies of the
institution for admitting such students.
Recognized occupation: An occupation that is--
(1) Listed in an ``occupational division'' of the latest edition of
the Dictionary of Occupational Titles, published by the U.S. Department
of Labor; or
(2) Determined by the Secretary in consultation with the Secretary
of Labor to be a recognized occupation.
Regular student: A person who is enrolled or accepted for
enrollment at an institution for the purpose of obtaining a degree,
certificate, or other recognized educational credential offered by that
institution.
Secretary: The Secretary of the Department of Education or an
official or employee of the Department of Education acting for the
Secretary under a delegation of authority.
State: A State of the Union, American Samoa, the Commonwealth of
Puerto Rico, the District of Columbia, Guam, the Trust Territory of the
Pacific Islands, the Virgin Islands, and the Commonwealth of the
Northern Mariana Islands.
Telecommunications course: A course offered in an award year
principally through the use of television, audio, or computer
transmission, including open broadcast, closed circuit, cable,
microwave, or satellite, audio conferencing, computer conferencing, or
video cassettes or discs. The term does not include a course that is
delivered using video cassettes or disc recordings unless that course
is delivered to students physically attending classes at an institution
providing the course during the same award year. If the course does not
qualify as a telecommunications course it is considered to be a
correspondence course, as provided for in paragraph (c) of the
definition of correspondence course in this section.
Title IV, HEA program: Any of the student financial assistance
programs listed in 34 CFR 668.1(c).
(Authority: 20 U.S.C. 1071 et seq., 1078-2, 1088, 1099b, 1099c, and
1141 and 26 U.S.C. 501(c).)
Sec. 600.3 [Reserved]
Sec. 600.4 Institution of higher education.
(a) An institution of higher education is a public or private
nonprofit educational institution that--
(1) Is in a State, or for purposes of the Federal Pell Grant,
Federal Supplemental Educational Opportunity Grant, Federal Work-Study,
and Federal TRIO programs may also be located in the Federated States
of Micronesia or the Marshall Islands;
(2) Admits as regular students only persons who--
(i) Have a high school diploma;
(ii) Have the recognized equivalent of a high school diploma; or
(iii) Are beyond the age of compulsory school attendance in the
State in which the institution is physically located;
(3) Is legally authorized to provide an educational program beyond
secondary education in the State in which the institution is physically
located;
(4) Provides an educational program--
(i) For which it awards an associate, baccalaureate, graduate, or
professional degree;
(ii) That is at least a two-academic-year program acceptable for
full credit toward a baccalaureate degree; or
(iii) That is at least a one-academic-year training program that
leads to a certificate, degree, or other recognized educational
credential and prepares students for gainful employment in a recognized
occupation; and
(5) Is--
(i) Accredited or preaccredited; or
(ii) Approved by a State agency listed in the Federal Register in
accordance with 34 CFR part 603, if the institution is a public
postsecondary vocational educational institution that seeks to
participate only in Federal student assistance programs.
(b) An institution is physically located in a State if it has a
campus or other instructional site in that State.
(c) The Secretary does not recognize the accreditation or
preaccreditation of an institution unless the institution agrees to
submit any dispute involving the final denial, withdrawal, or
termination of accreditation to binding arbitration before initiating
any other legal action.
(Authority: 20 U.S.C. 1094, 1099b, and 1141(a))
Sec. 600.5 Proprietary institution of higher education.
(a) A proprietary institution of higher education is an educational
institution that--
(1) Is not a public or private nonprofit educational institution;
(2) Is in a State;
(3) Admits as regular students only persons who--
(i) Have a high school diploma;
(ii) Have the recognized equivalent of a high school diploma; or
(iii) Are beyond the age of compulsory school attendance in the
State in which the institution is physically located;
(4) Is legally authorized to provide an educational program beyond
secondary education in the State in which the institution is physically
located;
(5) Provides an eligible program of training, as defined in 34 CFR
668.8, to prepare students for gainful employment in a recognized
occupation;
(6) Is accredited;
(7) Has been in existence for at least two years; and
(8) Has no more than 85 percent of its revenues derived from title
IV, HEA program funds, as determined under paragraph (d) of this
section.
(b)(1) The Secretary considers an institution to have been in
existence for two years only if--
(i) The institution has been legally authorized to provide, and has
provided, a continuous educational program to prepare students for
gainful employment in a recognized occupation during the 24 months
preceding the date of its eligibility application; and
(ii) The educational program that the institution provides on the
date of its eligibility application is substantially the same in length
and subject matter as the program that the institution provided during
the 24 months preceding the date of its eligibility application.
(2)(i) The Secretary considers an institution to have provided a
continuous educational program during the 24 months preceding the date
of its eligibility application even if the institution did not provide
that program during normal vacation periods, or periods when the
institution temporarily closed due to a natural disaster that directly
affected the institution or the institution's students.
(ii) The Secretary considers an institution to have satisfied the
provisions of paragraph (b)(1)(ii) of this section if the institution
substantially changed the subject matter of the educational program it
provided during that 24-month period because of new technology or the
requirements of other Federal agencies.
(3) In determining whether an applicant institution satisfies the
requirement contained in paragraph (b)(1) of this section, the
Secretary--
(i) Counts any period during which the applicant institution
qualified as a branch campus; and
(ii) Except as provided in paragraph (b)(3)(i) of this section,
does not count any period during which the applicant institution was a
part of another eligible proprietary institution of higher education,
postsecondary vocational institution, or vocational school.
(c) An institution is physically located in a State if it has a
campus or other instructional site in that State.
(d)(1) An institution satisfies the requirement contained in
paragraph (a)(8) of this section by examining its revenues under the
following formula:
Title IV, HEA program funds the institution used to satisfy tuition,
fees, and other institutional charges to students.
------------------------------------------------------------------------
The sum of revenues generated by the institution from: Tuition, fees,
and other institutional charges for students enrolled in eligible
programs as defined in 34 CFR 668.8; and activities conducted by the
institution, to the extent not included in tuition, fees, and other
institutional charges, that are necessary for the education or training
of its students who are enrolled in those eligible programs.
(2) Under the fraction contained in paragraph (d)(1) of this
section--
(i) Except as provided in paragraph (h) of this section, the title
IV, HEA program funds included in the numerator and the revenue
included in the denominator are the amount of title IV, HEA program
funds and revenues received by the institution during the institution's
last complete fiscal year;
(ii) The title IV, HEA program funds included in the numerator do
not include State Student Incentive Grant (SSIG) or Federal Work-Study
(FWS) program funds. (The SSIG and FWS programs are defined in 34 CFR
668.2);
(iii) The title IV, HEA program funds included the numerator and
revenue included the denominator do not include any refunds paid to or
on behalf of students under the institution's refund policy;
(iv) The amount charged for books, supplies, and equipment is not
included in the numerator or the denominator unless the amount is
included in tuition, fees, or other institutional charges;
(v) With regard to the numerator, any title IV, HEA program funds
disbursed or delivered to or on behalf of a student shall be presumed
to be used to pay the student's tuition, fees, or other institutional
charges, regardless of whether the institution credits those funds to
the student's account or pays those funds directly to the student,
except for tuition, fees, and other institutional charges that were
satisfied by--
(A) Grant funds provided by non-Federal public agencies, or private
sources independent of the institution; or
(B) Funds provided under a contractual arrangement described in
Sec. 600.7(d); and
(vi) With regard to the denominator, revenue generated by the
institution from other activities conducted by the institution that are
necessary for its students' education or training includes only revenue
for those activities that--
(A) Are conducted on campus or at a facility under the control of
the institution;
(B) Are performed under the supervision of a member of the
institution's faculty; and
(C) Are required to be performed by all students in a specific
educational program at the institution.
(e)(1) An institution shall substantiate the calculation required
in paragraph (a)(8) of this section by having the certified public
accountant who prepares its audited financial statement under 34 CFR
668.15 or its title IV, HEA program compliance audit under 34 CFR
668.23 report on the accuracy of the institution's calculation based on
performing an agreed-upon procedures attestation engagement in
accordance with the American Institute of Certified Public Accountants
(AICPA's) Statement on Standards for Attestation Engagements, and
include that report as part of the audit report.
(2) If the certified public accountant cannot attest to the
accuracy of the institution's calculations, the Secretary presumes that
the institution does not satisfy the 85 percent rule and therefore does
not satisfy the requirement contained in paragraph (a)(8) of this
section.
(3) The institution may rebut this presumption if, no later than 30
days after the date on which the audit report that includes the
attestation engagement report was submitted, the institution submits a
calculation to the Secretary indicating that it satisfies the
provisions of paragraph (a)(8) of this section, and the certified
public accountant who could not attest to the accuracy of its previous
calculation, attests to the accuracy of those calculations.
(f) Except as provided in paragraph (h) of this section, an
institution shall notify the Secretary if it fails to satisfy the
requirement contained in paragraph (a)(8) of this section within 90
days following the end of the fiscal year used in paragraph (d)(1) of
this section.
(g) If an institution loses its eligibility because it failed to
satisfy the requirement contained in paragraph (a)(8) of this section,
to regain its eligibility it must demonstrate compliance with all
eligibility requirements for at least the fiscal year following the
fiscal year used in paragraph (d)(1) of this section.
(h) Special provisions for the 1994-95 award year. As of July 1,
1994:
(1) If an institution's latest complete fiscal year ended during
the period of October 1, 1993 through June 30, 1994, an institution
shall use that fiscal year in paragraph (d)(1) of this section to
determine whether the institution satisfies the requirement contained
in paragraph (a)(8) of this section.
(2) If an institution's latest complete fiscal year ended before
October 1, 1993, the institution shall use as its latest fiscal year in
paragraph (d)(1) of this section the fiscal year that ends between July
1, 1994 and September 30, 1994 to determine whether the institution
satisfies the requirement contained in paragraph (a)(8) of this
section.
(3) If an institution uses the fiscal year described in paragraph
(h)(1) of this section as its latest fiscal year under paragraph (d)(1)
of this section, the institution shall notify the Secretary by
September 30, 1994 if it fails to satisfy the requirement contained in
paragraph (a)(8) of this section.
(4) If an institution uses the fiscal year described in paragraph
(h)(2) of this section as its latest fiscal year under paragraph (d)(1)
of this section, the institution shall notify the Secretary if it fails
to satisfy the requirement contained in paragraph (a)(8) of this
section within 90 days following the end of that fiscal year.
(i) The Secretary does not recognize the accreditation of an
institution unless the institution agrees to submit any dispute
involving the final denial, withdrawal, or termination of accreditation
to binding arbitration before initiating any other legal action.
(Authority: 20 U.S.C. 1088)
Sec. 600.6 Postsecondary vocational institution.
(a) A postsecondary vocational institution is a public or private
nonprofit educational institution that--
(1) Is in a State;
(2) Admits as regular students only persons who--
(i) Have a high school diploma;
(ii) Have the recognized equivalent of a high school diploma; or
(iii) Are beyond the age of compulsory school attendance in the
State in which the institution is physically located;
(3) Is legally authorized to provide an educational program beyond
secondary education in the State in which the institution is physically
located;
(4) Provides an eligible program of training, as defined in 34 CFR
668.8, to prepare students for gainful employment in a recognized
occupation;
(5) Is--
(i) Accredited or preaccredited; or
(ii) Approved by a State agency listed in the Federal Register in
accordance with 34 CFR part 603, if the institution is a public
postsecondary vocational educational institution that seeks to
participate only in Federal assistance programs; and
(6) Has been in existence for at least two years.
(b)(1) The Secretary considers an institution to have been in
existence for two years only if--
(i) The institution has been legally authorized to provide, and has
provided, a continuous education or training program to prepare
students for gainful employment in a recognized occupation during the
24 months preceding the date of its eligibility application; and
(ii) The education or training program it provides on the date of
its eligibility application is substantially the same in length and
subject matter as the program it provided during the 24 months
preceding the date of its eligibility application.
(2)(i) The Secretary considers an institution to have provided a
continuous education or training program during the 24 months preceding
the date of its eligibility application even if the institution did not
provide that program during normal vacation periods, or periods when
the institution temporarily closed due to a natural disaster that
affected the institution or the institution's students.
(ii) The Secretary considers an institution to have satisfied the
provisions of paragraph (b)(1)(ii) of this section if the institution
substantially changed the subject matter of the educational program it
provided during that 24-month period because of new technology or the
requirements of other Federal agencies.
(3) In determining whether an applicant institution satisfies the
requirement contained in paragraph (b)(1) of this section, the
Secretary--
(i) Counts any period during which the applicant institution
qualified as an eligible institution of higher education;
(ii) Counts any period during which the applicant institution was
part of another eligible institution of higher education, provided that
the applicant institution continues to be part of an eligible
institution of higher education;
(iii) Counts any period during which the applicant institution
qualified as a branch campus; and
(iv) Except as provided in paragraph (b)(3)(iii) of this section,
does not count any period during which the applicant institution was a
part of another eligible proprietary institution of higher education or
postsecondary vocational institution.
(c) An institution is physically located in a State or other
instructional site if it has a campus or instructional site in that
State.
(d) The Secretary does not recognize the accreditation or
preaccreditation of an institution unless the institution agrees to
submit any dispute involving the final denial, withdrawal, or
termination of accreditation to binding arbitration before initiating
any other legal action.
(Authority: 20 U.S.C. 1088 and 1094(c)(3))
Sec. 600.7 Conditions of institutional ineligibility.
(a) General rule. For purposes of title IV of the HEA, an
educational institution that otherwise satisfies the requirements
contained in Secs. 600.4, 600.5, or 600.6 nevertheless does not qualify
as an eligible institution under this part--
(1) If for its latest complete award year--
(i) More than 50 percent of the institution's courses were
correspondence courses as calculated under paragraph (b) of this
section;
(ii) Fifty percent or more of the institution's regular enrolled
students were enrolled in correspondence courses;
(iii) Twenty-five percent or more of the institution's regular
enrolled students were incarcerated;
(iv) Fifty percent or more of its regular enrolled students had
neither a high school diploma nor the recognized equivalent of a high
school diploma, and the institution does provide a four-year or two-
year educational program for which it awards a bachelor's degree or
associate degree, respectively;
(2) The institution, or an affiliate of the institution that has
the power, by contract or ownership interest, to direct or cause the
direction of the management or policies of the institution, files for
bankruptcy; or
(3) The institution, its owner, or its chief executive officer--
(i) Has pled guilty to, has pled nolo contendere to, or is found
guilty of, a crime involving the acquisition, use, or expenditure of
title IV, HEA program funds; or
(ii) Has been judicially determined to have committed fraud
involving title IV, HEA program funds.
(b) Special provisions regarding correspondence courses and
students--(1) Treatment of telecommunications courses. For purposes of
paragraphs (a)(1) (i) and (ii) of this section, the Secretary considers
a telecommunications course to be a correspondence course if the sum of
telecommunications courses and other correspondence courses the
institution provided during that award year equaled or exceeded 50
percent of the total number of courses it provided during that year.
(2) Calculating the number of courses. For purposes of paragraphs
(a)(1) (i) and (ii) of this section--
(i) A correspondence course may be a complete educational program
offered by correspondence, or one course provided by correspondence in
an on-campus (residential) educational program;
(ii) A course must be considered as being offered once during an
award year regardless of the number of times it is offered during that
year; and
(iii) A course that is offered both on campus and by correspondence
must be considered two courses for the purpose of determining the total
number of courses the institution provided during an award year.
(3) Exceptions. (i) The provisions contained in paragraphs (a)(1)
(i) and (ii) of this section do not apply to an institution that
qualifies as a ``technical institute or vocational school used
exclusively or principally for the provision of vocational education to
individuals who have completed or left high school and who are
available for study in preparation for entering the labor market''
under section 521(4)(C) of the Carl D. Perkins Vocational and Applied
Technology Education Act.
(ii) The Secretary waives the limitation contained in paragraph
(a)(1)(ii) of this section for an institution that offers a 2-year
associate-degree or a 4-year bachelor's-degree program if the students
enrolled in the institution's correspondence courses receive no more
than 5 percent of the title IV, HEA program funds received by students
at that institution.
(c) Special provisions regarding incarcerated students--(1)
Exception. The Secretary may waive the prohibition contained in
paragraph (a)(1)(iii) of this section, upon the application of an
institution, if the institution is a nonprofit institution that
provides four-year or two-year educational programs for which it awards
bachelor's or associate degrees, respectively.
(2) If the nonprofit institution that applies for a waiver consists
solely of four-year or two-year educational programs for which it
offers bachelor's or associate degrees, respectively, or both types of
programs, the Secretary waives the prohibition contained in paragraph
(a)(1)(iii) of this section for the entire institution.
(3) If the nonprofit institution that applies for a waiver does not
consist solely of four-year or two-year educational programs for which
it offers bachelor's or associate degrees, respectively, or both types
of programs, the Secretary waives the prohibition contained in
paragraph (a)(1)(iii) of this section--
(i) For the four-year and two-year programs that lead,
respectively, to bachelor's and associate degrees; and
(ii) For the other programs the institution offers, if the
incarcerated regular students enrolled in those other programs have a
completion rate of 50 percent or greater.
(d) Special provision for a nonprofit institution if more than 50
percent of its enrollment consists of students who do not have a high
school diploma or its equivalent. (1) Subject to the provisions
contained in paragraphs (d)(2) and (d)(3) of this section, the
Secretary waives the limitation contained in paragraph (a)(1)(iv) of
this section for a nonprofit institution if that institution
demonstrates to the Secretary's satisfaction that it exceeds that
limitation because it serves, through contracts with Federal, State, or
local government agencies, significant numbers of students who do not
have a high school diploma or its recognized equivalent.
(2) Number of critical students. The Secretary grants a waiver
under paragraph (d)(1) of this section only if no more than 40 percent
of the institution's enrollment of regular students consists of
students who--
(i) Do not have a high school diploma or its equivalent; and
(ii) Are not served through contracts described in paragraph (d)(3)
of this section.
(3) Contracts with Federal, State, or local government agencies.
For purposes of granting a waiver under paragraph (d)(1) of this
section, the contracts referred to must be with Federal, State, or
local government agencies for the purpose of providing job training to
low-income individuals who are in need of that training. An example of
such a contract is a job training contract under the Job Training
Partnership Act (JPTA).
(e) Special provisions. (1) For purposes of paragraph (a)(1)of this
section, when counting regular students, the institution shall--
(i) Count each regular student without regard to the full-time or
part-time nature of the student's attendance (i.e., ``head count''
rather than ``full-time equivalent'');
(ii) Count a regular student once regardless of the number of times
the student enrolls during an award year; and
(iii) Determine the number of regular students who enrolled in the
institution during the relevant award year by--
(A) Calculating the number of regular students who enrolled during
that award year; and
(B) Excluding from the number of students in paragraph
(e)(1)(iii)(A) of this section, the number of regular students who
enrolled but subsequently withdrew or were expelled from the
institution and were entitled to receive a 100 percent refund of their
tuition and fees less any administrative fee that the institution is
permitted to keep under its fair and equitable refund policy.
(2) For the purpose of calculating a completion rate under
paragraph (e)(3)(ii) of this section, the institution shall--
(i) Determine the number of regular incarcerated students who
enrolled in the other programs during the last completed award year;
(ii) Exclude from the number of regular incarcerated students
determined in paragraph (e)(2)(i) of this section, the number of those
students who enrolled but subsequently withdrew or were expelled from
the institution and were entitled to receive a 100 percent refund of
their tuition and fees, less any administrative fee the institution is
permitted to keep under the institution's fair and equitable refund
policy;
(iii) Exclude from the total obtained in paragraph (e)(2)(ii) of
this section, the number of those regular incarcerated students who
remained enrolled in the programs at the end of the applicable award
year;
(iv) From the total obtained in paragraph (e)(2)(iii) of this
section, determine the number of regular incarcerated students who
received a degree, certificate, or other recognized educational
credential awarded for successfully completing the program during the
applicable award year; and
(v) Divide the total obtained in paragraph (e)(2)(iv) of this
section by the total obtained in paragraph (e)(2)(iii) of this section
and multiply by 100.
(f)(1) If the Secretary grants a waiver to an institution under
this section, the waiver extends indefinitely provided that the
institution satisfies the waiver requirements in each award year.
(2) If an institution fails to satisfy the waiver requirements for
an award year, the institution becomes ineligible on June 30 of that
award year.
(g)(1) For purposes of paragraph (a)(1) of this section, and any
applicable waiver or exception under this section, the institution
shall substantiate the required calculations by having the certified
public accountant who prepares its audited financial statement under 34
CFR 668.15 or its title IV, HEA program compliance audit under 34 CFR
668.23 report on the accuracy of the institution's calculation based on
performing an agreed-upon procedures attestation engagement in
accordance with the AICPA's Statement on Standards for Attestation
Engagements, and include that report as part of the audit report.
(2) If the certified public accountant cannot attest to the
accuracy of the institution's calculations for purposes of paragraph
(a)(1) of this section or any applicable waiver or exception under this
section, the Secretary presumes that the institution lost its
eligibility as a result of those provisions.
(3) The institution may rebut this presumption if, no later than 30
days after the date on which the audit report that includes the
attestation engagement report was submitted, the institution submits a
calculation to the Secretary indicating that it satisfies the
provisions of paragraph (a)(8) of this section, and the certified
public accountant who could not attest to the accuracy of its previous
calculation, attests to the accuracy of those calculations.
(h) Notice to the Secretary. An institution shall notify the
Secretary--
(1) By July 31 following the end of an award year if it falls
within one of the prohibitions contained in paragraph (a)(1)of this
section, or fails to continue to satisfy a waiver or exception granted
under this section; or
(2) Within 10 days if it falls within one of the prohibitions
contained in paragraphs (a)(2) or (a)(3) of this section.
(i) Regaining eligibility. (1) If an institution loses its
eligibility because of one of the prohibitions contained in paragraph
(a)(1) of this section, to regain its eligibility, it must
demonstrate--
(i) Compliance with all eligibility requirements;
(ii) That it did not fall within any of the prohibitions contained
in paragraph (a)(1) of this section for at least one award year; and
(iii) That it changed its administrative policies and practices to
ensure that it will not fall within any of the prohibitions contained
in paragraph (a)(1) of this section.
(2) If an institution loses its eligibility because of one of the
prohibitions contained in paragraphs (a)(2) and (a)(3) of this section,
this loss is permanent. The institution's eligibility cannot be
reinstated.
(Authority: 20 U.S.C. 1088)
Sec. 600.8 Treatment of a branch campus.
A branch campus of an eligible institution must be in existence for
at least two years as a branch campus before seeking to be designated
as a main campus or a free-standing institution.
(Authority: 20 U.S.C. 1099c)
Sec. 600.9 Written agreement between an eligible institution and
another institution or organization.
(a) Without losing its eligibility under this part, an eligible
institution may enter into a written agreement with another eligible
institution under which the latter institution provides all or a part
of the educational program of students enrolled in the former
institution if the former institution gives credit to students enrolled
in that contracted program on the same basis as if it provided that
program itself.
(b) Without losing its eligibility under this part, an eligible
institution may enter into a written agreement with an institution or
organization that is not an eligible institution under which the latter
institution or organization provides a part of the educational program
of students enrolled in the eligible institution if--
(1) The eligible institution gives credit to students enrolled in
that contracted program on the same basis as if it provided that
program itself;
(2) The ineligible institution or organization--
(i) Has not been terminated from participation in the title-IV, HEA
programs; or
(ii) Has not withdrawn from participation in the title IV, HEA
programs under a termination, show-cause, suspension, or similar type
proceeding initiated by the institution's State licensing agency,
accrediting agency, guarantor, or SPRE, or by the Secretary; and
(3) The ineligible institution or organization provides--
(i) Not more than 25 percent of the educational program of a
student enrolled in the eligible institution; or
(ii) More than 25 percent but not more than 50 percent of the
educational program of a student enrolled in the eligible institution
so long as--
(A) The eligible institution and the ineligible institution or
organization are not owned or controlled by the same individual,
partnership, or corporation; and
(B) The eligible institution's accrediting agency or, if the
eligible institution is a public postsecondary vocational educational
institution, the relevant State agency listed in the Federal Register
in accordance with 34 CFR part 603, specifically determines that the
institution's agreement meets the agency's standards for the
contracting out of educational services.
(Authority: 20 U.S.C. 1094)
Sec. 600.10 Date, extent, duration, and consequence of eligibility.
(a) Date of eligibility. (1) If the Secretary determines that an
applicant institution satisfies all the statutory and regulatory
eligibility requirements, the Secretary considers the institution to be
an eligible institution as of the date--
(i) The Secretary signs the institution's program participation
agreement described in 34 CFR part 668, subpart B, for purposes of
participating in any title IV, HEA program; and
(ii) The Secretary receives all the information necessary to make
that determination for purposes other than participating in any title
IV, HEA program.
(2) For purposes of participating in a title IV, HEA program, if an
eligible institution seeks eligibility for a location or educational
program not previously designated eligible, and the Secretary
determines that the location or educational program satisfies all the
statutory and regulatory eligibility requirements, the Secretary
considers the location or program to be eligible to participate in that
title IV, HEA program as of the date the Secretary certifies that
location or program to so participate.
(b) Extent of eligibility. (1) If the Secretary determines that the
entire applicant institution, including all its locations and all its
educational programs, satisfies the applicable requirements of this
part, the Secretary extends eligibility to all educational programs and
locations identified on the institution's application for eligibility.
(2) If the Secretary determines that only certain educational
programs or certain locations of an applicant institution satisfy the
applicable requirements of this part, the Secretary extends eligibility
only to those educational programs and locations that meet those
requirements and identifies the eligible educational programs and
locations in the eligibility notice sent to the institution under
Sec. 600.21.
(3) Eligibility does not extend to any location that an institution
establishes after it receives its eligibility designation if the
institution provides at least 50 percent of an educational program at
that location, unless--
(i) The institution has notified the Secretary of that location in
accordance with Sec. 600.30(a)(3); and
(ii) The Secretary does not require the institution to submit an
eligibility application for that location under Sec. 600.21(c).
(c) Subsequent additions of educational programs. (1) Except as
provided in paragraph (c)(2) of this section, if an eligible
institution adds an educational program after it has been designated as
an eligible institution by the Secretary, the institution must apply to
the Secretary to have that additional program designated as an eligible
program of that institution.
(2) An eligible institution that adds an educational program after
it has been designated as an eligible institution by the Secretary does
not have to apply to the Secretary to have that additional program
designated as an eligible program of that institution if the additional
program--
(i) Leads to an associate, baccalaureate, professional, or graduate
degree; or
(ii)(A) Prepares students for gainful employment in the same or
related recognized occupation as an educational program that has
previously been designated as an eligible program at that institution
by the Secretary; and
(B) Is at least 8 semester hours, 12 quarter hours, or 600 clock
hours.
(3) If an institution incorrectly determines under paragraph (c)(2)
of this section that an educational program satisfies the applicable
statutory and regulatory eligibility provisions without applying to the
Secretary for approval, the institution is liable to repay to the
Secretary all HEA program funds received by the institution for that
educational program, and all the title IV, HEA program funds received
by or on behalf of students who were enrolled in that educational
program.
(d) Duration of eligibility. (1) If an institution participates in
the title IV, HEA programs, the Secretary's designation of the
institution as an eligible institution under the title IV, HEA programs
expires when the institution's program participation agreement, as
described in 34 CFR part 668, subpart B, expires.
(2) If an institution participates in an HEA program other than a
title IV, HEA program, the Secretary's designation of the institution
as an eligible institution, for purposes of that non-title IV, HEA
program, does not expire as long as the institution continues to
satisfy the statutory and regulatory requirements governing its
eligibility.
(e) Consequence of eligibility. (1) If, as a part of its
institutional eligibility application, an institution indicates that it
wishes to participate in a title IV, HEA program and the Secretary
determines that the institution satisfies the applicable statutory and
regulatory requirements governing institutional eligibility, the
Secretary will determine whether the institution satisfies the
standards of administrative capability and financial responsibility
contained in 34 CFR part 668, subpart B.
(2) If, as part of its institutional eligibility application, an
institution indicates that it does not wish to participate in any title
IV, HEA program and the Secretary determines that the institution
satisfies the applicable statutory and regulatory requirements
governing institutional eligibility, the institution is eligible to
apply to participate in any HEA program listed by the Secretary in the
eligibility notice it receives under Sec. 600.21. However, the
institution is not eligible to participate in those programs, or
receive funds under those programs, merely by virtue of its designation
as an eligible institution under this part.
(Authority: 20 U.S.C. 1088 and 1141)
Sec. 600.11 Special rules regarding institutional accreditation or
preaccreditation.
(a) Change of accrediting agencies. For purposes of
Secs. 600.4(a)(5)(i), 600.5(a)(6), and 600.6(a)(5)(i), the Secretary
does not recognize the accreditation or preaccreditation of an
otherwise eligible institution if that institution is in the process of
changing its accrediting agency, unless the institution provides to the
Secretary--
(1) All materials related to its prior accreditation or
preaccreditation; and
(2) Materials demonstrating reasonable cause for changing its
accrediting agency.
(b) Multiple accreditation. The Secretary does not recognize the
accreditation or preaccreditation of an otherwise eligible institution
if that institution is accredited or preaccredited as an institution by
more than one accrediting agency, unless the institution--
(1) Provides to each such accrediting agency and the Secretary the
reasons for that multiple accreditation or preaccreditation;
(2) Demonstrates to the Secretary reasonable cause for that
multiple accreditation or preaccreditation; and
(3) Designates to the Secretary which agency's accreditation or
preaccreditation the institution uses to establish its eligibility
under this part.
(c) Loss of accreditation or preaccreditation. (1) An institution
may not be considered eligible for 24 months after it has had its
accreditation or preaccreditation withdrawn, revoked, or otherwise
terminated for cause, unless the accrediting agency that took that
action rescinds that action.
(2) An institution may not be considered eligible for 24 months
after it has withdrawn voluntarily from its accreditation or
preaccreditation status under a show-cause or suspension order issued
by an accrediting agency, unless that agency rescinds its order.
(d) Religious exception. (1) If an otherwise eligible institution
loses its accreditation or preaccreditation, the Secretary considers
the institution to be accredited or preaccredited for purposes of
complying with the provisions of Secs. 600.4, 600.5, and 600.6 if the
Secretary determines that its loss of accreditation or
preaccreditation--
(i) Is related to the religious mission or affiliation of the
institution; and
(ii) Is not related to its failure to satisfy the accrediting
agency's standards.
(2) If the Secretary considers an unaccredited institution to be
accredited or preaccredited under the provisions of paragraph (d)(1) of
this section, the Secretary will consider that unaccredited institution
to be accredited or preaccredited for a period sufficient to allow the
institution to obtain alternative accreditation or preaccreditation,
except that period may not exceed 18 months.
(Authority: 20 U.S.C. 1099b)
Subpart B--Procedures for Establishing Eligibility
Sec. 600.20 Application procedures.
(a) An institution that wishes to establish its eligibility to
apply to participate in any program authorized by the HEA must first
apply to the Secretary for a determination that it qualifies as an
eligible institution.
(b) A previously designated eligible institution must apply to the
Secretary if--
(1) The Secretary requests the institution to file an application
so as to determine whether it continues to meet the requirements of
this part; or
(2) The institution satisfies one of the conditions contained in
paragraph (c) of this section.
(c) An institution must apply if it wishes to--
(1) Continue to be eligible beyond the scheduled expiration of its
current eligibility designation;
(2) Include in its eligibility designation a branch campus that is
not currently included in that designation;
(3) Include in its eligibility designation a location that is not
currently included in that designation, if--
(i) The institution offers 100 percent of an educational program at
that location; or
(ii) The institution offers at least 50 percent of an educational
program at that location, and the Secretary requires the institution to
apply for eligibility under Sec. 600.21(c)(2);
(4) Continue to be eligible following a change in its name,
location, or address;
(5) Continue to include in its eligibility designation a branch
campus that has changed its name, location, or address;
(6) Continue to include in its eligibility designation another
location that has changed its name, location, or address, if--
(i) That location offers 100 percent of an educational program; or
(ii) The Secretary requires the institution to apply for
eligibility under Sec. 600.21(c)(2); or
(7) Reestablish eligibility following a change in ownership that
results in a change in control according to the provisions of
Sec. 600.31.
(d) An institution applying for designation as an eligible
institution shall--
(1) Apply on the form prescribed by the Secretary; and
(2) Provide all the information and documentation requested by the
Secretary to make a determination of its eligibility.
(Authority: 20 U.S.C. 1088 and 1141)
Sec. 600.21 Eligibility notification.
(a) The Secretary notifies an institution in writing--
(1) Whether the applicant institution qualifies in whole or in part
as an eligible institution under the appropriate provisions in
Secs. 600.4, 600.5, 600.6 and 600.7;
(2) Whether the institution is certified to participate in the
title IV, HEA programs if the institution applied to participate in
those programs; and
(3) Of the title IV, HEA programs in which it is eligible to
participate, and the title IV, HEA programs for which it is eligible to
apply to participate.
(b) If only a portion of the applicant institution qualifies as an
eligible institution, the Secretary specifies in the notice the
locations or educational programs that qualify as the eligible
institution.
(c) If the Secretary receives a notice from an institution as a
result of Sec. 600.30(a)(3), the Secretary--
(1) Notifies the institution that the location is an eligible
location of that institution, identifies the HEA programs in which the
institution may participate without further action, and indicates that
the extension of eligibility and participation is effective on the date
that the Secretary received the institution's notice; or
(2) Notifies the institution that the institution must apply for
eligibility of that location under Sec. 600.20.
(d) The Secretary makes the determination in paragraph (c) of this
section by evaluating the institution's ability to provide adequately
education or training at the location. In making that evaluation, the
Secretary uses such factors as--
(1) The percentage of an educational program offered at the
location; and
(2) The financial and administrative capability of the institution.
(Authority: 20 U.S.C. 1088, 1099c, and 1141)
Subpart C--Maintaining Eligibility
Sec. 600.30 Institutional notification requirements.
(a) Except as provided in paragraph (b) of this section, an
eligible institution shall notify the Secretary in writing, at an
address specified by the Secretary in a notice published in the Federal
Register, no later than 10 days after the change occurs, of any change
in the following information provided in the institution's eligibility
application:
(1) Its name.
(2) Its address.
(3) The name, number, and address of locations other than the main
campus at which it offers at least 50 percent of an educational program
and the percentages of the educational programs that it provides at
each location.
(4) The way it measures program length, e.g. clock hours or credit
hours.
(5) Its ownership, if that ownership change results in a change in
control of the institution.
(6) Its status as a proprietary, nonprofit, or public institution.
(7) The exercise of a person's substantial control over the
institution, if the person did not previously exercise that control.
The Secretary generally considers that a person exercises substantial
control over an institution if the person--
(i) Directly or indirectly holds at least a 25 percent ownership
interest in the institution;
(ii) Holds, together with another member or members of his or her
family, at least a 25 percent ownership interest in the institution;
(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
(iv) Is a member of the board of directors, a general partner, the
chief executive officer, or other executive officer of--
(A) The institution; or
(B) An entity that holds at least a 25 percent ownership interest
in the institution.
(b) An eligible institution that is owned by a publicly-traded
corporation shall notify the Secretary in writing, at an address
specified by the Secretary in a notice published in the Federal
Register, of any change in the information that is described in
paragraphs (a) (5) through (7) of this section at the same time that
the institution notifies the institution's accrediting agency, but no
later than 10 days after the corporation learns of the change.
(c) The Secretary notifies the institution in writing if any
reported change affects the institution's eligibility, and the
effective date of that change.
(d) The institution's failure to inform the Secretary of the
information described in paragraph (a) of this section within the time
period stated in that paragraph may result in adverse action against
it, including its loss of eligibility.
(e)(1) For the purposes of this section, 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 or
institution's parent corporation.
(2) The term ownership interest includes, but is not limited to--
(i) An interest as tenant in common, joint tenant, or tenant by the
entireties;
(ii) A partnership; and
(iii) An interest in a trust.
(3) 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--
(i) A mutual fund that is regularly and publicly traded;
(ii) An institutional investor; or
(iii) A profit-sharing plan, provided that all employees are
covered by the plan.
(f) For the purposes of this section, the Secretary considers a
member of a person's family to be a parent, sibling, spouse or child;
spouse's parent or sibling; or sibling's or child's spouse.
(Authority: 20 U.S.C. 1088 and 1141)
Sec. 600.31 Change in ownership resulting in a change of control.
(a) General. (1) An institution that undergoes a change of
ownership that results in a change of control ceases to qualify as an
eligible institution upon the change of ownership and control. A change
of ownership that results in a change in control includes any change by
which a person who has or thereby acquires an ownership interest in the
entity that owns the institution or the parent corporation of that
entity, acquires or loses the ability to control the institution.
(2) In order to reestablish eligibility and to resume participation
in the title IV, HEA programs, the institution must demonstrate to the
Secretary that after the change of ownership and control--
(i) The institution satisfies all the applicable requirements
contained in Secs. 600.4, 600.5, and 600.6, except that if the
institution is a proprietary institution of higher education or
postsecondary vocational institution, it need not have been in
existence for two years before seeking eligibility; and
(ii) The institution qualifies to be certified to participate under
34 CFR part 668, subpart B.
(b) Definitions. The following definitions apply to terms used in
this section:
Closely-held corporation. Closely-held corporation (including the
term close corporation) means--
(1) A corporation that qualifies under the law of the State of its
incorporation as a closely-held corporation; or
(2) If the State of incorporation has no definition of closely-held
corporation, a corporation the stock of which --
(i) Is held by no more than 30 persons; and
(ii) Has not been and is not planned to be publicly offered.
Control. Control (including the terms controlling, controlled by
and under common control with) means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise.
Ownership. Ownership or ownership interest means a legal or
beneficial interest in an entity, or a right to share in the profits
derived from the operation of an entity. The term does not include the
interests of a mutual fund that is regularly and publicly traded, of an
institutional investor, or of a profit-sharing plan in which all
employees of an entity may participate.
Parent. The parent or parent corporation of a specified corporation
is the corporation or partnership that controls the specified
corporation directly or indirectly through one or more intermediaries.
Person. Person includes a legal person (corporation or partnership)
or an individual.
Wholly-owned subsidiary. A wholly-owned subsidiary is one
substantially all of whose outstanding voting securities are owned by
its parent together with the parent's other wholly-owned subsidiaries.
(c) Standards for identifying changes of ownership and control--(1)
Closely-held corporation. A change of ownership and control occurs
when--
(i) A person acquires 50 percent or more of the total outstanding
voting stock of the corporation;
(ii) A person who holds an ownership interest in the corporation
acquires control of 50 parent or more of the total outstanding voting
stock of the corporation; or
(iii) A person who holds or controls 50 percent or more of the
total outstanding stock of the corporation ceases to hold or control
that proportion of the stock of the corporation.
(2) Publicly-traded corporation required to be registered with the
Securities and Exchange Commission (SEC). A change of ownership and
control occurs when a change of control of the corporation takes place
that gives rise to the obligation to file a Form 8K with the SEC
notifying that agency of the change in control.
(3) Other corporations. A change of ownership and control of a
corporation that is neither closely held nor required to be registered
with the SEC occurs when--
(i) A person who has or acquires an ownership interest acquires
both control of at least 25 percent of the total outstanding voting
stock of the corporation and control of the corporation;
(ii) A person who holds both ownership or control of at least 25
percent of the total outstanding voting stock of the corporation and
control of the corporation, ceases to own or control that proportion of
the stock of the corporation, or to control the corporation; or
(iii) For a membership corporation, a person who is or becomes a
member acquires or loses control of 25 percent of the voting interests
of the corporation and control of the corporation.
(4) Partnership or sole proprietorship. A change of ownership and
control occurs when a person who has or acquires an ownership interest
acquires or loses control of the institution.
(5) Parent corporation. An institution that is a wholly-owned
subsidiary changes ownership and control when the parent corporation
changes ownership and control as described in this section.
(6) Nonprofit corporation or association. An institution that is
owned by a nonprofit corporation or association changes ownership and
control when a change specifically described in this paragraph (c)
takes place.
(7) Public institution. Notwithstanding paragraph (d) of this
section, an institution owned and operated by a governmental entity
changes ownership and control only when the ownership of the
institution is transferred to a different governmental entity or to
another person.
(d) Covered transactions. For the purposes of this section, a
change in ownership of an institution that results in a change of
control may include, but is not limited to--
(1) The sale of the institution;
(2) The transfer of the controlling interest of stock of the
institution or its parent corporation;
(3) The merger of two or more eligible institutions;
(4) The division of one institution into two or more institutions;
(5) The transfer of the liabilities of an institution to its parent
corporation;
(6) A transfer of assets that comprise a substantial portion of the
educational business of the institution, except where the transfer
consists exclusively in the granting of a security interest in those
assets; or
(7) A conversion of the institution from a for-profit to a
nonprofit institution.
(e) Excluded transactions. A change of ownership and control
otherwise subject to this section does not include a transfer of
ownership and control upon the retirement or death of the owner, to--
(1) A member of the owner's family, as described in Sec. 600.30(f);
(2) A person with an ownership interest in the institution who has
been involved in management of the institution for at least two years
preceding the transfer.
(f) Transfers subject to contingency. An institution may submit and
have considered an application for a designation of eligibility and for
certification under 34 CFR part 668, subpart B, only when the transfer
has been completed. A transfer is complete for purposes of this section
when the transfer is otherwise final but is subject to the condition
subsequent that the institution obtain approval from the Secretary, the
accrediting agency, or State licensing authority after the transfer. A
transfer otherwise complete is not considered incomplete or contingent
where the transferor retains a interest in the stock or assets of the
institution or its owner solely for purposes of security.
(Authority: 20 U.S.C. 1099c)
Sec. 600.32 Eligibility of additional locations.
(a) Except as provided in paragraphs (b) and (c) of this section,
to qualify as an eligible location, an additional location of an
eligible institution must satisfy the applicable requirements of this
section and Secs. 600.4, 600.5, 600.6, 600.8, and 600.10.
(b) To qualify as an eligible location, an additional location is
not required to satisfy the two-year requirement of Secs. 600.5(a)(7)
or 600.6(a)(6), unless--
(1) The location was a facility of another institution that has
closed or ceased to provide 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 applicant institution acquired, either directly from the
institution that closed or ceased to provide educational programs, or
through an intermediary, the assets at the location; and
(3) The institution from which the applicant institution acquired
the assets of the location--
(i) Owes a liability for a violation of an HEA program requirement;
and
(ii) Is not making payments in accordance with an agreement to
repay that liability.
(c) Notwithstanding paragraph (b) of this section, an additional
location is not required to satisfy the two-year requirement of
Sec. 600.5(a)(7) or Sec. 600.6(a)(6) if the applicant institution
agrees--
(1) To be liable for all improperly expended or unspent title IV,
HEA program funds received by the institution that has closed or ceased
to provide educational programs;
(2) To be liable for all unpaid refunds owed to students who
received title IV, HEA program funds; and
(3) To abide by the policy of the institution that has closed or
ceased to provide educational programs regarding refunds of
institutional charges to students in effect before the date of the
acquisition of the assets of the additional location for the students
who were enrolled before that date.
(d) For purposes of this section, an ``additional location'' is a
location of an institution that was not designated as an eligible
location in the eligibility notification provided to an institution
under Sec. 600.21.
(Authority: 20 U.S.C. 1088 and 1141)
Subpart D--Loss of Eligibility
Sec. 600.40 Loss of eligibility.
(a)(1) Except as provided in paragraphs (a) (2) and (3) of this
section, an institution, or a location or educational program of an
institution, loses its eligibility on the date that--
(i) The institution, location, or educational program fails to meet
any of the eligibility requirements of this part;
(ii) The institution or location permanently closes;
(iii) The institution or location ceases to provide educational
programs for a reason other than a normal vacation period or a natural
disaster that directly affects the institution, particular location, or
the students of the institution or location; or
(iv) For purposes of the title IV, HEA programs--
(A) The institution's period of participation as specified under 34
CFR 668.13 expires;
(B) The institution's provisional certification is revoked under 34
CFR 668.13; or
(C) The Secretary receives a notice under 34 CFR part 667 from a
SPRE of the SPRE's determination that the institution shall not be
eligible to participate in a title IV, HEA program.
(2) If an institution loses its eligibility because it violated the
requirements of Sec. 600.5(a)(8), as evidenced by the determination
under provisions contained in Sec. 600.5(d), it loses its eligibility
on the last day of the fiscal year used in Sec. 600.5(d), except that
if an institution's latest fiscal year was described in
Sec. 600.7(h)(1), it loses its eligibility as of June 30, 1994.
(3) If an institution loses its eligibility under the provisions of
Sec. 600.7(a)(1), it loses its eligibility on the last day of the award
year being evaluated under that provision.
(b) If the Secretary undertakes to terminate the eligibility of an
institution because it violated the provisions of Sec. 600.5(a)(8) or
Sec. 600.7(a), and the institution requests a hearing, the presiding
official must terminate the institution's eligibility if it violated
those provisions, notwithstanding its status at the time of the
hearing.
(c)(1) If the Secretary designates an institution or any of its
educational programs or locations as eligible on the basis of
inaccurate information or documentation, the Secretary's designation is
void from the date the Secretary made the designation, and the
institution or program or location, as applicable, never qualified as
eligible.
(2) If an institution closes its main campus or stops providing any
educational programs on its main campus, it loses its eligibility as an
institution, and that loss of eligibility includes all its locations
and all its programs. Its loss of eligibility is effective on the date
it closes that campus or stops providing any educational program at
that campus.
(d) Except as otherwise provided in this part, if an institution
ceases to satisfy any of the requirements for eligibility under this
part--
(1) It must notify the Secretary within 30 days of the date that it
ceases to satisfy that requirement; and
(2) It becomes ineligible to continue to participate in any HEA
program as of the date it ceases to satisfy any of the requirements.
(Authority: 20 U.S.C. 1088, 1099a-3, and 1141)
Sec. 600.41 Termination and emergency action proceedings.
(a) If the Secretary believes that a previously designated eligible
institution as a whole, or at one or more of its locations, does not
satisfy the statutory or regulatory requirements that define that
institution as an eligible institution, the Secretary may--
(1) Terminate the institution's eligibility designation in whole or
as to a particular location--
(i) Under the procedural provisions applicable to terminations
contained in 34 CFR 668.81, 668.83, 668.86, 668.87, 668.88, 668.89,
668.90 (a)(1), (a)(4), and (c) through (f), and 668.91; or
(ii) Under a show-cause hearing, if the institution's loss of
eligibility results from--
(A) Its previously qualifying as an eligible vocational school;
(B) Its previously qualifying as an eligible institution,
notwithstanding its unaccredited status, under the transfer-of-credit
alternative to accreditation (as that alternative existed in 20 U.S.C.
1085, 1088, and 1141(a)(5)(B) and Sec. 600.8 until July 23, 1992);
(C) Its loss of accreditation or preaccreditation;
(D) Its loss of legal authority to provide postsecondary education
in the State in which it is physically located;
(E) Its violations of the provisions contained in Sec. 600.5(a)(8)
or Sec. 600.7(a);
(F) Its permanently closing;
(G) Its ceasing to provide educational programs for a reason other
than a normal vacation period or a natural disaster that directly
affects the institution, a particular location, or the students of the
institution or location; or
(H) The Secretary's receipt of a notice under 34 CFR part 667 from
a SPRE of the SPRE's determination that the institution shall not be
eligible to participate in the title IV, HEA programs;
(2) Limit, under the provisions of 34 CFR 668.86, the authority of
the institution to disburse, deliver, or cause the disbursement or
delivery of funds under one or more title IV, HEA programs as otherwise
provided under 34 CFR 668.26 for the benefit of students enrolled at
the ineligible institution or location prior to the loss of eligibility
of that institution or location; and
(3) Initiate an emergency action under the provisions contained in
34 CFR 668.83 with regard to the institution's participation in one or
more title IV, HEA programs.
(b) If the Secretary believes that an educational program offered
by an institution that was previously designated by the Secretary as an
eligible institution under the HEA does not satisfy relevant statutory
or regulatory requirements that define that educational program as part
of an eligible institution, the Secretary may in accordance with the
procedural provisions described in paragraph (a) of this section--
(1) Undertake to terminate that educational program's eligibility
under one or more of the title IV, HEA programs under the procedural
provisions applicable to terminations described in paragraph (a) of
this section;
(2) Limit the institution's authority to deliver, disburse, or
cause the delivery or disbursement of funds provided under that title
IV, HEA program to students enrolled in that educational program, as
otherwise provided in 34 CFR 668.26; and
(3) Initiate an emergency action under the provisions contained in
34 CFR 668.83 with regard to the institution's participation in one or
more title IV, HEA programs with respect to students enrolled in that
educational program.
(c)(1) An action to terminate and limit the eligibility of an
institution as a whole or as to any of its locations or educational
programs is initiated in accordance with 34 CFR 668.86(b) and becomes
final 20 days after the Secretary notifies the institution of the
proposed action, unless the designated department official receives by
that date a request for a hearing or written material that demonstrates
that the termination and limitation should not take place.
(2) Once a termination under this section becomes final, the
termination is effective with respect to any commitment, delivery, or
disbursement of funds provided under an applicable title IV, HEA
program by the institution--
(i) Made to students enrolled in the ineligible institution,
location, or educational program; and
(ii) Made on or after the date of the act or omission that caused
the loss of eligibility as to the institution, location, or educational
program.
(3) Once a limitation under this section becomes final, the
limitation is effective with regard to any commitment, delivery, or
disbursement of funds under the applicable title IV, HEA program by the
institution--
(i) Made after the date on which the limitation became final; and
(ii) Made to students enrolled in the ineligible institution,
location, or educational program.
(d) After a termination under this section of the eligibility of an
institution as a whole or as to a location or educational program
becomes final, the institution may not certify applications for, make
awards of or commitments for, deliver, or disburse funds under the
applicable title IV, HEA program, except--
(1) In accordance with the requirements of 34 CFR 668.26(c) with
respect to students enrolled in the ineligible institution, location,
or educational program; and
(2) After satisfaction of any additional requirements, imposed
pursuant to a limitation under paragraph (a)(2) of this section, which
may include the following:
(i) Completion of the actions required by 34 CFR 668.26(a) and (b).
(ii) Demonstration that the institution has made satisfactory
arrangements for the completion of actions required by 34 CFR 668.26(a)
and (b).
(iii) Securing the confirmation of a third party selected by the
Secretary that the proposed disbursements or delivery of title IV, HEA
program funds meet the requirements of the applicable program.
(iv) Using institutional funds to make disbursements permitted
under this paragraph and seeking reimbursement from the Secretary for
those disbursements.
(e) If the Secretary undertakes to terminate the eligibility of an
institution, location, or program under paragraphs (a) and (b) of this
section:
(1) If the basis for the loss of eligibility is the loss of
accreditation or preaccreditation, the sole issue is whether the
institution, location, or program has the requisite accreditation or
preaccreditation. The presiding official has no authority to consider
challenges to the action of the accrediting agency.
(2) If the basis for the loss of eligibility is the loss of legal
authorization, the sole issue is whether the institution, location, or
program has the requisite legal authorization. The presiding official
has no authority to consider challenges to the action of a State agency
in removing the legal authorization.
(3) If the basis for the loss of eligibility for title IV, HEA
program purposes is a notice under 34 CFR part 667 from a SPRE to the
Secretary of the SPRE's determination that the institution shall not be
eligible to participate in the title IV, HEA programs, the sole issue
is whether the SPRE notified the Secretary of that determination. The
presiding official has no authority to consider any challenge to the
SPRE's determination.
(Authority: 20 U.S.C. 1088, 1091, 1094, 1099a-3, and 1141)
[FR Doc. 94-10139 Filed 4-28-94; 8:45 am]
BILLING CODE 4000-01-P
