[Federal Register Volume 59, Number 129 (Thursday, July 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16400]
[[Page Unknown]]
[Federal Register: July 7, 1994]
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Part III
Department of Education
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34 CFR Parts 668, 682, and 690
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Student Assistance General Provisions; Federal Family Education Loan
Programs; Federal Pell Grant Program; Interim Final Rule
DEPARTMENT OF EDUCATION
34 CFR Parts 668, 682, and 690
RIN 1840-AB85 and 1840-AB80
Student Assistance General Provisions; Federal Family Education
Loan Programs; Federal Pell Grant Program
AGENCY: Department of Education.
ACTION: Interim final regulations with invitation for comment;
Correction; Extension of comment period; Compliance with information
collection requirements.
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SUMMARY: On April 29, 1994, the Secretary of Education published in the
Federal Register interim final regulations with an invitation for
comment for the Student Assistance General Provisions, Federal Family
Education Loan programs, and the Federal Pell Grant (59 FR 22348). The
final regulations listed the comment period end date as June 20, 1994.
Members of the financial aid community have requested an extension
of the comment period. The Secretary agrees that a longer comment
period would give the financial aid community a better opportunity to
thoroughly evaluate the final regulations and submit more comprehensive
comments to the Department. Therefore, the Secretary extends the
comment period to July 28, 1994, which is 90 days following the April
29 publication date.
This document also clarifies the Secretary's intent in publishing
``interim final regulations with invitation for comment,'' adds an
Office of Management and Budget (OMB) control number to certain
sections of the regulations, and corrects the effective date statement
and corrects an error in the preamble in the final regulations
published in the Federal Register on April 29.
DATES: Comments must be received on or before July 28, 1994. The
corrections to the April 29 regulations and the addition of OMB control
numbers in Secs. 668.3, 668.8, 668.12, 668.13, 668.14, 668.15, 668.16,
668.17, 668.22, 668.23, 668.25, 668.26, 668.90, 668.96, 668.113,
Appendix A to 34 CFR part 668, 682.414, 682.416, 682.711, and 690.83
are effective July 7, 1994.
ADDRESSES: All comments concerning the final regulations should be
addressed to Greg Allen and Wendy Macias, U.S. Department of Education,
400 Maryland Avenue, SW. (Regional Office Building 3, Room 4318),
Washington, DC 20202-5342.
FOR FURTHER INFORMATION CONTACT:
Greg Allen and Wendy L. Macias, U.S. Department of Education, 400
Maryland Avenue, SW. (Regional Office Building 3, Room 4318),
Washington, DC 20202-5343. 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 final regulations published on April 29
had an effective date of July 1, 1994, in accordance with 20 U.S.C.
1089(c), which required that the Secretary publish such regulations
``in final form by May 1, 1994'' to be in effect for the 1994-1995
award year, which begins on July 1, 1994. Under the terms of 20 U.S.C.
1089(c), any regulatory changes that the Secretary published after May
1, 1994, could not take effect, at the earliest, until July 1, 1995.
Thus, the April 29 regulations are final and effective at least with
respect to the period July 1, 1994 through June 30, 1995. The
``interim'' nature of the April 29 regulations reflected the
possibility that changes might be made to take effect on July 1, 1995.
The Secretary solicited public comment in the April 29 final
regulations to determine whether any changes should be made to take
effect on July 1, 1995, the earliest that any such changes can take
effect under 20 U.S.C. 1089(c). In order for any such changes to take
effect by July 1, 1995, the changes would, under 20 U.S.C. 1089(c),
have to be published in final form by December 1, 1994.
Compliance with the information collection requirements in certain
sections of the regulations published on April 29 was delayed until
those requirements were approved by OMB under the Paperwork Reduction
Act of 1990, as amended. On June 23, 1994, OMB approved those
information collection requirements, and affected parties must now
comply with those requirements. The Secretary corrects the effective
date statement in the April 29 regulations to reflect this more
accurately.
A section of the Analysis of Comments and Responses was omitted
from the final regulations published on April 29. The Secretary notes
that the changes to the regulatory text corresponding to this omitted
section of the preamble were included in the April 29 final
regulations. The omitted material, which is included in this document,
is the explanation for those changes.
(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032 Federal
Stafford Loan Program; 84.032 Federal PLUS Program; 64.032 Federal
Supplemental Loans for Students Program; 84.033 Federal Work-Study
Program; 84.038 Federal Perkins Loan Program; 84.063 Federal Pell
Grant Program; 84.069 State Student Incentive Grant Program; 84.268
Federal Direct Student Loan Program; and 84.272 National Early
Intervention Scholarship and Partnership Program. Catalog of Federal
Domestic Assistance Number for the Presidential Access Scholarship.
Dated: June 30, 1994.
Richard W. Riley,
Secretary of Education.
1. The authority citation for part 668 of title 34 of the Code of
Federal Regulations continues to read as follows:
Authority: 20 U.S.C. 1091, 1092, and 1094, unless otherwise
noted.
2. The following sections are amended by adding ``(Approved by the
Office of Management and Budget under control number 1840-0537)'' at
the end of each of these sections: Sections 668.3, 668.8, 668.12,
668.13, 668.14, 668.15, 668.16, 668.17, 668.22, 668.23, 668.25, 668.26,
668.90, 668.96, 668.113, Appendix A to 34 CFR part 668, 682.414
682.416, 682.711, and 690.083.
3. The following corrections are made in FR Doc. 94-10140,
published on April 29, 1994 (59 FR 22348):
a. On page 22348, column column 1, the first sentence after
``DATES: Effective Date:'' is corrected to read as follows: These
regulations take effect July 1, 1994, except that compliance is not
required with the information collection requirements in Secs. 668.3,
668.8, 668.12, 668.13, 668.14, 668.15, 668.16, 668.17, 668.22, 668.23,
668.25, 668.26, 668.90, 668.96, 668.113, Appendix A to 34 CFR part 668,
682.414, 682.416, 682.711, and 690.83 until 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.
On page 22382, column 2, the following text is added after
``Changes: None.''
Comments: One commenter expressed concern that the Secretary had
not defined the circumstances in which an institution could satisfy the
financial responsibility requirements added through the Technical
Amendments of 1993 by demonstrating that it had sufficient resources to
ensure against precipitous closure. The commenter suggested that the
regulations need to provide specific guidance to institutions showing
when the exception can be used. Several other commenters also
questioned whether the general financial responsibility standards in
the proposed regulations were consistent with the statutory exception
permitting an institution to participate without restrictions by
demonstrating that it has sufficient resources to ensure against
precipitous closure.
Discussion: The Secretary agrees to establish a standard in the
regulations that is consistent with the explanation made by Senator
Pell that the technical amendments were intended to make sure that
financially at-risk institutions are subject to careful scrutiny, to
protect institutions that are not financially at risk, and to
accomplish these aims without weakening the general standards for
financial responsibility. See 139 Cong. Rec. 162-2, S16593 (daily ed.
November 19, 1993). The Secretary therefore considers it necessary to
define the limited circumstances in which an institution may satisfy
the statutory exception in a manner that will not create a lower
standard for financial responsibility.
Because an institution using this exception will not be required to
post surety or enter into provisional certification, the Secretary has
minimized the Federal risks in such unprotected participation by making
the exception only available to an institution that met the financial
responsibility requirements in its last timely submitted audited
financial statement. This structure will permit an institution that now
fails the financial responsibility requirements but meets the alternate
standards in the exception to have an opportunity to improve its
financial condition for one year without having to post surety or be
placed under provisional certification. This requirement prevents this
exception from becoming a means to continue participating under a lower
standard of financial responsibility than that required for all other
institutions. An institution that has not satisfied the general
standards of financial responsibility in its previous audit and has not
improved its operations to meet current financial responsibility
standards is not permitted to participate on an unrestricted basis
under this provision, and is required to provide the additional
safeguards presented through a surety or through provisional
certification.
If an institution that met the standards of financial
responsibility, as demonstrated by its last audited financial
statement, fails to meet these standards in its current audit, it can
show that it meets the alternate standards in this provision in order
to participate on an unrestricted basis for one year to give it an
opportunity to solidify its operations and demonstrate that it meets
financial responsibility standards in its next timely submitted audited
financial statement. Such participation without surety or provisional
certification can only be permitted where the institution meets all of
the requirements in Sec. 668.15(d)(2)(ii)(A) to show that it is current
in all tax obligations, its equity and operating income have not
materially decreased since its last audit, and that it is not shifting
the institution's operating capital to its owners or related parties.
These standards are necessary to show that the institution's financial
condition has not significantly deteriorated since it last demonstrated
financial responsibility, and that the institution's failure to meet
the current financial responsibility standards is not exacerbated by
benefits given to its owners or related parties.
In order to participate without restriction under this provision,
an institution that now fails to demonstrate financial responsibility
after having done so in its last audit, must show that it has not
accelerated the funds going to its owners or related parties through
disproportionately large salary increases, or through making
uncollateralized loans to these parties. The institution must also show
that all loans made to the institution's owners or related parties are
in repayment, and that a demand has been made for repayment of any
loans that did not carry fixed payment terms. These measures will help
ensure that the institution's failure to demonstrate financial
responsibility is not due to capital diverted to its owners or related
parties.
The institution must also show that there have been no material
findings in the institution's latest compliance audit, and that there
are no pending administrative or legal actions pending before a member
of the Triad or other Federal or State entity.
Changes: Section 668.15(d) now provides that the Secretary
considers an institution to be financially responsible, even if the
institution does not meet the general standards of financial
responsibility (except for the minimum cash reserve requirement) if the
institution establishes to the satisfaction of the Secretary, with the
support of an audited financial statement, that the institution has
sufficient resources to ensure against its precipitous closure. As a
part of this showing, an institution must establish that it has the
ability to meet all of its financial obligations, including refunds of
institutional charges and repayments to the Secretary for liabilities
and debts incurred in programs administered by the Secretary.
The Secretary considers the institution to have sufficient
resources to ensure against precipitous closure only if the institution
formerly demonstrated financial responsibility under the standards of
financial responsibility in its preceding audited financial statement
and that its most recent audited financial statement indicates the
following (if no prior audited financial statement was requested by the
Secretary, the institution must demonstrate in conjunction with its
current audit that it would have satisfied the following): (a) All
taxes owed by the institution are current; (b) The institution's net
income, or a change in total net assets, before extraordinary items and
discontinued operations, has not decreased by more than 10 percent from
the prior fiscal year, unless the institution demonstrates that the
decreased net income shown on the current financial statement is a
result of downsizing pursuant to a management-approved business plan;
(c) loans and other advances to related parties have not increased from
the prior fiscal year unless such increases were secured and
collateralized, and do not exceed 10 percent of the prior fiscal year's
working capital of the institution; (d) The equity of a for-profit
institution, or the total net assets of a nonprofit institution, have
not decreased by more than 10 percent of the prior year's total equity;
(e) Compensation for owners or other related parties (including
bonuses, fringe benefits, employee stock option allowances, 401(k)
contributions, deferred compensation allowances) has not increased from
the prior year at a rate higher than for all other employees; (f) The
institution has not materially leveraged its assets or income by
becoming a guarantor on any new loan or obligation on behalf of any
related party; (g) All obligations owed to the institution by related
parties are current, and the institution has demanded and is receiving
payment of all funds owed from related parties that are payable upon
demand. The regulations clarify that, for purposes of these provisions,
a person does not become a related party by attending an institution as
a student.
Finally, in order for the Secretary to consider the institution to
have sufficient resources to ensure against precipitous closure, the
institution would also have to demonstrate that (1) there have been no
material findings in the institution's latest compliance audit of its
administration of the Title IV, HEA programs and (2) there are no
pending administrative or legal actions being taken against the
institution by the Secretary, and other Federal agency, the
institution's nationally recognized accrediting agency, or any State
entity.
[FR Doc. 94-16400 Filed 7-6-94; 8:45 am]
BILLING CODE 4000-01-M
