Program Integrity Issues

DEPARTMENT OF EDUCATION

34 CFR Parts 600, 602, 603, 668, 682, 685, 686, 690, and 691

[Docket ID ED-2010-OPE-0004]

RIN 1840-AD02

Program Integrity Issues

AGENCY:

Office of Postsecondary Education, Department of Education.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Secretary proposes to improve integrity in the programs authorized under title IV of the Higher Education Act of 1965, as amended (HEA) by amending the regulations for Institutional Eligibility Under the HEA, the Secretary's Recognition of Accrediting Agencies, the Secretary's Recognition Procedures for State Agencies, the Student Assistance General Provisions, the Federal Family Education Loan (FFEL) Program, the William D. Ford Federal Direct Loan Program, the Teacher Education Assistance for College and Higher Education (TEACH) Grant Program, the Federal Pell Grant Program, and the Academic Competitiveness Grant (AGC) and National Science and Mathematics Access to Retain Talent Grant (National Smart Grant) Programs.

DATES:

We must receive your comments on or before August 2, 2010.

ADDRESSES:

Submit your comments through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. We will not accept comments by fax or by e-mail. Please submit your comments only one time, in order to ensure that we do not receive duplicate copies. In addition, please include the Docket ID at the top of your comments.

•

Federal eRulemaking Portal.

Go to

http://www.regulations.gov

to submit your comments electronically. Information on using Regulations.gov, including instructions for accessing agency documents, submitting comments, and viewing the docket, is available on the site under “How To Use This Site.”

•

Postal Mail, Commercial Delivery, or Hand Delivery.

If you mail or deliver your comments about these proposed regulations, address them to Jessica Finkel, U.S. Department of Education, 1990 K Street, NW., room 8031, Washington, DC 20006-8502.

Privacy Note:

The Department's policy for comments received from members of the public (including those comments submitted by mail, commercial delivery, or hand delivery) is to make these submissions available for public viewing in their entirety on the Federal eRulemaking Portal at

http://www.regulations.gov.

Therefore, commenters should be careful to include in their comments only information that they wish to make publicly available on the Internet.

FOR FURTHER INFORMATION CONTACT:

For information related to gainful employment in a recognized occupation, John Kolotos. Telephone: (202) 502-7762 or via the Internet at:

John.Kolotos@ed.gov.

For information related to the provisions related to the definition of credit hour, Marianna Deeken or Fred Sellers. Telephone: (206) 615-2583 or via the Internet at

Marianna.Deeken@ed.gov.

Telephone: (202) 502-7502 or via the Internet at:

Fred.Sellers@ed.gov.

For information related to provisions on State authorization, Fred Sellers. Telephone: (202) 502-7502 or via the Internet at:

Fred.Sellers@ed.gov.

For information related to the provisions on retaking coursework, Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at:

Vanessa.Freeman@ed.gov.

For information related to the provisions for written agreements between institutions, Carney McCullough. Telephone: (202) 502-7639 or via the Internet at:

Carney.McCullough@ed.gov.

For information on the provisions related to incentive compensation, Marty Guthrie. Telephone: (202) 219-7031 or via the Internet at:

Marty.Guthrie@ed.gov.

For information related to the provisions on ability to benefit, Dan Klock. Telephone: (202) 377-4026 or via the Internet at

Dan.Klock@ed.gov.

For information related to the provisions on misrepresentation, Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at:

Vanessa.Freeman@ed.gov.

For information related to the provisions on satisfactory academic progress, Marianna Deeken. Telephone: (206) 615-2583 or via the Internet at:

Marianna.Deeken@ed.gov.

For information related to the provisions on high school diplomas and verification of information on the Free Application for Federal Student Aid (FAFSA), Jacquelyn Butler. Telephone: (202) 502-7890, or via the Internet at:

Jacquelyn.Butler@ed.gov.

For information related to the return of title IV, HEA funds calculation provisions for term-based modules or taking attendance, Jessica Finkel. Telephone: (202) 502-7647, or via the Internet at:

Jessica.Finkel@ed.gov.

For information related to the provisions on timeliness and method of disbursement, John Kolotos. Telephone: (202) 502-7762, or via the Internet at:

John.Kolotos@ed.gov.

If you use a telecommunications device for the deaf (TDD), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.

Individuals with disabilities can obtain this document in an accessible format (

e.g.,

braille, large print, audiotape, or computer diskette) on request to one of the contact persons listed under

FOR FURTHER INFORMATION CONTACT

.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

As outlined in the section of this notice entitled

Negotiated Rulemaking,

significant public participation, through a series of three regional hearings and three negotiated rulemaking sessions, has occurred in developing this notice of proposed rulemaking (NPRM). In accordance with the requirements of the Administrative Procedure Act, the Department invites you to submit comments regarding these proposed regulations on or before August 2, 2010. 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 by accessing Regulations.gov. You may also inspect the comments, in person, in room 8031, 1990 K Street, NW., 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, please contact one of the persons listed under

FOR FURTHER INFORMATION CONTACT

.

Negotiated Rulemaking

Section 492 of the HEA requires the Secretary, before publishing any proposed regulations for programs authorized by title IV of the HEA, to obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations from the public, including individuals and representatives of groups involved in the Federal student financial assistance programs, the Secretary must subject the proposed regulations to a negotiated rulemaking process. All proposed regulations that the Department publishes on which the negotiators reached consensus must conform to final agreements resulting from that process unless the Secretary reopens the process or provides a written explanation to the participants stating why the Secretary has decided to depart from the agreements. Further information on the negotiated rulemaking process can be found at:

http://www.ed.gov/policy/highered/leg/hea08/index.html.

On September 9, 2009, the Department published a notice in the

Federal Register

(74 FR 46399) announcing our intent to establish two negotiated rulemaking committees to prepare proposed regulations. One committee would develop proposed regulations governing foreign schools, including the implementation of the changes made to the HEA by the Higher Education Opportunity Act of 2008 (HEOA), Public Law 110-315, that affect foreign schools. The proposed regulations governing foreign schools will be published in the

Federal Register

at a future date. A second committee would develop proposed regulations to improve integrity in the title IV, HEA programs. The notice requested nominations of individuals for membership on the committees who could represent the interests of key stakeholder constituencies on each committee.

Team I—Program Integrity Issues (Team I) met to develop proposed regulations during the months of November 2009 through January 2010.

The Department developed a list of proposed regulatory provisions, including provisions based on advice and recommendations submitted by individuals and organizations as testimony to the Department in a series of three public hearings held on:

• June 15, 2009 at Community College of Denver in Denver, CO.

• June 18, 2009 at University of Arkansas in Little Rock, AR.

• June 22, 2009 at Community College of Philadelphia in Philadelphia, PA.

In addition, the Department accepted written comments on possible regulatory provisions submitted directly to the Department by interested parties and organizations. A summary of all comments received orally and in writing is posted as background material in the docket for this NPRM. Transcripts of the regional meetings can be accessed at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html#ph.

Staff within the Department also identified issues for discussion and negotiation.

At its first meeting, Team I reached agreement on its protocols. These protocols provided that for each community identified as having interests that were significantly affected by the subject matter of the negotiations, the non-Federal negotiators would represent the organizations listed after their names in the protocols in the negotiated rulemaking process.

Team I included the following members:

Rich Williams, U.S. PIRG, and Angela Peoples (alternate), United States Student Association, representing students.

Margaret Reiter, attorney, and Deanne Loonin (alternate), National Consumer Law Center, representing consumer advocacy organizations.

Richard Heath, Anne Arundel Community College, and Joan Zanders (alternate), Northern Virginia Community College, representing two-year public institutions.

Phil Asbury, University of North Carolina, Chapel Hill, and Joe Pettibon (alternate), Texas A&M University, representing four-year public institutions.

Todd Jones, Association of Independent Colleges and Universities of Ohio, and Maureen Budetti (alternate), National Association of Independent Colleges and Universities, representing private, non-profit institutions.

Elaine Neely, Kaplan Higher Education Corp., and David Rhodes, (alternate), School of Visual Arts, representing private, for-profit institutions.

Terry Hartle, American Council on Education, and Bob Moran (alternate), American Association of State Colleges and Universities, representing college presidents.

David Hawkins, National Association for College Admission Counseling, and Amanda Modar (alternate), National Association for College Admission Counseling, representing admissions officers.

Susan Williams, Bridgeport University, and Anne Gross (alternate), National Association of College and University Business Officers, representing business officers.

Val Meyers, Michigan State University, and Joan Berkes (alternate), National Association of Student Financial Aid Administrators, representing financial aid administrators.

Barbara Brittingham, Commission on Institutions of Higher Education of the New England Association of Schools and Colleges, Sharon Tanner (1st alternate), National League for Nursing Accreditation Commission, and Ralph Wolf (2nd alternate), Western Association of Schools and Colleges, representing regional/programmatic accreditors.

Anthony Mirando, Nation Accrediting Commission of Cosmetology Arts and Sciences, and Michale McComis (alternate), Accrediting Commission of Career Schools and Colleges, representing national accreditors.

Jim Simpson, Florida State University, and Susan Lehr (alternate), Florida State University, representing work force development.

Carol Lindsey, Texas Guaranteed Student Loan Corp, and Janet Dodson (alternate), National Student Loan Program, representing the lending community.

Chris Young, Wonderlic, Inc., and Dr. David Waldschmidt (alternate), Wonderlic, Inc., representing test publishers.

Dr. Marshall Hill, Nebraska Coordinating Commission for Postsecondary Education, and Dr. Kathryn Dodge (alternate), New Hampshire Postsecondary Education Commission, representing State higher education officials.

Carney McCullough and Fred Sellers, U.S. Department of Education, representing the Federal Government.

These protocols also provided that, unless agreed to otherwise, consensus on all of the amendments in the proposed regulations had to be achieved for consensus to be reached on the entire NPRM. Consensus means that there must be no dissent by any member.

During the meetings, Team I reviewed and discussed drafts of proposed regulations. At the final meeting in January 2010, Team I did not reach consensus on the proposed regulations

in this document. With regard to gainful employment in a recognized occupation, this document addresses technical, reporting, and disclosure issues. The remaining issues under consideration that address the extent to which certain educational programs lead to gainful employment and the conditions under which those programs remain eligible for title IV, HEA program funds are not included in this NPRM.

Summary of Proposed Changes

These proposed regulations would address program integrity issues by:

• Requiring institutions to develop and follow procedures to evaluate the validity of a student's high school diploma if the institution or the Secretary has reason to believe that the diploma is not valid or was not obtained from an entity that provides secondary school education;

• Expanding eligibility for title IV, HEA program assistance to students who demonstrate they have the ability to benefit by satisfactorily completing six credits of college work, or the equivalent amounts of coursework, that are applicable toward a degree or certificate offered by an institution;

• Amending and adding definitions of terms related to ability to benefit testing, including “assessment center,” “independent test administrator,” “individual with a disability,” “test,” “test administrator,” and “test publisher”;

• Consolidating into a single regulatory provision the approval processes for ability to benefit tests developed by test publishers and States;

• Establishing requirements under which test publishers and States must provide descriptions of processes for identifying and handling test score abnormalities, ensuring the integrity of the testing environment, and certifying and decertifying test administrators;

• Requiring test publishers and States to describe any accommodations available for individuals with disabilities, as well as the process a test administrator would use to identify and report to the test publisher instances in which these accommodations were used;

• Revising the test approval procedures and criteria for ability to benefit tests, including procedures related to the approval of tests for speakers of foreign languages and individuals with disabilities;

• Revising the definitions and provisions that describe the activities that constitute substantial misrepresentation by an institution of the nature of its educational program, its financial charges, or the employability of its graduates;

• Removing the “safe harbor” provisions related to incentive compensation for any person or entity engaged in any student recruitment or admission activity, including making decisions regarding the award of title IV, HEA program assistance;

• Clarifying what is required for an institution of higher education, a proprietary institution of higher education, and a postsecondary vocational institution to be considered legally authorized by the State;

• Defining a

credit hour

and establishing procedures that certain institutional accrediting agencies must have in place to determine whether an institution's assignment of a credit hour is acceptable;

• Modifying provisions to clarify whether and when an institution must award student financial assistance based on clock or credit hours and the standards for credit-to-clock-hour conversions;

• Modifying the provisions related to written arrangements between two or more eligible institutions that are owned or controlled by the same person or entity so that the percentage of the educational program that may be provided by the institution that does not grant the degree or certificate under the arrangement may not exceed 50 percent;

• Prohibiting written arrangements between an eligible institution and an ineligible institution that has had its certification to participate in title IV, HEA programs revoked or its application for recertification denied;

• Expanding provisions related to the information that an institution with a written arrangement must disclose to a student enrolled in a program affected by the arrangement, including, for example, the portion of the educational program that the institution that grants the degree or certificate is not providing;

• Revising the definition of

unsubsidized student financial aid programs

to include TEACH Grants, Federal PLUS Loans, and Direct PLUS Loans;

• Codifying current policy that an institution must complete verification before the institution may exercise its professional judgment authority;

• Eliminating the 30 percent verification cap;

• Retaining the ability of institutions to select additional applicants for verification;

• Replacing the five verification items for all selected applicants with a targeted selection from items included in an annual

Federal Register

notice published by the Secretary;

• Allowing interim disbursements when changes to an applicant's FAFSA information would not change the amount that the student would receive under a title IV, HEA program;

• Codifying the Department's IRS Data Retrieval System Process, which allows an applicant to import income and other data from the IRS into an online FAFSA;

• Requiring the processing of all changes and corrections to an applicant's FAFSA information;

• Modifying the provisions related to institutional satisfactory academic progress policies and the impact these policies have on a student's eligibility for title IV, HEA program assistance;

• Expanding the definition of

full-time student

to allow, for a term-based program, repeated coursework taken in the program to count towards a full-time workload;

• Clarifying when a student is considered to have withdrawn from a payment period of enrollment for the purpose of calculating a return of title IV, HEA program funds;

• Clarifying the circumstances under which an institution is required to take attendance for the purpose of calculating a return of title IV, HEA program funds;

• Modifying the provisions for disbursing title IV, HEA program funds to ensure that certain students can obtain or purchase books and supplies by the seventh day of a payment period;

• Updating the definition of the term

recognized occupation

to reflect current usage; and

• Establishing requirements for institutions to submit information on program completers for programs that prepare students for gainful employment in recognized occupations.

Significant Proposed Regulations

We group major issues according to subject, with appropriate sections of the proposed regulations referenced in parentheses. We discuss other substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address proposed regulatory provisions that are technical or otherwise minor in effect.

Part 600 Institutional Eligibility Under the Higher Education Act of 1965, as Amended

Gainful Employment in a Recognized Occupation (§§ 600.2, 600.4, 600.5, 600.6, 668.6, and 668.8)

Statute:

Sections 102(b) and (c) of the HEA define, in part, a proprietary institution and a postsecondary vocational institution, respectively, as

an institution that provides an eligible program of training that prepares students for gainful employment in a recognized occupation. Section 101(b)(1) of the HEA defines an institution of higher education, in part, as any institution that provides not less than a one-year program of training that prepares students for gainful employment in a recognized occupation.

One-Year Programs at Institutions of Higher Education

Current Regulations:

§ 600.4(a)(4)(iii) provides that a public or nonprofit institution may provide a training program of at least one academic year that leads to a certificate, degree, or other recognized educational credential and prepares students for gainful employment in a recognized occupation. In addition, § 668.8(c)(3) provides that an eligible program at an institution of higher education may be at least a one-academic-year training program that leads to a certificate, degree, or other recognized credential and prepares students for gainful employment in a recognized occupation.

Proposed Regulations:

The proposed regulations would amend §§ 600.4(a)(4)(iii) and 668.8(c)(3) by removing the reference to degree programs.

Reasons:

In keeping with the statute, we would clarify in proposed §§ 600.4(a)(4)(iii) and 668.8(c)(3) that only certificate or credentialed nondegree programs of at least one academic year, that are offered by a public or nonprofit institution of higher education, are programs that must prepare students for gainful employment in a recognized occupation.

Recognized Occupation

Current Regulations:

Section 600.2 defines a

recognized occupation

as an occupation that is listed in an “occupational division” of the latest edition of the

Dictionary of Occupational Titles,

published by the U.S. Department of Labor, or an occupation determined to be a recognized occupation by the Secretary in consultation with the Secretary of Labor.

Proposed Regulations:

Proposed § 600.2 would define

recognized occupation

as an occupation identified by a Standard Occupational Classification (SOC) code established by the Office of Management and Budget or an Occupational Information Network O* NET-SOC code established by the Department of Labor and available at

http://online.onetcenter.org

or its successor site.

Reasons:

The definition of

recognized occupation

in proposed § 600.2 would simply replace an outdated reference to the

Dictionary of Occupational Titles

with current references to SOC codes established by the Office of Management and Budget or the Department of Labor.

Gainful Employment

Current Regulations:

Sections 600.4(a)(4)(iii), 600.5(a)(5), and 600.6(a)(4) mirror the statutory provisions, and like the statute, do not define or further describe the meaning of the phrase “gainful employment.”

Proposed Regulations:

Under proposed § 668.6(a), an institution would annually submit information about students who complete a program that leads to gainful employment in a recognized occupation. That information would include, at a minimum, identifying information about each student who completed a program, the Classification of Instructional Program (CIP) code for that program, the date the student completed the program, and the amounts the student received from private educational loans and institutional financing plans.

In addition, under proposed § 668.6(b), an institution would be required to disclose on its Web site information about (1) the occupations that its programs prepare students to enter, along with links to occupational profiles on O*NET, (2) the on-time graduation rate of students entering a program, (3) the cost of each program, including costs for tuition and fees, room and board, and other institutional costs typically incurred by students enrolling in the program, (4) beginning no later than June 30, 2013, the placement rate for students completing each of those programs, as determined under § 668.8(g) or a State-sponsored workforce data system, and (5) the median loan debt incurred by students who completed each program in the preceding three years, identified separately as title IV, HEA loan debt and debt from private educational loans and institutional financing plans.

Reasons:

The Department plans to use this information to continue to assess the outcomes of programs that lead to gainful employment in a recognized occupation. The proposed new requirement would enable the Department to further evaluate and monitor the outcomes of these programs. In addition, to better inform prospective students, proposed § 668.6(b) would require an institution to disclose on its Web site the cost, graduation and placement rates, job-related information for each of its programs, and debt levels of students who completed the program during the past three years. We seek comment on whether the proposed Web-based approach is the most appropriate way to ensure that prospective students obtain this information or whether we should consider other approaches. With regard to disclosing Federal and non-Federal loan debt, based on the information an institution would submit under proposed § 668.6(a), the Department would be able to provide the institution with the median title IV, HEA loan debt, by program, and the median debt from private loans and institutional financing plans by program. The institution would then disclose these amounts. While we believe that § 668.43 already requires an institution to disclose program cost information, we wish to make it an explicit requirement in this part of the regulations because our research showed that program cost information was not disclosed on the Web sites of many institutions.

Definition of a Credit Hour (§§ 600.2, 602.24, 603.24, and 668.8)

Statute:

Section 481(a)(2) of the HEA defines an academic year for an undergraduate program, in part, as requiring a minimum of 24 semester or trimester credit hours or 36 quarter credit hours in a course of study that measures academic progress in credit hours or 900 clock hours in a course of study that measures academic progress in clock hours. Section 481(b) of the HEA defines an eligible program, in part, as a program of at least 600 clock hours, 16 semester hours, or 24 quarter hours or, in certain instances, a program of at least 300 clock hours, 8 semester hours, or 12 quarter hours. Sections 428(b)(1), 428B(a)(2), 428H(d)(1), 455(a)(1), and 484(b)(3) and (4) of the HEA specify that a student must be carrying at least one-half of the normal full-time work load for the student's course of study in order to qualify for any loan under parts B and D of title IV of the HEA. Section 401 of the HEA provides that a student's Federal Pell Grant must be adjusted based on the student's enrollment status and that a student must be enrolled at least half-time to be eligible for a second consecutive Federal Pell Grant in an award year. Section 496(a)(5)(H) of the HEA requires that an accrediting agency assess an institution's measure of program length. Section 487(c)(4) of the HEA requires that the Secretary publish a list of State agencies which the Secretary determines to be reliable authorities as to the quality of public

postsecondary vocational education in their respective States for the purpose of determining institutional eligibility for Federal student assistance programs.

Current Regulations:

There is no definition of a credit hour in any current regulations for programs funded under the HEA; and the term is not defined in the regulations that set out the requirements for the Secretary's recognition of accrediting agencies or State agencies for the approval of public postsecondary vocational education. The regulations that address an institutional accrediting agency's, or State approval agency's, reviews and evaluations of an institution's assignment of credit hours are set out in 34 CFR part 602 for an accrediting agency and 34 CFR part 603 for a State approval agency.

In current § 668.8(k) and (l), the regulations provide the formula that certain undergraduate programs must use to convert the number of clock hours offered to the appropriate number of credit hours used for title IV, HEA aid calculations and the requirements for identifying the undergraduate programs subject to using the formula. For these programs, each semester or trimester hour must include at least 30 clock hours of instruction, and each quarter hour must include at least 20 hours of instruction. An institution must use the formula to determine if a program is eligible for title IV, HEA purposes unless (1) the institution offers an undergraduate program in credit hours that is at least two academic years in length and leads to an associate degree, a bachelor's degree, or a professional degree or (2) each course within the program is acceptable for full credit toward an associate degree, bachelor's degree, or professional degree offered by the institution, and the degree offered by the institution requires at least two academic years of study.

Proposed Regulations: Definition of a Credit Hour

The Department proposes to add to § 600.2 a definition of a

credit hour

that would measure credit hours in terms of the amount of time and work during which a student is engaged in academic activity using commonly accepted academic practice in higher education, and further would provide for institutionally established equivalencies as represented by learning outcomes and verified achievement.

Accrediting Agency Procedures

The Department proposes to amend current § 602.24 by adding a new paragraph (f). Proposed § 602.24(f) would describe the responsibilities of an accrediting agency to review and evaluate an institution's policies and procedures for the assignment of credit hours and the institution's application of its policies and procedures in assigning credit hours to its programs and courses. An accrediting agency would be required to make a reasonable determination of whether the institution's assignment of credit hours conforms to commonly accepted practice in higher education. The proposed regulations in § 602.24(f) also would provide that an accrediting agency may use sampling or other methods in its reviews of programs at institutions, must take such actions that it deems appropriate to address any deficiencies that it identifies, and must notify the Secretary promptly of any systemic noncompliance with the agency's policies or significant noncompliance regarding one or more programs at the institution.

State Approval Agency Procedures

The Department proposes to amend current § 603.24 by redesignating paragraph (c) as paragraph (d) and adding a new paragraph (c). For State agencies for the approval of public postsecondary education, proposed § 603.24(c) would provide for the same responsibilities as described for accrediting agencies regarding the review and evaluation of an institution's policies and procedures for the assignment of credit hours and the institution's application of its policies and procedures in assigning credit hours to its programs and courses.

Clock-to-Credit-Hour Conversion

Proposed § 668.8(l)(1) would revise the method of converting clock hours to credit hours to use a ratio of the minimum clock hours in an academic year to the minimum credit hours in an academic year,

i.e.,

900 clock hours to 24 semester or trimester hours or 36 quarter hours. Thus, a semester or trimester hour would be based on at least 37.5 clock hours, and a quarter hour would be based on at least 25 clock hours. Proposed § 668.8(l)(2) creates an exception to the conversion ratio in proposed § 668.8(l)(1) if neither an institution's designated accrediting agency nor the relevant State licensing authority for participation in the title IV, HEA programs determines there are any deficiencies in the institution's policies, procedures, and practices for establishing the credit hours that the institution awards for programs and courses, as defined in proposed § 600.2. Under the exception provided by proposed § 668.8(l)(2), an institution may combine students' work outside of class with the clock-hours of instruction in order to meet or exceed the numeric requirements established in proposed § 668.8(l)(1). However, under proposed § 668.8(l)(2), the institution must use at least 30 clock hours for a semester or trimester hour or 20 clock hours for a quarter hour.

In determining whether there is outside work that a student must perform, the analysis must take into account differences in coursework and educational activities within the program. Some portions of a program may require student work outside of class that justifies the application of proposed § 668.8(l)(2). In addition, the application of proposed § 668.8(l)(2) may vary within a program depending on variances in required student work outside of class for different portions of the program. Other portions of the program may not have outside work, and proposed § 668.8(l)(1) must be applied. Of course, an institution applying only proposed § 668.8(l)(1) to a program eligible for conversion from clock hours to credit hours, without an analysis of the program's coursework, would be considered compliant with the requirements of proposed § 668.8(l).

Proposed § 668.8(k)(1)(ii) modifies a provision in current regulations to provide that a program is not subject to the conversion formula in § 668.8(l) where each course within the program is acceptable for full credit toward a degree that is offered by the institution and that this degree requires at least two academic years of study. Additionally, under proposed § 668.8(k)(1)(ii), the institution would be required to demonstrate that students enroll in, and graduate from, the degree program.

Proposed § 668.8(k)(2)(i) would provide that a program is considered to be a clock-hour program if the program must be measured in clock hours to receive Federal or State approval or licensure, or if completing clock hours is a requirement for graduates to apply for licensure or the authorization to practice the occupation that the student is intending to pursue. Under proposed § 668.8(k)(2)(ii) and (iii), the program is also considered to be offered in clock hours if the credit hours awarded for the program are not in compliance with the definition of a credit hour in proposed § 600.2, or if the institution does not provide the clock hours that are the basis for the credit hours awarded for the program or each course in the program and, except as provided in current § 668.4(e), require attendance in the clock hours that are the basis for the credit hours awarded. The proposed regulations on which tentative agreement was reached did not include

the provision in proposed § 668.8(k)(2)(iii) that, except as provided in current § 668.4(e), an institution must require attendance in the clock hours that are the basis for the credit hours awarded. However, during the negotiations we had previously proposed to include such a provision.

Proposed § 668.8(k)(3) would provide that proposed § 668.8(k)(2)(i) would not apply if a limited portion of the program includes a practicum, internship, or clinical experience component that must include a minimum number of clock hours due to a State or Federal approval or licensure requirement.

Reasons: Definition of a Credit Hour

A credit hour is a unit of measure that gives value to the level of instruction, academic rigor, and time requirements for a course taken at an educational institution. At its most basic, a credit hour is a proxy measure of a quantity of student learning. The credit hour was developed as part of a process to establish a standard measure of faculty workloads, costs of instruction, and rates of educational efficiencies as well as a measure of student work for transfer students. While the credit hour was developed to provide some uniform measure, it may not consistently relate to comparable measures of time or workload within institutions or between different types of institutions. Most postsecondary institutions do not have specific policies or criteria to assign credit hours to coursework in a uniform manner.

In keeping with the original purpose of providing a consistent measure of at least a minimum quantity of a student's academic engagement, the proposed definition of a

credit hour

will establish a basis for measuring eligibility for Federal funding. This standard measure will provide increased assurance that a credit hour has the necessary educational content to support the amounts of Federal funds that are awarded to participants in Federal funding programs and that students at different institutions are treated equitably in the awarding of those funds.

We recognize, however, that other measures of educational content are being developed by institutions and do not intend to limit the methods by which an institution may measure a student's work in his or her educational activities. We, therefore, are including in paragraph (3) of the proposed definition of a

credit hour

a provision that an institution may provide institutional equivalencies for the amount of work specified in paragraph (1) of the proposed definition as represented in intended learning outcomes and verified by evidence of their achievement. Further, the institution's equivalencies must be in accordance with any process or conditions required by an institution's designated accrediting agency for title IV, HEA program participation, because these agencies are well positioned to provide oversight in this area.

During the negotiated rulemaking sessions, a few of the non-Federal negotiators were opposed to any proposal to define a

credit hour

because they believed that a definition would impinge upon an institution's ability to create innovative courses and teaching methods. They also argued that the proposed definition was too restrictive and inhibited the academic freedom of schools. Other non-Federal negotiators agreed that a definition was necessary and did not believe the Department's proposed definition would adversely impact institutions. These other non-Federal negotiators agreed with our position that the proposed definition of a

credit hour

would provide sufficient flexibilities for institutions and supported keeping it in the proposed regulations.

One significant change is proposed in the regulations to address a concern raised during the negotiated rulemaking sessions regarding a definition of a

credit hour.

The change is to recognize in paragraph (3) of the proposed definition that an institution would be able to establish reasonable equivalent measures of a credit hour. As is also the case with paragraphs (1) and (2) of the proposed definition, the measures must be reasonable and in accordance with the requirements of the institution's designated accrediting agency, or State agency for the approval of public postsecondary vocational education, for title IV, HEA program participation as well as for participation in other HEA programs. This change further ensures that the definition will allow institutions to adopt alternative measures of student work.

The proposed definition of a

credit hour

does not change our policy that we provide funding based only on credit hours that are the direct result of postsecondary student work. Thus, we do not currently, nor do we propose to, provide funding for credits awarded based on Advanced Placement (AP) or International Baccalaureate (IB) programs, tests or testing out, life experience, or similar competency measures.

No agreement was reached to amend § 600.2 to include a definition of a

credit hour

due to the belief of some non-Federal negotiators that a definition would limit an institution's ability to use alternative measures of student work.

Accrediting Agency Procedures

Section 496(a)(5) of the HEA requires that, to be recognized by the Secretary, an accrediting agency must have standards to evaluate an institution's or program's “measures of program length and the objectives of the degrees or credentials offered.” Thus, accrediting agencies are required to make a judgment about program length and the amount of credit an institution or program grants for course work. Accrediting agency standards related to program length differ significantly in their specificity and these standards generally do not define what a credit hour is. This lack of specificity in standards covering student achievement and program length has inherent limitations and may result in inconsistent treatment of Federal funds.

We believe that the lack of more direct accrediting agency oversight in the assignment of credits to coursework may result in some institutions not being able to demonstrate that there is sufficient course content to substantiate the credit hours for certain programs. Such abuse may be more likely due to the expanded availability to a student of two Federal Pell Grants in an award year. We believe that the potential for such abuse and the inconsistent treatment of Federal funds would be significantly alleviated by establishing the proposed definition of credit hour in § 600.2 and providing in proposed § 602.24(f) that accrediting agencies must review (1) an institution's policies and procedures for the assignment of credit hours in accordance with the proposed definition in § 600.2 and (2) the institution's application of its policies and procedures in assigning credit hours to its programs and courses.

The negotiators reached tentative agreement on adding proposed § 602.24(f).

State Agency Procedures for the Approval of Public Vocational Education

The regulations concerning the recognition of State agencies for the approval of public vocational education were not discussed during the negotiations. We believe that § 603.24 should be amended to make changes comparable to the proposed regulations for the recognition of accrediting agencies. We believe these proposed changes are needed for the same reasons as we are proposing to amend part 602. The changes are also necessary for purposes of determining equivalencies

to a credit hour under paragraph (3) of the proposed definition of a

credit hour

in § 600.2 as well as for § 668.8(l) regarding credit-to-clock-hour conversions.

Credit-to-Clock-Hour Conversion

Section 668.8(k) and (l) of the current regulations that provide conditions and formulas for the conversion of clock hours to credit hours for undergraduate programs were adopted prior to the statutory change in the definition of an academic year for clock-hour programs. Under section 481(b) of the HEA, an academic year for a program must now provide for a minimum of 26 weeks of instructional time in a clock-hour program as opposed to the 30 weeks of instructional time required for credit-hour programs. However, undergraduate programs continue to include 900 clock hours, 24 semester or trimester hours, or 36 quarter credits. We are proposing to update the formula to reflect the statute's treatment of 900 clock hours over 26 weeks of instructional time as reflecting no outside student work and the 900 clock hours being directly proportional to 24 semester hours or 36 quarter credits.

As a result, proposed § 668.8(l)(1) would revise the minimum general standard for converting clock hours to credit hours to reflect the ratio of the minimum clock hours in an academic year to the minimum credit hours in an academic year. As some non-Federal negotiators noted, portions of some clock-hour programs require student work outside of class. Proposed § 668.8(l)(2) would, therefore, provide an exception to the standard in proposed § 668.8(l)(1) for coursework in a program that qualifies for a lesser rate of conversion based on additional student work outside of class. For coursework that includes student work outside of class in a qualifying program, an institution would take into account the amount of outside coursework to determine the appropriate number of clock hours to convert to a credit hour, but may not use less than the current requirements of 30 clock hours for a semester or trimester hour or 20 clock hours for a quarter hour.

We believe that changes are needed to the conditions in current § 668.8(k)(1) for determining that a program is not subject to the conversion formula in § 668.8(l). We have identified potential abuses with the provision that an institution's program is not subject to the conversion formula in § 668.8(l) if each course within the program is acceptable for full credit toward a degree that is offered by the institution and requires at least two academic years of study. Some institutions appear to have established degree programs in which few if any students enroll or graduate but which are the basis for claiming that all courses of another nondegree program are acceptable for full credit in the degree program. To address this abuse, proposed § 668.8(k)(1)(ii) would require the institution to demonstrate that students enroll in, and graduate from, the degree program. Proposed § 668.8(k)(2)(i) would provide that a program must be considered a clock-hour program if the program must be measured in clock hours to receive Federal or State approval or licensure or completing clock hours is a requirement for graduates to apply for licensure or the authorization to practice the occupation that the student is intending to pursue. We believe such requirements show that the program is still fundamentally a clock-hour program and should not be treated as a credit-hour program for purposes of title IV, HEA program assistance. We also believe it is appropriate under proposed § 668.8(k)(2)(ii) and (iii) to require that a program must be considered to be offered in clock hours if an institution is failing either to award the credit hours that are in compliance with the definition of a credit hour in proposed § 600.2 or to ensure that students are attending at least the minimum number of clock hours that are the basis for the credit hours awarded for the program. A program that may qualify for conversion to credit hours is still fundamentally a clock-hour program that must meet additional requirements. If the provisions of proposed § 668.8(k)(1) and (2) are applicable, a program should not qualify for conversion to credit hours because the program's essential nature as a clock-hour program requires that it be measured in clock hours for other purposes or because it fails to be offered in a manner that supports the conversion.

In response to some non-Federal negotiators' concerns, proposed § 668.8(k)(3) would clarify the requirements in proposed § 668.8(k)(2)(i) by providing that proposed § 668.8(k)(2)(i) would not apply if a limited portion of a program such as a practicum, internship, or clinical experience component must be measured in clock hours due to a State or Federal approval or licensure requirement. We agree with the non-Federal negotiators that such a limited requirement should not be an impediment to the program qualifying for a clock-to-credit-hour conversion.

The negotiators reached tentative agreement on proposed § 668.8(l) and (k), except for proposed § 668.8(k)(2)(iii) which has been changed to provide that an institution must require attendance in the clock hours that are the basis for the credit hours awarded, except as provided in current § 668.4(e). We believe the change assures that the clock hours are being offered and that students are attending the clock hours that are the basis for the clock-to-credit-hour conversion.

State Authorization (§§ 600.4(a)(3), 600.5(a)(4), 600.6(a)(3), and 600.9)

Statute:

Section 101(a)(2) of the HEA defines the term “institution of higher education” to mean, in part, an educational institution in any State that is legally authorized within the State to provide a program of education beyond secondary education. Section 102(a) of the HEA provides, by reference to section 101(a)(2) of the HEA, that a proprietary institution of higher education and a postsecondary vocational institution must be similarly authorized within a State.

Current Regulations:

The regulations do not define or describe the statutory requirement that an institution must be legally authorized in a State.

Proposed Regulations:

Under proposed § 600.9, an institution would be legally authorized by a State through a charter, license, approval, or other document issued by a State government agency or State entity that affirms or conveys the authority to the institution to operate educational programs beyond secondary education. An institution would also be considered legally authorized in a State if the institution were authorized to offer programs beyond secondary education by the Federal Government or an Indian Tribe as that term is described in 25 U.S.C. 1802(2) or if it were exempt from State authorization as a religious institution under the State constitution.

The Secretary would consider an institution to be legally authorized by a State if (1) the authorization is given to the institution specifically to offer programs beyond secondary education, (2) the authorization is subject to adverse action by the State, and (3) the State has a process to review and appropriately act on complaints concerning an institution and enforces applicable State laws.

References to § 600.9 would be added for clarity in §§ 600.4(a)(3), 600.5(a)(4), and 600.6(a)(3).

Reasons:

The HEA requires institutions to have approval from the States where they operate to provide postsecondary educational programs. State oversight through obtaining approval to offer postsecondary

education and by State regulatory agency ongoing activities plays an important role in protecting students, although there may be a lot of variation in how those responsibilities are exercised. One indicator of the importance of State oversight has been seen in the movement of substandard institutions and diploma mills from State to State in response to changing requirements. These entities set up operation in States that may initially provide very little oversight and operate until a State strengthens its oversight of those entities in response to complaints from the public. In some cases, those entities simply move to another State that appears to offer little oversight and repeats the process.

The Department historically viewed the requirement for State authorization for entities to offer postsecondary education as minimal, and would deem an entity that had been exempted by its State from State oversight to have such approval so long as it was able to operate within the State. Thus, in some States an institution was considered to be legally authorized to offer postsecondary education based on such methods as a business license or establishment as an eleemosynary organization.

Upon further review, we believe the better approach is to view the State approval to offer postsecondary educational programs as a substantive requirement where the State is expected to take an active role in approving an institution and monitoring complaints from the public about its operations and responding appropriately. The weakness of the historical approach of not requiring active State approval and oversight may have contributed to the recent lapse in the existence of California's Bureau for Private Postsecondary and Vocational Education. The Bureau served as the State's oversight and regulatory agency for private proprietary postsecondary institutions until the State legislature eliminated the Bureau. We were advised that the Bureau was permitted to lapse because the State determined that doing so would not immediately harm the institutions that participate in the title IV, HEA programs. During the period when there was no State agency authorizing private postsecondary institutions, these institutions continued to participate in the title IV, HEA programs under some voluntary agreements while the State legislature worked on creating a new oversight agency. The proposed regulations, had they been in effect at that time, would have required that the State keep in place the prior oversight agency, or to designate a different State agency to perform the required State functions during the transition to a new State oversight agency. Otherwise, under the provisions of proposed § 600.9(b), the affected institutions would have ceased to be considered legally authorized by the State for Federal purposes when the prior agency's existence lapsed and would have ceased to be eligible institutions.

Additionally, we are concerned that some States are deferring all, or nearly all, of their oversight responsibilities to accrediting agencies for approval of educational institutions, or are providing exemptions for a subset of institutions for other reasons. Since accrediting agencies generally require that an institution be legally operating in the State, we are concerned that the checks and balances provided by the separate processes of accreditation and State legal authorization are being compromised.

We initially proposed that State legal authorization be based on a charter, license, or other document issued by an appropriate State government agency providing the authority to an institution to operate educational programs beyond secondary education and grant degrees within the jurisdiction of the State or other documentation, issued by an appropriate State government agency that authorizes, licenses, or otherwise approves the institution to establish and operate within the State nondegree programs that provide education and training beyond secondary education. We also provided that State legal authorization could include reciprocal agreements between appropriate State agencies. In addition, for institutions in a State to be legally authorized, the State would be expected to monitor (1) institutional academic quality, potentially relying on accrediting agencies recognized by the Secretary; (2) an institution's financial viability; and (3) compliance with applicable State laws with respect to consumer protection and other matters of State oversight.

In response to concerns from the non-Federal negotiators, we clarified in proposed § 600.9(a) that legal authorization could not only be provided by an appropriate State agency, but also another State entity,

e.g.,

a State legislature or State constitution. We removed the references to monitoring the quality of educational programs and financial responsibility. We accepted the position of some of the non-Federal negotiators who argued that these additional State requirements could unnecessarily duplicate Federal or accrediting agency actions. Similarly we accepted the position of some of the non-Federal negotiators that States could enter into reciprocal agreements on an as needed basis without regulations.

Also, in response to recommendations of the non-Federal negotiators, we added provisions to clarify that an institution would be considered to be legally authorized in a State if the institution is authorized to offer educational programs beyond secondary education by the Federal Government or, as defined in 25 U.S.C. 1802(2), an Indian tribe or if it is exempt from State authorization as a religious institution under the State constitution. In proposed § 600.9(b), we also further revised the bases under which we would consider an institution to be legally authorized by a State. We would require that the authorization must be specifically to offer programs beyond secondary education and may not be merely of the type required to do business in the State. We believe that this provision would remove any ambiguity regarding the type of authorization acceptable to establish institutional eligibility to participate in Federal programs. The regulations also require an institution's legal authorization to be subject to adverse action by the State, and that a State has a process to review and appropriately act on complaints concerning an institution, and to enforce applicable State laws. We believe these additional conditions are necessary to establish minimal State oversight for institutions to be considered legally authorized to offer postsecondary education for purposes of qualifying as an eligible institution for Federal programs.

The committee did not reach agreement on this issue. A few negotiators objected to allowing States to continue to rely on an institution's status with an outside entity, for example, accredited status with a nationally recognized accrediting agency, as a basis for State legal authorization and were also concerned that the proposed regulations would no longer have a requirement that a State review an institution's fiscal viability. The regulations do not prohibit a State from relying in part upon an accrediting agency, but the State is still required to perform certain functions itself. For example, an institution's authorization must be subject to adverse action by a State agency or other State entity, and the State must have a process for a State agency to review and appropriately act on complaints concerning an institution.

Part 668 Student Assistance General Provisions Coursework (§ 668.2)

Statute:

None.

Current regulations:

None

Proposed regulations:

The proposed regulations would amend the definition of “full-time student” in § 668.2 to allow repeated coursework to count towards a student enrollment status in term-based programs.

Reasons:

The current policy provides that a student enrolled in a term-based program may not be paid for repeating a course unless the student will receive credit for the coursework in addition to any credits previously earned. The non-Federal negotiators were concerned that institutions are unable to track this type of information without doing a program audit of each individual student. We agreed and proposed to amend the definition of full-time to provide that such credits would count toward enrollment status and be eligible for payment under the title IV, HEA programs.

The negotiators reached tentative agreement on this issue.

Written Arrangements (§§ 668.5 and 668.43)

Statute:

None.

Current Regulations:

Under current § 668.5(a), an eligible institution may enter into a written agreement with another eligible institution, or with a consortium of eligible institutions, to provide all or part of an educational program. The educational program is considered to be an eligible program if it meets the requirements of § 668.8. There is no requirement in either § 668.5 or § 668.43 of the current regulations that institutions provide information on written arrangements to enrolled or prospective students.

Proposed Regulations:

The Department proposes to amend current § 668.5(a) by revising and redesignating paragraph (a) as paragraph (a)(1) and adding a new paragraph (a)(2). Proposed § 668.5(a)(1) would be based on the language that is in current paragraph (a), but it would be modified to make it consistent with the definition of an “educational program” in 34 CFR 600.2. Proposed new § 668.5(a)(2) would specify that if a written arrangement is between two or more eligible institutions that are owned or controlled by the same individual, partnership, or corporation, the institution that grants the degree or certificate must provide more than 50 percent of the educational program. These clarifications are also intended to ensure that the institution enrolling the student has all necessary approvals to offer an educational program in the format in which it is being provided, such as through distance education, when the other institution is providing instruction under a written agreement using that method of delivery. Proposed § 668.5(c)(1) would expand the list of conditions that would preclude an arrangement between an eligible institution and an ineligible institution. Proposed §§ 668.5(e) and 668.43 would require an institution that enters into a written arrangement to provide a description of the arrangement to enrolled and prospective students.

Reasons:

Under the definition of an “educational program” in 34 CFR 600.2, if an institution does not provide any instruction itself, but merely gives credit for instruction provided by other institutions, it is not considered to provide an educational program. The change reflected in proposed § 668.5(a)(1) would eliminate the inconsistency in these two provisions by clarifying that an institution may provide part, but not all, of an educational program under a written arrangement.

Proposed § 668.5(a)(2) would be added to address concerns that may arise when two institutions under common ownership enter into written arrangements with each other. One concern, for example, is that such written agreements between institutions under common ownership could be used to circumvent regulations governing cohort default rates and “90-10” provisions, which limit the percentage of revenue for-profit institutions may receive from the Federal student financial assistance programs, by having one institution provide substantially all of a program while attributing the title IV revenue and cohort default rates to the other commonly-owned institution. In other situations, campus-based institutions have been used as “portals” to attract students for online institutions under common ownership where students may not have expected the program to be offered by a different institution.

During the negotiated rulemaking sessions, the Department initially proposed draft regulations that would have required accrediting or State agency review of any written arrangement between an eligible institution and another eligible institution or consortium of eligible institutions if the portion of the educational program provided by the other institution under the written arrangement were more than 50 percent. Under this initial proposal, the institution's accrediting agency, or State agency, as applicable, would have been required to make a determination that the arrangement met the agency's standards for written arrangements. This initial proposal was based on discussion at the first negotiated rulemaking session that suggested most accrediting agencies already review a significant portion of their institutions' written arrangements, even those between or among eligible institutions. Subsequently, several non-Federal negotiators explained that, contrary to the Department's initial understanding, this type of review of written arrangements was not common practice. Some of the non-Federal negotiators expressed concerns that the proposed changes would increase workload and costs as well as impede the development of innovative programs at institutions where there is no evidence of the problems the Department seeks to address. After hearing these concerns, the Department reconsidered its initial proposal and focused its proposed regulatory changes more narrowly on the types of institutions and situations where problems have been identified.

The Department subsequently proposed regulatory language that would limit the portion of an educational program that could be provided under a written arrangement between two eligible for-profit institutions under common ownership or control to 25 percent.

While some non-Federal negotiators expressed support for the 25 percent limitation, a number of them expressed concern that the 25 percent limitation was too low. For example, one non-Federal negotiator questioned the rationale for limiting the percentage of an educational program provided by two eligible institutions under a written arrangement to 25 percent when, under certain circumstances, current regulations permit an ineligible institution to provide up to 50 percent of an educational program. Another non-Federal negotiator said that an institution should be responsible for at least 50 percent of the courses in a student's major. During the discussions, several non-Federal negotiators supported an overall limitation of 50 percent. One non-Federal negotiator expressed the view that non-profit institutions want to “own” the degrees they confer, and if an institution provides less than 50 percent of an educational program, it does not own the degree. Other non-Federal negotiators argued that a limitation of 75 percent would be more appropriate.

Non-Federal negotiators also expressed concerns that, as proposed, this restriction would have an impact on students' academic opportunities and

would limit access to students attending certain institutions. Specifically, they explained that the proposed restrictions on the portion of the educational program that could be provided by the other eligible institution could unnecessarily limit the number of online courses students could take, or make it difficult for students in the military who are deployed, and want to take their remaining courses at an online institution, to finish their educational programs. Both Department officials and some of the non-Federal negotiators pointed out that these outcomes are avoidable if the students in these situations transferred to the institution that was providing the preponderance of courses.

Based on these discussions, the Department modified the proposed regulatory language to refer to eligible institutions that are owned or controlled by the same individual, partnership, or corporation, because this language would be parallel to the language in current § 668.5(c)(3)(ii)(B). Some non-Federal negotiators expressed concern that the phrase “owned or controlled by the same individual, partnership, or corporation” could be read to apply to Jesuit institutions or other institutions under the control of a religious organization, or to institutions in a public system under the control of a board of governors. The Federal negotiator explained that it is not the Department's intention for either public or private, non-profit institutions to be covered by the proposed language because these institutions are not owned or controlled by other entities, and generally act autonomously.

The proposed additions to § 668.5(c)(1) would make it clear that educational programs offered under written arrangements between an eligible institution and an ineligible institution would not be considered eligible programs if the ineligible institution had had its certification to participate in the title IV, HEA programs revoked (

see

proposed § 668.5(c)(1)(iii)), its application for re-certification to participate in the title IV, HEA programs denied (

see

proposed § 668.5(c)(1)(iv)), or its application for certification to participate in the title IV, HEA programs denied (

see

proposed § 668.5(c)(1)(v)). These additions are consistent with the existing reference in the regulations to institutions that have been terminated from the title IV, HEA programs.

Finally, there was considerable discussion during the negotiated rulemaking sessions about the Department's proposal to require that institutions make information about written arrangements available to students. Several non-Federal negotiators said that information should be made available to prospective students, as well as to enrolled students, so prospective students could know before applying to an educational program whether any part of the program would be provided under a written arrangement. For this reason, proposed § 668.5(e) would make clear that any eligible institution providing educational programs under a written arrangement is required to provide the information described in proposed § 668.43(a)(12) to both prospective and enrolled students.

The committee also discussed at length what content the proposed disclosures should include. Several non-Federal negotiators requested that institutions be required to disclose the locations of the other institutions or organizations at which a portion of the educational program would be provided. We agreed with these non-Federal negotiators and incorporated this disclosure requirement in proposed § 668.43(a)(12)(ii).

There was also widespread support for requiring the disclosure of any additional costs that students might incur as a result of enrolling in an educational program provided, in part, under a written arrangement. There was much discussion about which costs would need to be disclosed. One non-Federal negotiator requested that institutions only be required to provide “estimated” costs, given that in some situations, such as study abroad programs, costs might change due to variability in living accommodations, changes in airfare for programs offered at distant locations, etc. We agreed with these suggestions and clarified in proposed § 668.43(a)(12)(iv) that the required disclosures include estimated additional costs students may incur as the result of enrolling in an educational program that is provided, in part, under a written arrangement described in § 668.5.

In proposed § 668.43(a)(12)(iii), we would require institutions to disclose the method of delivery of the portion of the educational program that the institution that grants the degree or certificate is not providing so potential students are given accurate information. In response to a question raised at one of the negotiated rulemaking sessions, the Federal negotiator explained that the Department would expect an institution to disclose whether the instruction is offered on campus or on-line, or offered through a combination of methods.

During the discussions about the disclosure requirements in proposed §§ 668.5 and 668.43, there were a number of questions about what types of arrangements would be subject to these proposed requirements. The Department explained that the proposed disclosure requirements would apply to blanket, existing arrangements between or among institutions. Individual, student-initiated written arrangements would not be subject to the disclosure requirements in proposed §§ 668.5 and 668.43. Not only would such disclosures be impractical and excessively burdensome, but they would also be unnecessary: As a party to an individual, student-initiated written arrangement, the student would already have the information required to be disclosed under these proposed provisions. In addition, these proposed disclosure requirements would not apply to internships or externships because the Department does not consider these arrangements to be written arrangements under § 668.5. While it is reasonable to expect that institutions that offer or require internships and externships will provide students in affected programs with the types of information described in proposed § 668.43(a)(12), such programs would not be covered under this proposed requirement for institutional disclosure of written arrangements.

Some non-Federal negotiators contended that institutions should be required to display the information described in proposed § 668.43(a)(12) prominently on their Web sites. Other non-Federal negotiators did not support this idea, pointing out that § 668.43 contains a long list of disclosures, and to single out this one disclosure requirement for special treatment would suggest that it is more important than all the other institutional information disclosure requirements. They explained that this proposed requirement should be considered in the context of all the consumer disclosure requirements regarding information that students need to know when they are considering enrolling in an institution, and noted that from a practical standpoint, it is likely that institutions will post the required information on their Web sites. One non-Federal negotiator expressed the concern that there is already too much general information provided to students that they do not read, and suggested that institutions might find it most useful to include information on written arrangements in the context of individual programs of study.

While the Department wants to make sure students receive appropriate information so they can make informed decisions, the Department agrees with

the non-Federal negotiators who urged that institutions be given the discretion to determine the best way to disseminate the required information to their students.

The negotiators reached tentative agreement on this issue.

Incentive Compensation (§ 668.14(b))

Statute:

Section 487(a)(20) of the HEA requires that the title IV, HEA program participation agreement prohibit an institution from making any commission, bonus, or other incentive payments based directly or indirectly on success in securing enrollments or financial aid to any persons or entities involved in student recruiting or admissions activities, or in making decisions about the award of student financial assistance. The statute states that this prohibition does not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal financial assistance.

Current Regulations:

Current § 668.14(b)(22)(i) incorporates the prohibition and exception reflected in section 487(a)(20) of the HEA. It prohibits an institution from making any commission, bonus, or other incentive payments based directly or indirectly on success in securing enrollments or financial aid to any persons or entities involved in student recruiting or admissions activities, or in making decisions about the award of student financial assistance. It also states that this restriction does not apply to the recruitment of foreign students living in foreign countries who are not eligible to receive Federal student aid.

Current § 668.14(b)(22)(ii) goes on to specify 12 “safe harbors”—12 activities and arrangements that an institution may carry out without violating the prohibition against incentive compensation reflected in section 487(a)(20) of the HEA and current § 668.14(b)(22)(i). The first safe harbor explains the conditions under which an institution may adjust compensation without that compensation being considered an incentive payment. The 12 safe harbors describe the conditions under which payments that could potentially be construed as based upon securing enrollments or financial aid are nonetheless not prohibited under section 487(a)(20) of the HEA and current § 668.14(b)(22)(i).

The payment or compensation plans covered by the safe harbors address the following subjects:

1.

Adjustments to employee compensation (current § 668.14(b)(22)(i)(A)).

Under this safe harbor, an institution may make up to two adjustments (upward or downward) to a covered employee's annual salary or fixed hourly wage rate within any 12-month period without the adjustment being considered an incentive payment, provided that no adjustment is based solely on the number of students recruited, admitted, enrolled, or awarded financial aid. This safe harbor also permits one cost-of-living increase that is paid to all or substantially all of the institution's full-time employees.

2.

Enrollment in programs that are not eligible for title IV, HEA program funds (current § 668.14(b)(22)(i)(B)).

This safe harbor permits compensation to recruiters based upon enrollment of students who enroll in programs that are ineligible for title IV, HEA funds.

3.

Contracts with employers to provide training (current § 668.14(b)(22)(i)(C)).

This safe harbor addresses payments to recruiters who arrange contracts between an institution and an employer, where the employer pays the tuition and fees for its employees (either directly to the institution or by reimbursement to the employee).

4.

Profit-sharing bonus plans (current § 668.14(b)(22)(i)(D)).

Under this safe harbor, profit-sharing and bonus payments to all or substantially all of an institution's full-time employees are not considered incentive payments based on success in securing enrollments or awarding financial aid in violation of the prohibition in section 487(a)(20) of the HEA and current § 668.14(b)(22)(i). As long as the profit-sharing or bonus payments are substantially the same amount or the same percentage of salary or wages, and as long as the payments are made to all or substantially all of the institution's full-time professional and administrative staff, compensation paid as part of a profit-sharing or bonus plan is not considered a violation of the incentive payment prohibition.

5.

Compensation based upon program completion (current § 668.14(b)(22)(i)(E)).

This safe harbor permits compensation based upon students successfully completing their educational programs or one academic year of their educational programs, whichever is shorter.

6.

Pre-enrollment activities (current § 668.14(b)(22)(i)(F)).

This safe harbor states that clerical pre-enrollment activities, such as answering telephone calls, referring inquiries, or distributing institutional materials, are not considered recruitment or admission activities. Accordingly, under this safe harbor, an institution may make incentive payments to individuals whose responsibilities are limited to clerical pre-enrollment activities.

7.

Managerial and supervisory employees (current § 668.14(b)(22)(i)(G)).

This safe harbor states that the incentive payment prohibition in section 487(a)(20) of the HEA and current § 668.14(b)(22)(i) does not apply to managerial and supervisory employees who do not directly manage or supervise employees who are directly involved in recruiting or admissions activities, or the awarding of title IV, HEA program funds.

8.

Token gifts (current § 668.14(b)(22)(i)(H)).

Under this safe harbor, an institution may provide a token gift not to exceed $100 to an alumnus or student provided that the gift is not in the form of money and no more than one gift is provided annually to an individual.

9.

Profit distributions (current § 668.14(b)(22)(i)(I)).

This safe harbor states that profit distributions to owners of the institution are not payments based on success in securing enrollments or awarding financial aid in violation of the prohibition in section 487(a)(20) of the HEA and current § 668.14(b)(22)(i) as long as the distribution represents a proportionate share of the profits based upon the individual's ownership interest.

10.

Internet-based activities (current § 668.14(b)(22)(i)(J)).

This safe harbor permits an institution to award incentive compensation for Internet-based recruitment and admission activities that provide information about the institution to prospective students, refer prospective students to the institution, or permit prospective students to apply for admission online.

11.

Payments to third parties for non-recruitment activities (current § 668.14(b)(22)(i)(K)).

This safe harbor states that the incentive compensation prohibition does not apply to payments to third parties, including tuition sharing arrangements, that deliver various services to the institution, provided that none of the services involve recruiting or admission activities, or the awarding of title IV, HEA program funds.

12.

Payments to third parties for recruitment activities (current § 668.14(b)(22)(i)(L)).

Under this safe harbor, if an institution uses an outside entity to perform activities for it, including recruitment or admission activities, the institution may make incentive payments to the third party without violating the incentive payment prohibition in section 487(a)(20) of the HEA and current § 668.14(b)(22)(i) as long as the individuals performing the recruitment or admission activities are not compensated in a way that is

prohibited by section 487(a)(20) of the HEA and current § 668.14(b)(22)(i).

Proposed Regulations:

The Department proposes to revise § 668.14(b)(22) to align it more closely with the statutory language from section 487(a)(20) of the HEA. Specifically, proposed § 668.14(b)(22)(i)(A) would restate the statutory provision in the HEA, which provides that to be eligible to participate in the Federal student financial aid programs authorized under title IV of the HEA, an institution must agree that it will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance. Proposed § 668.14(b)(22)(i)(B) would provide that the incentive compensation prohibition does not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance.

The Department would delete the 12 safe harbors reflected in current § 668.14(b)(22)(ii). The Department would, however, clarify, in proposed § 668.14(b)(22)(ii), that eligible institutions and their contractors may make merit-based adjustments to employee compensation, provided that such adjustments are not based directly or indirectly upon success in securing enrollments or the award of financial aid.

Finally, in proposed § 668.14(b)(22)(iii), the Department would define the following key terms that would be used in proposed § 668.14(b)(22):

Commission, bonus, or other incentive payment, securing enrollments or the awards of financial aid,

and

enrollment.

Proposed § 668.14(b)(22)(iii)(A) would define

commission, bonus, or other incentive payment

as a sum of money or something of value paid or given to a person or entity for services rendered.

Proposed § 668.14(b)(22)(iii)(B) would define

securing enrollments or the awards of financial aid

as activities that a person or entity engages in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid to students. Proposed § 668.14(b)(22)(iii)(B)(

1

) and (b)(22)(iii)(B)(

2

) would clarify that the term

securing enrollments or the awards of financial aid

includes recruitment contact in any form and excludes making a payment to a third party for student contact information for prospective students, respectively.

Proposed § 668.14(b)(22)(iii)(C) would define

enrollment

as the admission or matriculation of a student into an eligible institution.

Reasons:

Consistent with comments made by a majority of the non-Federal negotiators, the Department believes that the language in section 487(a)(20) of the HEA is clear, and that the elimination of all of the regulatory safe harbors reflected in current § 668.14(b)(22)(ii) would best serve to effectuate congressional intent. The Department previously explained that it was adopting the safe harbors based on a “purposive reading of section 487(a)(20) of the HEA.” 67 FR 51723 (August 8, 2002). Since that time, however, the Department's experience demonstrates that unscrupulous actors routinely rely upon these safe harbors to circumvent the intent of section 487(a)(20) of the HEA. As such, rather than serving to effectuate the goals intended by Congress through its adoption of section 487(a)(20) of the HEA, the safe harbors have served to obstruct those objectives. For example, the first safe harbor, which prohibits the payment of incentives based solely upon success in securing enrollments, has led institutions to establish, on paper, other factors that are purportedly used to evaluate student recruiters other than the sheer numbers of students enrolled. However, in practice, consideration of these factors has been minimal at best, or otherwise indiscernible. This has led the Department to expend vast resources evaluating the legitimacy of institutional compensation plans, and considerable time and effort has been lost by both the Department and institutions engaged in litigation. Moreover, the Department believes that students are frequently the victims of compensation plans that institutions have adopted within the ambit of the first safe harbor. When admissions personnel are compensated substantially, if not entirely, upon the numbers of students enrolled, the incentive to deceive or misrepresent the manner in which a particular educational program meets a student's need increases substantially. As a result, the Department believes that the existence of the safe harbors is a major impediment to ensuring that students are enrolled in educational programs that are meaningful to them. There was considerable discussion on this proposed approach during the negotiated rulemaking sessions.

At the outset of the discussions on incentive compensation during negotiated rulemaking, the Department reviewed each of the 12 safe harbors reflected in the current regulations and stated why the Department views them as either inappropriate or unnecessary:

1.

Adjustments to employee compensation.

The Department explained that this safe harbor has led to allegations in which institutions concede that their compensation structures include consideration of the number of enrolled students, but aver that they are not

solely

based upon such numbers. In some of these instances, the substantial weight of the evidence has suggested that the other factors purportedly analyzed are not truly considered, and that, in reality, the institution bases salaries exclusively upon the number of students enrolled. For this reason, the Department proposes to delete this safe harbor. After careful consideration, the Department has determined that removal of the safe harbor is preferable to trying to revise the safe harbor. For example, changing the word

solely

in this safe harbor to some other modifier, such as “primarily” or “substantially,” would not correct the problem, as the evaluation of any alternative arrangement would merely shift to whether the compensation was “primarily” or “substantially” based upon enrollments.

2.

Compensation related to enrollment in programs that are not eligible for title IV, HEA program funds.

Section 487(a)(20) of the HEA provides that compensation may not be based upon success in securing enrollments whether the students receive title IV, HEA funds, or some other form of student financial assistance. This safe harbor provides an impetus to steer students away from title IV, HEA programs. The potential also exists for manipulation, as students who were initially enrolled in non-title IV, HEA eligible programs may then be re-enrolled in title IV, HEA eligible programs. As a result, the Department proposes to remove this safe harbor.

3.

Compensation related to contracts with employers to provide training.

Compensation permitted under this safe harbor includes compensation that is ultimately based upon success in securing enrollments, and is thus inconsistent with section 487(a)(20) of the HEA.

4.

Compensation related to profit-sharing bonus plans.

There is no statutory proscription upon offering employees either profit-sharing or a bonus; however, if either is based upon success in securing enrollments, it is not permitted. Therefore, this safe harbor is unnecessary.

5.

Compensation based on program completion.

The Department believes that this safe harbor permits compensation that is “indirectly” based

upon securing enrollments—that is, unless the student enrolls, the student cannot successfully complete an educational program. With the proliferation of short-time, accelerated programs, the potential exists for shorter and shorter programs, and increased efforts to rely upon this safe harbor to incentivize recruiters. Moreover, this safe harbor may lead to lowered or misrepresented admissions standards and program offerings, lowered academic progress standards, altered attendance records, and a lack of meaningful emphasis on retention. The Department has seen schools that have devised and operated grading policies that all but ensure that students who enroll will graduate, regardless of their academic performance. For these reasons, the Department believes it is appropriate to delete this safe harbor.

6.

Compensation related to pre-enrollment activities.

The Department does not believe that this safe harbor is appropriate. Individuals may not receive incentive compensation based on their success in soliciting students for interviews; soliciting students for interviews is a recruitment activity, not a pre-enrollment activity. In addition, because a recruiter's job description is to recruit, it would be very difficult for an institution to document that it was paying a bonus to a recruiter solely for clerical pre-enrollment activities. Such activities certainly contribute “indirectly,” if not “directly,” to the success in securing enrollments, and hence compensation based upon them is prohibited by the statute. Moreover, with the elimination of the safe harbor relating to adjustments to employee compensation, an unscrupulous actor could claim that the activities in which its recruiters engaged, and for which they were compensated, consisted of “clerical” or “pre-enrollment” activities, regardless of whether a student ultimately enrolled.

7.

Compensation related to managerial and supervisory employees.

The Department believes that this safe harbor provision is no longer appropriate because senior management may drive the organizational and operational culture at an institution, creating pressures for top, and even middle, management to secure increasing numbers of enrollments from their recruiters. As a result, these individuals should not be exempt from the ban on receiving incentive compensation.

8.

Compensation related to token gifts.

As at least one non-Federal negotiator noted, students oft-times do things with little reflection if it brings an immediate reward, and such things as a $100 gift card constitute a substantial incentive for many students. Further, the fair market value of an item might be considerably greater than its cost. A high value item for which the institution paid a minimal cost could not be considered a token gift. As a result, even the provision of token gifts to students and alumni is fraught with the potential for abuse, creating the need to remove this safe harbor, as well.

9.

Compensation based on profit distributions that are based on an individual's ownership interest.

Section 487(a)(20) of the HEA prohibits compensation, including profit distributions, that is based upon success in securing enrollments and the award of financial aid. It does not prohibit profit distributions based upon an individual's ownership interest. As a result, it is the Department's view that this safe harbor is unnecessary.

10.

Compensation related to Internet-based activities.

Technological advancements and developments in Internet-based activities since this safe harbor was adopted, and the frequency with which such activities are now relied upon, argue against the continued provision of this safe harbor. Moreover, with the elimination of the first safe harbor, it can be anticipated that an institution seeking to avoid compliance with section 487(a)(20) of the HEA will maximize its Internet-based recruitment activities. For this reason, the Department proposes to remove this safe harbor.

11.

Compensation to third parties for non-recruitment activities.

The Department believes that this safe harbor is no longer necessary. Proposed § 668.14(b)(22) states that a person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the awarding of title IV, HEA program funds may not be compensated directly or indirectly based upon the success in securing enrollments. Thus, there is no reason to provide any discussion of third-party activities as they relate to non-recruitment activities as a potential safe harbor.

12.

Compensation to third parties for recruitment activities.

This safe harbor expands the scope of the eleventh safe harbor to include “recruiting or admission activities,” while providing the caveat that the compensation cannot be offered in an otherwise legally impermissible manner. As mentioned in regard to the eleventh safe harbor, section 487(a)(20) of the HEA expressly proscribes payments to “any persons or entities” based directly or indirectly on success in securing enrollments, so any further discussion of third party activities as they relate to recruitment activities is also unnecessary.

The Department believes that removal of these regulatory safe harbors is necessary to ensure that section 487(a)(20) of the HEA is properly applied. The Department has determined that these safe harbors do substantially more harm than good, and believes that institutions should not look to safe harbors to determine whether a payment complies with section 487(a)(20) of the HEA. Rather, the Department believes that institutions can readily determine if a payment or compensation is permissible under section 487(a)(20) of the HEA by analyzing—

(1) Whether it is a commission, bonus, or other incentive payment, defined as an award of a sum of money or something of value paid to or given to a person or entity for services rendered; and

(2) Whether the commission, bonus, or other incentive payment is provided to any person based directly or indirectly upon success in securing enrollments or the award of financial aid, which are defined as activities engaged in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid.

If the answer to each of these questions is yes, the commission, bonus, or incentive payment would not be permitted under the statute. Therefore, the Department proposes to simplify its regulations to better align them with section 487(a)(20) of the HEA.

Most non-Federal negotiators favored the Department's proposal to remove the current safe harbors because they believe that the regulatory safe harbors have led to inappropriate incentive compensation practices by institutions that are prohibited by the HEA. The majority of the non-Federal negotiators indicated strong support for the removal of these safe harbors, believing that doing so would more accurately reflect congressional intent and protect students from abusive recruitment practices that have directly resulted when institutions have sought to circumvent, if not directly flaunt, section 487(a)(20) of the HEA.

The non-Federal negotiator who opposed the Department's proposed removal of the safe harbors and their replacement with certain definitions argued that the safe harbors are needed to explain the scope of the prohibition in section 487(a)(20) of the HEA, which was perceived as being unclear. Without the safe harbors, it was argued, institutions would not have a clear sense of what practices are permitted

and, therefore, would be more likely to unintentionally violate the prohibition in section 487(a)(20) of the HEA and § 668.14(b)(22). However, any merit to this argument is belied by the ease of the application of the two-part test the Department has offered that will demonstrate whether a compensation plan or payment complies with the statute and its implementing regulations.

A sub-caucus of non-Federal negotiators worked between the second session of negotiated rulemaking and the third session of negotiated rulemaking to develop draft regulatory language that would retain, but narrow the scope of, the safe harbors in the current regulations. There was much discussion regarding the sub-caucus' proposed draft language, as well as one final counter-proposal brought to the negotiating table.

A number of specific concerns were raised during these discussions. First and foremost, negotiators wanted to understand what the likely impact would be if the safe harbors were removed from the regulations. They questioned whether all previously permitted actions would now be prohibited. The Department explained its position: That, going forward, under the proposed regulations, institutions would need to re-examine their practices to ensure that they comply with proposed § 668.14(b)(22). To the extent that a safe harbor created an exception to the statutory prohibition found in section 487(a)(20) of the HEA, its removal would establish that such an exception no longer exists, and that the action that had been permitted is now prohibited.

Several negotiators were concerned that under the Department's proposal, institutions would be prohibited from paying merit-based increases to their financial aid or admissions personnel. In particular, some negotiators supported the inclusion of language that would permit an institution to make merit-based adjustments based on an employee's performance in relation to an institution's goals, such as those for enrollment, completion, or graduation.

The Department's proposed regulations continue to authorize merit-based compensation for financial aid or admissions staff. An institution could use a variety of standard evaluative factors as the basis for such an increase; however, consistent with section 487(a)(20) of the HEA, under proposed § 668.14(b)(22), it would not be permitted to consider the employee's success in securing student enrollments or the award of financial aid or institutional goals based on that success among those factors. Further, an increase that is based either directly or indirectly on individual student numbers would be prohibited. The Department believes that the language in proposed § 668.14(b)(22)(ii) makes this clear.

One negotiator felt strongly that it was critical to use the word “solely,” or some other modifier, to limit the prohibition in proposed § 668.14(b)(22)(i) (

i.e.,

“It will not provide any commission, bonus, or other incentive payment based solely upon success * * *” rather than “It will not provide any commission, bonus, or other incentive payment based directly or indirectly upon success”). This negotiator said that the use of the word solely, or some other modifier, would be consistent with the use of that term solely in the first safe harbor reflected in current § 668.14(b)(22)(ii)(A) (

i.e.,

“ * * * is not based

solely

on the number of students recruited, admitted, enrolled, or awarded financial aid”). As discussed earlier in this preamble, given the Department's experience with how the first safe harbor in current § 668.14(b)(22) has been abused, the Department does not believe that such a construction is warranted. It is the Department's view that, consistent with section 487(a)(20) of the HEA, incentive payments should not be based in any part, directly or indirectly, on success in securing enrollments or the awards of financial aid.

In addition, some negotiators advocated for an institution's ability to pay bonuses on the basis of students who complete their programs of instruction, as currently provided for in the fifth safe harbor. They believed that this category of students (

i.e.,

students who complete their programs), is different from the category of students who enroll, for which compensation may not be based. The Department does not agree. As previously stated, the Department believes that the regulations must clearly reinforce the statutory provision and exclude the possibility of basing any portion of a bonus on success in securing student enrollments or financial aid awards.

Several negotiators requested that the Department define the term “bonus” as a way to help institutions understand what types of compensation are appropriate. Accordingly, in proposed § 668.14(b)(22)(iii)(A), the Department proposes to define the term

commission, bonus, or other incentive payment

as a sum of money or something of value paid to or given to a person or an entity for services rendered. Linked to the language in proposed § 668.14(b)(22)(i)(A), this definition is unambiguous in prohibiting payment of any money or item of value on the basis of direct or indirect success in securing enrollments or the award of financial aid.

Several non-Federal negotiators asked for clarification about the extent to which supervisors and upper level administrators would be covered by proposed § 668.14(b)(22). The Department's position is that section 487(a)(20) of the HEA is clear that the incentive compensation prohibition applies all the way to the top of an institution or organization. Therefore, individuals who are engaged in any student recruitment or admissions activity or in making decisions about the award of student financial aid are covered by this prohibition.

One negotiator asked the Department to clarify how the prohibition reflected in proposed § 668.14(b)(22) would work in the case of an institution that partners with other institutions or organizations to receive shared services, an approach that some institutions are turning to for economic reasons. As an example, a group of institutions might share a centralized campus security team because doing so could be less expensive than having each institution set up its own team. If institutions use this model of shared services for financial aid purposes and the payment for the shared services is volume-driven (

e.g.,

an institution is billed based on the number of student files that are processed), the negotiator asked if institutions would comply with proposed § 668.14(b)(22). The Department does not believe that the proposed language would automatically preclude an institution's use of this type of arrangement, provided that payment is not based on success in securing enrollments or the awards of financial aid. In the normal course, the contractor would be paid for services rendered without violating the proposed regulations.

Several negotiators were concerned about the impact of the proposed language on an institution's Internet-based activities. Negotiators asserted that the HEA permits advertising and marketing activities by a third party, as long as payment to the third party is based on those who “click” and is not based on the number of individuals who enroll. The Department agrees and does not believe that the proposed regulatory language would prohibit such click-through payments.

The issue of token gifts prompted some discussion. Several negotiators asked the Department to clarify whether an institution that offers some type of payment to current students in exchange for their contact list would

violate proposed § 668.14(b)(22). The Department believes that this type of activity is permitted as long as the student is not paid or given an item of value on the basis of the number of students who apply or enroll. Most negotiators agreed with this position.

Finally, several non-Federal negotiators asked whether the Department would offer private letter guidance on conduct that may violate proposed § 668.14(b)(22). Accordingly, the Department believes the proposed language is clear and reflective of section 487(a)(20) of the HEA. The Department believes it will appropriately guide institutions as they evaluate compensation issues. To the extent that ongoing questions arise on a particular aspect of the regulations, the Department will respond appropriately. This response may include a clarification in a Department publication, such as the Federal Student Aid Handbook or a Dear Colleague Letter. The Department believes that rather than focusing clarifying guidance on the situation at a particular institution, any illuminating statements must be broadly applicable and distributed widely to all participating institutions. As a result, the Department does not intend to provide private guidance regarding particular compensation structures in the future and will enforce the law as written.

Negotiators did not reach agreement on this issue.

Satisfactory Academic Progress (§§ 668.16(e), 668.32(f), 668.34)

Statute:

Section 484(a)(2) of the HEA requires that a student make satisfactory progress in the student's course of study in order to be eligible to receive title IV, HEA program funds. Section 484(c) of the HEA provides that a student is making satisfactory progress if the institution reviews the progress of the student at the end of each academic year, or its equivalent, and the student has a cumulative C average, or its equivalent, or academic standing consistent with the requirements for graduation, as determined by the institution, at the end of the student's second academic year. Section 484(c)(2) of the HEA provides that a student who has failed to maintain satisfactory progress and, subsequent to that failure, has academic standing consistent with the requirements for graduation, as determined by the institution, may again be determined eligible for assistance under title IV, HEA programs. Section 484(c)(3) of the HEA allows an institution to waive the satisfactory progress provisions for undue hardship based on the death of a relative of the student, the personal injury or illness of the student, or special circumstances as determined by the institution.

Current Regulations:

Three sections in current regulations contain satisfactory academic progress requirements. Current § 668.16(e) specifies that for an institution to be considered administratively capable, it must, for the purpose of determining student eligibility, establish, publish and apply reasonable standards for measuring whether a student is maintaining satisfactory progress in his or her educational program.

Under current § 668.16(e), a satisfactory academic progress policy is considered reasonable if the standards are the same as or stricter than the institution's standards for students enrolled in the same educational program who are not receiving title IV, HEA program funds and contain both qualitative (grade-based) and quantitative (time-related) standards. Under current § 668.16(e)(3), the institution must apply the standards consistently to all students within each category of students,

e.g.,

full-time, part-time, undergraduate, and graduate students, and each educational program.

The policy must provide that the institution checks both qualitative and quantitative components of the standards at the end of each increment, which may not be longer than one half of the educational program or one academic year, whichever is less.

Current § 668.16(e)(5) and (e)(6) require that a satisfactory academic policy provide specific procedures under which a student may appeal a determination that the student is not making satisfactory academic progress and specific procedures for a student to re-establish that the student is making satisfactory academic progress.

Current § 668.32 contains general student eligibility requirements. Current paragraph (f) of this section specifies that to be eligible to receive title IV, HEA program assistance, a student must maintain satisfactory progress in his or her course of study under the institution's published satisfactory progress standards. These standards must comply with the provisions of § 668.16(e) and, if applicable, § 668.34.

Current § 668.34 specifies that a student who is enrolled in a program of study that is longer than two academic years must, at the end of the second year, have a grade point average (GPA) of at least a “C” or its equivalent, or have academic standing that is consistent with the institution's graduation requirements. Under current § 668.34(c), an institution may find that a student is making satisfactory academic progress, even if the student does not meet these requirements, if the student's failure to meet these requirements is based upon the death of a relative of the student, an injury or illness of the student, or other special circumstances. Current § 668.34(e) requires an institution to review a student's academic progress at the end of each year, at a minimum.

Proposed regulations:

The proposed regulations would restructure the satisfactory academic progress requirements. Proposed § 668.16(e) (Standards of administrative capability) would be revised to include only the requirement that an institution establish, publish, and apply satisfactory academic progress standards that meet the requirements of § 668.34. The remainder of current § 668.16(e) would be moved to proposed § 668.34 such that it, alone, describes all of the required elements of a satisfactory academic progress policy as well as how an institution would implement such a policy. The references in paragraph § 668.32(e) would be updated to conform the section with the changes proposed to §§ 668.16(e) and 668.32.

Proposed § 668.34(a) would specify the elements an institution's satisfactory academic policy must contain to be considered a reasonable policy. Under the proposed regulations, institutions would continue to have flexibility in establishing their own policies; institutions that choose to measure satisfactory academic progress more frequently than at the minimum required intervals would have additional flexibility (

see

proposed § 668.34(a)(3)).

All of the policy elements in the current regulations under §§ 668.16(e) and 668.34 would be combined in proposed § 668.34. In addition, proposed § 668.34(a)(5) would make explicit the requirement that institutions specify the pace at which a student must progress through his or her educational program to ensure that the student will complete the program within the maximum timeframe, and provide for measurement of a student's pace at each evaluation. Under proposed § 668.34(a)(6), institutional policies would need to describe how a student's GPA and pace of completion are affected by transfers of credit from other institutions. This provision would also require institutions to count credit hours from another institution that are accepted toward a student's educational program as both attempted and completed hours.

Proposed § 668.34(a)(7) would provide that, except as permitted in § 668.34(c) and (d), the policy requires that, at the time of each evaluation, if

the student is not making satisfactory academic progress, the student is no longer eligible to receive title IV, HEA assistance.

Proposed § 668.34(a)(8) would require institutions that use “financial aid warning” and “financial aid probation” statuses (concepts that would be defined in proposed § 668.34(b)) in connection with satisfactory academic progress evaluations to describe these statuses and how they are used in their satisfactory academic progress policies. Proposed § 668.34(a)(8)(i) would specify that a student on financial aid warning may continue to receive assistance under the title IV, HEA programs for one payment period despite a determination that the student is not making satisfactory academic progress. Financial aid warning status may be assigned without an appeal or other action by the student. Proposed § 668.34(a)(8)(ii) would make clear that an institution with a satisfactory academic progress policy that includes the use of the financial aid probation status could require that a student on financial aid probation fulfill specific terms and conditions, such as taking a reduced course load or enrolling in specific courses.

Proposed § 668.34(a)(9) would require an institution that permits a student to appeal a determination that the student is not making satisfactory academic progress to describe the appeal process in its policy. The policy would need to contain specified elements. Proposed § 668.34(a)(9)(i) would require an institution to describe how a student may re-establish his or her eligibility to receive assistance under the title IV, HEA programs. Under proposed § 668.34(a)(9)(ii), a student would be permitted to file an appeal based on the death of a relative, an injury or illness of the student, or other special circumstances. Under proposed § 668.34(a)(9)(iii), a student would be required to submit, as part of the appeal, information regarding why the student failed to make satisfactory academic progress, and what has changed in the student's situation that would allow the student to demonstrate satisfactory academic progress at the next evaluation.

Proposed § 668.34(a)(10) would require the satisfactory academic progress policy of an institution that does not permit students to appeal a determination that they are not making satisfactory academic progress to describe how a student may regain eligibility for assistance under the title IV, HEA programs.

Proposed § 668.34(a)(11) would require that an institution's policy provide for notification to students of the results of an evaluation that impacts the student's eligibility for title IV, HEA program funds.

In proposed § 668.34(b), we would define several important terms that are used in this section:

We would define the term

appeal

as a process by which a student who is not meeting the institution's standards petitions the institution for reconsideration of the student's eligibility for title IV, HEA program funds.

The term

financial aid probation

would be defined as a status assigned by an institution to a student who fails to make satisfactory academic progress and who has appealed and has had eligibility for aid reinstated.

The term

financial aid warning

would be defined as a status assigned to a student who fails to make satisfactory academic progress at an institution that evaluates academic progress at the end of each payment period.

We would add a definition of the term

maximum timeframe,

which would be based entirely on the description of maximum timeframe in current § 668.16(e)(2)(ii).

Proposed § 668.34(c) and (d) would specify that an institution's policy may provide for disbursement of title IV, HEA program funds to a student who has not met an institution's satisfactory academic standards in certain circumstances.

Proposed § 668.34(c) would permit an institution that measures satisfactory academic progress at the end of each payment period to have a policy that would permit a student who is not making satisfactory academic progress to be placed automatically on financial aid warning, a newly defined term.

Finally, under proposed § 668.34(d), at an institution that measures satisfactory academic progress annually, or less frequently than at the end of each payment period, a student who has been determined not to be making satisfactory academic progress would be able to receive title IV, HEA program funds only after filing an appeal and meeting one of two conditions: (1) The institution has determined that the student should be able to meet satisfactory progress standards after the subsequent payment period, or (2) the institution develops an academic plan with the student that, if followed, will ensure that the student is able to meet the institution's satisfactory academic progress standards by a specific point in time.

Reasons:

Recent questions from institutions and reviews of institutional satisfactory academic progress policies have raised concerns about the effectiveness of institutions' satisfactory academic policies, even those that comply with the Department's current regulatory criteria. For example, it has become evident that the use of automatic probationary periods has resulted in some students receiving title IV, HEA aid for as long as 24 months even though they are not meeting the institution's satisfactory academic progress standards. Moreover, it is also clear that institutions use a variety of terms—warning, probation, amnesty—to describe situations in which a student is not making satisfactory academic progress, but nevertheless has been determined eligible to receive assistance under the title IV, HEA programs. Repeated uses of these statuses, or use of a combination of these statuses, applied sequentially, may lead to prolonged periods during which students who are not making satisfactory academic progress nevertheless continue to receive title IV, HEA program funds.

The proposed changes to §§ 668.16(e), 668.32, and 668.34 are designed to implement a more structured, comprehensive, and consistent approach to the development and implementation of institutional satisfactory progress policies.

During the discussions at the negotiated rulemaking sessions, the Department explained the problems it has identified and solicited information on current institutional policies and recommendations from the non-Federal negotiators on ways to amend the current regulations that would curtail abuses while retaining flexibility for institutions. The Department used this information in developing the proposed regulations.

In the following paragraphs, we describe the Department's rationale for the specific substantive changes proposed to the satisfactory academic progress regulations.

First we propose to expand the elements required for an institution's satisfactory academic progress policy to include a description and specific treatment of transfer credits, a description of financial aid warning and probationary statuses (if applicable), a requirement to notify students of the results of a satisfactory progress review that impacts their eligibility for title IV, HEA program assistance, specific information required for appeals (if the institution permits appeals), and if an institution does not permit appeals, how students may re-establish eligibility for title IV, HEA program funds. Having a clear understanding of an institution's satisfactory progress policy will help

students understand the institution's academic expectations and will increase the likelihood of their academic success.

We also propose to make changes to the regulatory language concerning the frequency with which an institution measures the satisfactory academic progress of its students. During negotiated rulemaking, several of the non-Federal negotiators stressed the importance of early intervention in helping students meet their educational goals. The Department agrees with this approach; however, because section 484(c) of the HEA requires institutions to evaluate a student's progress at the end of each academic year or the equivalent, the Department is limited in its ability to have institutions evaluate students' progress more frequently (for example, at the end of each payment period). To encourage institutions to evaluate a student's academic progress more frequently, the Department proposes regulatory language that would offer additional flexibility to institutions that measure satisfactory academic progress at the end of each payment period. Proposed § 668.34(c) would permit institutions that review student progress at the end of each payment period to place students on financial aid warning for one payment period, which would encourage institutions to provide additional support to students in a timely manner and would help students be successful.

We would define the term

financial aid warning

(as well as the term

financial aid probation

) in proposed § 668.34(b) to promote consistent application of these types of designations among institutions that use these designations in connection with their satisfactory academic progress reviews. The term

financial aid warning

would be defined as a status conferred automatically and without action by a student, while the term

financial aid probation

would be defined as a status conferred after a student has submitted an appeal that has been granted. The financial aid warning designation would be available only at an institution that measures satisfactory academic progress at the end of each payment period. Defining each status would help all institutions to clearly distinguish when a student may continue to receive title IV, HEA funds and under what conditions. By defining these terms to describe the eligibility of the student to receive future disbursements, we can help ensure that students are treated consistently and equitably regardless of the institution they attend.

We also would add some regulatory language to ensure that institutional satisfactory academic progress policies specify the circumstances under which a student may appeal a determination that the student is not making satisfactory academic progress and is not eligible to receive title IV, HEA funds for the subsequent term. The proposed regulations would not require institutions to permit students to appeal, but they would specify that students may appeal only under certain circumstances. Several non-Federal negotiators asserted that their institutions had established the practice of granting appeals only to students who could explain how the circumstances that had caused their academic problems had changed. These negotiators explained that in their experience, if the root problem was not addressed successfully, the student was just setting himself or herself up for failure the next term. These non-Federal negotiators made a compelling argument for this approach; therefore, we have incorporated it in proposed § 668.34(c)(8)(ii) (

i.e.,

the student must submit information regarding why the student failed to make satisfactory academic progress and what has changed in the student's situation that will allow the student to demonstrate satisfactory academic progress in the next evaluation).

There was also discussion during the negotiated rulemaking sessions regarding what aspect of failure to meet satisfactory academic progress standards a student could appeal. The non-Federal negotiators generally agreed that failure to meet both the qualitative and quantitative standards may be appealed under current regulations, and that this should be true under the proposed regulations as well. The Department agrees. There was also discussion about whether failure to meet the maximum timeframe has been subject to appeal in the past, and whether it would be permitted under the proposed regulations. Under the current regulations, a student can appeal his or her failure to complete his program in the maximum timeframe. The Department believes a student should continue to be able to appeal a determination that the student has failed or will fail to meet the maximum timeframe requirements. We note that the proposed regulations provide flexibility to institutions to help address the needs of a student who is likely to exceed the maximum timeframe. An institution could work with the student to develop an academic plan that would require the student to meet the institution's graduation requirements by a specific point in time.

Some non-Federal negotiators asked whether the proposed regulations would permit institutions to have satisfactory academic policies that provide for academic amnesty. One of the examples given was of an individual who had an unsuccessful academic career 10 years ago and now wants to reenroll. The Department's position is that in such a situation, it would be appropriate for the institution to require the individual to submit an appeal that explains the change in circumstances from when the student failed to make satisfactory academic progress 10 years ago. Under proposed § 668.34(d), an institution's satisfactory academic progress policy could provide for such students to submit an appeal and develop an academic plan with the institution that would specify milestones the student would be expected to meet. As in other situations where a student has had academic difficulty and been placed on financial aid probation, the institution would have the option of placing certain restrictions on the student, such as limiting the number of hours taken or specifying a certain sequence of courses.

We propose to require institutions that do not permit students to appeal a determination that they are not making satisfactory academic progress to inform students how they may re-establish eligibility. This regulatory provision would be consistent with the language in section 484(c)(2) of the HEA, which provides that a student who has failed to maintain satisfactory progress and, subsequent to that failure, has academic standing consistent with the requirements for graduation, as determined by the institution, may again be determined eligible for assistance under title IV, HEA programs.

Throughout the discussions during the negotiated rulemaking sessions, non-Federal negotiators raised questions about whether the statutory requirement that an institute review a student's academic progress at the end of each academic year or its equivalent is tied to the student's academic year, the award year, the calendar year, or the institution's defined academic year. It became apparent that most institutions that review student progress annually, review all students at a specific point in time, such as at the end of the spring term or spring payment period. The Department agrees that this is an appropriate and reasonable institutional policy for an institution that reviews academic progress annually.

Finally, there was some discussion during the negotiated rulemaking sessions about whether a student's work completed during a summer term is subject to evaluation. The Department's position is that any evaluations of satisfactory academic progress,

regardless of the frequency with which they are conducted, must include all work completed by the student since the last review. The Department welcomes comments as to the clarity of the proposed language in this regard.

Evaluating the Validity of High School Diplomas (§ 668.16(p))

Standards of Administrative Capability (§ 668.16(p))

Statute:

None.

Current Regulations:

The current regulations do not define the term “high school diploma” or otherwise include provisions regarding the evaluation of the validity of a student's high school diploma. While the term

recognized equivalent of a high school diploma

is defined in 34 CFR 600.2 (Definitions), the term “high school diploma” is not defined anywhere in the HEA or its implementing regulations. The current regulations do, however, refer to high school diplomas in the context of determining institutional eligibility as well as student eligibility for the title IV, HEA programs.

First, 34 CFR 600.4(a)(2) (Institutions of higher education) requires an institution of higher education participating in the Federal student aid programs to admit as regular students only individuals who have obtained a high school diploma or its recognized equivalent, or who are beyond the age of compulsory school attendance in the State in which the institution is located.

In order to be eligible to receive title IV, HEA aid, current § 668.32(e) (Student eligibility) requires a student to have a high school diploma or its recognized equivalent, have completed secondary school in a home school setting, or pass an independently administered examination approved by the Secretary.

Proposed Regulations:

Under proposed § 668.16(p), an institution would be required to develop and follow procedures to evaluate the validity of a student's high school completion if the institution or the Secretary has reason to believe that the high school diploma is not valid or was not obtained from an entity that provides secondary school education.

Reasons:

We propose adding paragraph (p) to § 668.16 to provide that it is the institution's responsibility to evaluate the validity of the diploma if either the institution or the Secretary believes that a closer examination of the diploma is warranted. This proposed change is designed to ensure that students who report having high school diplomas and obtain title IV, HEA aid in fact have valid high school diplomas. The language reflected in this proposed provision is also intended to address the Government Accountability Office recommendation raised in its August 17, 2009 report that the Secretary should provide institutions of higher education with information and guidance on determining the validity of high school diplomas for use in gaining access to Federal student aid.

During the negotiated rulemaking sessions, we initially proposed draft regulatory language that would have required institutions to evaluate the credentials of secondary schools for purposes of determining whether high school diplomas issued from the schools were valid. As part of this evaluation, institutions would have been required to maintain three listings of secondary schools (schools that are acceptable, schools that are unacceptable, and schools that require further evaluation) based on regulatory criteria for determining the acceptability of their credential for title IV, HEA program purposes.

Many non-Federal negotiators expressed concern over this proposed draft regulatory language. Several non-Federal negotiators stated that K-12 issues, including defining high school diploma, should be handled at the State level. Some non-Federal negotiators also objected to requiring institutions to research the legitimacy of the high school diploma a student presents and to maintain lists of secondary schools based on this research. They argued that these activities would be unduly burdensome. Instead, many non-Federal negotiators argued that the Department should assume responsibility for maintaining a centralized list of secondary schools that institutions could use to determine whether a student's high school diploma was valid.

Based on concerns raised by the non-Federal negotiators, the Department agreed to establish and maintain a list of secondary schools. We believe that such a solution moves us appropriately toward our goal of uncovering questionable high school diplomas, while imposing a minimal burden on institutions.

In furtherance of this approach, the Department has begun the process of adding two questions to the FAFSA for the 2011-2012 award year:

(1) What is the name of the secondary school or entity that provided the student's secondary school program of study?

(2) What is the State that awarded the student's high school diploma?

The Department intends to use the information it collects from students in response to these questions to help identify whether each student has a valid high school diploma. If, in response to these questions on the FAFSA, a student lists a secondary school or entity that does not match the list of secondary schools maintained by the Department, or if the student does not provide the name of the secondary school or entity or the State that issued the diploma, the Department may select the student's FAFSA for further review by the institution to determine if the student has a valid high school diploma before the student can receive any title IV, HEA aid. Therefore, in cases where the student is selected for review because the Secretary questions the validity of his or her high school diploma, institutions are expected to determine the validity of the high school diploma. Under proposed § 668.16(p), institutions also would be responsible for determining the validity of a high school diploma if the institution has reason to believe that the diploma is invalid or was not obtained from an entity that provides secondary school education. To determine the validity of a student's high school diploma, an institution would need to follow the procedures it develops to evaluate the validity of diplomas. These procedures could include, for example, obtaining a copy of the student's diploma.

We intend to provide more specific guidance to institutions on developing and following procedures for evaluating the validity of high school diplomas through the Federal Student Aid Handbook or through other means. This guidance will address such issues as what procedures an institution might use to determine the validity of a high school diploma.

A non-Federal negotiator expressed concern that the proposed regulations do not go far enough to address fraud committed at an institution. This negotiator suggested that the proposed regulations should be further modified to indicate that officials at an institution should be aware and held accountable for fraudulent activities committed at the institution. We did not accept this suggestion because the Department has other avenues to address fraudulent activities. We noted that the Department has successfully litigated cases where institutions are held responsible for regulatory violations of its employees.

We were able to reach tentative agreement on this issue.

Return of Title IV, HEA Program Funds (§§ 668.22(a), 668.22(b), and 668.22(f))

Treatment of Title IV, HEA Program Funds When a Student Withdraws From Term-Based Programs With Modules or Compressed Courses (§ 668.22(a) and (f))

Statute:

None.

Current Regulations:

In accordance with § 668.22, when a recipient of title IV, HEA aid withdraws from an institution, the institution must determine the amount of title IV, HEA aid that the student earned for the period the student attended. For term-based programs, a student is paid aid for each term. The regulations address the institution's and the student's responsibilities when a student does not finish the term (

i.e.,

withdraws from all courses in the term) and specifies how to calculate how much aid the student earned for attending part of the term prior to withdrawing. The regulations do not, however, specifically address the treatment of term-based programs, in which courses are less than the length of the term, under the return of title IV funds calculation. In Dear Colleague Letter GEN-00-24, published in December 2000, the Department established the policy that a student who completes only one module or compressed course, within a term in which he or she is expected to continue attendance in additional coursework, is not considered to have withdrawn under the return calculation.

Proposed Regulations:

The proposed changes to § 668.22(a)(2) would clarify when a student is considered to have withdrawn from a payment period or period of enrollment. In the case of a program that is measured in credit hours, the student would be considered to have withdrawn if he or she does not complete all the days in the payment period or period of enrollment that the student was scheduled to complete prior to withdrawing. In the case of a program that is measured in clock hours, the student would be considered to have withdrawn if he or she does not complete all of the clock hours in the payment period or period of enrollment that the student was scheduled to complete prior to withdrawing.

The proposed change to § 668.22(f)(2)(i) would clarify that, for credit hour programs, in calculating the percentage of the payment period or period of enrollment completed, it is necessary to take into account the total number of calendar days that the student was scheduled to complete prior to withdrawing without regard to any course completed by the student that is less than the length of the term.

These proposed regulations would affect all programs with courses that are less than the length of a term, including, for example, a semester-based program that has a summer nonstandard term with two consecutive six-week sessions within the term.

Reasons:

The Department proposes these changes to ensure more equitable treatment between students who withdraw from programs that are measured in credit hours, regardless of whether those programs span the full length of the term, or are programs with modules or compressed courses.

Under the guidance provided in Dear Colleague Letter GEN-00-24, we have equated completing one compressed course or module with completing one course taken over the span of the term. Under this guidance, a student who was scheduled to take several modules or compressed courses in a term but dropped out after completing only one course (for example, a 5-week course in a 15-week term) was not viewed as having withdrawn from the term. Accordingly, while we required an institution to recalculate the student's Federal Pell Grant payment as a result of any reduction in enrollment status under § 690.80(b)(2)(ii) when the student did not begin attendance in subsequent classes in the term, we did not require the school to perform a return calculation under § 668.22.

Based on this guidance, a student who completed only a one- or two-week course in a 15-week term and then ceased attendance for the term would NOT be considered to have withdrawn from the term under the return of title IV requirements. The institution or student or both would keep aid intended for a 15-week period of time when the student only attended the term for as little as one week.

For a number of reasons, we have reconsidered our prior guidance. First, this change would provide a more equitable treatment of students who are attending for comparable periods of time during a semester because a student's aid is based on, and intended to cover, in whole or in part, not only tuition and fees for the term, but the student's living expenses for the term. Title IV, HEA aid is provided for the entire term, and section 484B of the HEA provides that these same amounts are earned on a prorata basis for the first 60 percent of the term. Second, a student who only attends one module or compressed course and then ceases to be enrolled without attending other modules or compressed courses he or she is scheduled to attend in the term is withdrawing before completing the term, and the portion of the term completed should be considered to determine how much of the title IV, HEA aid the student earned. Third, the prior guidance has resulted in abusive cases where institutions have created term-based programs with a very short initial module or course of as little as one week in length so that institutions can keep all of the title IV, HEA aid for students who withdraw after that point.

During the negotiations, the non-Federal negotiators raised concerns about the proposed approach, believing that it would unfairly penalize students. The negotiators also raised concerns about the possibility of additional burden from a significant increase in the number of return to title IV funds calculations that an institution might have to perform, as well as about the inability of many institutions to track the number of students who are taking these types of compressed courses.

The non-Federal negotiators presented three options to address their concerns by limiting the applicability of the proposed treatment based upon the relative amounts of the modules that students completed before withdrawing. The first option was to exclude students who completed the same enrollment status for which they were originally paid title IV, HEA aid. The second option suggested by the non-Federal negotiators was to exclude students who completed 50 percent of the credits that were awarded and 50 percent of the projected enrollment time. The third option was to only apply the proposed regulations to compressed coursework that was shorter than a “to-be-determined” percent of the payment period; the non-Federal negotiators did not reach agreement as to what the appropriate percentage should be.

We appreciate the concerns of the non-Federal negotiators, but we do not agree with the proposed alternatives. By recognizing that students who are taking module classes are expected to earn their title IV, HEA aid over time on a prorata basis, those students are subject to those requirements up to the point where they complete more than 60 percent of the period. We continue to believe that the proposed changes are necessary to ensure the equitable application of these provisions for all students, regardless of the academic calendar of the programs that students are attending.

Withdrawal Date for a Student Who Withdraws From an Institution That Is Required To Take Attendance (§ 668.22(b))

Statute:

Section 484B(c)(1) of the HEA requires institutions and students to return unearned portions of title IV,

HEA grant or loan assistance (other than funds received under the Federal Work-Study Program) when a student withdraws during a payment period or period of enrollment. The statute defines the term the “day the student withdrew” differently for institutions that are required to take attendance and for those not required to take attendance. For an institution that is required to take attendance, the “day the student withdrew” is determined by the institution from its attendance records. For an institution that is not required to take attendance, the “day the student withdrew” is the date that the institution determines that (1) the student began the withdrawal process prescribed by the institution; (2) the student otherwise provided official notification to the institution of the intent to withdraw; or (3) in the case of a student who does not begin the withdrawal process or otherwise notify the institution of the intent to withdraw, the date that is the midpoint of the payment period for which title IV, HEA program funds were disbursed or a later date documented by the institution.

Current regulations:

Section 668.22(b)(3) provides the requirements for determining whether an institution is required to take attendance for an educational program. Under § 668.22(b)(3), an institution is required to take attendance if an outside entity (such as the institution's accrediting agency or a State agency) requires that the institution take attendance, as determined by the entity. In this case, the student's withdrawal date is the last date of academic attendance, as determined by the institution from its attendance records.

Proposed regulations:

The proposed revisions to § 668.22(b)(3) would clarify the programs for which institutions are required to take attendance. An institution would be required to take attendance if an outside entity or the institution itself has a requirement that its instructors take attendance, or if the institution or an outside entity has a requirement that can only be met by taking attendance or a comparable process, including, but not limited to, requiring that students in a program demonstrate attendance in the classes of that program, or a portion of that program. In addition, the proposed regulations would remove the provisions in § 668.22(b)(3)(i) and (ii) that it is the entity that determines whether there is a requirement to take attendance since the new provision looks at the substance of the information being collected rather than the characterization of that information or process by the entity.

Proposed § 668.22(b)(3)(ii) would clarify that if an institution is required to take attendance by an outside entity or requires its instructors to take attendance for only some of its student, then it must use its attendance records to determine a withdrawal date for those students.

Proposed § 668.22(b)(3)(iii) would incorporate in the regulations current nonregulatory guidance regarding an institution that is required to take attendance, or requires that attendance be taken, for a limited period of time, such as for the first two weeks of courses or until a “census date.” These proposed provisions would specify that an institution must use its attendance records to determine a withdrawal date for a student who withdraws during that limited period. A student in attendance at the end of that limited period who subsequently stops attending during the payment period would be treated as a student for whom the institution was not required to take attendance.

Proposed § 668.22(b)(3)(iv) would also incorporate in the regulations current nonregulatory guidance that if an institution is required to take attendance, or requires that attendance be taken, on a specified date to meet a census reporting requirement, the institution is not considered to take attendance.

Reasons:

These proposed changes would provide a more accurate determination of how much title IV, HEA aid a student earned who withdrew from an institution during a period when an instructor or other institution employee or procedure was required to monitor student attendance. The non-Federal negotiators had a number of concerns with respect to our proposals regarding whether an institution is required to take attendance and regarding the proposed requirement that these institutions must use their records in determining a student's withdrawal date in a return to title IV calculation. The non-Federal negotiators pointed out that having to determine a more exact date of withdrawal, as opposed to assuming a 50 percent point, would be more burdensome. They also noted that attendance does not necessarily accurately reflect academic activity, and also stated that they cannot ensure that faculty members will keep accurate and up-to-date attendance records. While we can appreciate these concerns, we continue to believe that the best date available should be used to determine the amount of time that a student was in attendance. Using the best date available would support the fair treatment of students and avoid the potential for fraud and abuse of Federal funds.

Proposed § 668.22(b)(3)(iii) would address instances where institutions take attendance for the period of time between the beginning of classes and the deadline for adding or dropping classes. Where a student withdraws and an institution's records show that the student stopped attending during that period, that is the best information available for determining how much aid the student earned. This proposed regulation reflects current guidance about whether such institutions were viewed as being required to take attendance for this limited period, and this change in the text will help clarify that requirement. The non-Federal negotiators expressed concern that students who appear to have stopped attending during a census period may have subsequently attended other classes before withdrawing. Institutions have the option under § 668.22(c)(3) to use a student's participation in an academically related activity to show that the student continued to be enrolled to a point where the institution was no longer required to take attendance.

Proposed § 668.22(b)(3)(iv) also would incorporate in the regulations our current nonregulatory guidance that an institution is not required to use attendance records for return of title IV, HEA aid purposes if it is only required to take attendance on a specific date. We would welcome comments on whether this proposed regulation should be further clarified to specify that it applies only for one calendar date, or, for one class that meets during a small range of dates, for example, for one day for any class that met during a particular week, rather than “a specific date.”

Verification and Updating of Student Aid Application Information (Subpart E of Part 668)

Application Information

Current subpart E of part 668 governs the verification and updating of the FAFSA information used to calculate an applicant's Expected Family Contribution (EFC) for purposes of determining an applicant's need for student financial assistance under title IV of the HEA. In general, financial need is defined as the difference between the applicant's cost of attendance (COA) and EFC (

see

section 471 of the HEA). Based on the need analysis formula established in part F of the HEA, the EFC is the amount that an applicant and the applicant's family can reasonably be expected to contribute toward the

applicant's cost of attendance at an institution of higher education.

These proposed regulations would implement statutory changes made to part F of the HEA by the HEOA and further align these regulations with enhancements that have been made to the Federal Student Aid (FSA) application processing system. In the following paragraphs we describe the substantive changes we propose to make to subpart E of part 668 and the reasons for the changes. These proposed changes include—

• Revising the subpart E heading to reflect that an applicant and an institution have updating responsibilities in addition to completing specific verification responsibilities;

• Removing, redefining, and adding definitions;

• Codifying current policy that an institution must complete verification before exercising any authority under professional judgment;

• Removing the 30 percent cap on the number of applicants selected by the Secretary that an institution must verify in order to move towards a more targeted verification system;

• Restructuring the exclusions from verification section;

• Requiring any changes to a student's dependency status be updated throughout the award year, including changes resulting from a change in the student's marital status;

• Updating the section heading under § 668.56 and replacing the five items that an institution currently is required to verify for all applicants selected for verification with a targeted verification process that is specific to each applicant selected as described in a

Federal Register

notice published annually by the Secretary;

• Codifying the Department's Internal Revenue Service (IRS) Data Retrieval Process, which allows an applicant to import income and other data from the IRS into an online FAFSA;

• Updating the IRS deadline granted for extension filers;

• Clarifying when an institution is required to reverify the adjusted gross income (AGI) and taxes paid by an applicant and his or her spouse or parents for individuals with an IRS tax filing extension;

• Expanding the information a tax preparer must provide on the copy of the filer's return that has been signed by the preparer;

• Describing in an annual

Federal Register

notice other documentation that an applicant must provide for the information that is selected for verification;

• Allowing interim disbursements when changes to an applicant's FAFSA information would not change the amount the applicant would receive under title IV, HEA;

• Requiring all corrections to be submitted to the Secretary for reprocessing;

• Removing all allowable tolerances;

• Applying the cash management procedures for proceeds received from a Subsidized Stafford Loan or Direct Subsidized Loan on behalf of an applicant; and

• Describing the liability to an institution that disburses title IV, HEA aid to an applicant without receiving a corrected Student Aid Report (SAR) or Institutional Student Information Record (ISIR) within an established deadline.

Tentative agreement was reached on these proposed regulations during the negotiated rulemaking.

General (§ 668.51)

Statute:

Section 487(a)(5) of the HEA provides that an institution may participate in a title IV, HEA program if the institution enters into a written program participation agreement with the Secretary. A program participation agreement conditions the initial and continued participation of an eligible institution in any title IV, HEA program upon compliance with the provisions of part 668, the individual program regulations, and any additional conditions specified in the program participation agreement that the Secretary requires the institution to meet.

Current Regulations:

Current § 668.51(a) describes the scope and purpose of subpart E of part 668. Current § 668.51(b) requires that if the Secretary or an institution requests documents or information from an applicant under this subpart, the applicant must provide the specified documents or information. Under current § 668.51(c), institutions participating in the Federal Stafford Loan Program that are not located in a State are exempted from the provisions of subpart E of part 668.

Proposed Regulations:

Proposed § 668.51 would remain largely unchanged from current § 668.51. We propose to revise § 668.51(a) to refer to “student financial assistance under the subsidized student financial assistance programs” rather than to “student financial assistance in connection with the calculation of their expected family contributions (EFC) for the Federal Pell Grant, ACG, National SMART Grant, campus-based, Federal Stafford Loan, Federal Direct Stafford/Ford Loan programs.” In addition, in paragraph (c) of proposed § 668.51, we would refer to “participating institutions” rather than “institutions participating in the Federal Stafford Loan Program.”

Reasons:

Throughout the proposed regulations, including in this proposed § 668.51, we propose to remove all the program names and regulatory citations for the ACG and National SMART Grant programs because the authority to make grants under these programs will expire at the end of the 2010-2011 award year, before these proposed regulations become effective. In making this change, we also determined that it would be appropriate to refer to the title IV, HEA programs affected by this subpart more generally as “subsidized student financial assistance programs” and “unsubsidized student financial assistance programs,” as appropriate. We would define these terms in proposed § 668.52.

Definitions (§ 668.52)

Statute:

In 2008, the HEOA amended the definition of the term

total income

in section 480(a) of the HEA to provide that, when calculating total income, the Secretary may use income and other data from the second preceding tax year to carry out the FAFSA simplification efforts used for the estimation and determination of financial aid eligibility. This provision also allows the sharing of data between the IRS and the Secretary with the consent of the taxpayer as discussed later under proposed § 668.57.

Current Regulations:

Current § 668.52 includes definitions of key terms used in this subpart including

base year, edits, institutional student information record,

and

student aid application.

Proposed Regulations:

Proposed § 668.52 would (1) remove the definitions of

base year, edits,

and

student aid application;

(2) revise the definition for

institutional student information record (ISIR);

and (3) add definitions for the terms

Free Application for Federal Student Aid (FAFSA), specified year, Student Aid Report (SAR), subsidized student financial assistance programs,

and

unsubsidized student financial assistance programs.

Reasons:

We propose to delete the definitions of the terms

base year, edits,

and

student aid application

because these terms would no longer be used in these proposed regulations.

We propose to define the term

Free Application for Federal Student Aid (FAFSA)

and to use this term “FAFSA information”—rather than application—throughout subpart E of part 668 in order to clarify that the information we

seek to verify includes not only the information provided in the initial FAFSA form submitted by an applicant, but also any subsequent transactions sent to the Secretary for processing that originated from the information reported on the initial FAFSA (

i.e.,

corrections).

We propose to revise the definition of the term

institutional student information record (ISIR)

to make it consistent with the definition of ISIR in 34 CFR 690.2(c) of the Federal Pell Grant Program regulations. By establishing this definition in this subpart, we would make the term generally applicable to all title IV, HEA programs that are subject to the requirements in subpart E of part 668.

We propose to define the term

specified year

to assist in the implementation of section 480(a) of the HEA, which gives the Secretary the option of using income and other data from the second preceding tax year to calculate the statutorily defined EFC that determines the applicant's eligibility for, and amount of, Federal aid. While the Department does not plan to exercise this option for the 2011-2012 award year, we believe it is appropriate to modify the regulations at this time to allow for this flexibility in the future.

Under the current process for completing the FAFSA, an applicant, the parents of a dependent applicant, or the spouse of an applicant are required to use base year income and tax information to respond to questions used to calculate the statutorily defined EFC that determines the applicant's eligibility for, and amount of, Federal aid

i.e.,

grants, loans and work-study assistance. Under the new flexibility offered to the Secretary in section 480(a) of the HEA, applicants could use income and other data from the second preceding tax year—rather than only the base year. For example, an applicant completing the FAFSA for the 2013-2014 award year could use income and other related data pertaining to January 1, 2011-December 31, 2011 (the second preceding tax year) in addition to the data the Secretary currently collects from the base year (January 1, 2012-December 31, 2012).

Allowing the use of data from an earlier tax year would help with the significant calendar difference between when an applicant may file a FAFSA and when the data is available from the filed income tax return. This is because the FAFSA application process begins on January 1, and it is unlikely that tax return information would be available for the majority of financial aid applicants who complete their FAFSA in the weeks, and in some cases months, before the general tax-filing deadline of April 15. The proposed definition of

specified year

would allow the Department to use a single term that, depending on the context in which it is used, means (1) the base year (

i.e.,

the calendar year preceding the first calendar year of an award year) or (2) the year before the base year.

We propose to add a definition of the term

Student Aid Report (SAR)

and simplify the repeated references to it in these proposed regulations.

We propose to add definitions for the terms

subsidized student financial assistance programs

and

unsubsidized student financial assistance programs

to group similar title IV, HEA programs together (

i.e.,

subsidized programs versus unsubsidized programs). By doing so, we would simplify the repeated references to the numerous affected programs in these proposed regulations.

Policies and Procedures—Professional Judgment (§ 668.53(c))

Statute:

Section 479A of the HEA specifically gives the financial aid administrator the authority to use professional judgment to make adjustments to the cost of attendance or to the values of the items used in calculating the EFC to reflect a student's special circumstances.

Current Regulations:

Current § 668.53 requires institutions to establish and use written policies and procedures for verifying information contained in the FAFSA. Current § 668.53(a)(1) through (5) describes the items that must be included in the policies and procedures. Current § 668.53(b) requires that an institution's procedures provide that the institution furnish to each application selected for verification an explanation of the documentation needed to satisfy the verif

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