[Federal Register Volume 64, Number 135 (Thursday, July 15, 1999)]
[Proposed Rules]
[Pages 38272-38282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18109]
[[Page 38271]]
_______________________________________________________________________
Part IV
_______________________________________________________________________
Department of Education
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34 CFR Parts 600 and 668
Institutional Eligibility Under the Higher Education Act of 1965, as
Amended and Student Assistance General Provisions; Proposed Rule
Federal Register / Vol. 64, No. 135 / Thursday, July 15, 1999 /
Proposed Rules
[[Page 38272]]
DEPARTMENT OF EDUCATION
34 CFR Parts 600 and 668
RIN 1840-AC75
Institutional Eligibility Under the Higher Education Act of l965,
as Amended and Student Assistance General Provisions
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The proposed regulations amend the regulations that govern
institutional eligibility for and participation in the student
financial assistance programs authorized under title IV of the Higher
Education Act of 1965, as amended (title IV, HEA programs). These
programs include the Campus-based programs (Federal Perkins Loan,
Federal Work-Study (FWS), and Federal Supplemental Educational
Opportunity Grant (FSEOG) Programs), the William D. Ford Federal Direct
Loan (Direct Loan) Program, the Federal Family Education Loan (FFEL)
programs, the Federal Pell Grant Program, and the Leveraging
Educational Assistance Partnership (LEAP) Program (formerly known as
the State Student Incentive Grant (SSIG) Program). These proposed
regulations implement statutory changes made to the Higher Education
Act of 1965, as amended (HEA), by the Higher Education Amendments of
1998 (1998 Amendments). Many of the proposed regulatory changes merely
conform current regulatory provisions to the statutory changes.
DATES: We must receive your comments on or before September 13, 1999.
ADDRESSES: Address all comments about these proposed regulations to
Cheryl Leibovitz, U.S. Department of Education, P.O. Box 23272,
Washington, DC 20026-3272. If you prefer to send your comments through
the Internet, use the following address:
[email protected]
If you want to comment on the information collection requirements
you must send your comments to the Office of Management and Budget at
the address listed in the Paperwork Reduction Act section of this
preamble. You may also send a copy of these comments to the Department
representative named in this section.
FOR FURTHER INFORMATION CONTACT: Cheryl Leibovitz. Telephone: (202)
708-9900. If you use a telecommunications device for the deaf (TDD),
you may call the Federal information Relay Service (FIRS) at 1-800-877-
8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding
paragraph.
SUPPLEMENTARY INFORMATION:
Invitation To Comment
We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
During and after the comment period, you may inspect all public
comments about these proposed regulations in Room 3045, Regional Office
Building 3, 7th and D Streets, SW., Washington, DC, between the hours
of 8:30 a.m. and 4:00 p.m., Eastern time, Monday through Friday of each
week except Federal holidays.
Assistance to Individuals With Disabilities in Reviewing the Rulemaking
Record
On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the Federal
Information Relay Service at 1-800-877-8339.
General
The proposed regulations revise the current Institutional
Eligibility regulations, 34 CFR part 600, and the Student Assistance
General Provisions regulations, 34 CFR part 668, which govern
institutional eligibility for, and participation in, the title IV, HEA
programs. The revisions implement the 1998 Amendments, Pub. L. 105-244,
enacted October 7, 1998.
Negotiated Rulemaking Process
Section 492 of the HEA requires that, before publishing any
proposed regulations to implement programs under title IV of the Act,
the Secretary obtain public involvement in the development of the
proposed regulations. After obtaining advice and recommendations, the
Secretary must conduct a negotiated rulemaking process to develop the
proposed regulations. All published proposed regulations must conform
to agreements resulting from the negotiated rulemaking process unless
the Secretary reopens the negotiated rulemaking process or provides a
written explanation to the participants in that process of why the
Secretary has decided to depart from the agreements.
To obtain public involvement in the development of the proposed
regulations, we published a notice in the Federal Register (63 FR
59922, November 6, 1998) requesting advice and recommendations from
interested parties concerning what regulations were necessary to
implement title IV of the HEA. We also invited advice and
recommendations concerning which regulated issues should be subjected
to a negotiated rulemaking process. We further requested advice and
recommendations concerning ways to prioritize the numerous issues in
title IV, in order to meet statutory deadlines. Additionally, we
requested advice and recommendations concerning how to conduct the
negotiated rulemaking process, given the time available and the number
of regulations that needed to be developed.
In addition to soliciting written comments, we held three public
hearings and several informal meetings to give interested parties an
opportunity to share advice and recommendations with the Department.
The hearings were held in Washington, DC, Chicago, and Los Angeles, and
we posted transcripts of those hearings to the Department's Information
for Financial Aid Professionals website (http://ifap.ed.gov).
We then published a second notice in the Federal Register (63 FR
71206, December 23, 1998) to announce the Department's intention to
establish four negotiated rulemaking committees to draft proposed
regulations implementing title IV of the HEA. The notice announced the
organizations or groups believed to represent the interests that should
participate in the negotiated rulemaking process and announced that the
Department would select participants for the process from nominees of
those organizations or
[[Page 38273]]
groups. We requested nominations for additional participants from
anyone who believed that the organizations or groups listed did not
adequately represent the list of interests outlined in section 492 of
the HEA. Once the four committees were established, they met to develop
proposed regulations over the course of several months beginning in
January. Except as noted elsewhere in this preamble, the proposed
regulations contained in this notice of proposed rulemaking (NPRM)
reflect the final consensus of Committee IV on the issues addressed in
this notice of proposed rulemaking (NPRM). Committee IV was made up of
the following members:
American Association of Collegiate Registrars and Admissions
Officers
American Association of Community Colleges
American Association of Cosmetology Schools
American Association of State Colleges and Universities
American Council on Education
Association of American Universities
Association of Jesuit Colleges and Universities
Career College Association
Council for Higher Education Accreditation
Council of Recognized National Accrediting Agencies
Council for Regional Accrediting Commissions
Education Finance Council
Legal Services Counsel (a coalition)
National Association of College and University Business Officers
National Association for Equal Opportunity in Higher Education
National Association of Independent Colleges and Universities
National Association of State Student Grant and Aid Programs/
National Council of Higher Education Loan Programs (a coalition)
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators
National Direct Student Loan Coalition
National Women's Law Center
State Higher Education Executive Officers Association
The College Board
The College Fund/United Negro College Fund
United States Department of Education
United States Student Association
U.S. Public Interest Research Group
As stated in the committee protocols, consensus means that there
must be no dissent by any member in order for the committee to be
considered to have reached agreement. Consensus was reached on all the
proposed regulations contained in this NPRM except for the regulations
governing the implementation of the ``90/10 rule,'' which is part of
the definition of an eligible ``proprietary institution of higher
education'' that can be found in Sec. 600.5.
Discussion of the proposed regulations will first cover those areas
on which the negotiators reached a consensus, and will then cover the
proposed regulations implementing the 90/10 rule.
Section 600.2 Definitions
Prior to the 1998 Amendments, a State was defined to include the
``Trust Territory of the Pacific Islands.'' Now, instead of that term,
a State includes the ``Freely Associated States.'' The Freely
Associated States include the Republic of the Marshall Islands, the
Federated States of Micronesia, and the Republic of Palau. The proposed
regulations would amend the definition of the term ``State'' to reflect
those changes.
Section 600.4 Institution of Higher Education; Sec. 600.5
Proprietary Institution of Higher Education; and Sec. 600.6
Postsecondary Vocational Institution
Each of these sections has a provision that states that the
Secretary does not currently 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. The proposed regulations would change these
provisions to require an institution to agree to submit any such
dispute to ``initial'' arbitration to conform them to the literal
language of the statute imposing that requirement (section 496(e) of
the HEA).
Section 600.7 Conditions of Institutional Ineligibility
The proposed regulations would amend Sec. 600.7(a) to make
technical changes to Sec. 600.7(a)(1) (iii) and (iv) to more accurately
reflect the statute (section 102(a)(3) (C) and (D) of the HEA). Section
600.7(a)(1)(iii) currently provides that an educational institution
does not qualify as an eligible institution if twenty-five percent or
more of the institution's regular enrolled students were incarcerated.
Section 600.7(a)(1)(iv) provides that an educational institution does
not qualify as an eligible institution if fifty-percent or more of its
regularly enrolled students had neither a high school diploma nor the
recognized equivalent of a high school diploma. The proposed
regulations would change these provisions to read ``more than twenty-
five percent'' and ``more than fifty percent,'' respectively, to
reflect the wording of the statute (sections 102(a)(3)(C) and (D) of
the HEA).
The proposed regulations would amend Sec. 600.7(c) to reflect a
change made by the 1998 Amendments that expands the waiver provision
for institutions whose enrollment of incarcerated students exceeds 25
percent. Prior to the 1998 Amendments, a public or nonprofit private
institution could obtain a waiver of this limitation only if it
provided a two- or four-year program for which it awarded an associate
degree or bachelor's degree. As amended, the institution could also
obtain a waiver if it provides a two- or four-year program for which it
awards a ``postsecondary diploma.''
Section 600.8 Treatment of a Branch Campus
The proposed regulations would amend this section to reflect a
change made by the 1998 Amendments that clarifies that a branch campus
must exist as a branch campus for at least two years after the
Secretary certifies it as a branch campus before seeking to be
certified as a main or free-standing campus. The proposed regulations
would also conform changes in Sec. 600.5(b)(3)(i) and
Sec. 600.6(b)(3)(iii).
Section 600.31 Change in Ownership Resulting in a Change of
Control
As amended by the 1998 Amendments, section 498(i)(4) of the HEA
authorizes the Secretary to permit an institution undergoing a change
in ownership that results in a change in control to continue to
participate in the title IV, HEA programs on a provisional basis if the
institution meets certain requirements. Those requirements include
submitting a materially complete application that is received by the
Department within 10 business days of the date on which the change of
ownership takes place.
The proposed regulations would amend Sec. 600.31 by deleting
Sec. 600.31(f), which prohibits an institution from submitting a
materially complete application before the change of ownership takes
place. Because section 498(i)(4) of the HEA supersedes the limitation
in Sec. 600.31(f), the revised regulations would permit institutions to
submit applications before a change in ownership takes place.
Section 600.55 Additional Criteria for Determining Whether a
Foreign Medical School is Eligible To Apply To Participate in the
FFEL Programs
Section 600.55(a)(5)(i)(A) is amended to reflect the amendment to
section 484(a)(5) of the HEA made by the 1998 Amendments. Section
484(a)(5) contains
[[Page 38274]]
citizenship and residency requirements that the Secretary is required
to reference under section 102(a)(2)(A)(i)(I) of the HEA in fashioning
criteria to determine the comparability of foreign graduate medical
schools to domestic graduate medical schools.
Section 600.56 Additional Criteria for Determining Whether a
Foreign Veterinary School is Eligible To Apply To Participate in
the FFEL Programs
The 1998 Amendments added special eligibility provisions for
foreign veterinary schools. Those schools are now subject to many, but
not all, of the same special eligibility requirements that the statute
previously applied to foreign medical schools. Most notably, a foreign
veterinary school is now ineligible to apply to participate in the FFEL
Program unless either its clinical training program has been approved
by a State continuously since 1992, or its students complete clinical
training at an approved veterinary school located in the United States.
The proposed regulation follows the amendments, treating foreign
veterinary schools and foreign medical schools identically for
eligibility purposes to the extent indicated by the statute.
Section 668.12 Application Procedures
As previously noted with regard to Sec. 600.31, amended section
498(i)(4) of the HEA authorizes the Secretary to permit an institution
seeking approval of a change in ownership to continue to participate in
the title IV, HEA programs on a provisional basis if the institution
meets certain requirements. One of those requirements is the submission
of a materially complete application that is received by the Department
within 10 business days of the date on which the change of ownership
takes place.
If an institution submits a materially complete application in a
timely manner, the institution may continue to participate in the title
IV, HEA programs on a provisional basis until the earlier of (1) the
date the Secretary approves or disapproves the application, or (2) the
end of the month following the month in which the change in ownership
occurred. However, if the Secretary has not issued a decision on the
application within that period, the institution may continue to
participate provisionally on a month-to-month basis until the Secretary
issues a decision on the institution's application, provided the
institution submits any additional documentation requested by the
Department promptly.
The proposed regulations would implement these provisions in
Sec. 668.12(f) and (g). In particular, proposed Sec. 668.12(f)
specifies the documents that must be submitted to be considered a
``materially complete application.'' Proposed Sec. 668.12(g) contains
the terms and conditions under which the institution may continue to
participate in the title IV, HEA programs while its application is
being reviewed. This paragraph also includes the additional documents
that must be submitted before the Secretary will issue a decision on
the application or extend the institution's participation on a month-
to-month basis. The Secretary wishes to clarify that all institutions
that undergo a change of ownership must submit a ``same day'' balance
sheet showing the financial position of the institution, as of the date
of the ownership change, in order to continue participation in the
Title IV, HEA programs.
Section 668.13 Certification Procedures
The proposed regulation would change the maximum period of time
that an institution may be certified to participate in the Title IV,
HEA programs from four years to six years. This change implements a
statutory change in the HEA made by the 1998 Amendments.
Section 668.14 Program Participation Agreement
As a result of a statutory change to the HEA by the 1998
Amendments, an institution that has undergone a change in ownership
that results in a change in control does not have to use a Default
Management Plan during the first two years of its participation in the
FFEL or Direct Loan Programs if certain conditions are met. These
conditions are (1) that the institution, including any branch campus,
does not have a cohort default rate in excess of 10 percent, and (2)
that the institution's owners do not own and have not owned an
institution with a cohort default rate in excess of 10 percent. The
proposed regulations would amend Sec. 668.14 to reflect that change.
The proposed regulations would combine the provisions requiring
Default Management Plans currently included in Sec. 668.14(b)(15) and
(b)(16) into a single paragraph, Sec. 668.14(b)(15), and remove and
reserve Sec. 668.14(b)(16).
The proposed regulations would revise Sec. 668.14(b)(20) to require
that a co-educational institution that has an intercollegiate athletic
program agree to comply with the provisions of Sec. 668.48. This change
conforms the regulations to changes made to the HEA by the l998
Amendments.
The proposed regulations would simplify the regulations by removing
Sec. 668.14(d) and (e), which govern collection and reporting of
information concerning athletically-related aid, because those
requirements also are contained in Sec. 668.48. In a separate NPRM, the
proposed amendments to Sec. 668.48 would implement statutory changes
made to the HEA by the l998 Amendments on that issue.
The proposed regulations would amend Sec. 668.14(b)(24) to clarify
that the institution is agreeing to comply with the requirements of
Sec. 668.22, currently titled ``Institutional Refunds and Repayments.''
Another NPRM proposes to incorporate into Sec. 668.22 the new statutory
requirements for the return of Title IV, HEA program funds.
The proposed regulations would add a new Sec. 668.14(d) to reflect
the addition of section 487(a)(23) to the HEA. That new section
requires an institution to make a good faith effort to distribute mail
voter registration forms to its students. The 1998 Amendments, however,
prohibit any officer of the Executive Branch from instructing an
institution in the manner in which this provision is carried out.
Therefore, the proposed regulations incorporates the provisions of
section 487(a)(23) verbatim into Sec. 668.14(d) with minor changes to
incorporate plain language requirements.
The amended HEA provides that section 487(a)(23) applies only to
institutions that are located in States to which section 4(b) of the
National Voter Registration Act, 42 U.S.C. 1973gg-2(b) does not apply.
If an institution must comply with Sec. 668.14(d), it must make a
good faith effort to distribute mail voter registration forms to its
students for elections for governor and for elections defined in
section 301(1) of the Federal Election Campaign Act of 1971, 2 U.S.C.
431(1). That section defines the term ``election'' to be ``(A) a
general, special, primary, or runoff election; (B) a convention or
caucus of a political party which has authority to nominate a
candidate; (C) a primary election held for the selection of delegates
to a national nominating convention of a political party; and (D) a
primary election held for the expression of a preference for the
nomination of individuals for election to the office of President.''
Section 668.27 Waiver of Annual Audit Submission Requirement
As amended by the 1998 Amendments, the HEA authorizes the waiver of
the requirement that an institution submit on an annual basis a
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compliance audit of its administration of the Title IV, HEA programs
and audited financial statements. If the waiver is granted, the waiver
may extend for up to three fiscal years.
The proposed regulations would add Sec. 668.27 to implement the
following waiver requirement. The 1998 Amendments provide that in order
to receive a waiver, the institution must have delivered less than
$200,000 of Title IV, HEA program funds in each of the two award years
preceding the waiver period. The 1998 Amendments further provide that
the institution must also post a letter of credit in an amount equal to
50 percent of the institution's ``annual potential liability.''
What is being proposed to be waived under this provision is the
annual audit submission requirement for compliance audits. The
institution is still required to have its administration of the Title
IV, HEA programs audited for the waiver period. Therefore, if an
institution is granted a waiver for three years, when the waiver period
expires and the institution must submit its next compliance audit, that
audit must cover the institution's administration of the Title IV, HEA
programs since the end of the period covered by its last submitted
compliance audit.
For example, an institution's fiscal year coincides with an award
year. It submits a compliance audit for its fiscal year that ends on
June 30, 2000, and then receives a waiver so that its next compliance
audit is due six months after the end of its 2002-2003 fiscal year.
When it submits that audit, the audit must cover its administration of
the Title IV, HEA programs for the 2000-2001 and 2001-2002 fiscal years
as well as the 2002-2003 fiscal year.
With regard to the audited financial statement, an institution will
need to submit an audit only of its latest fiscal year.
However, the auditor who conducts its compliance audit or prepares
its audited financial statement must determine that the institution
satisfied the conditions of institutional eligibility set forth in
Sec. 600.7 (dealing with, for example, correspondence courses and
students, and incarcerated students) for each year covered by the
waiver. Similarly, if the institution is a proprietary institution of
higher education, the auditor must audit the institution's
determination that it satisfied the 90/10 rule for each year covered by
the waiver.
In implementing this provision, the committee recognized that for
this provision to have any practical value, an institution's cost of
obtaining a letter of credit in an amount equal to 50 percent of
``annual potential liability'' must be less than the cost of performing
the required audits. The committee concluded that a letter of credit in
an amount equal to 10 percent of an institution's Title IV, HEA
programs disbursements for an award year was the appropriate amount to
satisfy that purpose. However, such a low amount is reasonable only for
a low-risk institution that is strong financially and has a history of
proper administration of the Title IV, HEA programs. Accordingly, the
committee agreed to permit waivers only for institutions that met the
criteria in Sec. 668.27(c).
Section 668.92 Fines
The 1998 Amendments revised the HEA to provide that an individual
who exercises substantial control over an institution and willfully
fails to pay refund obligations on student loans must pay those
refunds, and is subject to the penalty established under section
6672(a) of the Internal Revenue Code of l986 with respect to nonpayment
of taxes. The committee determined that this provision applies to both
individuals who fail to pay refunds under the terms of Sec. 668.22 when
that section refers to refund obligations, i.e., up to and including
June 30, 2000, and to individuals who fail to return Title IV, HEA
program funds when that section refers to the return of Title IV, HEA
program funds, i.e., on or after July 1, 2000.
Section 668.95 Reimbursements, Refunds and Offsets; Section
668.113 Request for Review
The proposed regulations would add paragraph (d) to Sec. 668.95 to
implement the statutory change to the HEA made by the l998 Amendments
that allows institutions to correct or cure an error that results from
administrative, accounting, or recordkeeping error, if that error was
not part of a pattern of error and there is no evidence of fraud or
misconduct related to the error. Section 668.92(d) provides that the
Secretary will not limit, suspend, terminate, or fine the institution
if such an error is cured.
A similar addition has been made to Sec. 668.113(d). That paragraph
provides that the Secretary will permit an institution to correct or
cure an error and will not impose a liability if the institution
eliminates the basis of the liability by curing or correcting the
error.
90/10 Rule
Section 600.5 Proprietary Institution of Higher Education
Prior to the 1998 Amendments, an eligible proprietary institution
had to derive at least 15 percent of its revenues from non-title IV,
HEA sources. The 1998 Amendments reduced that percent to 10 percent.
The proposed regulations would amend Sec. 600.5(a)(8) to reflect that
change.
Cash Basis of Accounting. Treatment of Institutional Scholarships and
Loans
The Committee IV negotiators did not reach consensus on how to
implement the statutory provision that requires a proprietary
institution of higher education to derive a portion of its revenue from
sources outside of the Title IV, HEA programs.
The Higher Education Amendments of 1992 changed the statutory
definition of a proprietary institution of higher education to require
that such an institution derive at least 15 percent of its revenue from
non-Title IV, HEA program funds. The Secretary implemented that
provision with the so-called 85/15 rule that is contained primarily in
Sec. 600.5(d).
In the notice of proposed rulemaking for the 85/15 rule that was
published in the Federal Register of February 10, 1994 (59 FR 6446-
64675), the Secretary proposed that, in calculating their compliance
with the 85/15 rule, institutions could report the amount of Title IV,
HEA program funds in the numerator of the 85/15 rule fraction (Title IV
revenue over total revenue) using the cash basis of accounting, and
total revenue generated in the denominator using the accrual basis of
accounting. The Secretary received overwhelming negative comments on
that proposal. The commenters pointed out that it did not make sense to
calculate the numerator and denominator under different bases of
accounting.
The Secretary agreed, and in the final rule required that
institutions use the cash basis of accounting to report Title IV
revenue in the numerator and total revenue in the denominator. The
Secretary chose that method because institutions report and account for
their Title IV, HEA program expenditures under that basis of
accounting.
After Sec. 600.5(d), which set forth the 85/15 rule, was published
as a final regulation in the Federal Register of April 29, 1994 (59 FR
22324, 22328), questions arose with regard to the treatment of
institutional scholarships and loans under the cash basis of
accounting.
[[Page 38276]]
Therefore, to remove any apparent or perceived ambiguities that may
exist with regard to the current regulations, the Secretary is
proposing a number of clarifications regarding compliance with the
``85/15 rule'', including its application to institutional scholarships
and loans. These revisions are in addition to those needed to reflect
the new statutory minimum percentage of income that such an institution
must derive from non-Title IV HEA program funds.
In these proposed regulations, the Secretary makes explicit in
Sec. 600.5(d)(2) that an institution must use the cash basis of
accounting in reporting Title IV, HEA program funds in the numerator
and revenues generated in the denominator of the fraction in
Sec. 600.5(d)(1). Further, in Sec. 600.5(d)(3), the Secretary describes
the circumstances under which institutional scholarships and loans may
be considered as revenue generated by the institution in the
denominator of the fraction.
During the course of the regulatory negotiations, some negotiators
expressed the view that the circumstances under which the proposed
regulations permit institutional scholarships to be included as revenue
were too narrow. The Department's negotiator, as well as others
disagreed. The Department's position on this matter is based on the
following.
It is the Secretary's understanding that, in general, as an
accounting matter, revenue is an inflow or other enhancement of assets
to an entity, or a reduction of its liabilities, resulting from the
delivery or production of goods or services. Under the cash basis of
accounting, revenue is recognized by an entity when that entity
receives cash, i.e., when there is an inflow of cash to the entity. In
contrast, under the accrual basis of accounting, an entity recognizes
revenue when it earns that revenue, regardless of whether there is any
inflow of cash at the point revenue is recognized.
As a result, in order for an institution to recognize revenue under
the cash basis of accounting, that revenue must represent cash received
from a source outside the institution. With regard to institutional
loans, when an institution makes a loan to a student, it does not
receive cash from an outside source; in fact, it does not receive any
cash. Accordingly, cash revenue from institutional loans are recognized
only when those loans are repaid, because that is when there is an
inflow of cash from an outside source.
Similarly, institutional grants and scholarships awarded to
students do not generally result in revenue for the institution. In
fact, the American Institute of Certified Public Accountants (AICPA)
and the National Association of College and University Business
Officers (NACUBO) instruct institutions to treat institutional
scholarships as a reduction in revenue or as an expense. However, the
Secretary proposes to allow institutional grants or scholarships that
represent funds that originated from a source outside of the
institution, to be considered to be income to the institution. For
example, if an alumnus of the institution donated funds to the
institution and expressly provided that the funds were to be used for
institutional scholarships, scholarships from an account designated for
scholarships and made up solely of those funds (and earnings on those
funds) would be considered to represent income to the institution.
Institutional grants in the form of tuition waivers do not count as
revenue because no new revenue is generated. Similarly, internal
transfers of cash among accounts are generally not considered revenue
to the institution because they do not represent an inflow of cash to
the institution. An exception to this general rule would be a case,
like the one noted previously, in which the account in question that is
the source of a scholarship is a scholarship account made up of funds
that originated from outside of the institution that represent income
(and of interest on those funds). The proposed rule would allow an
institution to include institutional grants and scholarships in the
calculation of compliance with the rule if the institution can
demonstrate that those funds represent an increase in cash to the
institution that would be counted as income. Examples of cash that does
not represent income include borrowing money and using the proceeds
from the borrowing to make institutional scholarships or the sale of
stock where the institution uses the proceeds to make institutional
scholarships.
Treatment of FWS, LEAP and Matching Funds
In proposed Sec. 600.5(e)(1), the Secretary clarifies that, in
calculating compliance with the rule, an institution does not count, in
the numerator or denominator, funds it receives under the Federal Work
Study or LEAP (formerly SSIG) Program, and does not include in the
denominator any funds it uses to satisfy a required match in a Title
IV, HEA program.
Presumption That Title IV, HEA Program Funds Are Used To Pay
Institutional Charges
Some negotiators objected to the current rule contained in
Sec. 600.5(d)(v) that provides that Title IV, HEA programs funds
disbursed to students must be presumed to be used to pay the students'
tuition, fees and other institutional charges so that those funds are
included in the numerator of the fraction. These negotiators proposed
exceptions to this rule over and above those already included in
Sec. 600.5(d)(2)(v)(A) and (B). (In this NPRM, Sec. 600.5(d)(2)(v) is
redesignated as Sec. 600.5(e)(2), and Sec. 600.5(d)(2)(v)(A) and (B) is
redesignated as Sec. 600.5(e)(3)(i) and (ii)).
The Secretary has agreed to include one additional exception,
prepaid State tuition plans, and has included that exception in
proposed Sec. 600.5(e)(3)(iii). The rationale for including this
exception is that funds from this type of plan are generally
transmitted directly from the State to the institution for
institutional charges. The Secretary did not agree to include other
potential sources of payment of institutional charges because funds
from those other sources, such as Education IRAs, are either no
different from other types of family investments, or the tracking of
those funds would be extremely problematic.
Several other changes have been made to this section that simply
remove references that dealt with periods of time that are no longer
relevant.
Executive Order 12866
1. Potential Costs and Benefits
Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those we have
determined as necessary for administering this program effectively and
efficiently.
In assessing the potential costs and benefits of this regulatory
action--both quantitative and qualitative--we have determined that the
benefits would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
We note that, as these proposed regulations were subject to
negotiated rulemaking, the costs and benefits of the various
requirements were discussed thoroughly by negotiators. The resultant
consensus reached on a particular
[[Page 38277]]
requirement generally reflected agreement on the best possible approach
to that requirement in terms of cost and benefit.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comments
on whether there may be further opportunities to reduce any potential
costs or to increase any potential benefits resulting from these
proposed regulations without impeding the effective and efficient
administration of the title IV, HEA programs.
Summary of Potential Costs and Benefits
Elsewhere in this preamble we discuss the potential costs and
benefits of these proposed regulations under the following headings:
Regulatory Flexibility Act Certification and Paperwork Reduction Act of
1995.
2. Clarity of the Regulations
Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``Plain Language in Government Writing'' require each agency to
write regulations that are easy to understand.
The Secretary invites comments on how to make these
proposed regulations easier to understand, including answers to
questions such as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 600.5 Proprietary institution of higher education.)
Could the description of the proposed regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESSES section of the preamble.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities.
Entities affected by these proposed regulations are institutions of
higher education that participate in the Title IV, HEA programs. These
institutions are defined as small entities, according to the U.S. Small
Business Administration, if they are: for-profit or nonprofit entities
with total revenue of $5,000,000 or less; or entities controlled by
governmental entities with populations of 50,000 or less. These
proposed regulations would not impose a significant economic impact on
a substantial number of small entities. These proposed regulations
would ease administrative and regulatory burden, without requiring
significant changes to current institutional system operations, by:
reducing the required percentage of revenue that a proprietary
institution must derive from non-Title IV sources; expanding
institutional eligibility for the FFEL program to include foreign
veterinary schools with clinical training programs that have been
approved by a State since January 1, 1992; simplifying application and
certification procedures; expanding the timeframe for institutional
certification to six years; and providing for a waiver of the annual
audit submission requirement.
The Secretary invites comments from small institutions as to
whether the proposed changes would have a significant economic impact
on them.
Paperwork Reduction Act of 1995
Section 600.7 contains an information collection requirement. Under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department
of Education has submitted a copy of this section to the Office of
Management and Budget (OMB) for its review.
Collection of Information: Conditions of Institutional Eligibility
Institutions of higher education must maintain certain conditions
and requirements to remain eligible to participate in Title IV, HEA
programs. Moreover, an institution may become ineligible if it fails to
meet, or exceeds certain thresholds as prescribed in the HEA. This
regulation monitors the composition of regular student enrollment in
the following areas: telecommunications courses, correspondence
courses, ability-to-benefit students and incarcerated students, and
also enhances the waiver provisions for institutions whose enrollment
of incarcerated students exceeds twenty-five percent. The Department
needs and uses this information to gauge continuing eligibility.
Every six years, the institution must collect and report this
information to the Department. The questions asked to determine
compliance are now affirmatively structured, so that an institution
will report to the Department if it does exceed any of the prescribed
thresholds. There are approximately 5,800 respondents that we
anticipate will be reviewed over the six-year period. We estimate the
annual reporting and recordkeeping burden for this collection of
information to average two hours per respondent for approximately 1,500
respondents in a given year. This measure includes the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Thus, we estimate the total annual reporting
and recordkeeping burden for this collection to be 3,000 hours.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for U.S. Department of Education. You
may also send a copy of these comments to the Department representative
named in the ADDRESSES section of this preamble.
We consider your comments on this proposed collection of
information in--
Deciding whether the proposed collection is necessary for
the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collection, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.
[[Page 38278]]
Intergovernmental Review
The campus-based programs (Federal Perkins Loan, Federal Work-Study
(FWS), and Federal Supplemental Opportunity Grant (FSEOG) programs),
the William D. Ford Federal Direct Loan (Direct Loan) Program, the
Federal Family Education Loan (FFEL) programs, the Federal Pell Grant
Program, and the LEAP Program are not subject to Executive Order 12372
and the regulations in 34 CFR part 79.
Assessment of Educational Impact
The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.
Electronic Access to This Document
You may view this document in text or Adobe Portable Document
Format (PDF) on the Internet at the following sites:
http://ocfo.ed.gov/fedreg.htm
http://ifap.ed.gov/csb__htm/fedlreg.htm
http://www.ed.gov/legislation/HEA/rulemaking/
To use the PDF, you must have the Adobe Acrobat Reader Program with
Search, which is available free at the first of the previous sites. If
you have questions about using the PDF, call the U.S. Government
Printing Office, toll free, at 1-888-293-6498; or in the Washington, DC
area, at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at:
http://www.access.gpo.gov/nara/index.html
(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032
Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students
Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins
Loan Program; 84.063 Federal Pell Grant Program; 84.069 LEAP; 84.268
William D. Ford Federal Direct Loan Programs; and 84.272 National
Early Intervention Scholarship and Partnership Program.)
List of Subjects in
34 CFR Part 600
Administrative practice and procedure, Colleges and universities,
Consumer protection, Grant programs--education, Loan programs--
education, Reporting and recordkeeping requirements, Student aid.
34 CFR Part 668
Administrative practice and procedure, Aliens, Colleges and
universities, Consumer protection, Grant programs--education, Reporting
and recordkeeping requirements, Selective Service System, Student aid,
Vocational education.
Dated: July 9, 1999.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend parts 600 and 668 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 amended to read as
follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099(c), unless otherwise noted.
2. In Sec. 600.2, the definition of the term ``State'' is revised
to read as follows:
Sec. 600.2 Definitions.
* * * * *
State: A State of the Union, American Samoa, the Commonwealth of
Puerto Rico, the District of Columbia, Guam, the Virgin Islands, the
Commonwealth of the Northern Mariana Islands, the Republic of the
Marshall Islands, the Federated States of Micronesia, and the Republic
of Palau. The latter three are also know as the Freely Associated
States.
* * * * *
3. In Sec. 600.4, paragraph (c) is revised to read as follows:
Sec. 600.4 Institution of higher education.
* * * * *
(c) 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 initial arbitration before initiating any other legal action.
* * * * *
4. In Sec. 600.5, paragraph (h) is removed; paragraph (i) is
redesignated as paragraph (h); and paragraphs (a)(8), (b)(3)(i), (d),
(e), (f), (g), and redesignated paragraph (h) are revised to read as
follows:
Sec. 600.5 Proprietary institution of higher education.
(a) * * *
(8) Has no more than 90 percent of its revenues derived from title
IV, HEA program funds, as determined under paragraph (d) of this
section.
(b) * * *
(3) * * *
(i) Counts any period during which the applicant institution has
been certified as a branch campus; and
* * * * *
(d)(1) An institution satisfies the requirement contained in
paragraph (a)(8) of this section by examining its revenues under the
following formula for its latest complete fiscal year:
Title IV, HEA program funds the institution used to satisfy its
students' tuition, fees, and other institutional charges to
students.
-----------------------------------------------------------------------
DEPARTMENT OF EDUCATION
The sum of revenues including title IV, HEA program funds
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) An institution must use the cash basis of accounting when
calculating the amount of title IV, HEA program funds in the numerator
and the total amount of revenue generated by the institution in the
denominator of the fraction contained in paragraph (d)(1) of this
section.
(3) Under the cash basis of accounting--
(i) In calculating the amount of revenue generated by the
institution from institutional loans, the institution must include only
the amount of loan repayments received by the institution during the
fiscal year; and
(ii) In calculating the amount of revenue generated by the
institution from institutional scholarships, the institution must
include only the amount of funds it disbursed during the fiscal year
from an established restricted account and only to the extent that the
funds in that account represent designated funds from an outside source
or interest accrued on those funds.
(e) With regard to the formula contained in paragraph(d)(1) of this
section--
(1) The institution may not include as title IV, HEA program funds
in the numerator nor as revenue generated by the institution in the
denominator--
(i) The amount of funds it received under the Leveraging
Educational Assistance Partnership (LEAP) or Federal Work-Study (FWS)
programs. (The LEAP Program was formerly called the State Student
Incentive Grant or SSIG Program.);
(ii) The amount of institutional funds it used to match title IV,
HEA program funds;
[[Page 38279]]
(iii) The amount of title IV, HEA program funds that must be
refunded or returned under Sec. 668.22; or
(iv) The amount charged for books, supplies, and equipment unless
the institution includes that amount as tuition, fees, or other
institutional charges.
(2) In determining the amount of title IV, HEA program funds
received by the institution under the cash basis of accounting, except
as provided in paragraph (e)(3) of this section, the institution must
presume that any title IV, HEA program funds disbursed or delivered to
or on behalf of a student will 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, and therefore must include those funds
in the numerator and denominator.
(3) In paragraph (e)(2) of this section, the institution may not
presume that title IV, HEA program funds were used to pay tuition,
fees, and other institutional charges to the extent that those charges
were satisfied by--
(i) Grant funds provided by non-Federal public agencies, or private
sources independent of the institution;
(ii) Funds provided under a contractual arrangement described in
Sec. 600.7(d), or
(iii) Funds provided by State prepaid tuition plans.
(4) With regard to the denominator, revenue generated by the
institution from activities it conducts, that are necessary for its
students' education or training, includes only revenue from those
activities that--
(i) Are conducted on campus or at a facility under the control of
the institution;
(ii) Are performed under the supervision of a member of the
institution's faculty; and
(iii) Are required to be performed by all students in a specific
educational program at the institution.
(f) An institution must notify the Secretary within 90 days
following the end of the fiscal year used in paragraph (d)(1) of this
section if it fails to satisfy the requirement contained in paragraph
(a)(8) 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) 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 initial arbitration before initiating any other legal action.
* * * * *
5. In Sec. 600.6, paragraphs (b)(3)(iii) and (c) are revised to
read as follows:
Sec. 600.6 Postsecondary vocational institution.
* * * * *
(b) * * *
(3) * * *
(iii) Counts any period during which the applicant institution has
been certified as a branch campus; and
* * * * *
(c) 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 initial arbitration before initiating any other legal action.
* * * * *
6-7. In Sec. 600.7, paragraphs (a)(1)(iii), (a)(1)(iv), and (c) are
revised to read as follows:
Sec. 600.7 Conditions of institutional ineligibility.
(a) * * *
(1) * * *
(iii) More than twenty-five percent of the institution's regular
enrolled students were incarcerated;
(iv) More than fifty percent of its regular enrolled students had
neither a high school diploma nor the recognized equivalent of a high
school diploma, and the institution does not provide a four-year or
two-year educational program for which it awards a bachelor's degree or
an associate degree, respectively;
* * * * *
(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
a bachelor's degree, an associate degree, or a postsecondary diploma.
(2) Waiver for entire institution. If the nonprofit institution
that applies for a waiver consists solely of four-year or two-year
educational programs for which it awards a bachelor's degree, an
associate degree, or a postsecondary diploma, the Secretary waives the
prohibition contained in paragraph (a)(1)(iii) of this section for the
entire institution.
(3) Other waivers. If the nonprofit institution that applies for a
waiver does not consist solely of four-year or two-year educational
programs for which it awards a bachelor's degree, an associate degree,
or a postsecondary diploma, the Secretary waives the prohibition
contained in paragraph (a)(1)(iii) of this section--
(i) For the four-year and two-year programs for which it awards a
bachelor's degree, an associate degree or a postsecondary diploma; and
(ii) For the other programs the institution provides, if the
incarcerated regular students enrolled in those other programs have a
completion rate of 50 percent or greater.
* * * * *
8. Section 600.8 is revised to read as follows:
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 after the branch is certified as
a branch campus before seeking to be designated as a main campus or a
free-standing institution.
(Authority: 20 U.S.C. 1099c)
9. In Sec. 600.31, paragraph (f) is removed.
10. In Sec. 600.55, paragraph (a)(5)(i)(A) is revised to read as
follows:
Sec. 600.55 Additional criteria for determining whether a foreign
graduate medical school is eligible to apply to participate in the FFEL
programs.
(a) * * *
(5) * * *
(i) * * *
(A) During the academic year preceding the year for which any of
the school's students seeks an FFEL program loan, at least 60 percent
of those enrolled as full-time regular students in the school and at
least 60 percent of the school's most recent graduating class were
persons who did not meet the citizenship and residency criteria
contained in section 484(a)(5) of the HEA, 20 U.S.C. 1091(a)(5); and
* * * * *
11. Section 600.56 is redesignated as Sec. 600.57.
12. A new Sec. 600.56 is added to read as follows--
Sec. 600.56 Additional criteria for determining whether a foreign
veterinary school is eligible to apply to participate in the FFEL
programs.
(a) The Secretary considers a foreign veterinary school to be
eligible to apply to participate in the FFEL programs if,
[[Page 38280]]
in addition to satisfying the criteria in Sec. 600.54 (except the
criterion that the institution be public or private nonprofit), the
school satisfies all of the following criteria:
(1) The school provides, and in the normal course requires its
students to complete, a program of clinical and classroom veterinary
instruction that is supervised closely by members of the school's
faculty, and that is provided either--
(i) Outside the United States, in facilities adequately equipped
and staffed to afford students comprehensive clinical and classroom
veterinary instruction; or
(ii) In the United States, through a training program for foreign
veterinary students that has been approved by all veterinary licensing
boards and evaluating bodies whose views are considered relevant by the
Secretary.
(2) The school has graduated classes during each of the two twelve-
month periods immediately preceding the date the Secretary receives the
school's request for an eligibility determination.
(3) The school employs for the program described in paragraph
(a)(1) of this section only those faculty members whose academic
credentials are the equivalent of credentials required of faculty
members teaching the same or similar courses at veterinary schools in
the United States.
(4) Either--
(i) The veterinary school's clinical training program was approved
by a State as of January 1, 1992, and is currently approved by that
State; or
(ii) The veterinary school's students complete their clinical
training at an approved veterinary school located in the United States.
(Authority: 20 U.S.C. 1082 and 1088)
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
13. The authority citation for part 668 is amended to read as
follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092,
1094, 1099c, and 1099c-1, unless otherwise noted.
14. In Sec. 668.12, paragraphs (f) and (g) are added and the
authority citation is revised to read as follows:
Sec. 668.12 Application procedures.
* * * * *
(f)(1) Application for provisional extension of certification. If
an institution participating in the title IV, HEA programs undergoes a
change in ownership that results in a change of control as described in
Sec. 600.31, the Secretary may continue the institution's participation
in those programs on a provisional basis, if the institution under the
new ownership submits a ``materially complete application'' that is
received by the Secretary no later than 10 business days after the
change occurs.
(2) For purposes of this section, an institution submits a
materially complete application if it submits a fully completed
application form designated by the Secretary supported by--
(i) A copy of the institution's State license or equivalent
document that--as of the day before the change in ownership--authorized
or will authorize the institution to provide a program of postsecondary
education in the State in which it is physically located;
(ii) A copy of the document from the institution's accrediting
association that--as of the day before the change in ownership--granted
or will grant the institution accreditation status, including approval
of the non-degree programs it offers;
(iii) Audited financial statements of the institution's two most
recently completed fiscal years that are prepared and audited in
accordance with the requirements of Sec. 668.23; and
(iv) Audited financial statements of the institution's new owner's
two most recently completed fiscal years that are prepared and audited
in accordance with the requirements of Sec. 668.23, or equivalent
information for that owner that is acceptable to the Secretary.
(g) Terms of the extension. (1) If the Secretary approves the
institution's materially complete application, the Secretary provides
the institution with a provisional Program Participation Agreement
(PPA). The provisional PPA extends the terms and conditions of the
program participation agreement that were in effect for the institution
before its change of ownership.
(2) The provisional PPA expires on the earlier of--
(i) The date on which the Secretary signs a new program
participation agreement;
(ii) The date on which the Secretary notifies the institution that
its application is denied; or
(iii) The last day of the month following the month in which the
change of ownership occurred, unless the provisions of paragraph (f)(3)
of this section apply.
(3) If the provisional PPA will expire under the provisions of
paragraph (f)(2)(iii) of this section, the Secretary extends the
provisional PPA on a month-to-month basis after the expiration date
described in paragraph (f)(2)(iii) of this section if, prior to that
expiration date, the institution provides the Secretary with--
(i) A ``same day'' balance sheet showing the financial position of
the institution, as of the date of the ownership change, that is
prepared in accordance with ``GAAP'' (Generally Accepted Accounting
Principles published by the Financial Accounting Standards Board) and
audited in accordance with ``GAGAS'' (Generally Accepted Government
Auditing Standards published by the U.S. General Accounting Office);
(ii) If not already provided, approval of the change of ownership
from the State in which the institution is located by the agency that
authorizes the institution to legally provide postsecondary education
in that State;
(iii) If not already provided, approval of the change of ownership
from the institution's accrediting agency; and
(iv) A default management plan unless the institution is exempt
from providing that plan under 34 CFR 668.14(b)(15).
* * * * *
(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)
15. In Sec. 668.13, paragraph (b)(1) is amended by removing ``four
years'' in the second sentence, and adding, in its place, ``six
years''.
16. Section 668.14 is amended by removing paragraphs (d) and (e);
by redesignating paragraphs (f), (g), (h), and (i) as paragraphs (e),
(f), (g), and (h), respectively; by removing and reserving paragraph
(b)(16); by revising paragraphs (b)(15), (b)(20), and (b)(24); and by
adding a new paragraph (d), to read as follows:
Sec. 668.14 Program participation agreement.
* * * * *
(b) * * *
(15)(i) Except as provided under paragraph (b)(15)(ii) of this
section, the institution will use a default management plan approved by
the Secretary with regard to its administration of the FFEL or Direct
Loan programs, or both for at least the first two years of its
participation in those programs, if the institution--
(A) Is participating in the FFEL or Direct Loan programs for the
first time; or
(B) Is an institution that has undergone a change of ownership that
results in a change in control and is participating in the FFEL or
Direct Loan programs.
(ii) The institution does not have to use an approved default
management plan if--
(A) The institution, including its main campus and any branch
campus, does
[[Page 38281]]
not have a cohort default rate in excess of 10 percent; and
(B) The owner of the institution does not, and has not, owned any
other institution with a cohort default rate in excess of 10 percent.
(iii) The Secretary approves any default management plan that
incorporates the default reduction measures described in appendix D to
this part;
* * * * *
(20) In the case of an institution that is co-educational and has
an intercollegiate athletic program, it will comply with the provisions
of Sec. 668.48;
* * * * *
(24) It will comply with the requirements of Sec. 668.22;
* * * * *
(d)(1) The institution, if located in a State to which section 4(b)
of the National Voter Registration Act (42 U.S.C. 1973gg-2(b)) does not
apply, will make a good faith effort to distribute a mail voter
registration form, requested and received from the State, to each
student enrolled in a degree or certificate program and physically in
attendance at the institution, and to make those forms widely available
to students at the institution.
(2) The institution must request the forms from the State 120 days
prior to the deadline for registering to vote within the State. If an
institution has not received a sufficient quantity of forms to fulfill
this section from the State within 60 days prior to the deadline for
registering to vote in the State, the institution is not liable for not
meeting the requirements of this section during that election year.
(3) This paragraph applies to elections as defined in section
301(1) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(1)),
and includes the election for Governor or other chief executive within
such State.
* * * * *
17. A new Sec. 668.27 is added to read as follows:
Sec. 668.27 Waiver of annual audit submission requirement.
(a) General. (1) At the request of an institution, the Secretary
may waive the annual audit submission requirement for the period of
time contained in paragraph (b) of this section if the institution
satisfies the requirements contained in paragraph (c) of this section
and posts a letter of credit in the amount determined in paragraph (d)
of this section.
(2) An institution requesting a waiver must submit an application
to the Secretary at such time and in such manner as the Secretary
prescribes.
(b) Waiver period. (1) If the Secretary grants the waiver, the
institution need not submit its next annual compliance or audited
financial statement until six months after--
(i) The end of the third fiscal year following the fiscal year for
which the institution last submitted a compliance audit and audited
financial statement; or
(ii) The end of the second fiscal year following the fiscal year
for which the institution last submitted compliance and financial
statement audits if the award year in which the institution will apply
for recertification is part of the third fiscal year.
(2) The Secretary does not grant a waiver if the award year in
which the institution will apply for recertification is part of the
second fiscal year following the fiscal year for which the institution
last submitted compliance and financial statement audits.
(3) When an institution must submit its next compliance and
financial statement audits under paragraph (b)(1) of this section--
(i) The institution must submit a compliance audit that covers the
institution's administration of the title IV, HEA programs for the
period from the last waiver, and an audited financial statement for its
last fiscal year; and
(ii) The auditor who conducts the audit must audit the
institution's annual determinations for the period subject to the
waiver that it satisfied the 90/10 rule in Sec. 600.5(d) and (e) and
the other conditions of institutional eligibility in Sec. 600.7, and
disclose the results of the audit of the 90/10 rule for each year in
accordance with Sec. 668.23(d)(4).
(c) Criteria for granting the waiver. The Secretary grants a waiver
of the annual audit requirement to an institution if the institution--
(1) Is not a foreign institution;
(2) Did not disburse $200,000 or more of title IV, HEA program
funds during each of the two completed award years preceding the
institution's waiver request;
(3) Agrees to keep records relating to each award year in the
unaudited period for two years after the end of the record retention
period in Sec. 668.24(e) for that award year;
(4) Has participated in the title IV, HEA programs under the same
ownership for at least three award years preceding the institution's
waiver request;
(5) Is financially responsible under Sec. 668.171, and does not
rely on the alternative standards of Sec. 668.175 to participate in the
title IV, HEA programs;
(6) Is not on the reimbursement or cash monitoring system of
payment;
(7) Has not been the subject of a limitation, suspension, fine, or
termination proceeding, or emergency action initiated by the Department
or a guarantee agency in the three years preceding the institution's
waiver request;
(8) Has submitted its compliance audits and audited financial
statements for the previous two fiscal years in accordance with and
subject to Sec. 668.23, and no individual audit disclosed liabilities
in excess of $10,000; and
(9) Submits a letter of credit in the amount determined in
paragraph (d) of this section, which must remain in effect until the
Secretary has resolved the audit covering the award years subject to
the waiver.
(d) Letter of credit amount. For purposes of this section, the
letter of credit amount equals 10 percent of the amount of title IV,
HEA program funds the institution disbursed to or on behalf of its
students during the award year preceding the institution's waiver
request.
(e) Rescission of the waiver. The Secretary rescinds the waiver if
the institution--
(1) Disburses more than $200,000 of title IV, HEA program funds for
an award year;
(2) Undergoes a change in ownership that results in a change of
control; or
(3) Becomes the subject of an emergency action or a limitation,
suspension, fine, or termination action initiated by the Department or
a guarantee agency.
(f) Renewal. An institution may request a renewal of its waiver
when it submits its audits under paragraph (b) of this section. The
Secretary grants the waiver if the audits and other information
available to the Secretary show that the institution continues to
satisfy the criteria for receiving that waiver.
(Authority: 20 U.S.C. 1094)
18. In Sec. 668.92, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.92 Fines.
* * * * *
(d)(1) Notwithstanding any other provision of statute or
regulation, any individual described in paragraph (d)(2) of this
section, in addition to other penalties provided by law, is liable to
the Secretary for amounts that should have been refunded or returned
under Sec. 668.22 of the title IV program funds not returned, to the
same extent with respect to those funds that such an
[[Page 38282]]
individual would be liable as a responsible person for a penalty under
section 6672(a) of Internal Revenue Code of 1986 with respect to the
nonpayment of taxes.
(2) The individual subject to the penalty described in paragraph
(d)(1) is any individual who--
(i) The Secretary determines, in accordance with Sec. 668.174(c),
exercises substantial control over an institution participating in, or
seeking to participate in, a program under this title;
(ii) Is required under Sec. 668.22 to return title IV program funds
to a lender or to the Secretary on behalf of a student or borrower, or
was required under Sec. 668.22 in effect on June 30, 2000 to return
title IV program funds to a lender or to the Secretary on behalf of a
student or borrower; and
(iii) Willfully fails to return those funds or willfully attempts
in any manner to evade that payment.
(Authority: 20 U.S.C. 1094 and 1099c)
19. In Sec. 668.95, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.95 Reimbursements, refunds and offsets.
* * * * *
(d) If an institution's violation in paragraph (a) of this section
results from an administrative, accounting, or recordkeeping error, and
that error was not part of a pattern of error, and there is no evidence
of fraud or misconduct related to the error, the Secretary permits the
institution to correct or cure the error. If the institution corrects
or cures the error, the Secretary does not limit, suspend, terminate,
or fine the institution for that error.
(Authority: 20 U.S.C. 1094 and 1099c-1)
20. In Sec. 668.113, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.113 Request for review.
* * * * *
(d)(1) If an institution's violation that resulted in the final
audit determination or final program review determination in paragraph
(a) of this section results from an administrative, accounting, or
recordkeeping error, and that error was not part of a pattern of error,
and there is no evidence of fraud or misconduct related to the error,
the Secretary permits the institution to correct or cure the error.
(2) If the institution is charged with a liability as a result of
an error described in paragraph (d)(1) of this section, the institution
cures or corrects that error with regard to that liability if the cure
or correction eliminates the basis for the liability.
* * * * *
(Authority: 20 U.S.C. 1094 and 1099c-1)
[FR Doc. 99-18109 Filed 7-14-99; 8:45 am]
BILLING CODE 4000-01-P
