State Postsecondary Review Program; Final Rule DEPARTMENT OF EDUCATION

SUMMARY: The Secretary publishes final regulations to implement the

State Postsecondary Review Program (SPRP) authorized under title IV,

part H, subpart 1 of the Higher Education Act of 1965, as amended

(HEA). Under the SPRP, the Secretary enters into an agreement with a

State under which the State designates a State postsecondary review

entry (SPRE) to be responsible for conducting or coordinating reviews

of institutions of higher education referred to the State by the

Secretary under specific statutory provisions. The purpose of the SPRE

reviews is to determine whether those institutions should continue to

participate in the student financial assistance programs authorized

under Title IV of the HEA (Title IV, HEA programs). The SPRE reviews

institutions on the basis of State standards developed in consultation

with institutions located in the State. The Secretary reimburses SPREs

for costs they incur under the SPRP from appropriated funds.

EFFECTIVE DATE: These regulations take effect July 1, 1994, with the

exception of Secs. 667.3, 667.4, 667.8, 667.12, 667.15, 667.21, 667.22,

and 667.26. Sections 667.3, 667.4, 667.8, 667.12, 667.15, 667.21,

667.22, and 667.26 will become effective after the information

collection requirements contained in those sections have been submitted

by the Department of Education and approved by the Office of Management

and Budget under the Paperwork Reduction Act of 1980. If you want to

know the effective date of these regulations, call or write the

Department of Education contact person. A document announcing the

effective date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

John Kolotos, U.S. Department of Education, 400 Maryland Avenue SW.,

room 4318, ROB-3, Washington, DC 20202-5244. Telephone: (202) 708-7888.

Individuals who use a telecommunications device for the deaf (TDD) may

call the Federal Information Relay Service (FIRS) at 1-800-877-8339

between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION: These regulations implement the changes made

to the HEA by the Higher Education Amendments of 1992 (Pub. L. 102-325)

and the Higher Education Technical Amendments of 1993 (Pub. L. 103-

208).

On January 24, 1994 the Secretary published a notice of proposed

rulemaking (NPRM) for this program in the Federal Register (59 FR

3604). The NPRM included a discussion of the major issues surrounding

the proposed changes that will not be repeated here. The following list

summarizes those issues and identifies the pages of the preamble to the

NPRM on which a discussion of those issues may be found:

Statement of the scope and purpose of the SPRP (page 3606);

Definitions of terms used in this part, including education and

general expenditures, professional program, and vocational program

(page 3606);

Elements contained in the agreement between a State and the

Secretary (pages 3607-3608);

Criteria the Secretary uses to refer institutions to a SPRE for

review (page 3608);

SPRE selection of institutions for review (pages 3608-3609);

Notice to SPRE of Federal actions (page 3609);

Situations in which an institution has locations in more than one

State (page 3609);

Allotment formula to determine each State's annual allotment of

funds (page 3609);

Procedures under which a State applies for funds (pages 3609-3610);

Procedures under which the Secretary approves a State's application

for funds (pages 3610-3611);

Allowable costs and activities reimbursable under the SPRP (page

3611);

State review standards for referred institutions (pages 3611-3613);

Procedures for the disapproval by the Secretary of State review

standards (pages 3613-3614);

Procedures regarding SPRE reviews of referred institutions (page

3614);

Peer reviews of institutions (pages 3614-3615);

Procedures that a SPRE must follow to effect the termination of an

institution's participation in the Title IV, HEA programs (page 3615);

and

Due process requirements (page 3615).

In order to approve a postsecondary education institution to

participate in the Title IV, HEA programs and many other Federal

programs, the Secretary must determine, in part, that the institution

satisfies the statutory definition of an ``institution of higher

education.'' Under the HEA, one element of that definition requires an

eligible institution of higher education to be accredited or

preaccredited by an accrediting agency recognized by the Secretary as a

reliable authority as to the quality of the education or training

provided by the institution. Another element requires an eligible

institution to be legally authorized to provide an education program

beyond the secondary level in the State in which it is located. In

addition, to participate in the Title IV, HEA programs, the institution

must be certified by the Secretary as administratively capable and

financially responsible. Thus, the HEA provides the framework for a

shared responsibility among accrediting agencies, States, and the

Federal government to ensure that the ``gate'' to Title IV, HEA

programs is opened only to those institutions that provide students

with quality education or training worth the time, energy, and money

they invest in it. The three ``gatekeepers'' sharing this

responsibility have traditionally been referred to as ``the triad.''

While the concept of a triad of entities responsible for

gatekeeping has had a long history, originating in 1952, the Higher

Education Amendments of 1992, Pub. L. 102-325, significantly increased

the gatekeeping responsibilities of each member of the triad.

Specifically, Congress amended the HEA to provide for a new part H of

Title IV entitled ``Program Integrity Triad.'' Under the new part H,

the requirements that accrediting bodies must meet if they are to be

recognized by the Secretary as ``gatekeepers'' for Title IV are

specified in detail. Part H also provides a new oversight

responsibility for States: the State Postsecondary Review Program.

Altogether, part H establishes a set of responsibilities for

accrediting agencies, States, and the Secretary that creates a stronger

and more coordinated evaluation of institutions that participate, or

wish to participate, in the Title IV, HEA programs.

The Secretary recognizes that the approach to significantly

increased gatekeeping activity outlined in the statute for the three

members of the triad is a new one. This approach will require

leadership in both implementation and evaluation if it is to achieve

the effectiveness that Congress intended. The Secretary will take steps

to assure that the various responsibilities of the triad members are

carried out in a manner that, in fact, results in the identification of

institutions that should not be eligible to participate in the Title

IV, HEA programs, on the basis of either the quality of education they

offer or their inability to handle program funds. At the same time, the

Secretary is committed to carrying out the responsibility for

coordinating the activities of the triad members that are inherent in

the statute in a manner that causes the least burden to institutions

participating in the Title IV, HEA programs.

To these ends, the Secretary is committed to effective management

of the gatekeeping function. The Secretary will review carefully the

applications on accrediting bodies and the standards and operating

plans proposed by State Postsecondary Review Entities (SPREs) under the

State Postsecondary Review Program to insure that they meet the

requirements of the statute and these regulations and will enable these

triad agencies to fulfill their statutory purposes. The Secretary will

also place a priority on the completion of the ``Postsecondary

Education Participation System,'' the Department's new integrated data

base, which will contain the information that the Secretary generates

in the course of the Secretary's oversight of institutions

participating in Title IV, HEA programs. The Secretary will use the

data base to inform accrediting bodies and SPREs of actions taken by

the Secretary so that they may in turn carry out their

responsibilities. This expanded data base is also critical to the

Secretary's effective selection of institutions for program review.

Monitoring the results of the gatekeeping process is a very

important key to effective management. The Secretary will evaluate the

activities of accrediting agencies, SPREs, and the Department to

determine their effectiveness in improving the integrity of

institutions participating in Title IV programs and will take such

steps as may be indicated to improve the results. Finally, as provided

in the statute, the Secretary will seek the advice and counsel of the

National Advisory Committee on Institutional Quality and Integrity in

evaluating the effectiveness of the triad.

The Secretary believes that the approach best suited to achieving

the objectives of the statute is a complementary one, with each member

of the triad focusing its evaluation on its obligations within the

context of the HEA. Thus, the focus for accrediting agencies is the

quality of education or training provided by the institutions or

programs they accredit. States, in addition to providing the legal

authority to operate within the state required for participation in the

Title IV, HEA programs, will review institutions that meet certain

statutory review criteria related to institutional performance in the

Title IV, HEA programs. The focus of the Secretary's evaluation of

institutions is on the administrative and financial capacity of those

institutions to participate in the Title IV, HEA programs.

While the functions and responsibilities of each of the triad

members are generally different, the statute does require, in some

instances, that all members of the triad evaluate similar areas. For

the most part, the principle of complementary functions will lead to

the members evaluating those same areas from different perspectives for

different purposes. For example, all three of the triad members are

required to examine the finances of an institution. If each looks at

financial strength from a perspective complementary to that of the

others, accrediting agencies would focus principally on the capacity of

the institution to continue to offer programs at a level of quality

sufficient to meet accrediting agency standards and to fulfill the

institution's mission over a 5-10 year period of accreditation. The

emphasis of a review by a SPRE would be on whether or not the

institution possesses the full range of resources needed to serve

students currently attending the institution. The Secretary's

responsibilities focus on the institution's finance in light of its

ability to provide the services described in its official publications

and statements, to provide the administrative resources necessary to

comply with its Title IV, HEA program responsibilities, and to meet all

of its financial obligations, including, but not limited to, refunds of

institutional charges and repayments to the Secretary for liabilities

and debts incurred in programs administered by the Secretary.

Despite the Secretary's efforts to encourage complementary

functions for each of the triad members, it is theoretically possible

that, in some instances, an institution could be subject to three

different standards regulating the same area of operation. For this

reason, where a Title IV standard has been promulgated at the Federal

level, the Secretary expects accrediting agencies and States to take

this into account in establishing their own standards to insure that

varying standards do not pose an unnecessary burden on institutions. It

is also important that accrediting agencies and States not impose any

standard that is weaker than a comparable Title IV, HEA program

standard. The Secretary believes coordination of this is a federal

responsibility.

In view of the complementary approach to the functions of the triad

members, the Secretary believes, for example, that institutions should

not have to develop different methodologies to provide data that the

three members of the triad may require. The Secretary also believes

that, to the extent feasible, any other requests for data about the

institution, its students, or its graduates should rely on information

already in the institution's possession. To that end, the Secretary

expects accrediting agencies and States either to accept student data

based on the methodology that will be specified in the regulations

governing ``Student Right to Know,'' also mandated by the Higher

Education Amendments of 1992, or, where the institution may have other

methodologies for calculating data, such as a system designed to

provide data to a State higher education commission or other State

agency, to accept data in the format already being used by the

institution. Similarly, the Secretary expects accrediting agencies and

SPREs to use the audited financial statements institutions are now

required to provide to the Secretary on an annual basis to the extent

those statements are compatible with the nature of the reviews

conducted under their respective standards.

The Secretary also recognizes that other Federal agencies, such as

the Department of Labor and the Veterans Administration, also regulate

institutions in some areas that are similar to those included in part

H. The suggestion has been made that the Secretary should promulgate

Federal standards in the areas of overlap so that institutions would

not be subject to varying standards developed by other Federal agencies

and the triad members. However, the Secretary interprets part H as

permitting States and accrediting agencies to establish their own

standards, as opposed to using a Federal standard, and also believes

that this is the most effective approach. In addition, it is not clear

how the requirements of the different agencies are capatible with the

requirements of part H. The purposes of these programs administered by

other agencies may be very different. As a result, the Secretary has

not pursued this alternative. The Secretary does believe that it would

be useful to explore how the varying requirements of other Federal

agencies that are similar to those of part H might be coordinated to

reduce any burden on institutions and will initiate such exploration.

The Secretary believes that, where possible, data developed at the

national level should be made available to institutions, as well as to

States and accrediting agencies to assist them in carrying out their

responsibilities under part H. In particular, data concerning labor

markets and compensation for specific fields and information concerning

graduation and withdrawal rates at various types of institutions may be

helpful to both triad members and institutions. The Secretary will

facilitate the development of this type of information and, where

possible under the auspices of the Department, will coordinate the

development of data that will be helpful to institutions and the triad.

Finally, as part of the commitment to providing leadership to the

triad, the Secretary will convene representatives of the triad members

and institutions to exchange information about the gatekeeping process

and to discuss how the triad is functioning, both in identifying

institutions whose performance is questionable and in reporting

requirements that have proven to be unreasonably burdensome. The

Secretary invites comments concerning the functioning of the triad, as

it is implemented through these and other regulations governed by part

H. The Secretary will seek improvement, where possible, within existing

regulations and will propose modifications to regulations and to the

statute itself if experience indicates those changes are both necessary

to achieve effective gatekeeping, with minimal burden, and compatible

with the need to maintain, and assure the public of, the integrity of

the Title IV, HEA programs.

The following is a summary of the significant changes from the

NPRM:

Section 667.1 Scope and purpose. Section 667.1(a)(1) has been

revised to clarify that the purpose of the SPRP is to reduce fraud and

abuse in the Title IV, HEA programs. This section also has been revised

to clarify that under the SPRP a State's standards apply only to

referred institutions and a State may review only referred institutions

under those standards.

Section 667.2 Definitions. The proposed definition of professional

program has been revised to maintain a clear distinction between the

terms vocational program and professional program in view of the

changes made to the definition of vocational program. A professional

program is therefore an undergraduate or graduate educational program

that prepares individuals for an occupation, if that occupation (1) is

listed in a Federal classification manual, (2) requires at least a

bachelor's degree to qualify for entry; (3) involves the independent

practice or application of a defined or organized body of competencies

that is unique to the occupation; and (4) is formally recognized and

regulated under a national or State licensure, accreditation, or permit

system. Also, the definition is expanded to allow a SPRE to use its

State's statutory definition of the term ``professional program.''

The proposed definition of vocational program has been revised to

be consistent with that used in IPEDS. A vocational program is

therefore defined as an educational program that is below the

bachelor's level and is designed to prepare individuals with skills and

training for employment in a specific trade, occupation, or profession

related to that educational program.

Section 667.3 State agreement. Paragraph (b)(3) of this section

has been revised to clarify the type of records that a SPRE must keep

or have access to, and the type of information that must be provided to

the Secretary. Thus, paragraph (b)(3)(iii) has been revised to indicate

that a SPRE must keep or have access to records of referred

institutions, related to activities under this part, and must provide

requested information to the Secretary for financial or compliance

audits of referred institutions. Paragraph (b)(3)(iv) has been added to

indicate that the SPRE must keep or have access to records relating to

its activities under this part, and must provide such information to

the Secretary upon request when the Secretary evaluates the SPRE's

performance under the SPRP.

Section 667.4 State postsecondary review entity. This section has

been revised to make clear that the SPRP does not authorize a SPRE to

(1) grant State authorization to provide postsecondary education to an

institution, or (2) require nonreferred institutions to comply with the

standards established under Sec. 667.21.

Section 667.5 Criteria the Secretary uses to refer institutions to

a SPRE for review. The criterion in paragraph (b)(11) of this section

has been revised to limit complaints the Secretary considers in

determining whether to refer an institution to a SPRE for review to

student complaints. This section has also been revised to allow an

institution an opportunity to challenge the accuracy of the information

that the Department uses to refer the institution to a SPRE for review

before the Department refers that institution to a SPRE.

Section 667.6 SPRE selection of institutions for review. This

section has been revised to allow an institution that has not been

referred by the Secretary an opportunity to challenge the accuracy of

the information that a SPRE uses to select the institution for review.

Section 667.8 Notice to nationally recognized accrediting agencies

of SPRE actions. A new section is added to these final regulations to

require a SPRE to notify the appropriate nationally recognized

accrediting agency before the SPRE conducts a review of an institution

the agency accredits. The SPRE is also required to notify that

accrediting agency of significant and relevant decisions, reports, or

actions taken as a result of the review.

Section 667.21 State review standards. The standard requiring a

State to evaluate whether the tuition and fees that are charged a

student for an educational program are reasonable given the expected

amount of money that the student can earn upon completion of the

program is revised to apply only to vocational programs.

Section 667.23 SPRE reviews of referred institutions. Paragraph

(d)(2) has been added to allow a SPRE, if an institution presents

compelling evidence that its failure to satisfy a SPRE standard does

not warrant further SPRE action, to forego any further action.

This section has been revised to require a SPRE to make available

information regarding its priority system for selecting institutions to

review.

Section 667.24 Peer reviews of institutions. This section has been

revised to require a State to apply minimum, specified criteria to

determine whether a peer review system other than a nationally

recognized accrediting agency has demonstrated competence in assessing

educational programs.

Section 667.26 Due process requirements. This section has been

revised to require a State's due process procedures to specify a

minimum time within which an institution may appeal an adverse action,

and to designate an impartial hearing official to consider certain

appeals by institutions.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM,

approximately 1500 parties submitted comments on the proposed

regulations. An analysis of the comments and of the changes in the

regulations since publication of the NPRM is published as an appendix

to these final regulations. Substantive issues are discussed under the

section of the regulations to which they pertain.

Technical and other minor changes--and suggested changes the

Secretary is not legally authorized to make under the applicable

statutory authority--are not addressed.

Executive Order 12866

These final regulations have been reviewed in accordance with

Executive Order 12866. Under the terms of the order the Secretary has

assessed the potential costs and benefits of this regulatory action.

The potential costs associated with the final regulations are those

resulting from statutory requirements and those determined by the

Secretary to be necessary for administering this program effectively

and efficiently. Burdens specifically associated with information

collection requirements, if any, were identified in the preamble to the

NPRM under the heading

Paperwork Reduction Act of 1980.

Sections 667.3, 667.4, 667.8, 667.12, 667.15, 667.21, 667.22, and

667.26 contain information collection requirements. As required by the

Paperwork Reduction Act of 1980, the Department of Education will

submit a copy of these sections to the Office of Management and Budget

(OMB) for its review. (44 U.S.C. 3504(h)). These regulations contain

records that will affect States and State postsecondary review

entities. An estimate of the total annual reporting and recordkeeping

burden that will result from the collection of the information is 2000

hours per response for 57 respondents for a total burden of 114,000

burden hours for this package.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

Information and Regulatory Affairs, OMB, room 3002, New Executive

Office Building, Washington, DC 20503; Attention: Daniel J. Chenok.

Comments on this burden estimate should be submitted by May 31, 1994.

Assessment of Educational Impact

In the notice of proposed rulemaking, the Secretary requested

comments on whether the proposed regulations would require transmission

of information that is being gathered by or is available from any other

agency or authority of the United States.

Based on the response to the proposed rules and on its own review,

the Department has determined that the regulations in this document do

not require transmission of information that is being gathered by or is

available from any other agency or authority of the United States.

List of Subjects in 34 CFR Part 667

Administrative practice and procedure, Colleges and universities,

Education, Grant programs--education, Loan programs--education,

Reporting and recordkeeping requirements, States, Student aid.

(Catalog of Federal Domestic Assistance Number: 84.267, State

Postsecondary Review Program)

Dated: April 20, 1994.

Richard W. Riley,

Secretary of Education.

The Secretary amends title 34 of the Code of Federal Regulations by

adding a new part 667 to read as follows:

PART 667--STATE POSTSECONDARY REVIEW PROGRAM

Subpart A--General

Sec.

667.1 Scope and purpose.

667.2 Definitions.

667.3 State agreement.

667.4 State postsecondary review entity.

667.5 Criteria the Secretary uses to refer institutions to a SPRE

for review.

667.6 SPRE selection of institutions for review.

667.7 Notice to SPRE and nationally recognized accrediting agency

of Federal actions.

667.8 Notice to nationally recognized accrediting agency of SPRE

actions.

667.9 Institutions with locations in more than one State.

Subpart B--Allotment Formula and Funding Procedures

667.11 Allotment formula.

667.12 Application for funds.

667.13 Approval of funding application.

667.14 Allowable costs and activities.

667.15 Fiscal procedures and records.

667.16 Supplement, not supplant, requirement.

Subpart C--State Review Standards, SPRE Reviews, and Termination of

Institutional Participation

667.21 State review standards.

667.22 Disapproval of State review standards.

667.23 SPRE reviews of referred institutions.

667.24 Peer reviews of institutions.

667.25 Termination of an institution's participation in the title

IV, HEA programs.

667.26 Due process requirements.

Authority: 20 U.S.C. 1099a through 1099a-3, unless otherwise

noted.

Subpart A--General

Sec. 667.1 Scope and purpose.

(a)(1) This part establishes the rules and procedures that govern

the State Postsecondary Review Program, which is authorized by title

IV, part H, subpart 1 of the Higher Education Act of 1965, as amended

(HEA). The purpose of the program is to reduce fraud and abuse in the

title IV, HEA programs through development of State standards for, and

State oversight and review under those standards of, institutions

referred by the Secretary under Sec. 667.5 or selected by a State

postsecondary review entity under Sec. 667.6.

(2) Under this part, if a State finds that an institution it

reviews does not satisfy the State standards, the State may--

(i) Require the institution to take prompt actions to bring itself

into compliance with the State's standards; or

(ii) Determine that the institution should no longer participate in

a title IV, HEA program.

(b) A State must carry out activities under this part only to the

extent that the costs of those activities will be reimbursed by Federal

funds.

(c) As used in this part, ``an institution'' includes--

(1) An institution of higher education as defined in 34 CFR 600.4;

(2) A proprietary institution of higher education as defined in 34

CFR 600.5; and

(3) A postsecondary vocational institution as defined in 34 CFR

600.6.

(d)(1) The provisions in the Education Department General

Administrative Regulations, 34 CFR parts 76 and 80, do not apply to

this part except for the provisions in--

(i) 34 CFR 76.2, and 76.50 of subpart A;

(ii) 34 CFR 76.500 through 76.534, 76.560, 76.561, 76.563, and

76.580 through 76.592 of subpart F;

(iii) 34 CFR 76.701, 76.702, 76.703, 76.707, 76.720, 76.730,

76.731, 76.734, 76.760, and 76.761 of subpart G;

(iv) 34 CFR 80.22 of subpart A;

(v) 34 CFR 80.43 and 80.44 of subpart C; and

(vi) 34 CFR 80.50 through 80.52 of subpart D.

(2) For purposes of this part, the term ``grantee,'' as defined and

used in 34 CFR parts 76 and 80, refers only to a State Postsecondary

Review Entity.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.2 Definitions.

(a) The following terms used in this part are defined in the

regulations governing Institutional Eligibility under the Higher

Education Act of 1965, as amended, 34 CFR part 600:

Branch campus

Educational program

Federal Family Education Loan (FFEL) programs

Nationally recognized accrediting agency

Recognized occupation

Regular student

Secretary

State

(b) The following terms used in this part are defined in the

Student Assistance General Provisions regulations, 34 CFR part 668:

Award year

Clock hour

Eligible program

Enrolled

Federal Direct Student Loan Program

Federal Pell Grant Program

Federal Perkins Loan Program

Federal PLUS Program

Federal Stafford Loan Program Federal Supplemental Loans for

Students (SLS) Program

Federal Supplemental Educational Opportunity Grant (FSEOG) Program

Federal Work-Study (FWS) Program

National Early Intervention Scholarship and Partnership (NEISP)

Program

State Student Incentive Grant (SSIG) Program

(c) The following definitions apply to terms used in this part:

Classification of Instructional Programs (CIP): A manual published

by the U.S. Department of Education, National Center for Education

Statistics, that lists the codes, titles, and descriptions of

educational programs used by institutions and States for reporting and

analyzing education data at the national level. (This manual can be

obtained at the United States Department of Education, Outreach

Division, OERI, 55 New Jersey Ave., NW., room 300, Washington, DC

20208.)

Education and general expenditures: The total amount expended by an

institution for institution for instruction, research, public service,

academic support (including library expenditures), student services,

institutional support, scholarships and fellowships, operation and

maintenance expenditures for the physical plant, and any mandatory

transfers which the institution is required to pay by law.

National Occupational Information Coordinating Committee (NOICC):

An agency jointly sponsored by the U.S. Departments of Education and

Labor to facilitate comparisons between educational programs and

related occupations and to provide information to State employment

counseling services.

NOICC Master Crosswalk: A computerized database that shows the

relationships among major occupational and educational systems used by

the Federal government. (This database can be obtained from the

National Crosswalk Service Center, Iowa SOICC, 200 East Grand Ave., Des

Moines, IA 50309. Telephone: (515) 242-4881.)

Professional program: An undergraduate or graduate educational

program that--

(1)(i) Is listed in the CIP; and

(ii) Prepares individuals for an occupation, if that occupation--

(A) Requires at least a bachelor's degree to qualify for entry;

(B) Involves the independent practice or application of a defined

or organized body of competencies that is unique to the occupation; and

(C) Is formally recognized and regulated under a national or State

licensure, accreditation, or permit system; or

(2) Satisfies a State's statutory definition of the term

professional program.

Referred institution: An institution that a SPRE reviews as a

result of--

(1) A referral by the Secretary under Sec. 667.5; or

(2) State selection under Sec. 667.6.

State Postsecondary Review Entity (SPRE): The entity described in

Sec. 667.4.

Title IV, HEA program: One of the programs identified in 34 CFR

668.1.

Vocational program: An educational program, below the bachelor's

level, designed to prepare individuals with the skills and training

required for employment in a specific trade, occupation, or profession

related to the educational program.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.3 State agreement.

(a) To participate in the State Postsecondary Review Program, a

State must enter into an agreement with the Secretary.

(b) In the agreement, the State--

(1) Designates a SPRE;

(2) Describes the organizational structure of the SPRE;

(3) Assures that the SPRE--

(i) Has the legal authority under State law to carry out the

functions required of it under this part;

(ii) Will perform the functions required of it under this part;

(iii) Will keep records or have access to records of referred

institutions that relate to activities under this part and will provide

information to the Secretary as may be requested by the Secretary for

financial and compliance audits of referred institutions;

(iv) Will keep records or have access to records that relate to its

activities under this part, and will provide information to the

Secretary as may be requested by the Secretary for program evaluations

of the manner in which the SPRE carries out its responsibilities under

this part; and

(v) Will review referred institutions on a schedule that coincides

with the Secretary's schedule for recertifying those institutions to

participate in the title IV, HEA programs;

(4) Describes the relationship between the SPRE, the State

approving agency for Veterans Affairs, the State guaranty agency under

the FFEL programs, the State agency responsible for administering the

SSIG Program, any State entity that provides a license to institutions

to operate in the State or otherwise legally authorizes institutions to

provide postsecondary education in the State, any State-level entity

that approves service providers under the Job Training Partnership Act,

and any State-level entity that certifies vocational education;

(5) Indicates that the SPRE--

(i) Shall contract with a nationally recognized accrediting agency

or a peer review system for purposes of Sec. 667.24; and

(ii) May contract with a private agency, nationally recognized

accrediting agency, or peer review system for assistance in performing

the SPRE's functions; and

(6) Includes the SPRE's plan for performing the functions described

in Sec. 667.12.

(c) The agreement between the State and the Secretary goes into

effect when it is signed by the Secretary and remains in effect until

it is terminated by the Secretary or the State. The Secretary or the

State terminates an agreement under the provisions of that agreement.

(d) The sanctions set forth in paragraph (e) of this section follow

if the State--

(1) Does not enter into an agreement with the Secretary;

(2) Fails to comply with the terms of the agreement and the

Secretary terminates that agreement;

(3) Terminates the agreement with the Secretary; or

(4)(i) Does not submit to the Secretary by December 31, 1995, State

review standards under Sec. 667.21, that are approvable by the

Secretary under Sec. 667.22, if the State received Fiscal Year 1993

funds to carry out activities under the State Postsecondary Review

Program; or

(ii) Does not submit to the Secretary by December 31, 1996, State

review standards under Sec. 667.21, that are approvable by the

Secretary under Sec. 667.22, if the State did not receive Fiscal Year

1993 funds to carry out activities under the State Postsecondary Review

Program.

(e) If any of the events listed in paragraph (d) of this section

occurs--

(1) The State is ineligible to receive--

(i) Any funds appropriated to carry out this program;

(ii) Its allotment of any funds appropriated under the SSIG

Program; and

(iii) Any funds appropriated to carry out the NEISP Program; and

(2) The Secretary--

(i) Does not designate as eligible for participation in a title IV,

HEA program any institution in the State seeking initial participation

in that program, any branch campus in the State for which an

institution seeks an initial designation of eligibility under 34 CFR

part 600, or any institution in the State that has undergone a change

in ownership that results in a change in control as determined in 34

CFR part 600;

(ii) Grants only provisional certification, as determined in 34 CFR

part 668, to an institution or a branch campus in that State not

described in paragraph (e)(2)(i) of this section; and

(iii) May--

(A) Establish the review standards for that State described in

Sec. 667.21; and

(B) Carry out, or arrange to carry out, the State's other

responsibilities and requirements under this part.

(Authority: 20 U.S.C. 1099a-1)

Sec. 667.4 State postsecondary review entity.

(a) The SPRE is the entity designated by the State in the agreement

between the State and the Secretary under Sec. 667.3, to--

(1) Represent all existing State entities that are, and all future

State entities that will be, responsible for--

(i) Granting State authorization to provide postsecondary education

in that State; and

(ii) Ensuring that all institutions in the State that participate

in a title IV, HEA program remain in compliance with the State review

standards established under Sec. 667.21;

(2) Keep records or have access to records of referred institutions

that relate to activities under this part and provide information to

the Secretary as may be requested by the Secretary for financial and

compliance audits of referred institutions; and

(3) Keep records or have access to records that relate to its

activities under this part, and provide information to the Secretary as

may be requested by the Secretary for program evaluations of the manner

in which the SPRE carries out its responsibilities under this part.

(b) Under this part, a SPRE is not authorized to--

(1) Grant State authorization to provide postsecondary education in

that State; or

(2) Require an institution in the State that is not referred to the

State by the Secretary under Sec. 667.5 or selected by the State under

Sec. 667.6 to comply with State review standards established under

Sec. 667.21.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.5 Criteria the Secretary uses to refer institutions to a SPRE

for review.

(a)(1) The Secretary refers an institution that participates in a

title IV, HEA program to a SPRE for review if the institution meets one

or more of the criteria contained in paragraph (b) of this section.

(2) In determining whether an institution meets one or more of the

criteria contained in paragraph (b) of this section, the Secretary uses

the most recently available data.

(b) Except as provided in paragraph (c) of this section, the

Secretary refers an institution to a SPRE if--

(1) The institution has a cohort default rate (defined in 34 CFR

668.17) equal to or greater than 25 percent;

(2)(i) The institution has a cohort default rate (defined in 34 CFR

668.17) equal to or greater than 20 percent; and

(ii) During the latest completed award year for which data are

available--

(A) More than two-thirds of the institution's regular undergraduate

students who were enrolled as at least half-time students received

assistance under any title IV, HEA program, excluding assistance

received from the SSIG, NEISP, and Federal PLUS programs; or

(B) The amount that the institution's students received under the

title IV, HEA programs, excluding funds from the SSIG, NEISP, and

Federal PLUS programs, is equal to or greater than two-thirds of the

institution's education and general expenditures;

(3) The amount that the institution's students received under the

Federal Pell Grant Program is equal to or greater than two-thirds of

the institution's education and general expenditures;

(4) The Secretary initiated a limitation, suspension, or

termination action against the institution under 34 CFR part 668,

subpart G, within the preceding 5 years;

(5) An audit finding in the institution's 2 most recent audits

under 34 CFR 668.23 resulted in a required repayment by the institution

of an amount greater than 5 percent of the funds the institution

received under the title IV, HEA programs for any 1 award year covered

by those audits;

(6) The Secretary cited the institution for its failure to submit

an acceptable audit report by the deadlines established under 34 CFR

668.23;

(7)(i) The amount that the institution's students received under

the Federal Pell Grant Program during any award year differed by more

than 25 percent from the amount that the institution's students

received under that program in the preceding award year, unless the

differences can be accounted for by changes in that program;

(ii) The amount that the institution's students received under the

Federal Stafford Loan Program during any award year differs by more

than 25 percent from the amount that the institution's students

received under that program in the preceding award year, unless the

differences can be accounted for by changes in that program; or

(iii) The amount that the institution's students received under the

Federal SLS Program during any award year differs by more than 25

percent from the amount that the institution's students received under

that program in the preceding award year, unless the differences can be

accounted for by changes in that program;

(8) The institution failed to meet the factors of financial

responsibility in 34 CFR part 668, subpart B;

(9) The institution underwent a change in ownership that resulted

in a change of control as defined in 34 CFR 600.31;

(10) Except with regard to any public institution affiliated with a

State system of higher education, the institution has participated for

less than 5 years in--

(i) The Federal Pell Grant Program;

(ii) The FFEL Program;

(iii) The FSEOG Program;

(iv) The FWS Program;

(v) The Federal Perkins Loan Program; or

(11) The institution has been subject to a pattern of complaints

from students related to its management or conduct of the title IV, HEA

programs or to misleading or inappropriate advertising and promotion of

the institution's educational programs that, in the Secretary's

judgment, based on information available to the Secretary, including

information provided to the Secretary by the SPRE, is sufficient to

warrant review.

(c)(1) Before the Secretary refers an institution to a SPRE for

meeting one or more of the referral criteria contained in paragraph (b)

of this section, the Secretary notifies the institution of that

intended referral and the reasons for the referral.

(2) The Secretary delays the referral if the Secretary receives

from the institution a notice of its intent to challenge the accuracy

of the information upon which the referral was based no later than

seven days after the institution receives the notice from the

Secretary.

(3)(i) If an institution challenges the accuracy of the information

on which its referral was based, the institution has the burden of

proving that the information was inaccurate.

(ii) For purposes of paragraph (c)(3)(i) of this section, the

Secretary presumes that records maintained in the normal course of

business by the U.S. Department of Education, a guaranty agency under

the FFEL Program, a SPRE, a State licensing agency, or another State

agency are accurate.

(4)(i) If an institution challenges the accuracy of the information

on which its referral was based, other than the accuracy of its cohort

default rate for a particular year, the Secretary must receive the

institution's submission, along with any supporting document or record,

no later than 30 days after the institution receives the notice

described in paragraph (c)(1) of this section.

(ii) If an institution challenges the accuracy of its cohort

default rate for a particular year under 34 CFR 668.17(d)(1)(i) (A) and

(B), it must file a timely appeal of that rate under those provisions.

(d) If the institution timely challenges its referral under

paragraph (c) of this section, the Secretary refers the institution to

a SPRE for review unless the institution convinces the Secretary that

its referral was based upon inaccurate information for all of the

referral criteria.

(e)(1) Documents referenced in this section may be hand-delivered

or mailed. If documents are mailed, they must be mailed certified mail,

return receipt requested, or by next-day mail service.

(2) If documents are mailed, proof of receipt shall be evidenced by

the delivery date indicated on the United States Postal Service return

receipt card (green card), or the pickup date indicated on the next day

mail service's bill.

(3) For purposes of paragraph (e)(2) of this section, if any

submission is sent by next-day mail service, the Secretary presumes

that the document was delivered the day after the date on which it was

picked up for delivery.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.6 SPRE selection of institutions for review.

(a) A SPRE may review an institution under this part that was not

referred by the Secretary if--

(1) The SPRE--

(i)(A) Determines that the institution meets a referral criterion

in Sec. 667.5 based on more recent data available to the SPRE; or

(B) Has reason to believe the institution is engaged in fraudulent

practices; and

(ii) Requests the Secretary to approve its review of that

institution; and

(2) The Secretary--

(i) Approves that request; or

(ii) Does not respond to the SPRE's request within 21 days after

the date the Secretary receives that request; and

(b) If, under paragraph (a)(1)(i)(A) of this section, a State

selects an institution for review, before the SPRE may request the

Secretary to approve that review, the SPRE must--

(1) Notify the institution of the selection and provide the

institution with the reasons for its selection;

(2) Delay its review request to the Secretary if the State receives

a notice from the institution no later than seven days after the

institution receives the notice from the State challenging the accuracy

of the information on which the selection was based.

(3)(i) If an institution challenges the accuracy of the information

on which its selection was based, the institution has the burden of

proving that the information was inaccurate.

(ii) For purposes of paragraph (c)(3)(i) of this section, the State

shall presume that records maintained in the normal course of business

by the U.S. Department of Education, a guaranty agency under the FFEL

programs, a SPRE, a State licensing agency, or another State agency are

accurate.

(4) To challenge the accuracy of the information on which its

referral was based, the State must receive no later than 30 days after

the institution receives the notice described in paragraph (c)(1) of

this section the institution's submission, along with any supporting

document or record.

(c) If the institution timely challenges its referral under

paragraph (b) of this section, the State requests a review of the

institution from the Secretary unless the institution convinces the

State that its selection was based upon inaccurate information.

(d)(1) Documents referenced in this section may be hand-delivered

or mailed. If documents are mailed, they must be mailed certified mail,

return receipt requested, or by next-day mail service.

(2) If documents are mailed, proof of receipt shall be evidenced by

the delivery date indicated on the United States Postal Service return

receipt card (green card), or the pick up date indicated on the next

day mail service's bill.

(3) For purposes of paragraph (e)(2) of this section, if any

submission is sent by next-day mail service, the State shall presume

that the document was delivered the day after the date on which it was

picked up for delivery.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.7 Notice to SPRE and nationally recognized accrediting agency

of Federal actions.

(a)(1) If the Secretary takes an action against an institution, the

Secretary notifies the SPRE of the State in which the institution is

located, and the appropriate nationally recognized accrediting agency,

within 10 days of taking that action.

(2) For purposes of this part, an action taken by the Secretary

includes, but is not limited to, the actions described in 34 CFR part

668, subpart G.

(b) If the Secretary is informed that another Federal agency is

taking an action against an institution, the Secretary notifies the

SPRE of the State in which the institution is located, and the

appropriate nationally recognized accrediting agency, as soon as

possible but not later than 10 days after learning of that action.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.8 Notice to nationally recognized accrediting agency of SPRE

actions.

(a) A SPRE shall notify a nationally recognized accrediting agency

when it plans to conduct a review of an institution accredited or

preaccredited by that agency; and

(b) After conducting a review of the institution, the SPRE shall

notify the accrediting agency of its findings and the actions the SPRE

takes, or plans to take, as a result of those findings.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.9 Institutions with locations in more than one State.

(a) If an institution that is subject to a referral has locations

in more than one State, the Secretary refers the institution to the

SPRE in each State in which the institution is located and informs each

SPRE of the other States in which the institution is located.

(b) The SPRE of the State in which the main campus of the

institution is located has the principal responsibility for reviewing

that institution.

(c) If a branch campus or additional location of an institution is

in a State other than the State in which the institution's main campus

is located, the SPRE of the State in which that branch campus or

additional location is located--

(1) May review that branch campus or additional location before a

SPRE review is conducted of the main campus of that institution;

(2) May delay its review of that branch campus or additional

location until a SPRE review is conducted of the main campus of that

institution; or

(3) May choose not to review that branch campus or additional

location if--

(i) The SPRE of the State in which the main campus of that

institution is located reviews that institution and makes no

significant findings; and

(ii) The allotment of the State in which the branch campus or

additional location is located is insufficient to allow the SPRE to

review all referred institutions.

(d) An institution and its branch campuses and additional locations

are subject to the review standards of the State in which they are

located, respectively.

(e) Notwithstanding paragraphs (b) and (c) of this section, to

review a referred institution that has locations in more than one

State, the SPREs of those States may enter into an agreement under

which the SPREs may alter the review responsibilities set forth in

paragraphs (b) and (c) of this section.

(Authority: 20 U.S.C. 1099a-3)

Subpart B--Allotment Formula and Funding Procedures

Sec. 667.11 Allotment formula.

(a) For each fiscal year for which funds are appropriated to carry

out this part, the Secretary--

(1) Allots $30,000 to Guam, $30,000 to American Samoa, $30,000 to

the Northern Mariana Islands, $30,000 to the Virgin Islands, and

$30,000 to the Trust Territory of the Pacific Islands;

(2) Calculates each remaining State's allotment of the remaining

funds under paragraph (b)(2) of this section; and

(3) Notifies each State of its allotment.

(b) Except for the funds allotted under paragraph (a)(1) of this

section to Guam, American Samoa, the Northern Mariana Islands, the

Virgin Islands, and the Trust Territory of the Pacific Islands, the

Secretary allots to a State those remaining funds appropriated to carry

out this part by--

(1) Determining the percentage of institutions participating in a

title IV, HEA program that are in each State by dividing the number of

institutions located in that State that are certified to participate in

a title IV, HEA program by the total number of institutions that are

certified to participate in all States;

(2) For the latest award year for which information is available,

determining the percentage of title IV, HEA program funds by dividing

the total amount of title IV, HEA program funds that were made

available to students who enrolled in the institutions in that State

that participate in a title IV, HEA program, or to those students'

parents, by the total amount of title IV, HEA program funds that were

made available to students, or to those student's parents, who enrolled

in institutions that participate in a title IV, HEA program in all

States;

(3) Averaging the two percentages determined in paragraph (b) (1)

and (2) of this section;

(4) Calculating an ``initial distribution'' by multiplying the

average percentage determined in paragraph (b)(3) of this section by

the amount appropriated to carry out this part, less the total amount

allotted to Guam, American Samoa, the Northern Mariana Islands, the

Virgin Islands, and the Trust Territory of the Pacific Islands;

(5)(i) Determining which States receive less than $75,000 under the

initial distribution;

(ii) Providing each of those States with $75,000; and

(iii) Calculating the difference between the $75,000 provided to

each of those States and those States' initial distribution;

(6)(i) Determining which States receive more than $75,000 under the

initial distribution; and

(ii) Calculating the difference between each of those States'

initial distribution and $75,000;

(7) Calculating a ``reduction percentage'' by dividing the total

amount obtained in paragraph (b)(5)(iii) of this section by the total

amount obtained in paragraph (b)(6)(ii) of this section; and

(8) Reducing the initial distribution of each State in paragraph

(b)(6)(i) of this section by the product of the amount obtained in

paragraph (b)(6)(ii) of this section and the reduction percentage in

paragraph (b)(7) of this section.

(c) If the Secretary determines that a SPRE will not spend its

entire allotment during the period for which those funds are made

available, or if a SPRE does not spend its allotment by the end of the

period for which those funds are made available, the Secretary reallots

those funds to other SPREs--

(1) For unanticipated and extraordinary legal expenses; or

(2) In a manner the Secretary determines best carries out the

purposes of the State Postsecondary Review Program.

(d) Federal and State matching funds under the SSIG and NEISP

programs are excluded from the calculations in this section.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.12 Application for funds.

(a)(1) General. For each fiscal year for which funds are

appropriated to carry out this part, a State that has entered into an

agreement with the Secretary under Sec. 667.3 shall apply to the

Secretary to receive its allotment. The State's application must

contain the information required in paragraph (b), (c), or (d) of this

section, as appropriate. The Secretary publishes in the Federal

Register the date by which a State must submit its application.

(2) Established review standards. A State has established review

standards if those standards met the requirements in Sec. 667.21 and

the Secretary did not disapprove those standards under Sec. 667.22.

(b) Application before standards are established. (1) If a State

has not established review standards, to receive its allotment, the

State--

(i) Must submit a plan to develop--

(A) The review standards described in Sec. 667.21, in consultation

with the institutions in that State. The plan must describe the manner

in which consultation will take place; and

(B) The procedures for receiving and responding to complaints from

students, faculty, and others regarding institutions in the State, in

consultation with institutions in that State. The plan must describe

the manner in which consultation will take place;

(ii) May submit a plan to--

(A) Identify information maintained by institutions and State

agencies, other than the information institutions are required to

maintain under the Student Right-to-Know and Campus Security Act, that

is relevant to developing the State review standards;

(B) Identify systems in which the information described in

paragraph (b)(1)(ii)(A) of this section is maintained; and

(C) Provide estimates of the costs of coordinating the

institutions' and State's information systems with an information

system developed by the SPRE; and

(iii) Must submit a budget for developing the standards and the

complaint procedures and, if relevant, for providing cost estimates for

the SPRE's information system. The budget cannot exceed the State's

allotment.

(2) If the State's allotment is less than the State's anticipated

cost of carrying out the activities described in paragraph (b)(1) (i)

and (ii) of this section, the State shall first use its allotment to

develop the review standards. If a portion of the allotment remains

after the State develops its review standards, the State may develop

procedures for receiving and responding to complaints from students,

faculty, and others regarding institutions in the State. The State may

use any remaining portion of its allotment to provide cost estimates

for the SPRE's information system only after it has completed

developing its review standards and complaint procedures.

(c) Application after standards are established. (1) If the

Secretary has not disapproved the State's review standards under

Sec. 667.22, to receive its allotment, the State must submit to the

Secretary--

(i) Its plan to review referred institutions; and

(ii) A budget for those reviews that does not exceed the State's

allotment calculated under Sec. 667.11, less any amount expended by the

SPRE in carrying out the activities under paragraph (b) of this

section.

(2)(i) If a SPRE anticipates that the cost of reviewing all the

referred institutions will exceed the State's allotment, the SPRE

shall, as part of its plan, submit a priority system for selecting

institutions to review from among the referred institutions; and

(ii) The SPRE shall have discretion in developing its priority

system, except that the SPRE must make its top priority for review,

referred institutions that the Secretary has scheduled for

recertification under 34 CFR part 668, subpart B.

(iii) A SPRE may establish the lowest reveiw priority for an

institution if--

(A) The institution is referred to the SPRE for a reason described

in Sec. 667.5(b)(6) concerning the timely submission of an audit report

or Sec. 667.5(b)(9) concerning a change of ownership that results in a

change of control; and

(B) The SPRE previously conducted a review of the institution as a

result of a referral for the same reason in Sec. 667.5(b)(6) or (b)(9),

respectively, and found no significant violations of the State's

standards.

(d) Timely submission. A State may submit to the Secretary the

information required in paragraph (c) of this section at the same time

that it submits to the Secretary the information and documentation

required under paragraph (b) of this section.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.13 Approval of funding application.

(a) Before standards are established. The Secretary approves a

State's plan and budget submitted before the State establishes review

standards if--

(1) The plan provides a reasonable basis, and adequate budget

justification, for carrying out the activities described in

Sec. 667.12(b)(1);

(2) If applicable, the plan includes a priority system for using

the State's allotment as described in Sec. 667.12(b)(2); and

(3) The budget includes only reasonable allowable costs within the

State's allotment.

(b) After standards are established. After the State establishes

review standards, the Secretary approves a State's plan and budget for

the allowable activities described in Sec. 667.14 if--

(1) The plan provides adequate budget justification for those

activities;

(2) The plan provides for a reasonable scheme for reviewing

referred institutions;

(3) The plan includes a priority system for review of institutions

as described in Sec. 667.12(c)(2);

(4) The proposed contracts with private agencies, nationally

recognized accrediting agencies, or peer review systems to carry out

SPRE functions included in the plan are reasonable and appropriate; and

(5) The budget includes only reasonable allowable costs within the

State's allotment.

(c) Failure to submit an acceptable application. If a State does

not submit an application for funds under Sec. 667.12 or its

application is not approved under this section--

(1) The State is ineligible to receive--

(i) Any funds appropriated to carry out this program;

(ii) Its allotment of any funds appropriated under the SSIG

Program; and

(iii) Any funds appropriated to carry out the NEISP Program; and

(2) The Secretary--

(i) Does not designate as eligible for participation in a title IV,

HEA program any institution located in that State seeking initial

participation in that program, any branch campus located in that State

for which an institution seeks an initial designation of eligibility

under 34 CFR part 600, or any institution located in that State that

has undergone a change in ownership that results in a change in control

as determined in 34 CFR part 600; and

(ii) Grants only provisional certification, as determined in 34 CFR

part 668, to an institution in that State not described in paragraph

(c)(2)(i) of this section.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.14 Allowable costs and activities.

(a) If included in a State's approved plan, the Secretary pays, by

reimbursement, direct costs as described in paragraph (c) of this

section and in Office of Management and Budget (OMB) Circular A-87, and

indirect costs as determined in paragraph (b) of this section, of--

(1) Establishing State review standards in consultation with

institutions in the State, publicizing the State review standards, and

providing initial and continuing training to State and other personnel

in the State, including personnel at the institution subject to review;

(2) Establishing and implementing, in consultation with

institutions in that State, the procedures for receiving and responding

to complaints from students, faculty, and others regarding institutions

in the State;

(3) Reviewing referred institutions; and

(4) Developing and maintaining an information system for SPRE

review activities.

(b) If a State seeks reimbursement for indirect costs, the State

shall--

(1) Use the restricted indirect cost rate, computed under 34 CFR

75.564 and approved by the Secretary under 34 CFR 75.561; and

(2) Not charge as a direct cost any cost that qualifies as an

indirect cost.

(c) The direct costs of carrying out the activities described in

paragraph (a) of this section include, but are not limited to--

(1) The salary of State employees engaged in allowable activities;

(2) Travel costs incurred--

(i) Consulting with institutions in developing standards and

complaint procedures; and

(ii) Reviewing referred institutions;

(3) Training for--

(i) State employees to perform reviews of referred institutions;

and

(ii) Institutional and other personnel regarding the State review

standards;

(4) Contracting with private organizations, nationally recognized

accrediting agencies, and peer review systems to carry out required

activities;

(5) Costs incurred by the State for administrative actions and

legal proceedings; and

(6) Costs incurred by the SPRE in that State in sharing information

with other SPREs, the Secretary, other State agencies, nationally

recognized accrediting agencies, institutions, private organizations,

and others.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.15 Fiscal procedures and records.

(a) A state must account for the funds it receives under this part

in accordance with the procedures it uses to account for the

expenditure of its own funds and must keep fiscal and accounting

records that support, on audit, its expenditure of funds under this

part.

(b)(1) Except as provided in paragraph (b)(2) of this section, the

State must keep intact and accessible records relating to its

activities under this part for five years after the end of the period

for which funds were provided.

(2) The State shall keep records on any claim or expenditure

questioned on audit until any audit question is resolved.

(c) A State must have an audit performed of the SPRE's activities

under this part at least once every two years and must submit the

report of that audit to the Secretary. An audit conducted under the

Single Audit Act satisfies this requirement.

(Authority: 20 U.S.C. 1099a-1099a-3)

Sec. 667.16 Supplement, not supplant, requirement.

The Secretary reimburses a State for the costs of necessary SPRE

activities which supplement, but do not supplant, existing licensing or

review functions conducted by the State.

(Authority: 20 U.S.C. 1099a-2)

Subpart C--State Review Standards, SPRE Reviews, and Termination of

Institutional Participation

Sec. 667.21 State review standards.

(a) Each State participating under this part must develop

standards, in consultation with institutions in the State, under which

the SPRE reviews referred institutions. The State-developed review

standards must evaluate, with regard to a referred institution--

(1) The extent to which the institution makes available to its

students and prospective students its catalogs, admission requirements,

course outlines, tuition-and-fee schedules, refund policy, course

cancellation policy, rules and regulations, and enrollment agreement,

if appropriate;

(2) Whether the institution's descriptions of its courses and

educational programs are accurate;

(3) Whether the institution has a method to assess that a student

has the ability to complete successfully the educational program for

which he or she applies;

(4) Whether the institution maintains and enforces standards

relating to satisfactory academic progress;

(5) Whether the institution maintains adequate student and other

records;

(6) Whether the institution complies with relevant safety, and

health standards, such as fire, building, and sanitation codes;

(7) The extent to which the institution's financial and

administrative capacity is appropriate to its scale of operations, and

whether the institution maintains adequate financial and other

information to determine the adequacy of its financial and

administrative capacity;

(8) For an institution that the SPRE determines is at financial

risk, the adequacy of the institution's plans to provide for, if the

institution closes--

(i) Instruction to enrolled students; and

(ii) Retention of and access to academic and financial aid records;

(9) If an institution provides a vocational program--

(i) Whether the tuition and fees charged for that vocational

program are excessive given the amount of money that a student who

successfully completes the program may reasonably be expected to earn;

and

(ii) Whether the vocational program provides students with quality

training that leads to useful employment in an occupation recognized in

that State. In making this evaluation, one of the factors the SPRE

shall consider is the appropriateness of the length of the vocational

program in terms of both the number of days of instruction and the

number of credit or clock hours the program offers;

(10) The extent to which the institution provides to its students

relevant information regarding--

(i) Market and job availability for students in its occupational,

professional, and vocational programs; and

(ii) The relationship between the institution's educational

programs and State licensing standards for specific occupations;

(11) The appropriateness of the number of semester, trimester, or

quarter credit or clock hours required for the completion of an

educational program;

(12) The appropriateness of the length of 600-clock-hour

educational programs;

(13) Whether, and the extent to which, the actions of any owner or

shareholder of the institution, or any person exercising control over

the institution may adversely affect its participation in a title IV,

HEA program;

(14) The extent to which the institution's procedures for

investigating and resolving student complaints are adequate;

(15) The extent to which the institution's advertising promotion,

and student recruiting practices are appropriate;

(16) Whether the institution has a fair and equitable refund

policy; and

(17) The extent to which the institution's educational programs are

successful as measured by--

(i) The completion and graduation rates of the students enrolled in

those programs, taking into account the length of the programs and the

selectivity of the institution's admission policy (for the purpose of

this provision, a completion rate is the same as a graduation rate);

(ii) The institution's withdrawal rate;

(iii) With respect to the institution's vocational and professional

programs, the placement rate of the institution's graduates in

occupations related to their educational programs, with related

programs and occupations determined by reference to the NOICC Master

Crosswalk;

(iv) Where appropriate, the rate at which the institution's

graduates pass licensure examinations; and

(v) The success of the institution's students who express other

completion goals, such as transferring to another institution,

obtaining full-time employment in their field of study, or qualifying

for military service, in meeting those goals.

(b) In developing the review standards in paragraph (a) of this

section, a State--

(1) May establish different standards for different types or

categories of institutions or educational programs;

(2)(i) Shall specify the records and information that a referred

institution would need to maintain to demonstrate to a SPRE the

institution's compliance with those standards; and

(ii) If a referred institution was not, before the institution was

referred, otherwise required to keep records relating to its compliance

with State review standards, and did not keep those records, must allow

the institution a reasonable period of time to obtain those records to

enable the institution to demonstrate its compliance with the State

standards;

(3) Except for standards regarding prospective students in

paragraph (a)(1) of this section, shall establish standards that apply

at least to all regular students;

(4) Shall quantify the standards described in paragraph (a)(9)(i)

and (a)(17)(i), (ii), (iii), and (iv) of this section by establishing--

(i) Criteria under which a SPRE determines if the tuition and fees

charged by an institution for a vocational program are excessive

compared to the amount of money that a student who successfully

completes that program may reasonably be expected to earn;

(ii) Acceptable completion and graduation rates of students

enrolled in educational programs offered by an institution;

(iii) An acceptable withdrawal rate of students at an institution;

(iv) With respect to an institution's vocational and professional

programs, an acceptable placement rate of the institution's graduates

in occupations related to their educational programs; and

(v) An acceptable rate or rates at which the institution's

graduates pass licensure examinations; and

(5) Shall determine the extent to which it is appropriate to base a

State review standard on a related title IV, HEA program standard or

requirement or establish as the State's review standard the comparable

title IV, HEA program standard or requirement.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.22 Disapproval of State review standards.

(a)(1) Each State shall submit to the Secretary for evaluation the

review standards that the State developed under Sec. 667.21.

(2) The State shall also submit to the Secretary an explanation of

how each standard was established, including--

(i) An explanation of the relationship between each of the State's

review standards and the related or comparable title IV, HEA standards

and requirements;

(ii) If applicable, an explanation of the reasons for establishing

different review standards for different types of institutions or

educational programs; and

(iii) A description of the manner in which institutions were

consulted in developing the review standards.

(b) The Secretary disapproves a State's review standards if--

(1) The State does not comply with, or provide adequate information

regarding, the provisions in paragraph (a) of this section;

(2) The State does not assure the Secretary that the State's review

standards are consistent with the laws and constitution of that State;

(3) The State does not submit evidence that the State's review

standards were developed in consultation with the institutions in that

State;

(4) The State's review standards do not meet or exceed all of the

requirements and cover all the areas described in Sec. 667.21; or

(5) The standards developed under Sec. 667.21(b)(4)--

(i) Do not specify the methods and procedures that an institution

must use to calculate the graduation or completion rates, withdrawal

rate, placement rates, and licensure examination pass rates of the

institution's students or graduates;

(ii) Do not specify statistically valid methods and procedures that

an institution must use if that institution conducts surveys of its

graduates to obtain data regarding the type of employment and placement

of the institution's graduates; and

(iii) Do not specify the methods and data, and the source of that

data, that a SPRE uses to determine if the tuition and fees charged by

an institution for a vocational program are excessive compared to the

amount of money that a student who successfully completes that program

may reasonably be expected to earn.

(c) If the Secretary disapproves a State's review standards, the

Secretary gives the State the reasons for that disapproval and gives

the State an opportunity to--

(1) Demonstrate why the Secretary's disapproval was incorrect; or

(2) Submit revised review standards that address the reasons for

the Secretary's disapproval.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.23 SPRE reviews of referred institutions.

(a)(1) Except as provided in paragraph (a)(2) of this section, if

the Secretary refers an institution to a SPRE for review under

Sec. 667.5 or the SPRE selects an institution for review under

Sec. 667.6, the SPRE reviews, or arranges for the review of that

institution, to determine whether the institution is in compliance with

the State review standards described in Sec. 667.21.

(2) The Secretary may determine that a SPRE need not review an

institution that is referred only because it meets the conditions of

Sec. 667.5(b)(10) if the SPRE previously conducted a review of that

institution and found no violations of the State's standards.

(b)(1) The SPRE shall provide written notice to all institutions in

the State that participate in a title IV, HEA program of the review

standards approved by the Secretary under Sec. 667.22 before it may

conduct reviews of referred institutions.

(2) Each year the SPRE shall make available information regarding

its review priority system after its plan is approved by the Secretary

under Sec. 667.13 and before conducting reviews of referred

institutions under that plan and priority system.

(c) After a SPRE completes its review of a referred institution,

the SPRE must issue an initial report of the SPRE's findings and

provide it to the institution no later than 45 days after the SPRE

completes its review. If the SPRE finds that the institution is in

violation of a standard, for each finding, the SPRE must--

(1)(i) Cite the standard violated and the nature of the violation;

and

(ii) Except as provided in paragraph (d)(2) of this section,

prescribe a course of action the institution must follow to correct the

violation. The SPRE has sole discretion to determine an appropriate

period for the institution to correct the violation and bring itself

into compliance with the State's review standards; or

(2) Initiate a proceeding under Sec. 667.25 to affect the

termination of the institution's participation in the title IV, HEA

programs.

(d)(1) The SPRE must give the institution an opportunity to respond

to its findings and required actions; and

(2) The SPRE may determine, based on compelling evidence provided

by the institution, that the institution's failure to satisfy a State

standard does not warrant any further action by the SPRE.

(e) If the institution chooses to respond to the SPRE's report

within the time permitted by the SPRE, the SPRE must evaluate the

institution's response and issue a final report to the institution that

includes its findings and required action.

(f)(1)(i) The SPRE must provide to the Secretary a copy of its

final report to an institution within 30 days of its issuance to the

institution; or

(ii) If the institution did not respond to the SPRE's initial

report by the date permitted by the SPRE, the SPRE must provide to the

Secretary a copy of its initial report. The SPRE's initial report

becomes its final report on the day after the date provided to the

institution for responding to that report; and

(2) If the SPRE did not prescribe a course of action the

institution must follow to correct a violation of the State's standards

under paragraph (d)(2) of this section, the SPRE must include in its

report to the Secretary an explanation of why no action was prescribed.

(g) In addition to the reasons for initiating a proceeding to

effect the termination an institution's participation in a title IV,

HEA program under paragraph (c) of this section, the SPRE may determine

that the institution should no longer participate in that title IV, HEA

program if that institution--

(1) Does not respond to the SPRE's findings or comply with the

SPRE's required actions within the time permitted by the SPRE, and the

SPRE's findings show violations of the State's standards;

(2) Does not allow SPRE personnel at the institution; or

(3) Fails to provide SPRE officials with prompt access to its

documents and records.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.24 Peer reviews of institutions.

(a)(1) To carry out a review of a referred institution, the SPRE

must contract with a nationally recognized accrediting agency or other

peer review system the SPRE determines demonstrates competence in

assessing educational programs.

(2) In determining whether a peer review system is competent in

assessing educational programs, the SPRE must, at a minimum, determine

that the system has--

(i) An established basis for evaluating educational quality;

(ii) Review procedures that include the selection of peer reviewers

who have experience in evaluating the types of programs offered by the

institution; and

(iii) Established policies and procedures that guard against bias

in conducting reviews of institutions.

(b)(1) Under the contract described in paragraph (a) of this

section, the nationally recognized accrediting agency or peer review

system shall carry out a review or provide information from its

previous grant of accreditation or preaccreditation or previous review

to the SPRE regarding the agency's or system's assessment of the

quality and content of the institution's educational programs in

relation to achieving the stated objectives for which the programs were

offered.

(2) In making its assessment under paragraph (b)(1) of this

section, for each educational program, the agency or system shall take

into account the adequacy of the space, equipment, instructional

materials, staff, and student support services, including student

orientation and counseling provided for each program, and any other

areas specified in the agency's contract with the SPRE.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.25 Termination of an institution's participation in the title

IV, HEA programs.

(a)(1) If a SPRE determines that a referred institution should no

longer participate in a title IV, HEA program, based upon its review,

because the institution is in violation of State standards, or based

upon a report or review of that institution by a nationally recognized

accrediting agency or peer review system under Sec. 667.24, or has not

complied with the SPRE requirements such as those listed in

Sec. 667.23(g), the SPRE must provide the institution with the

opportunity to contest that determination in accordance with procedures

the Secretary has approved for that purpose under Sec. 667.26.

(2) If the SPRE still concludes, after affording the institution

the opportunity to challenge the SPRE's initial determination under

paragraph (a)(1) of this section, that the institution should no longer

continue to participate in a title IV, HEA program, the SPRE notifies

the Secretary of those findings and that determination.

(b)(1) Upon notice by the SPRE that the institution should no

longer participate in a title IV, HEA program, the Secretary

immediately terminates that institution's participation in that program

and notifies the institution, the SPRE, and the appropriate accrediting

agency of the effective date of that termination.

(2) If an institution's participation in a title IV, HEA program is

terminated under this section--

(i) The institution may not appeal that termination to the

Secretary; and

(ii) The institution may not reapply to the Secretary to

participate in that program until 18 months have expired from the

effective date of its termination.

(Authority: 20 U.S.C. 1099a-3)

Sec. 667.26 Due process requirements.

(a) Each State shall submit to the Secretary for approval the

procedures it uses to allow an institution to challenge a SPRE's

finding that the institution is in violation of the State's review

standards and should no longer continue to participate in a title IV,

HEA program.

(b) The Secretary approves a States' procedures described in

paragraph (a) of this section if--

(1) The State review standards are in writing; and

(2) The procedures require the SPRE to--

(i) Notify an institution of any required action and the bases for

that action;

(ii) Permit the institution the opportunity to challenge that

adverse action before an impartial official designated by the State for

this purpose, in writing or in a hearing, within a specified time;

(iii) Notify the institution in writing of the result of its

challenge, and the basis for that result; and

(iv) Follow other applicable procedural requirements of State law.

(Authority: 20 U.S.C. 1099a-3)

Appendix--Analysis of Comments and Changes

(Note: This appendix will not be codified in the Code of Federal

Regulations.)

General Comments

The Secretary received numerous comments about the overall impact

of the proposed regulations. In general, commenters opposed to the

proposed reguations believed that the NPRM did not achieve the

coordinated balance of responsibilities among the triad members that it

sought to achieve, and that it provided for extensive and duplicative

data collection and reporting requirements that created a costly and

unnecessary burden on the entire higher education community. Further,

they believed that the regulations did not regulate ``narrowly to the

law,'' as they purported to do. In general, these commenters suggested

that the Secretary should review each requirement in the proposed

regulations to determine if it was required by the statute and should

further ensure that all requirements that meet this test and are

included in the final regulations are implemented in the most

reasonable and cost effective manner. This, they believed, would ensure

the Department's compliance with Executive Order 12866.

Specifically, many commenters were concerned that:

(1) The proposed regulations will force institutions to engage in

excessive and duplicative information gathering and reporting, at

considerable cost, with no net increase in the quantity or quality of

information available to the public, and will result in the diversion

of institutions' already scarce resources away from their primary

mission of providing a quality education; and

(2) The proposed regulations threaten the diversity of American

higher education and fail to focus oversight properly on vocational

institutions.

In addition, the Secretary received suggestions from several

commenters that the Department should strongly encourage all triad

members to work together and adopt the same or similar language for the

various standards, should collect the necessary data through a common

source such as readily available public information or IPEDS, and

should use common methodologies for various calculations such as

completion or withdrawal rates.

Discussion: As suggested by several commenters, the Secretary has

carefully reviewed each requirement in the proposed regulations in

light of statutory intent. The Secretary has also carefully considered

both the burden of the proposed regulations on institutions and SPREs,

in terms of cost, duplication of effort, and the added recordkeeping

and reporting requirements. Similarly, the Secretary has considered the

benefits of the proposed regulations, not just to institutions and

SPREs but to students and the general public as well. A particular

concern of the Secretary has been how to ensure that the regulations

hold the three members of the triad accountable for the manner in which

they fulfill their responsibilities under the HEA yet still provide

each member of the triad the flexibility to determine the appropriate

means to carry out those responsibilities.

The Secretary acknowledges that there is a potential risk with this

strategy, however. By giving SPREs maximum flexibility in these

regulations, by giving accrediting agencies corresponding flexibility

in the regulations for Secretary's Procedures and Criteria for

Recognition of Accrediting Agencies, and by retaining authority for the

Secretary to set specific requirements implementing the certification

process, the danger exists that institutions will be burdened with

reporting requirements that are similar, but not identical, thus

increasing not only the reporting requirement but the recordkeeping

requirement and cost as well. For this reason, the Secretary strongly

urges a coordinated approach to any reporting requirement that may be

imposed on institutions by the regulations implementing the Program

Integrity Triad. Specifically with respect to States, the Secretary

urges SPREs to impose reporting requirements on referred institutions

only after they carefully examine any publicly available information

related to those requirements, any similar reporting requirements

imposed on institutions by either the Department or accrediting

agencies under the regulations governing the Secretary's Procedures and

Criteria for Recognition of Accrediting Agencies, and any methodologies

currently used, or mandated for use, by institutions in calculating the

required information. The Secretary hopes that by bringing this

potential risk of increased burden on institutions to the attention of

the entire higher education community--without specifically addressing

it in regulation--the community can work together to prevent undue

burden at the same time it ensures proper accountability. The Secretary

expects to take a leadership role in implementing a coordinated

strategy to manage the triad with the goal of maximizing effectiveness

while minimizing burden, duplication, and inconsistencies among SPREs,

accrediting agencies, and the Department.

The discussion that follows addresses the commenters concerns and

the Secretary's response to those concerns.

Section 667.1 Scope and Purpose

Comments: Many commenters interpreted this section as applying

State oversight to all institutions in a State. As a result, these

commenters believed that the Secretary expanded the SPRP beyond that

authorized in the statute. The commenters believed that the NPRM's

stated purpose of the program, ``to strengthen State oversight of

institutions participating in the title IV, HEA programs through

development of State standards for those institutions,'' was inaccurate

and ``unduly alarming'' because it suggested that a SPRE was authorized

to establish review standards for all institutions in a State. Many of

these commenters believed the primary purpose of the program was to

reduce fraud and abuse in the title IV, HEA programs through State

oversight of selected institutions. Many other commenters believed that

Congress intended the program to focus exclusively on ``problem

institutions'' identified by the Secretary, i.e., those institutions

that have serious academic or financial problems or those institutions

that have otherwise failed to fulfill their fiduciary responsibilities

in administering the title IV, HEA programs.

Discussion: The Secretary notes that Sec. 667.1, as proposed, was

not intended to apply to all institutions in a State but only to

institutions in a State that were participating in the title IV, HEA

programs. The Secretary agrees that a SPRE only has authority to review

``referred institutions'' under the standards it develops under this

program, and therefore agrees that the provisions of Sec. 667.1(a)

could be viewed as overbroad. The Secretary also agrees that a primary

purpose of the SPRP is to reduce fraud and abuse in the title IV, HEA

programs.

Changes: Section 667.1(a)(1) has been revised to clarify the

purpose of the SPRP, and to clarify that under the SPRP a State's

standards apply only to referred institutions and that a State may

review only referred institutions under those standards.

Comments: One commenter urged the Secretary to indicate that a SPRE

could take an action against an entire institution or one of the

institution's branch campuses, additional locations, or educational

programs. The commenter believed there would be instances where a SPRE

could determine that a branch campus or an additional location of the

institution, but not the entire institution, should be terminated from

the title IV, HEA programs. The commenter also noted that several of

the State's standards apply only to specific educational programs and

argued that it could be inappropriate for a SPRE to take an adverse

action against the entire institution if the basis for that action was

a finding directly related to a specific educational program offered by

that institution.

Discussion: The Secretary agrees that a SPRE has flexibility under

the SPRP to craft a remedy along the lines suggested by the commenter.

Thus, the SPRE can require an institution to stop offering a particular

program or stop offering programs at particular locations or branch

campuses. However, the Secretary believes that the authority of a SPRE

under section 494C(h) of the HEA to determine that an institution

should no longer participate in the title IV, HEA programs relates to

terminating the institution as a whole, not to particular parts of the

institution.

Changes: None.

Section 667.2 Definitions

Education and General Expenditures

Comments: One commenter recommended that instead of using the

statutory definition of education and general expenditures, used for

purposes of Title III of the HEA, which governs the Strengthening

Institutions Program, the Secretary adopt the definition used by the

American Institute of Certified Public Accountants. In addition, the

commenter noted that two financial-standard-making bodies have issued

or have under consideration changes that will modify the current

accounting and reporting standards. The commenter suggested that the

final regulations refer only to current generally accepted accounting

principles and financial reporting requirements by source rather than

provide a specific definition of education and general expenditures.

Discussion: The Secretary believes that it is most appropriate to

use a definition of education and general expenditures for this program

that is already included in the HEA.

Changes: None.

Professional Program

Comments: Several commenters agreed with the proposed definition of

professional program.

Several other commenters argued that professional education is

placed in the same category as occupational and vocational education

with regard to the standards described in sections 494C (d)(8) and

(d)(14)(C) of the HEA. The commenters contended that the use of

professional education in this context implies a limited use of the

term; namely, one that is closely related to vocational education.

These commenters suggested that the proposed definition of professional

program be modified to include only programs at or below the associate

degree level.

Several commenters suggested adopting the Integrated Postsecondary

Education Data System (IPEDS) definition of first professional degree

to ensure compatibility with data collected at the Federal level.

One commenter writing on behalf of a SPRE noted that professional

programs are defined and governed under the State's education and

judiciary Laws. The commenter urged that the definition of professional

program recognize a State's statutory definition as provided under

section 494C(d) of the HEA. (That section of the HEA requires a State

to develop standards that are consistent with the constitution and laws

of the State.)

Discussion: Secretary disagrees with those commenters that suggest

that the term professional program be limited to programs at or below

the associate degree level. The term professional program is commonly

accepted as encompassing programs at higher degree levels.

The Secretary agrees with the commenter that the proposed

definition of professional program be modified to recognize State law.

The Secretary believes that the IPEDS definition of first

professional degree is too narrow. Under that definition, the term

profession program would encompass only 10 fields of study. However,

the Secretary also agrees that the proposed definition was overly broad

in that it permitted overlap between what constitutes professional

education and what constitutes vocational education. The final

regulations need to make the distinctions between both types of

education clear. See also the discussion of vocational program.

Changes: The Secretary has revised the second element of the

proposed definition to maintain a clear distinction between the terms

vocational program and professional program. Thus, a professional

program is an educational program that prepares individuals for an

occupation, if that occupation requires, in part, at least a bachelor's

degree to qualify for entry. Also, the definition is expanded to allow

a SPRE to use a State's statutory definition of the term professional

program.

Vocational Program

Comments: All commenters agreed that the definition of the term

vocational program under the SPRP be the same as the definition of

vocational education under the Accreditation regulations, 34 CFR part

602. Several commenters agreed with the proposed definition of a

vocational program. Most of these commenters preferred the SPRP

definition to that proposed in the accreditation NPRM.

Many commenters writing on behalf of community colleges and

universities believed the proposed definition of vocational program was

too broad. Many of these commenters believed strongly that proprietary

institutions were primarily responsible for abuses in the title IV, HEA

programs, and it was unfair to classify associate degree programs as

vocational programs or to include any degree programs offered by

community colleges or universities within the scope and meaning of the

term vocational program.

Many commenters writing on behalf of proprietary and vocational

institutions believed strongly that the proposed definition was too

narrow. These commenters noted that most postsecondary educational

programs are employment or career oriented and that students who enroll

in those programs should be treated equally, regardless of the

institution they chose to attend. These commenters believe that the

term vocational program should include all undergraduate programs.

One commenter agreed with the propositions that the commenter

claimed were presented in the accreditation NPRM that (1) every

postsecondary educational program is technically vocational, and (2)

while all programs may be vocational in nature, not all programs are

academic. This commenter suggested that a better case be made for

classifying programs as ``academic'' or ``nonacademic.'' Under this

approach, the term vocational program would be replaced by the term

nonacademic program and the term academic program would be defined to

include any program described under proposed 34 CFR 668.8(c) (1) and

(2), that (1) a program of at least two academic years in length that

provides an associate degree, a bachelor's degree, a professional

degree, or an equivalent degree as determined by the Secretary, or (2)

a program in which each course is acceptable for full credit toward

that institution's associate degree, bachelor's degree, professional

degree, or equivalent degree as determined by the Secretary, provided

that the institution's degree requires at least two academic years of

study.

Many commenters believed that the proposed definition was too

vague. Several of these commenters suggested adopting the definition of

an ``occupationally specific program,'' as that term is defined in the

CIP and used under IPEDS. These commenters noted that the National

Center for Education Statistics and other Federal agencies use this

definition to obtain data from institutions through IPEDS for research

and other purposes.

Discussion: The Secretary agrees with the commenters that the

definition of vocational program in this part should be the same as the

definition of vocational education in the accreditation regulations, 34

CFR part 602.

The Secretary further agrees with those commenters that suggested

that the IPEDS/CIP definition, with minor modifications, is the most

appropriate definition to use in this part and in the accreditation

regulations because under that definition, educational programs are

classified in a manner that is congruent with various SPRP statutory

provisions that require a clear identification and reporting of

educational programs offered by an institution that are occupationally

specific and employment related. See, for example, the standards

described under section 494C(d)(7) of the HEA, ``If the stated

objectives of the courses or programs of the institution are to prepare

students for employment * * *;'' section 494C(d)(8) of the HEA,

``Availability to students of relevant information by institutions of

higher education, including * * * information related to market and job

availability for students in occupational, professional, and vocational

programs; and * * * information regarding the relationship of courses

to specific standards necessary for State licensure in specific

occupations;'' and section 494C(d)(14)(C) of the HEA, ``The success of

the program at the institution, including * * * with respect to

vocational and professional programs, the rates of placement of the

institution's graduates in occupations related to their course of

study.''

The Secretary disagrees with the commenter who suggested

classifying programs as ``academic'' and ``nonacademic,'' because the

Secretary disagrees with the commenter's premise that all vocational

programs are ``nonacademic'' programs.

The Secretary disagrees with those commenters who suggest that the

term vocational program excludes in some manner degree programs offered

by colleges and universities. The statute does not exempt types of

institutions; rather, as noted above, the statute clearly speaks in

terms of vocational programs offered at institutions.

Changes: A vocational program is defined as ``an educational

program, below the bachelor's level, designed to prepare individuals

with skills and training required for employment in a specific trade,

occupation, or profession related to the educational program.'' The

Secretary notes that this definition is operationally consistent with

the IPEDS/CIP definition of an ``occupationally specific program.''

Section 667.3 State Agreement

Comments: Several commenters suggested that the Secretary specify

more clearly when sanctions would be imposed on a State that failed to

establish review standards. These commenters recommended that the

Secretary impose sanctions on a State that failed to establish review

standards by the end of the second year. However, these commenters

suggested different time periods for measuring the end of that second

year. These suggestions included using the Federal fiscal year, the

State fiscal year, the calendar year, and the planning year.

Discussion: The Secretary agrees to be more specific in these

regulations with regard to when sanctions will fall on a State that

fails to establish review standards. Because the Secretary encourages

all States to participate in the program, the Secretary has chosen a

deadline date for sanctions that should enable all States to avoid that

sanction.

Changes: Section 667.3(d)(4) has been revised to provide that a

State will have until December 31, 1995 to submit State review

standards that are subsequently approved by the Secretary if the State

received fiscal year 1993 funds to carry out SPRP activities, and until

December 31, 1996 to submit those standards if the State that did not

receive fiscal year 1993 funds to carry out SPRP activities. The

deadline date for imposing sanctions has been changed from the date on

which standards are approved to the date on which approvable standards

are submitted to the Secretary for approval.

Comments: Several commenters writing on behalf of SPREs argued that

the Secretary should not impose sanctions on a State that failed to

establish review standards within two years if the reason for exceeding

the proposed two-year limit was due to (1) a State requirement to

codify those standards in State regulations, or (2) a condition beyond

the control of the SPRE.

Discussion: The Secretary disagrees that codifying standards in

State regulations is a valid reason for not imposing sanctions on a

State that fails to establish review standards. Under

Sec. 667.12(a)(2), a State establishes review standards if those

standards meet the requirements in Sec. 667.21 and the Secretary does

not approve those standards under Sec. 667.22. This process of

establishing standards is distinct from the process a SPRE may need to

follow to codify standards in State regulations. Accordingly, a SPRE

may submit the State's standards to the Secretary for evaluation while

simultaneously beginning the process to codify those standards in State

regulations as long as the State coordinates the two processes.

Moreover, as noted above, the Secretary has extended the deadline

date for submitting approved standards to the Secretary. Therefore, the

Secretary believes that no State codification process should prevent a

State from submitting its standards in a timely manner. Similarly the

Secretary believes that a State should be able to meet that deadline

regardless of conditions outside its control.

Changes: None.

Comments: Several commenters were concerned that the provision in

proposed Sec. 667.3(b)(3)(iii) that stated that ``the SPRE will keep

records or have access to records * * *'' implied that the SPRE had the

authority to (1) require nonreferred institutions to submit financial

and standards-related information to the SPRE, and (2) gain access to

the records of nonreferred institutions without first obtaining

authorization from those institutions for that access.

Discussion: It is not the Secretary's intention that a SPRE

generally have records or access to records of nonreferred

institutions, and the Secretary agrees to clarify this point.

Changes: Section 667.3(b)(3)(iii) is revised to require State

assurance that a SPRE will keep records or have access to records of

referred institutions, and will provide requested information to the

Secretary for purposes of financial and compliance audits of referred

institutions. A new Sec. 667.3(b)(3)(iv) is added to require State

assurance that SPRE will keep records or have access to records,

related to its activities under this part, and will provide requested

information to the Secretary, for purposes of program evaluations of

the manner in which the SPRE carries out its SPRP responsibilities.

Comments; A few commenters suggested that the proposal to include

in the State's agreement with the Secretary a description of the SPRE's

relationship with State-level entities be removed on the grounds that

it would unnecessarily divert SPRE resources.

Discussion: The Secretary disagrees that such relationships would

unnecessarily divert SPRE resources. To the contrary, the Secretary

believes strongly that to carry out effectively the purposes of this

part, a SPRE must avail itself of relevant information regarding the

actions that any State agency takes or plans to take with regard to a

referred institution in the State.

Changes: None.

Comments: Many commenters acknowledged that the statute requires a

SPRE to review referred institutions on a schedule that coincides with

the Secretary's schedule for recertifying institutions. Several

commenters urged the Secretary to require a SPRE to review only those

institutions that represent the highest risk for fraud and abuse. A

number of other commenters suggested that the SPRE develop additional

priorities for the review of this set of institutions that would be

compatible with the Secretary's schedule for recertifying these

institutions.

Discussion: The Secretary acknowledges that a SPRE's allotment of

funds may be inadequate to review all referred institutions on a

schedule that coincides with the Secretary's schedule for recertifying

institutions. For that reason, the Secretary proposed in Sec. 667.12(c)

and restates in that same section in these regulations, to allow a

State to establish review priorities, giving States discretion to

establish their own priorities, subject to the requirement for

coordinating with the Secretary's schedule for recertification of

institutions. The Secretary expects that, to the extent possible,

States will select ``high-risk'' institutions for review.

Changes: None.

Section 667.4 State Postsecondary Review Entity

Comments: Many commenters believed strongly that this section of

the regulations be amended to reflect unambiguously the NPRM preamble

discussion that a SPRE merely represents certain State entities.

Discussion: Under section 494A(b)(1) of the HEA, the SPRE must

represent any State entity that is responsible for (1) providing the

legal authorizations to institutions to operate in the State, for the

purposes of 1201 of the HEA, and (2) ensuring that each institution in

the State remains in compliance with the State's review standards

developed pursuant to section 494C of the HEA. The Secretary simply

repeated these statutory provisions in proposed Sec. 667.4. In the NPRM

preamble, the Secretary indicated that these statutory provisions did

not give a SPRE itself authority under this part to provide licenses to

or legally authorize institutions to operate in a State, or ensure that

all institutions in the State remain in compliance with the State's

standards. The Secretary agrees to accommodate the commenters by

including these statements in the regulations.

Changes: Section 667.4(b) has been revised to indicate that under

the SPRP, a SPRE is not authorized by the SPRP to (1) grant State

authorization to provide postsecondary education in that State, or (2)

require a nonreferred institution to comply with State review standards

established under Sec. 667.21.

Section 667.5 Criteria the Secretary Uses To Refer Institutions to a

SPRE for Review

Comments: Many commenters objected strongly to the proposed

procedures regarding the confirmation of the data used by the Secretary

to refer an institution to a SPRE for review. These commenters urged

the Secretary to discard those procedures and establish new procedures

under which a referred institution would be provided an opportunity to

challenge the referral data before the Secretary referred that

institution to a SPRE. Under the suggested procedures, the Secretary

would not refer an institution to a SPRE if that institution challenged

the referral data within the time permitted by the Secretary. The

Secretary would only refer an institution to a SPRE if the institution

did not challenge the referral data or the Secretary confirmed the

challenged referral data.

Discussion: Based on public comment and further review, the

Secretary agrees with the commenters that an institution should be

given an opportunity to challenge the accuracy of referral data before

the Secretary refers that institution to a SPRE for review. Similarly,

the Secretary agrees with the commenters that an institution should be

given an opportunity to challenge the accuracy of referral data before

a State notifies the Secretary that it wishes to review an institution

on the basis of having more current information that the institution

satisfies one or more of the referral criteria.

If an institution challenges the information on which the Secretary

or the State based its referral, the Secretary and the State presume

that records maintained in the normal course of business by ED, a

guaranty agency under the FFEL programs, a SPRE, a State licensing

agency, or another State agency are accurate unless the institution

proves to the Secretary's satisfaction that the records are not

properly maintained or are inaccurate. Thus, unless an institution can

prove that the information on which its referral is based is

inaccurate, the institution will be referred for SPRE review.

Changes: Section 667.5 has been revised to allow an institution to

challenge the accuracy of referral data before the Secretary refers

that institution to a SPRE.

Comments: With respect to the Sec. 667.5(b)(11), under which the

Secretary refers an institution that has been subject to a pattern of

complaints, several commenters urged the Secretary to remove references

to complaints from faculty, or persons other than students. These

commenters argued that the statute requires the Secretary to consider

only complaints from students. In addition, some commenters contended

that statute does not authorize the Secretary to use complaint

information collected by the SPRE for referral purposes.

Discussion: The Secretary agrees with the commenters regarding

references to complaints from ``faculty, or others.'' Under section

494C(b)(11) of the HEA, the referral criterion makes specific reference

to the complaint system a State is to develop.

The Secretary believes that the most appropriate entity to provide

to the Secretary information about a pattern of the complaints is the

SPRE.

Changes: The Secretary has limited consideration of a pattern of

complaints as a basis for referrals under Sec. 667.5(b)(11) to a

pattern of student complaints.

Comments: A number of commenters agreed that it would be wasteful

continually to refer an institution to a SPRE for review for an event

that happened once. In the NPRM, the Secretary proposed to reserve for

future consideration whether to refer an institution to a SPRE for

review under three criteria if on the basis of an earlier referral, the

SPRE conducted a review of the institution and made no significant

findings. These criteria were those relating to late audits, changes of

ownership, and the first five years of participating in a title IV, HEA

program. These commenters also suggested that this consideration ought

to be given to more or all of the referral criteria.

Discussion: The Secretary attempted to resolve this problem by

proposing remedies through legislation. However, in the Higher

Education Technical Amendments of 1993, Public Law 103-208, only one of

the three subject criteria, the criterion set forth in

Sec. 667.5(b)(10) was addressed. With regard to that criterion, an

institution participating for less than five years in a title IV, HEA

program must be referred to a SPRE, but the Secretary may determine

that the SPRE need not review the institution if the institution was

referred solely under Sec. 667.5(b)(10), and the SPRE previously

conducted a review of that institution and found no violations of the

State's standards. For the other two criteria, the Secretary believes

that section 494C(b) of the HEA requires the Secretary to refer

institutions that meet those other two requirements. However, to avoid

wasting a SPRE's time and effort, the Secretary will allow a SPRE to

place institutions on the lowest review priority if the institutions

were referred because of a late audit or a change in ownership and a

previous SPRE review found no significant violations of State

standards.

Changes: Section 667.23(a)(2) is changed to provide that the

Secretary may determine that a SPRE need not review an institution that

was referred only because it meets Sec. 667.5(b)(10), if the SPRE

previously conducted a review of that institution and found no

violations of the State's standards. In addition, a new

Sec. 667.12(c)(3)(ii) is added to permit a SPRE to place an institution

in the lowest priority for review if the institution was referred

because of a late audit or a change in ownership and a previous SPRE

found no significant violations of State standards.

Comments: A few commenters noted that the Secretary did not have

complete data pertaining to several of the referral criteria and were

concerned that the Secretary would nevertheless refer institutions to a

SPRE based on this incomplete data or on assumptions regarding this

data.

Discussion: The Secretary acknowledges that complete data for all

the referral criteria are not available. However the Secretary assures

commenters that no referral will be made based on assumptions or

incomplete data.

Changes: None.

Comments: Several commenters noted that the Secretary sometimes

withdraws an action to limit, suspend, or terminate an institution's

participation in a title IV, HEA program because the Secretary

concludes retrospectively that such an action was not warranted.

Therefore, these commenters argued that the proposed language for this

referral criterion be modified to reflect that the Secretary would not

refer an institution subject to limitation, suspension, or termination

until the Secretary completes that action.

Discussion: If the Secretary withdraws a limitation, suspension, or

termination action solely because the Secretary determines that there

was no factual basis for that action, the Secretary will not consider

that action as triggering a referral. However, if the Secretary

withdraws a limitation, suspension, or termination action against an

institution because of an action on the part of the institution, or the

promise of some current or future action on the part of the

institution, the initiation of the Secretary's action will trigger a

referral.

Changes: None.

Section 667.6 SPRE Selection of Institutions for Review

Comments: Many commenters were concerned about the SPRE's authority

under the statute to select an institution for review if the SPRE had

``reason to believe'' that the institution was engaged in fraudulent

practices. Some of these commenters believed that SPREs would abuse

this authority by using it as the basis to review any institution. A

number of commenters believed strongly that the regulations should

clarify what is meant by the phrase ``reason to believe'' and define

the term ``fraud.''

Discussion: The Secretary disagrees with the commenters that SPREs

would abuse the statutory authority that allows SPREs to review

institutions that they have reason to believe are engaged in fraudulent

practices.

With regard to a definition of fraud, in general, fraud involves

intentional misconduct to obtain a benefit.

Changes: None.

Comments: Many commenters believed that an institution selected by

the SPRE on the basis of ``more recent data'' should be afforded the

opportunity to challenge that data before the SPRE may conduct a review

of that institution. In addition, several commenters urged that

institutions selected by the State for review under proposed Sec. 667.6

should be afforded the opportunity to challenge the State's data. A few

of these commenters believed that the confirmation procedures should be

waived in cases where the State has reason to believe that institutions

were engaged in fraudulent practices.

Discussion: The Secretary agrees based on the reasons in the

discussion under Sec. 667.5.

Changes: A change has been made similar to the change in

Sec. 667.5.

Section 667.7 Notice to SPRE of Federal Actions; and Sec. 667.8 Notice

to Nationally Recognized Accrediting Agency of SPRE Actions

Comments: A number of commenters believed that the Secretary should

shorten the time period proposed in the NPRM for notifying SPREs of

Federal actions. Several of these commenters suggested shortening the

time period to 5 days, while others suggested notification within 48

hours in cases where the Secretary intended to terminate an

institution's participation in a title IV, HEA program.

A few commenters suggested that the Secretary notify the SPRE in

writing of the applicable action.

Several commenters suggested that the Secretary make clear that an

action includes a limitation, suspension, or termination proceeding.

A number of commenters urged the Secretary to (1) provide to

accrediting agencies the same information provided to SPREs, and (2)

require States to provide to accrediting agencies information regarding

SPRE reviews of referred institutions.

Discussion: The Secretary proposed 10 days in the NPRM because in

some instances the Secretary may need to confirm information before

providing it to a SPRE. The Secretary agrees that accrediting agencies

should also be notified by the Secretary and by SPREs. Accordingly, the

Secretary (1) intends to notify SPREs and accrediting agencies of

Federal actions as soon as possible and provide this notification

orally in writing, and (2) will require States to notify accrediting

agencies of SPRE actions. The Secretary further agrees to include as

Federal actions those identified by the commenters.

Changes: Section 667.7 is revised to describe an action taken by

the Secretary against an institution as one that includes a limitation,

suspension, or termination proceeding. A new Sec. 667.8 is added to

require SPREs to notify appropriate accrediting agencies of SPRE

reviews of referred institutions and SPRE findings and planned and

actual corrective actions. This section is also revised to provide that

the Secretary notifies the appropriate nationally recognized

accrediting agency of actions taken by the Secretary or another Federal

agency against an institution.

Section 667.9 Institutions With Locations in More Than One State

Comments: Many commenters objected to the proposed requirement that

an institution's branch campuses or additional locations be subject to

the standards of the State in which those branch campuses or additional

locations are located. These commenters believed strongly that an

institution's branch campuses and additional locations be subject only

to the standards of the State in which the main campus of that

institution is located. The commenters argued that it is unreasonable

and burdensome to require an institution's branch campuses and

locations to comply with different State standards.

Discussion: The Secretary disagrees with the commenters. This

provision is consistent with the requirements that an institution must

satisfy to obtain institutional eligibility under the HEA for locations

or branch campuses in States different from the main campus. For

institutional eligibility purposes, the institution must obtain a

license or other legal authority to provide postsecondary education at

the branch campus or additional location from the State in which the

branch campus or other location is physically located, not the Senate

in which the main location is physically located.

Changes: None.

Section 667.11 Allotment Formula

Comments: Two commenters writing on behalf of States that would

receive the minimum allotment under the proposed formula believed

strongly that a SPRE could not conduct reviews of referred institutions

and carry out its other responsibilities under this part within that

allotment. One of these commenters suggested the minimum allotment be

increased from $50,000 to $75,000. The other commenter contended that a

SPRE's actual costs in carrying out its responsibilities would be five

to ten times the proposed minimum amount.

A few commenters writing on behalf of States were concerned that

unanticipated and extraordinary expenses a SPRE could incur as a result

of a legal challenge from a referred institution to the SPRE's

determination that the institution should no longer participate in the

title IV, HEA programs, could prevent the SPRE from carrying out its

planned activities under this part. These commenters suggested that the

final regulations provide for an appeal to the Secretary by the SPRE

for additional funds to meet those legal costs and unanticipated and

extraordinary expenses.

Discussion: The Secretary agrees with the commenters that the

proposed minimum allotments were too low and has raised that minimum,

as suggested by one of the commenters, from $50,000 to $75,000. The

Secretary also raised the minimum allotment from $20,000 to $30,000 for

Guam, American Samoa, the Northern Mariana Islands, the Virgin Islands,

and the Trust Territory of the Pacific Islands.

The Secretary also agrees with the commenters that a SPRE should be

allowed to petition the Secretary for additional funds for

unanticipated and extraordinary legal expenses. The Secretary use funds

available for reallotment for this purpose.

Changes: The formula in Sec. 667 is revised to provide an allotment

of $30,000 each to Guam, American Samoa, the Northern Mariana Islands,

the Virgin Islands, and the Trust Territory of the Pacific Islands, and

to provide a minimum allotment of $75,000 to each of the other States.

This section has also been revised to provide that funds available for

reallotment may be used to pay for a SPRE's unanticipated and

extraordinary legal expenses.

Comments: Several commenters writing on behalf of States disagreed

with the proposed provision under which the Secretary would reallot, to

other SPREs, funds not spent by a SPRE by the end of the period for

which those funds were made available. These commenters suggested that

a SPRE be allowed to carry over to the next allotment period any

unspent funds from the current allotment period if the SPRE could

demonstrate that it was making progress in carrying out allowable

activities.

Discussion: The Secretary believes that funds allotted to a State

for a specific period be spent by the SPRE during that period. If a

SPRE cannot spend its allotment for that period, the Secretary believes

that those funds are best used by carrying out SPRP activities during

that period through reallotment to other States.

Changes: None.

Section 667.12 Application for Funds

Comments: A few commenters writing on behalf of States noted that

it would be wasteful to require a SPRE to prepare and submit on two

different occasions plans and budgets to receive its entire allotment

for a fiscal year if the SPRE was unable to complete the development of

review standards during the previous fiscal year for which it received

an allotment.

Discussion: The Secretary agrees with the comments but points out

that while this procedure can be modified, under Sec. 667.3 a State

must have submitted by December 31, 1995 or, in some instances,

December 31, 1996, standards that can be approved by the Secretary.

Changes: Proposed Sec. 667.12(d) is revised to allow any SPRE that

did not complete development of review standards to submit

simultaneously in its application for funds a plan and budget to

complete developing review standards and a plan and budget to review

referred institutions.

Comments: A commenter writing on behalf of a number of associations

suggested that each State should be required to submit a plan, not only

to develop the review standards and complaint procedures, but also to

identify information maintained by institutions and State agencies that

is relevant to the development the State review standards.

Additionally, the commenter suggested that the plan should also include

the costs of coordinating information systems and should identify

information not currently collected that is needed to demonstrate

compliance with review standards. The commenter recommended that the

proposed regulations be revised to require a State to provide the

estimated total cost to develop the SPRE's information system if the

total cost exceeds the State's fiscal year 1993 allotment. The

commenter also suggested that a State be required to provide the total

estimated cost to review all referred institutions even if the total

estimated cost of reviews exceeds the State's allotment. The commenter

believes these costs are among those that President Clinton's Executive

Order 12866 requires the Secretary to identify and consider in

determining, when developing regulations, the costs and benefits of

collecting and maintaining regulatory information.

Discussion: The Secretary disagrees with the commenter. The statute

governing the SPRP does not require a SPRE to perform the activities

suggested by the commenter, and the Secretary believes that SPREs

should not be forced to engage in those activities.

The Secretary considers these regulations to satisfy section

1(b)(6) of Executive Order 12866 that requires each agency to assess

both the costs and benefits of the intended regulations. The Secretary

further believes that it is unnecessary to require a State to provide

the estimated costs to carry out any functions of the SPRP that exceed

the State's allotment since the SPRE is not required to perform

functions in excess of that allotment.

Changes: None.

Comments: One commenter was concerned that a student or other party

may try to hold a SPRE liable for alleged harm based on his or her

reliance on an institution's continued eligibility for title IV, HEA

program funds in a case where the institution is referred to a SPRE

because the SPRE did not have sufficient funds to conduct that review.

The commenter suggested that a provision preventing any liability from

falling on the SPRE for failing to review an institution because of

inadequate funding be added to the regulations.

Discussion: While nothing can prevent a person from suing a SPRE

for the reasons cited by the commenter, in the Secretary's view, there

would be no legal basis for charging a SPRE with any liability under

the facts described by the commenter.

Changes: None.

Comments: Most commenters agreed with the Secretary that the SPRE's

review priorities should reflect the objectives of protecting students,

saving tax dollars, and promoting educational quality, but differed on

the methods to best accomplish those objectives. Many of these

commenters agreed strongly with the proposal in the NPRM that a SPRE be

provided maximum flexibility in selecting institutions to review,

except as provided by the statute; i.e., under section 494A(b) of the

HEA, a SPRE must review referred institutions on a schedule that

coincides with the Secretary's schedule for recertifying those

institutions. Several of these commenters suggested that the SPRE be

required to publicize its review priority system to assure consistent

selection of referred institutions under that system.

Many commenters believed strongly that a SPRE should first review

referred institutions that meet multiple referral criteria. Many other

commenters believed strongly that a SPRE should consider, in addition

to the referral criteria, other factors, such as data measuring student

outcomes (for instance, graduation and placement rates), and other

information a State might have that would indicate that a referred

institution was not properly providing its educational programs.

Several commenters suggested that the Secretary set the review

priorities to ensure that all SPREs select institutions on the same

basis. A number of commenters contended that an overwhelming number of

institutions scheduled by the Secretary for recertification would also

meet a referral criterion. Those commenters feared that this pool of

institutions would be so great that a SPRE would never be able to

select institutions under the State's review priority system. To

alleviate this problem, the commenters recommended that the NPRM be

revised to allow a SPRE to select institutions for review under the

State's priority system from among the pool of referred institutions

the Secretary scheduled for recertification.

Discussion: If a State's allotment is less than will be needed to

review all referred institutions, the Secretary believes that a SPRE is

in a better position than the Secretary to determine which institutions

to select for review from among all the referred institutions. The

Secretary also believes that any of the review priorities suggested by

the commenters could be effective in selecting ``problem institutions''

for review under this program, provided that those priorities reflect

the objectives of protecting students, saving tax dollars, and

promoting educational quality. Therefore, the Secretary will not

require a SPRE to adopt any of the commenters priority suggestions for

establishing priorities.

The Secretary agrees with the commenter who noted that for some

States for some years, the number of institutions scheduled for

recertification by the Secretary may exceed the money allotted to the

State for reviews. Under that circumstance, the SPRE will use its

priority criteria to select for review only institutions scheduled for

recertification by the Secretary.

The Secretary agrees with the commenters who recommended that a

SPRE should make known its review priorities.

Changes: Section 667.(23)(b) is revised to require a SPRE to make

available information regarding its review priority system after its

plan submitted under Sec. 667.12 is approved by the Secretary and prior

to conducting reviews of referred institutions. Also, in response to

comments regarding review priorities under Sec. 667.5, a new

Sec. 667.12(c)(3)(ii) is added to permit a SPRE to place an institution

in the lowest priority for review if the institution was referred

because of a late audit or a change in ownership and a previous SPRE

review found no significant violations of State standards.

Comments: Several commenters suggested that the final regulations

contain procedures, in addition to the reallotment procedures, under

which a State could request a supplemental allotment to carry out the

requirements of the State Postsecondary Review Program.

Discussion: The Secretary disagrees with the commenters. If a State

needs additional funds and those funds are available through

reallotment, the Secretary will allow States to apply for those funds.

Funds for the program's purposes are provided through annual,

discretionary appropriations from Congress. The program is not an

entitlement. The Secretary does not have the authority to award

``supplemental allotments'' beyond reallotment through these

regulations.

Changes: None.

Section 667.14 Allowable Costs and Activities

Comments: Several commenters suggested that information sharing be

added to the list of allowable activities.

Discussion: The Secretary agrees.

Changes: Section 667.14(c) is revised to include as an allowable

direct cost sharing of information by a SPRE with other SPREs, the

Secretary, other State agencies, accrediting agencies, institutions,

private organizations, and others.

Comments: Several commenters suggested that the training of

employees of private organizations, nationally recognized accrediting

agencies, and peer review systems by considered allowable activities

when the training is necessary for those employees to perform required

activities contracted by a SPRE.

Discussion: The Secretary believes that in establishing a contract

with a private organization, nationally recognized accrediting agency,

or peer review system, the SPRE may include in the contract any

training that is required for the contracted organization to carry out

required activities, and the SPRE may pay for that training with SPRP

funds.

Changes: None.

Section 667.15 Fiscal Procedures and Records

Comments: One commenter recommended that an audit of a SPRE's

activities be performed annually instead of at least once every two

years as proposed in the NPRM. The commenter indicated that annual

audits are needed to protect Department and taxpayer interests in light

of the fact that the SPRP is a new program.

The commenter also stated that annual audits would ensure that SPRE

funds supplement, not supplant, existing licensing or review functions

conducted by the State. The commenter further argued that SPREs should

have annual audits because the HEA now requires institutions and others

to have audits performed annually.

Discussion: The Secretary disagrees. The Secretary believes that

more frequent audits are not necessary to monitor adequately the

activities of a SPRE. The Secretary believes that requiring a SPRE to

have an annual audit would divert funds away from performing reviews or

referred institutions. Also, in the case of States that receive the

minimum allotment, the cost of an audit would represent a significant

portion of the allotment.

Changes: None.

Section 667.16 Supplement, Not Supplant, Requirement

Comments: A few commenters recommended that the Secretary review

compliance with this requirement on a case-by-case basis. Several

commenters suggested that a State document its activities and functions

that are in place prior to the implementation of the program and be

able to demonstrate to the Secretary that SPRE activities did not

replace those activities or functions. A few commenters recommended

that the Secretary monitor the allocation of general State funds to

ensure that those funds either matched or exceeded the State's

expenditure levels before the establishment of the SPRE.

Discussion: The Secretary believes that a State should maintain

adequate documentation to show, on audit, that the funds spent for SPRE

activities supplemented, but did not supplant, existing State licensing

or review functions.

Changes: None.

Section 667.21 State Review Standards

The Secretary received many comments regarding the framework,

proposed in Sec. 667.21(b), under which a State develops review

standards. In proposing the framework, the Secretary intended to

achieve the following objectives:

(1) To recognize and account for the diversity of institutions that

would be subject to the standards by allowing States to establish

different standards for those institutions;

(2) To facilitate effective enforcement of State standards by

requiring States to quantify certain standards, and by requiring States

to specify the records and information an institution would need to

maintain for those standards;

(3) To limit the scope of the quantitative standards by allowing a

State to apply those standards only to regular students, i.e., students

enrolled at an institution for the purpose of obtaining a degree,

certificate, or other recognized credential offered by the institution;

and

(4) To introduce a level of rigor in the standards by requiring a

State to determine whether a comparable title IV, HEA program standard

would be an acceptable State standard.

Quantified Standards

Comments: Many commenters writing on behalf of institutions and

several accrediting bodies objected to the requirement proposed in the

NPRM that a State quantify certain review standards by establishing

``acceptable percentages'' for those standards. Many of these

commenters believed strongly that this requirement constitutes an

``enforcement mechanism'' and thus violates section 494C(k) of the HEA.

A number of commenters acknowledged that the statute allows a State to

establish quantitative standards but did not believe that the Secretary

has the authority under the statute to require a State to develop

quantitative standards. A number of commenters believed that

quantitative standards were too restrictive and feared that States

would develop such standards without regard to the mission of

institutions. Several commenters believed that enforcement of

quantified standards would impinge on institutional autonomy and force

institutions to shift their missions away from serving high-risk

students. A number of commenters believed that standards reduced to

``acceptable percentages'' would either by arbitrary, and probably

without legal defense, or statistical, and would, be definition, place

a number of institutions below the acceptable levels, regardless of

whether the performance of those institutions is otherwise outstanding.

Still other commenters argued that standards based on minimum

``acceptable percentages'' would create a safe harbor for institutions

that might otherwise be judged to be substandard. By achieving the

numerical minimum, such institutions would be able to tie the SPREs'

hands and escape adverse action that might otherwise be warranted

because, under the NPRM, the SPRE must consider those institutions to

be in compliance with the review standard.

Commenters writing on behalf of States and student legal services

organizations agreed with the proposal. These commenters believed

strongly that objective, quantified standards are essential for

meaningful enforcement and regulatory review.

Discussion: The Secretary disagrees strongly with the commenters

who contend that the proposed requirement that a State quantify certain

review standards by establishing acceptable percentages for those

standards, constitutes an ``enforcement mechanism'' in violation of

section 494C(k) of the HEA. That section of the HEA states, ``Nothing

in this subpart shall restrict the authority of the States to establish

mechanisms to enforce the standards established under subsection (d) or

require the States to establish specific mechanisms recommended by the

Secretary.''

The restriction on the enforcement of standards in section 494C(k)

is based upon the establishment of standards under section 494C(d).

Therefore, the restriction on the enforcement of standards has no

bearing on the establishment of those standards.

The Secretary disagrees with those commenters who indicated that

the Secretary is without authority to require States to develop

quantitative standards. The nature of the standards imposed by statute

is such that without quantifiable measures, the standards would be

meaningless.

While the Secretary understands the concerns of some of the

commenters that States might develop standards without regard to

institutional mission or that enforcement of quantified standards could

either force institutions away from serving high-risk students, or

allow some institutions that would otherwise be judged to be

substandard under other measures to escape State oversight, the

Secretary believes that quantitative student outcome standards are an

extremely valuable measure of the success of an institution. Quite the

contrary to the views of the commenters, the Secretary believes that

the imposition of quantifiable standards will have the effect of

improving institutional quality and will protect high-risk students

from unscrupulous substandard institutions. Further, quantifiable

standards will assist prospective students and their parents in making

choices about attendance at institutions. The Secretary further notes

there is nothing in this part that would preclude a State from taking

into account the fact that an institution serves high-risk students.

Changes: No changes were made regarding the quantifiable standards

in Sec. 667.21(a)(17). However, the reader is referred to the

discussion under the heading ``Relationship between tuition-and-fee

charges and remuneration'' for information regarding changes made to

the standard described in Sec. 667.21(a)(9).

Different Standards for Different Types of Institutions

Comments: Many commenters writing on behalf of proprietary

institutions objected strongly to the proposal to allow a State to

develop different standards for different types or categories of

institutions. These commenters argued that Congress intended that all

institutions be judged under the same standards, except as explicitly

provided in the statute.

Many other commenters agreed strongly with the proposal. A number

of these commenters urged the Secretary to require, not simply allow,

States to develop different standards for different types of

institutions to ensure that all SPREs take into consideration the

nature and mission of institutions.

Several comments urged the Secretary to allow States to develop

different standards only for different categories of institutions to

protect institutions from being placed in arbitrary categories by

States and to promote nationwide consistency in identifying categories.

The commenters recommended that institutions be categorized according

to (1) their for- or not-for-profit status, (2) whether they grant

degrees, and (3) the levels and types of degrees or educational

programs they offer.

Discussion: The Secretary believes that State standards should

reflect the mission of institutions and that enforcement of such

standards will allow SPREs to accomplish most effectively the purpose

of the SPRP. The fact that the SPRP is a program designed to strengthen

the State role in the program integrity triad means that the program is

intended to foster the flexibility that inevitably results from

differences among the States. The Secretary reiterates that States are

provided flexibility in developing standards. Thus, a State may

categorize institutions or educational programs in a manner that the

State deems appropriate.

Changes: None.

Regular Students

Comments: Commenters generally agreed that a State's standards

should be applied only to regular students at institutions. A few

commenters opined that quantified standards would be misleading and

irrelevant to institutions that offer open admissions because many

students who attend those institutions do not aspire to attain a

certificate or a degree, yet have a specific educational goal.

Discussion: The Secretary believes that in evaluating student

outcomes of an institution, and most particularly with regard to

institutions offering open enrollment, the evaluation should be based

on regular students because they are the ones who can qualify for title

IV, HEA funds, the protection of which is one of the primary purposes

of SPRP.

Changes: None.

Comparable Title IV, HEA Program Standard as an Acceptable State

Standard

Comments: Several commenters objected to the proposal to require a

SPRE to consider the relevance of a title IV, HEA program standard as a

requirement in establishing the State's standards. The commenters

believed that acceptance of Federal standards, and application of those

standards, by a SPRE would have an adverse effect on institutions at

which a small percentage of students receive assistance under the title

IV, HEA programs.

Several other commenters believed the proposal is a reasonable

approach because institutions that participate in the title IV, HEA

programs already have to comply with these standards.

Several other commenters believed that this provisions should be

expanded to require a SPRE to adopt comparable State licensure

standards if those standards are more rigorous than comparable title

IV, HEA program standards. The commenters argued that if a SPRE adopts

review standards that are less rigorous than the State licensing

standards, institutions might later argue persuasively to the State

legislature to reduce the State licensing standards to the level of

lower SPRE standards on the grounds that varying standards would be

onerous and confusing. At the very least, these commenters suggested

that the Secretary require States to establish standards that are at

least as rigorous as the comparable title IV, HEA program standards.

Discussion: The Secretary is giving SPREs latitude to develop

standards and expects States to take into account comparable title IV,

HEA program standards as they develop their own standards. The

Secretary does not agree that this program will have an adverse impact

on institutions at which only a few students receive title IV, HEA

program assistance (1) because the SPRP only requires a SPRE to

establish standards for referred institutions, and (2) because any

standard that a SPRE establishes that is comparable to a title IV, HEA

program requirement already applies to those institutions as title IV,

HEA program participants. The Secretary agrees, however, with the

commenters who noted that it does not make sense for a State to adopt

standards under the SPRP that are weaker than its State licensing

standards. Nevertheless, this is a matter that must be resolved among

the appropriate State authorities.

Changes: None

Records and Information an Institution Must maintain to Demonstrate to

SPRE its Compliance With the State's Standards

Comments: Many commenters strongly urged the Secretary to make

clear in the final regulations that a SPRE may not require an

institution that has not been referred by the Secretary to the SPRE for

review to maintain these records and information. A number of these

commenters suggested if that institution is later referred by the

Secretary to the SPRE for review, the SPRE should be required to assist

the institution in generating the required information, or that the

SPRE should be required to allow the institution a reasonable time to

comply with the State's standards and recordkeeping requirements.

Discussion: If an institution is referred to a State for review

under the SPRP, the institution must satisfy the State's standards. If

the institution was not otherwise required to keep records relating to

its compliance with State Standards, and it did not keep those records,

the Secretary agrees that the State should allow an institution a

reasonable period of time to obtain records and information to enable

the institution to demonstrate its compliance with the State's

standards.

Changes: Section 667.21(b) is revised to require that if a referred

institution was not otherwise required to keep records relating to its

compliance with State standards, and it did not keep those records, the

SPRE allow the institution a reasonable period of time to obtain those

records to enable it to demonstrate its compliance with the State's

standards.

Relationship Between Tuition-and-Fee Charges and Remuneration

Comments: Many commenters objected to the proposal that a State

establish an acceptable percentage for the relationship between the

tuition and fees charged by an institution for an educational program

and the amount of money that a student who successfully completes that

program actually earns. A number of commenters believed strongly that

this approach would be administratively unmanageable for comprehensive

institutions that offer a broad spectrum of programs, including

programs in liberal arts, sciences, teacher education, engineering, and

nursing.

Many commenters believed that the Secretary does not have the

authority under the statute to require a SPRE to make a judgment

regarding the reasonableness of the tuition and fees charged by an

institution. Many of these commenters contended that the standard, as

proposed in the NPRM, was tantamount to price-fixing. The commenters

argued that this standard, as articulated in the statute, simply

requires an institution to disclose to students and prospective

students information on program costs and on earnings that a graduate

of that program could reasonably be expected to make in an occupation

related to that program.

Other commenters asserted that relating the amount of tuition and

fees to the amount of money a graduate of an educational program earns

assumes incorrectly that (1) the institution alone is responsible for a

student's education and employment, and (2) salary is the only reason

for education. The commenters pointed out that a student is also

responsible for his or her education and that the student may choose a

job that is rewarding in ways other than money.

A few commenters pointed out that States sometimes establish the

tuition and fees for certain programs at public institutions. The

commenters urged the Secretary to exempt these programs from this

standard.

Many commenters contended that States do not have adequate data on

wages and salaries either to establish an acceptable percentage or

determine that an institution met that percentage. These commenters

were concerned that the results of surveys conducted by an institution

of its graduates' earnings would not be reliable. Finally, many

commenters argued that any formula governing the relationship between

tuition and remuneration consider State subsidies provided to public

institutions to ensure a fair comparison of tuition and fees between

like programs offered by all types of institutions.

A number of commenters agreed with the proposal.

Discussion: The Secretary notes that this requirement only applies

to vocational programs and therefore does not apply to programs such as

liberal arts programs.

The Secretary acknowledges that commenters are correct when they

note that many variables influence whether a person obtains a

particular job. However, the Secretary believes that one of the most

important factors is the job training of that individual. Further,

institutions that purport to offer education to prepare students for

occupations ought to be able to substantiate that the education they

provide does just that. In addition, for students who receive loans for

their education, it is reasonable to expect that they will qualify for

positions that will enable them to repay those loans. For these

reasons, the Secretary disagrees with the commenters who categorized

this standard merely as a student consumer information disclosure

requirement or that it is tantamount to price fixing. More

appropriately, under this standard, a SPRE must determine whether an

institution's tuition and fees are too high, given the remuneration

that its graduates can reasonably expect to receive.

Finally, based on public comment and further review, the Secretary

has decided that an institution should not be required to survey its

graduates to obtain employment and wage data; rather, a SPRE may rely

on local, State, or Federal employment and wage data to determine the

institution's compliance with this standard.

Changes: Section 667.21(b)(4)(i) is revised to require a State to

quantify this standard by establishing criteria (rather than just a

percentage, as in proposed Sec. 667.21(b)(4)(i)) under which a SPRE

determines if the tuition and fees charged by an institution for a

vocational program are excessive compared to the amount of money that a

student who successfully completes that program may reasonably be

expected to earn. Section 667.21(a)(9)(i) is changed to clarify that

this is the purpose of the standard. In addition, Sec. 667.22(b)(5) is

revised to require a State to specify the methods and data used by the

SPRE to determine if the tuition and fees charged by an institution for

a vocational program are excessive.

Assessing a Student's Ability to Complete the Program

Comments: Many commenters objected to the proposal that a SPRE

judge the effectiveness of an institution's method to assess that a

student has the ability to complete successfully the educational

program for which he or she applied. Many commenters argued that there

is no correlation between an institution's assessment method and the

graduation rate of students in an educational program. The commenters

cited many reasons that a student might fail to complete a program that

is unrelated to the student's academic ability, including motivation,

personal finances, family obligations, a change in employement, and

others, and suggested that the proposed requirement be removed. Many

other commenters contended that the Secretary exceeded statutory

authority in proposing this requirement. A number of these commenters

argued that requiring a SPRE to judge the effectiveness of an

institution's assessment method could lead to the use of mandatory,

standardized tests, or other methods that require profiles of program

completers, for determining a student's admission into a program. These

commenters believed the use of these methods would lead institutions

whose mission is to serve high-risk students to change their mission.

Several other commenters suggested that the proposed standard be

expanded to (1) include other positive outcome measures, or (2) allow a

SPRE to consider the rigor, fairness, and consistent application of an

institution's assessment method in judging that method.

A number of commenters agreed with the proposal but suggested that

an SPRE's judgment regarding the effectiveness of an institution's

assessment method should be limited to vocational programs. Like many

other commenters, these commenters contended that there is little

direct correlation between student success and admissions standards for

degree programs. One of these commenters argued that there is a much

stronger correlation between student success and admissions criteria in

vocational programs than in degree programs because of the shorter

length and more narrow focus of vocational programs. The commenter

believed there is a greater need to assess the adequacy of the

admission standards for vocational programs because the population

served by those programs tends to be less prepared for postsecondary

education than students in degree programs. Another commenter believed

strongly that an extraordinarily high student drop-out rate (1) may

indicate other serious problems with an educational program, including

the poor quality of its teachers or the lack of necessary equipment,

and (2) invariably indicates enrollment of students unable to

understand or handle course material.

A few other commenters believed that the ``ability-to-benefit''

provision in the title IV, HEA program regulations satisfies the

statutory requirement under this part that an institution have a method

to assess a student's ability to complete successfully an educational

program.

Discussion: The Secretary is convinced that many points made by the

commenters are valid, and that other standards adequately accomplish

the Secretary's originally stated objectives in proposing this

standard. The Secretary clarifies, however, that the standard described

in Sec. 667.21(a)(3) applies to all regular students at an institution,

not just those students who qualify to receive financial assistance

under the title IV ability-to-benefit provisions.

Changes: Proposed Sec. 667.21(a)(4) is removed.

Suggestion to Augment the Standard Proposed in Sec. 667.21(a)(7)

Concerning Compliance With Health and Safety Standards

Comments: Most commenters objected to the suggestion in the

preamble to the NPRM for views on whether a SPRE, as part of its

review, should determine an institution's compliance with statutes and

regulations governing access to disabled individuals. They considered

the proposal to be beyond the scope and purpose of the SPRP.

Discussion: Based on comments and further review, the Secretary

agrees not to include this provision. Disabled individuals are

protected under applicable statutes without the additional provision

for a SPRE review in that area.

Changes: None.

Standard in Proposed Sec. 667.21(a)(9) Governing Institutional Plans

for Closure

Comments: A number of commenters, including several commenters

writing on behalf of States, urged the Secretary to define the term

``financially at risk'' as that term applies to the standard under

which a SPRE would require an institution to provide for the

instruction of students and the retention of records in the event the

institution closes.

Discussion: The Secretary believes that a SPRE may view an

institution to be financially at risk if it does not satisfy the

factors of financial responsibility in Sec. 668.15 of the Student

Assistance General Provisions regulations, 34 CFR part 668.

Changes: None.

Standard in Proposed Sec. 667.21(a)(14)

Comments: A number of commenters suggested specific methods for

establishing acceptable percentages for student completion and

graduation rates, placement rates, withdrawal rates, and licensure

examination pass rates.

One commenter opined that it was critical that quantitative

measures be consistent within and among all States and believed that

the Student-Right-to-Know regulations, when published, will provide a

uniform basis for calculating student graduation rates. The commenter

recommended a coordinated study by the research community to develop

acceptable percentages for the quantified standards and suggested that

the implementation of those standards should be delayed for 12 to 18

months pending the results of that study.

Several commenters urged the Secretary to remove the proposed

references to the NOICC Master Crosswalk in the standard regarding the

placement rate of an institution's graduates in occupations related to

their educational program. The commenters believed that any method

under which the NOICC Master Crosswalk could be used to code

employment status would be extremely complex and likely to yield false

precision at great cost.

Discussion: The Secretary agrees that the Student-Right-to-Know

methodology will provide a uniform basis for calculating student

graduation rates, and encourages States to develop consistent methods

for calculating student withdrawal rates, placement rates, and

licensure examination pass rates to reduce burden on institutions. The

Secretary acknowledges, however, that some States have developed robust

student information systems, and does not intend to force those States

to use specific methodologies for computing rates to measure student

outcomes. Therefore, the Secretary disagrees with the commenters who

suggest (1) that it is critical that all States adopt the same

quantitative measures, or (2) a delay in implementing those measures is

warranted.

Finally, the Secretary disagrees that using the NOICC Master

Crosswalk (Crosswalk) to code employment status would either be complex

or costly. T

This text is long and has been trimmed here. Open the source document for the complete record.