State Postsecondary Review Program; Proposed Rule DEPARTMENT OF EDUCATION

SUMMARY: The Secretary proposes 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 in which

the State designates a postsecondary review entity (SPRE) that is

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 reviews is to determine

whether those institutions should continue to participate in the Title

IV, HEA programs. The SPRE reviews institutions on the basis of

standards developed in consultation with institutions located in the

State. The Secretary reimburses SPREs for costs they incur under the

SPRP.

DATES: Comments must be received on or before March 21, 1994.

ADDRESSES: All comments concerning these proposed regulations should be

addressed to John Kolotos, U.S. Department of Education, 400 Maryland

Avenue, SW., room 4318, ROB-3, Washington, DC 20202-5244.

A copy of any comments that concern information collection

requirements should also be sent to the Office of Management and Budget

at the address listed in the Paperwork Reduction Act section of this

preamble.

FOR FURTHER INFORMATION CONTACT: John Kolotos. 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: In order to approve a postsecondary

education institution to participate in the student financial

assistance programs authorized under Title IV of the HEA (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 and

other Federal statutes, 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 educational program

beyond the secondary level in the State in which it is located. Thus,

the statutory definition of an institution of higher education provides

the framework for a shared responsibility among accrediting agencies,

States, and the Federal government to ensure that the ``gate'' to the

Title IV, HEA programs is opened to only 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, the triad has not always worked as

effectively as it should to ensure educational quality, nor has it

served as an effective deterrent to abuse by institutions participating

in the Title IV, HEA programs. For several years, certain institutions

participating in the Title IV, HEA programs have failed to provide

students with education or training of an acceptable level of quality;

they have also failed to treat students fairly. In addition, they have

failed to meet acceptable standards of financial responsibility and

administrative capability and to adequately protect Title IV, HEA

program funds entrusted to them. The institutions that have engaged in

these abusive practices are not restricted to a particular sector of

higher education. Rather, the abuses have been found in all types of

institutions participating in the Title IV, HEA programs, including

those in the private non-profit and public sectors of higher education

as well as those in the proprietary sector.

At the same time, gatekeeping functions have not been carried out

effectively. For example, some accrediting agencies have not taken

sufficient care to ensure the quality of the education or training

provided by the institutions or programs they accredit or to protect

student interests when they accredit particular institutions or

programs. Moreover, some States have also not taken sufficient care to

ensure the quality of the education or training provided by the

institutions they authorize or license to operate in the State or to

protect student interests. Finally, the Federal government's management

of its responsibilities to determine eligibility and to certify

institutions to participate in the Title IV, HEA programs has not

always been adequate to prevent abusive practices at institutions that

participate in those programs.

Consequently, in the Higher Education Amendments of 1992, Public

Law 102-325, Congress amended the HEA to provide for a new part H of

Title IV entitled ``Program Integrity Triad.'' Under that part, States

and accrediting agencies are required to assume major new oversight

responsibilities, and States, accrediting associations, and the

Secretary are linked to create a stronger and more coordinated

evaluation of institutions that participate or wish to participate in

the Title IV, HEA programs. The Secretary believes that the most

appropriate approach to this coordinated evaluation of institutions by

the three components of the triad is a complementary one with each

component 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. For States, which already had responsibility for determining

that institutions have the legal authority to operate within the State,

the HEA added a new focus: reviewing institutions that trigger certain

statutory review criteria. The focus of the Secretary's evaluation of

institutions is the administrative and financial capacity of those

institutions to participate in the Title IV, HEA programs.

The statute allocates legal responsibility among the entities that

compose the program integrity triad. While specific statutory

responsibilities for the three triad entities may overlap, when viewed

as a whole the triad brings together in a coordinated fashion three

different but very important aspects of institutional review. Within

this statutory scheme, the Secretary has sought to assure that the

gatekeeping system operates as efficiently as possible, with maximum

integration among the three triad entities and without unnecessary

burden on postsecondary institutions. In order to assist the Secretary

in designing a final regulation that achieve these goals, the Secretary

specifically requests comment on the following questions:

(1) In several areas, the statute specifically requires each triad

entity to evaluate an institution under the same or similar standards.

For example, a SPRE and an accrediting agency may establish different

standards for evaluating the financial responsibility of an institution

or for evaluating the success of an institution's educational program.

Thus, a reviewed institution would need to satisfy the SPRE's and the

accrediting agency's standards even though those standards address the

same areas. How should final regulations be structured to both reduce

the burden on institutions and enable the triad entities to carry out

effectively their statutory functions?

(2) Should the final regulations be more explicit in identifying

levels, characteristics, or definitions for any of the assessment or

review criteria that a triad entity is expected to consider in its

evaluation of an institution?

Subpart 1 of part H creates a new program, the State Postsecondary

Review Program, or SPRP, under which State oversight of institutions

participating in the Title IV, HEA programs is strengthened. Subpart 2

of part H establishes procedures and criteria under which the Secretary

recognizes an accrediting agency as a reliable authority as to the

quality of the education or training offered by institutions that the

agency accredits. Lastly, Subpart 3 specifies the procedures the

Secretary uses to determine whether an institution meets the

eligibility requirements and has the administrative capacity and

financial responsibility to administer the Title IV, HEA programs.

Along with this Notice of Proposed Rulemaking, the Secretary

publishes in the Federal Register the NPRM to implement the accrediting

agency provisions in Subpart 2 of part H of the HEA. This provides

interested parties the opportunity to comment on the SPRP and

accreditation NPRMs in a coordinated way. The Secretary also intends to

publish in the Federal Register a NPRM implementing subpart 3 of part H

of the HEA before the date the proposed regulations for Subparts 1 and

2 of part H of the HEA become final regulations.

Under the SPRP, each State designates a single SPRE that reviews

institutions participating in the Title IV, HEA programs that are

referred to the State for review by the Secretary under specific

statutory provisions.

The SPRE reviews referred institutions using standards that it must

develop in consultation with institutions located in the State. Areas

that those standards must cover are also set forth in specific

statutory provisions. Before a SPRE may review an institution under

those standards, the standards must be evaluated by the Secretary and

not disapproved by the Secretary.

If a SPRE finds that an institution it reviews does not satisfy the

State's review standards, the SPRE may require the institution to take

prompt actions to bring itself into compliance with the State's

standards, or the SPRE may determine that the institution should no

longer participate in the Title IV, HEA programs. The Secretary

recognizes that, in the former case, an institution may have cause for

not meeting the State's review standards. Therefore, the Secretary

proposes that SPREs provide the institution the opportunity to present

compelling evidence that demonstrates that its failure to meet the

State's review standards does not warrant any further action by the

SPRE.

Where the SPRE determines that an institution should no longer

participate in the Title IV, HEA programs, the SPRE notifies the

Secretary of that determination; and, as required under section 494C(h)

of the HEA, the Secretary immediately terminates the institution's

participation in the Title IV, HEA programs.

In implementing their role under the State Postsecondary Review

Program, the Secretary expects States to develop rigorous educational,

administrative, and financial review standards and to conduct thorough,

impartial reviews of referred institutions under those standards.

Therefore, the Secretary anticipates that SPRE reviews will lead to

increases in the quality of education and training provided by

institutions that comply with or ascribe to the State's review

standards. The Secretary also anticipates that, through reviews of

referred institutions, SPREs will help to reduce fraud, waste, and

abuse in the Title IV, HEA programs by taking actions to effect the

termination of institutions that (1) fail substantially to meet the

State's review standards, and are recalcitrant in taking actions to

come into compliance with those standards, or (2) are involved in

fraudulent practices.

These proposed regulations were subject to the negotiated

rulemaking process in accordance with section 492 of the HEA. Under the

negotiated rulemaking process, the Secretary convened four regional

meetings in September 1992 to obtain public involvement in the

development of these proposed regulations. The meetings were held in

San Francisco, Atlanta, New York, and Kansas City. Before convening the

meetings, the Secretary held a meeting in Washington, DC in August 1992

to invite comments from interested parties as to the key issues that

should be addressed at the regional meetings. At the four regional

meetings, the Secretary provided attendees with a list of issues that

needed to be addressed in these proposed regulations. A summary of the

responses of the attendees is contained in Appendix A to these proposed

regulations.

Individuals and groups who attended the regional meetings nominated

individuals to participate in the negotiated rulemaking process. The

Secretary selected negotiators from the list of nominees to reflect all

the groups that are involved in the Title IV, HEA programs. With regard

to these proposed regulations, the Secretary chose negotiators who

reflected the diversity of State higher education authorities, the

interests of accrediting bodies, national organizations of student

financial aid administrators, institutions of higher education, and

students.

In accordance with section 492(b) of the HEA, the Secretary

prepared draft proposed regulations and negotiated provisions of the

draft with the negotiators. Two negotiating sessions were held: one in

April 1993 and one in June 1993. During the second session, the

negotiators elected not to reach consensus on any of the provisions

included in this notice of proposed rulemaking until they had an

opportunity to review all the proposed regulations implementing the

Program Integrity Triad. On September 20, 1993, the Secretary convened

a meeting and distributed to the negotiators the proposed regulations

for each part of the Program Integrity Triad. The negotiators who

attended this meeting could not reach consensus on the provisions

included in this proposed regulation. However, several negotiators

submitted written comments on the draft regulations, and many of those

comments were incorporated in this notice of proposed rulemaking.

Provisions Proposed by the Regulations

The following discussion reflects the proposed provisions governing

the State Postsecondary Review Program. The provisions are discussed in

the order in which they appear in the proposed regulations. If a

provision applies to more than one section or is included in more than

one section, it is discussed the first time it appears with an

appropriate cross-reference to its other appearances. In addition, each

section of the proposed provisions references or contains a description

of the applicable statutory requirements.

In developing these provisions, the Secretary has regulated

narrowly to the statute, except where the Secretary was required by the

statute to promulgate specific regulations or where the Secretary

determined that regulations were required to implement the statute. In

this regard, the Secretary requests respondents to comment only on

provisions where the Secretary has made a regulatory proposal that

interprets or implements the statute, rather than on provisions that

are statutorily required and cannot be changed by the Secretary.

Section 667.1 Scope and Purpose.

The purpose of the State Postsecondary Review Program is to

strengthen State oversight of institutions participating in the title

IV, HEA programs through the development of State standards for those

institutions, and State review of referred institutions using those

standards. States will be reimbursed by the Secretary for developing

these standards and conducting these reviews. However, a State will not

be required to incur any cost or carry out any activity if the State

will not be reimbursed for that cost or activity.

Several negotiators were concerned that SPREs had the authority

under the SPRP to select any institution for review. Reviews by a SPRE

are limited to those institutions that currently participate in the

title IV, HEA programs that the Secretary or a State identify as

meeting one or more of the review criteria in section 494C(b) of the

HEA, and those institutions a State has reason to believe are engaged

in fraudulent practices. As provided in section 494C(a) of the HEA, a

State must request approval from the Secretary before it may conduct a

review of an institution the State determines either meets a statutory

referral criterion or is engaged in fraudulent practices. If the

Secretary approves the State's request or does not disapprove that

request within 21 days, the SPRE may conduct a review of that

institution under this part.

Although the standards that a State develops will be used for the

purpose of reviewing referred institutions under this program, nothing

in this part or in the statute authorizing the SPRP, title IV, part H,

subpart 1 of the HEA, precludes a State from using these developed

standards for determining whether to grant a license to or otherwise

authorize an institution to provide postsecondary education in the

State. However, if a State reviews nonreferred institutions under the

standards developed for the SPRP, reviews of those institutions will

not be reimbursed. Moreover, the State may not take an action against

nonreferred institutions under the SPRP.

Section 667.2 Definitions.

Education and general expenditures. The proposed definition of this

term was copied from the statutory definition set forth in section

312(a) of part A of title III of the HEA. Part A of title III

authorizes the Strengthening Institutions Program.

Professional program. The definition of a professional program

applies directly to the review standards described in sections

494C(d)(8)(A) and (14)(C) of the HEA and Secs. 667.21(11)(1) and

(18)(iii), respectively. The Secretary proposed to define a

``professional program'' as an undergraduate or graduate educational

program that prepares individuals for an occupation, if that

occupation--

(1) Is listed in a Federal educational program classification

manual;

(2) Requires at least an associate 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.

Several negotiators argued that many educational programs that

would satisfy this proposed definition of a ``professional program''

would also satisfy the proposed definition of a ``vocational program''.

Those negotiators believed that, for purposes of developing standards

under the SPRP, there should be a clear distinction between the

classification of these programs.

Vocational program. The definition of ``vocational program''

applies directly to two review standards a State must develop under

section 494C(d) of the HEA and Sec. 667.21 of these regulations. Under

the first standard, described in section 494C(d)(7) of the HEA and

repeated in Sec. 667.21(a)(10), if an institution offers a program that

is designed to prepare students for gainful employment, the State must

develop a standard to determine whether the tuition and fees charged

for that program by the institution are reasonable given the amount of

money that a student who successfully completes that program may

reasonably be expected to earn. Under the second review standard,

described in section 494C(d)(14)(C) of the HEA and repeated in

Sec. 667.21(a)(18)(iii), if an institution offers vocational or

professional programs, the State must develop standards to determine if

those programs are successful as measured, in part, by the placement

rate of the graduates of those programs.

During negotiated rulemaking, the Secretary proposed to define the

term ``vocational program'' based on the statutory provision included

in the definition of various types of eligible institutions of higher

education. Thus, the Secretary proposed to define a vocational program

as an ``undergraduate educational program that prepares students for

gainful employment in a recognized occupation.'' (See, for example,

section 481(b)(1) of the HEA for a ``proprietary institution of higher

education''; section 481(c)(1) for a ``postsecondary vocational

institution''; and the second sentence of section 1201(a) of the HEA

for a ``public and private nonprofit institution of higher

education.'')

Several negotiators believed this proposed definition was too vague

and were concerned that it could be interpreted to include all

postsecondary undergraduate programs. Those negotiators contended that

such a broad interpretation, if applied to the review standards

discussed above, would cause unnecessary burden on all institutions,

and argued for a more narrow definition of a vocational program.

Some negotiators proposed that the term ``vocational program''

encompass only those educational programs below the baccalaureate

degree level that are not classified as ``professional programs''.

Other negotiators suggested that the term ``vocational program'' be

limited further to apply only to nondegree vocational educational

programs offered by institutions whose primary purpose is to prepare

students for employment.

The Secretary agrees that the proposed definition is too broad and

thus, in Sec. 667.2, proposes to define the term ``vocational program''

as ``an educational program below the baccalaureate degree level, that

is not classified as a professional program, that prepares students for

gainful employment in a recognized occupation.''

The Secretary acknowledges that the definition of ``vocational

program'' in these proposed regulations differs from the definition of

``vocational education'' as that term is defined in the proposed

regulations for the Secretary's Procedures and Criteria for the

Recognition or Accrediting Agencies (``education or training that

prepares students for gainful employment in a recognized occupation'').

The Secretary requests specific comment on whether the same definition

should be used in both regulations and, if so, which definition should

be used.

The Secretary particularly invites public comments on the

definitions of professional and vocational programs.

Section 667.3 State agreement

Section 494 of the HEA authorizes the Secretary to enter into an

agreement with each State to carry out the purposes of this part. As

provided in sections 494A(b) and 494C of the HEA, the agreement between

each State and the Secretary must contain the following elements--

(1) A designation of a single SPRE which represents all entities in

the State that are responsible for--

(A) granting State authorization to each institution of higher

education in the State for the purposes of this title; and

(B) ensuring that each institution of higher education in the State

remains in compliance with the standards developed pursuant to section

494C of the HEA (these provisions are discussed below in greater

detail);

(2) Assurances that the SPRE has the authority under State law to

make agreements between the State and the Federal Government;

(3) Assurances that the SPRE will review institutions reported to

the State by the Secretary under section 494C(a) of the HEA (referred

institutions) for the purpose of determining whether those institutions

should participate in the Title IV, HEA programs on a schedule to

coincide with the dates set by the Secretary to certify or recertify

those institutions as provided in sections 481 and 498 of the HEA;

(4) Assurances that the SPRE will perform the functions authorized

under this part and keep such records and provide such information as

may be requested for financial and compliance audits and program

evaluation, consistent with the responsibilities of the Secretary;

(5) A description of the relationship between the SPRE and the

State approving agency for Veterans Affairs, the State guaranty agency

under the FFEL programs, and the State agency responsible for

administering the SSIG program;

(6) Provisions for SPRE contracts. The agreement must provide for

the contracts the SPRE enters into with nationally recognized

accrediting agencies or peer review systems as required under section

494C(d)(15) of the HEA, and the contracts the SPRE enters into with

private agencies, accrediting agencies, or peer review systems for

assistance in performing SPRE review activities as provided in section

494C(f) of the HEA; and

(7) A plan for performing the functions described in section 494C

of the HEA.

With regard to element (1) paragraph (A), the SPRE must represent

any State entity that provides a license to postsecondary institutions

to operate in the State or otherwise legally authorizes institutions to

provide postsecondary education in the State. The Secretary wishes to

make clear that the statute does not provide the SPRE the authority

under the SPRP to provide licenses to or legally authorize institutions

to operate in a State; the SPRE merely represents State entities that

perform those functions. Similarly, under element (1), paragraph (B),

the SPRE must represent any State entity that is responsible for

ensuring that all institutions in the State remain in compliance with

the State's review standards. Again, the Secretary wishes to make clear

that the statute does not provide the SPRE the authority under the SPRP

to ensure that all institutions in the State remain in compliance with

the State's review standards; rather the SPRE must merely represent any

State entity that has that responsibility. Moreover, a State is not

required, for the purposes of this part, to create an entity

responsible for ensuring that all institutions in the State remain in

compliance with the State's review standards if such an entity does not

currently exist. These statutory provisions are repeated in Sec. 667.4.

In addition to the entities listed in the statute under element

(5), in Sec. 667.3(b)(4), the Secretary proposes to require the SPRE to

describe its relationship with any State licensing body, any State-

level entity that approves service providers under the Job Training

Partnership Act, and any State-level entity that certifies vocational

education. The Secretary proposes this requirement to ensure that all

entities in the State involved with postsecondary institutions or

postsecondary educational programs coordinate with the SPRE actions

taken regarding those institutions or programs. The agreements the

Secretary signed with States to implement the SPRP in fiscal year 1993

did not provide for a description of the SPRE's relationship with these

additional entities. Thus, if any changes are required to be made to

the agreement as a result of this proposal or other proposals in these

regulations or as a result of public comment, States will be provided

sufficient opportunity to execute new agreements. Any new terms will

have a prospective effect.

Except for the proposed requirement under element (5), that the

agreement describe additional relationships between the SPRE and other

State authorities, the requirements contained in section 494A(b) of the

HEA described above are repeated in Sec. 667.3(a) and (b) and therefore

cannot be changed by the Secretary.

Section 494(c) of the HEA requires the Secretary to impose the

following sanctions on a State if the State does not enter into an

agreement with the Secretary or fails to comply with the terms of the

agreement--

(1) The Secretary may not designate as eligible for participation

in a Title IV, HEA program any institution seeking initial

participation in that program, any branch campus for which an

institution seeks an initial designation of eligibility, or any

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

change in control, pursuant to section 481 of the HEA and subpart 3 of

part H of the HEA;

(2) The Secretary may grant only provisional certification to any

institution in that State pursuant to subpart 3 of part H of the HEA;

and,

(3) The State is ineligible to receive any funds appropriated to

carry out the SPRP, its allotment under the SSIG Program, and any funds

appropriated to carry out the National Early Intervention Scholarship

and Partnership Program (NEISP).

The statutory sanctions described above are repeated in

Sec. 667.3(e). The Secretary, also, proposes to impose the statutory

sanctions on a State if the State ends its participation in the SPRP or

fails to establish review standards within two years.

First, in Sec. 667.3(d)(3), the Secretary proposes to impose the

sanctions on a State that ends its participation in the SPRP by

terminating its agreement with the Secretary. The only exception for

not participating in the SPRP is provided in section 494A(c) of the

HEA. That section specifies that ``no State shall be required to enter

into an agreement with the Secretary under this subpart for performing

review functions required by the agreement unless the Congress

appropriates funds for this subpart''. (The Congress made $5.3 million

of fiscal year 1993 funds available to initiate the SPRP and has

appropriated $21.25 million for fiscal year 1994.)

Secondly, in Sec. 667.3(d)(4), the Secretary proposes to impose the

sanctions on a State that does not establish review standards under

Sec. 667.21 that are not disapproved by the Secretary within two years

from the time the State received Federal funds under this part. The

Secretary believes that two years is a reasonable time for a State to

establish review standards. Moreover, because a State must establish

review standards before reviews of institutions can take place, the

Secretary believes strongly that a State should not unreasonably delay

the conduct of reviews and continue to receive Federal funds under this

part.

Finally, section 494(b) of the HEA provides that if a State

declines to enter into an agreement with the Secretary to carry out the

purposes of this part, the provisions of this part that refer to the

State refer instead to the Secretary who may make appropriate

arrangements with agencies or organizations of demonstrated competence

in reviewing institutions to carry out the provisions of this part. The

Secretary proposes to implement this section of the statute in

Sec. 667.3(e)(2)(iii)(A) and (B). Thus, in paragraph (A) the Secretary

may establish review standards for any State that declines to enter

into an agreement with the Secretary, and in paragraph (B) the

Secretary may carry out, or arrange to carry out, the State's other

responsibilities under this part.

Section 667.4 State Postsecondary Review Entity

Section 667.4 repeats the statutory provisions contained in section

494A(b)(1) of the HEA. These provisions have previously been discussed.

Section 667.5 Criteria the Secretary Uses To Refer Institutions to a

SPRE for Review

Section 494C(a) of the HEA requires the Secretary to review all

institutions in a State that participate in a Title IV, HEA program to

determine if those institutions meet one or more of the review criteria

contained in section 494C(b) of the HEA. If an institution meets one or

more of the review criteria, the Secretary must refer the institution

to a SPRE for review. The review criteria set forth in section 494C(b)

are as follows--

(1) A cohort default rate (as defined in section 435(m) of the HEA)

equal to or greater than 25 percent;

(2) A cohort default rate equal to or greater than 20 percent and

either--

(A) More than two-thirds of the institution's total undergraduates

who are enrolled on at least a half-time basis receive assistance under

the Title IV, HEA programs, excluding assistance received under the

SSIG, NEISP, and Federal PLUS programs; or

(B) Two-thirds or more of the institution's education and general

expenditures are derived from funds provided to students enrolled at

the institution from the Title IV, HEA programs, except funds provided

from the SSIG, NEISP, and Federal PLUS programs;

(3) Two-thirds or more of the institution's education and general

expenditures are derived from funds provided to students enrolled at

the institution from the Federal Pell Grant Program;

(4) A limitation, suspension, or termination action by the

Secretary against the institution pursuant to section 487 of the HEA

during the preceding 5 years;

(5) An audit finding during the 2 most recent audits of an

institution's conduct of the Title IV, HEA programs that resulted in

the repayment by the institution of amounts greater than 5 percent of

the funds the institution received from the Title IV, HEA programs for

any one year;

(6) A citation of an institution by the Secretary for failure to

submit audits required under Title IV of the HEA in a timely fashion;

(7) A year-to-year fluctuation of more than 25 percent in the

amounts received by students enrolled at the institution from either

the Federal Pell Grant, Federal Stafford Loan, or Federal Supplemental

Loans to Students programs, that are not accounted for by changes in

those programs;

(8) Failure to meet financial responsibility standards pursuant to

Title IV, Part H, Subpart 3 of the HEA;

(9) A change of ownership of the institution that results in a

change of control which includes (but is not limited to)--

(A) The sale of the institution or the majority of its assets;

(B) The division of 1 or more institutions into 2 or more

institutions;

(C) The transfer of the controlling interest in stock of the

institution or its parent corporation;

(D) The transfer of the controlling interest of stock of the

institution to its parent corporation; or

(E) The transfer of the liabilities of the institution to its

parent corporation;

(10) Except with regard to any public institution that is

affiliated with a State system of higher education, participation in

the Federal Pell Grant, FFEL, FSEOG, FWS, or Federal Perkins Loan

programs for less than 5 years;

(11) A pattern of student complaints pursuant to section 494C(j) of

the HEA related to the management or conduct of the Title IV, HEA

programs or relating to misleading or inappropriate advertising and

promotion of the institution's programs, that in the judgement of the

Secretary are sufficient to justify review of the institution.

The statutory review criteria described above are repeated in

Sec. 667.5(b).

The Secretary anticipates making referrals at least annually.

Section 494C(a) as amended by the Higher Education Technical

Amendments of 1993 (Pub. L. 103-208) further provides that the

Secretary may determine not to refer to a SPRE for review an

institution that meets only criterion (10) described above, if the SPRE

previously reviewed that institution under this part and found no

violations of the State's review standards. This provision is repeated

in Sec. 667.5(d).

Under a literal reading of review criteria (6) and (9), the

Secretary would have to refer an institution to a SPRE in perpetuity

for an event that happened once. However, the Secretary believes that

it is wasteful to require a SPRE to continually review an institution

for the same reason if the SPRE had previously reviewed that

institution and found no violations of its standards. Therefore, in

Sec. 667.5(c), the Secretary proposes to reserve whether to refer an

institution to a SPRE for review under these two criteria if on the

basis of an earlier referral, the SPRE conducted a review of the

institution and found no significant violations of its standards as a

result of that review.

Section 494C(c) of the HEA provides that an institution may request

confirmation of the data used by the Secretary to determine that the

institution met one or more of the statutory review criteria. In

Sec. 667.5(e), the Secretary proposes to rescind a referral if the

Secretary confirms that the data used to make the referral were

inaccurate and that a referral would not be made under accurate data.

When confirming the accuracy of data, the Secretary will presume

that records maintained in the ordinary course of business by the U.S.

Department of Education, a guaranty agency under the FFEL programs, the

SPRE, the 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.

Section 667.6 SPRE Selection of Institutions for Review

In addition to those institutions referred to a State by the

Secretary for review as a result of meeting one or more of the criteria

set forth in section 494C(b), section 494C(a) of the HEA provides that

a State may, subject to approval by the Secretary, review additional

institutions that--

(1) Meet one or more of the statutory review criteria based on more

recent data available to the State; or

(2) The State has reason to believe are engaged in fraudulent

practices.

The statute further provides that if the Secretary fails to approve

or disapprove a State's request to review additional institutions

within 21 days, the State may proceed to review those additional

institutions as if approved by the Secretary.

These statutory provisions are repeated in Sec. 667.6.

Section 667.7 Notice to SPRE of Federal Actions

Section 494C(h)(2) of the HEA requires the Secretary to prescribe

in regulations a time period within which the Secretary notifies a SPRE

of any actions taken by the Secretary or another Federal agency against

an institution located in the SPRE's State. Accordingly, in Sec. 667.7,

the Secretary proposes to notify a SPRE within 10 days of taking or

learning of an action against an institution.

Section 667.8 Institutions With Locations in More Than One State

Section 667.8 deals with the situation when a referred institution

has locations in more than one State. In proposing procedures for

dealing with that situation, the Secretary had to decide which State

standards would apply, which State would conduct the review, and, if

more than one State had to conduct a review, how those reviews should

be coordinated.

In Sec. 667.8, the Secretary proposes the following. If an

institution is referred for review, the Secretary will refer the

institution to the SPRE in each State in which the institution is

located. With the referral, the Secretary informs each SPRE of the

other States in which the institution is located. The main campus of

the institution or any branch campus or additional location of that

institution is subject to the review standards of the State in which it

is located.

The proposed procedures place the principal responsibility for

reviewing the institution on the SPRE of the State in which the main

campus of the institution is located. The SPRE of a State in which a

branch campus or additional location of the institution is located may

choose among three options to determine when to review that branch

campus or additional location or to determine if review of that branch

or additional location is warranted. Under the first option, the SPRE

may review that branch campus or additional location before a review is

conducted of the main campus of that institution. The second option

provides that the SPRE may delay its review of that branch campus or

additional location until a review is conducted of the main campus of

that institution. Under the last option, if the State's allotment will

not allow the SPRE to review all referred institutions, the SPRE may

choose not to review that branch campus or additional location if the

SPRE of the State in which the main campus of that institution is

located reviews that institution and makes no significant findings.

Finally, the Secretary proposes that SPREs may agree among

themselves to alter these review requirements. Thus, if the institution

was located in a metropolitan area such as Washington, DC and had its

main campus in Washington, DC and branch campuses in Virginia and

Maryland, the Washington, DC, Virginia, and Maryland SPREs could agree

among themselves that the Virginia SPRE would review all the

institution's locations. However, the applicable review standards would

not change. Therefore, to the extent that the three jurisdictions had

different standards, the Washington, DC locations would be subject to

the Washington, DC standards, the Maryland locations would be subject

to the Maryland standards and the Virginia locations would be subject

to the Virginia standards.

Subpart B--Allotment Formula and Funding Procedures

Section 667.11 Allotment Formula

Section 494(a)(2) of the HEA authorizes the Secretary to provide

Federal funds to a SPRE for performing the functions contained in the

State's agreement with the Secretary. Accordingly, in Sec. 667.11, the

Secretary proposes a funding formula under which the Secretary allots

annually to each SPRE its share of the Federal funds appropriated for

the SPRP. The following discusses the proposed funding formula.

For each fiscal year that Federal funds are appropriated for the

SPRP, the Secretary proposes to allot $20,000 to Guam, $20,000 to the

Northern Mariana Islands, $20,000 to the Virgin Islands, $20,000 to the

Trust Territory of the Pacific Islands (Palau), and $20,000 to American

Samoa. The Secretary believes this amount is sufficient for these

States to carry out SPRE activities because only three institutions are

located in Guam, and only one institution is located in each of the

other jurisdictions.

The Secretary proposes to allot the remaining fiscal year

appropriation so that each remaining State receives the greater of

$50,000, or the amount determined under a formula that uses the

following two variables--

(1) The number of institutions located in a State that are

certified to participate in the Title IV, HEA programs; and

(2) The amount of Title IV, HEA program funds made available to

students enrolled in those institutions during the latest year for

which complete data is available.

For purposes of the formula, the Title IV, HEA programs only

include the Federal Pell Grant, Federal Family Education Loan (FFEL),

Federal Direct Loan, Federal Supplemental Educational Opportunity Grant

(FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan programs.

The Secretary proposes the formula described in greater detail in

Sec. 667.11(a) because the Secretary believes that each State needs at

least $50,000 to carry out SPRE activities. In addition, at least in

the initial years of the program, the Secretary believes it equitable

to allot Federal funds to States based on the relative exposure of

Title IV, HEA program funds in each State as represented by the two

variables in the proposed funding formula. However, after several

years, when there is a history of referrals to States and SPRE reviews

of institutions as a result of those referrals, the Secretary plans to

reexamine the funding formula to determine whether to base the formula

on the percentage of referrals each State receives, the number of

reviews each State performs, or a combination of those two variables.

In Sec. 667.11(b), the Secretary proposes to reallot Federal funds

not expended by a State to other States in a manner that best carries

out the purposes of the program. The Secretary proposes to reallot

those funds the Secretary determines a State will not spend during the

period for which those funds are available, and those funds a State

does not spend by the end of the period for which those funds are made

available.

Section 667.12 Application for Funds

In Sec. 667.12, the Secretary proposes procedures under which a

State applies to receive its allotment for each fiscal year in which

Congress appropriates funds for the State Postsecondary Review Program.

Under these procedures, a State's application for funds consists of a

plan to carry out specific activities and a budget that accounts for

those activities. The Secretary views these application procedures as

satisfying the requirement in section 494A(b)(5) of the HEA that a

State include in its agreement with the Secretary its plan to carry out

SPRE activities.

The Secretary proposes a two-phased State application process. In

the first phase, a State applies for funds to develop review standards

and to carry out other activities that are necessary before the SPRE

conducts reviews of referred institutions. In the second phase, a State

applies for funds to conduct reviews of referred institutions and to

perform other allowable activities. A State may apply for funds in the

second phase only after it has established review standards. The

Secretary considers a State to have established review standards if

those standards were developed in accordance with the requirements

contained in Sec. 667.21 and those standards were not disapproved by

the Secretary under Sec. 667.22.

Application before standards are established. For this phase of the

application process, in Sec. 667.12(b), the Secretary proposes that the

State submit a plan to--

(1) Develop the State review standards described in section 494C(d)

of the HEA and discussed further in Secs. 667.21 and 667.22 of this

preamble; and

(2) Develop procedures for receiving and responding to complaints

from students, faculty, and others regarding an institution, as

required by section 494C(j) of the HEA.

Both the standards and the complaint procedures must be developed

in consultation with institutions in the State, as required under

sections 494C(d) and 494C(j) of the HEA, respectively. In addition, the

State may submit a plan to identify information systems maintained by

institutions and State agencies that are relevant to developing State

review standards. Finally, the plan may contain estimates of the costs

of coordinating those information systems with an information system

for the SPRE.

The Secretary proposes these allowable activities because the SPRE

cannot carry out a review of an institution to determine whether the

institution is in compliance with State standards until the State has

developed those standards in required consultation with institutions in

that State. Similarly, a State cannot process complaints until it has

developed procedures, in required consultation with institutions in the

State, to respond to complaints. Finally, a State cannot determine

whether it will be cost-effective to coordinate existing data systems

without first determining the costs of coordinating those systems.

Several negotiators suggested that the Secretary specify the manner

in which States were to consult with institutions in their State while

developing State standards and complaint procedures. The Secretary

believes that each State is in a better position than the Secretary to

determine the most appropriate consultation method for that State.

Moreover, the Secretary believes that States should be able to select

from a variety of consultation formats when developing its standards

and complaint procedures with the institutions in its State. Therefore,

the Secretary has not specified the type of required consultation under

this section. However, the Secretary expects a State's consultation

process to be thorough and inclusive of the range and types of

institutions in the State.

With its plan, the State must submit a budget for carrying out the

allowable activities. In Sec. 667.12(b)(2), the Secretary proposes that

a State carry out the allowable activities in a priority order if the

State anticipates that the cost of carrying out all those activities

will exceed its allotment. Specifically, the Secretary proposes that a

State first use its allotment to develop review standards. If a portion

of the allotment remains after the State has developed its review

standards, the State may develop procedures for receiving and

responding to complaints from students, faculty, and others regarding

institutions in the State. Finally, the State may use any remaining

portion of its allotment to provide costs estimates for the SPRE's

information system after it has completed its review standards and

complaint procedures.

The Congress made $5.3 million of fiscal year 1993 funds available

to initiate the State Postsecondary Review Program. Under a notice

published in the Federal Register on July 14, 1993, 58 FR 38022-38025,

the Secretary has allotted those funds to States for the purposes set

forth in Sec. 667.12(b). Therefore, except for the following provision,

the Secretary acknowledges that most States will have complied with the

provisions contained in Sec. 667.12(b) when these provisions are

published as final regulations.

If a State does not establish review standards with its fiscal year

1993 allotment, the Secretary proposes that the funds it may receive in

any future fiscal year for those activities may not exceed the amount

it received or was scheduled to receive in fiscal year 1993. The

Secretary proposes this provision because the Secretary believes that

the primary purpose of the State Postsecondary Review Program is SPRE

reviews of institutions and that the funds allotted to States in fiscal

year 1993 were adequate to develop review standards.

Application after standards are established. For the second phase

of the application process, the Secretary proposes in Sec. 667.12(c)

that a State submit--

(1) A plan to review referred institutions;

(2) A plan to carry out the activities described in Sec. 667.14;

and

(3) A budget for those reviews and activities that does not exceed

the State's allotment.

The Secretary acknowledges that a State's allotment of funds may be

inadequate to review all the institutions that must be reviewed under

Secs. 667.5 and 667.6. Therefore, in Sec. 667.12(c)(2), the Secretary

proposes that a SPRE submit, as part of its plan, a priority system for

selecting institutions for review from among the referred institutions

if the SPRE anticipates that the cost of reviewing all the referred

institutions will exceed the State's allotment. The Secretary proposes

to provide maximum flexibility to States in selecting institutions to

review, except as limited by section 494A(b)(2) of the HEA. That

section requires States to review referred institutions on a schedule

that coincides with the dates set by the Secretary to recertify those

institutions to participate in the Title IV, HEA programs. However, the

Secretary expects States to establish review priorities that reflect

the objectives of protecting students, saving tax dollars, and

promoting educational quality.

The Secretary requests public comment on the potential benefits of

developing specific criteria for States to consider in determining

their review priorities and the nature of those criteria.

Section 667.13 Approval of Funding Application

Approval of funding application before a State establishes review

standards. In Sec. 667.13(a), the Secretary proposes to approve a

State's plan and budget for the first phase of the SPRP, the

development of standards and complaint procedures in consultation with

institutions in the State, if--

(1) The State's plan provides a reasonable basis, and adequate

budget justification, for conducting those activities;

(2) The State's plan provides for conducting those activities in

the priority order proposed in Sec. 667.12(b)(2); and

(3) The State's budget includes only reasonable allowable costs

within the State's fiscal year 1993 allotment. The Secretary proposes

allowable costs in Sec. 667.14.

Approval of funding application after a State establishes review

standards. In Sec. 667.13(b), the Secretary proposes to approve a

State's plan and budget for the second phase of the SPRP, primarily the

review of referred institutions, if--

(1) The State's plan provides adequate budget justification for

carrying out the activities proposed and described in Sec. 667.14

within its allotment,

(2) The State's plan provides a reasonable scheme for reviewing

referred institutions;

(3) The State's plan includes a priority system for reviewing

referred institutions; and

(4) Any contract the State proposes to enter into with another

agency to carry out SPRE functions, as provided in section 494C(f) of

the HEA, is reasonable and appropriate.

If a State that does not submit an application for funds under

Sec. 667.12 or does not submit an approvable application, the Secretary

proposes in Sec. 667.13(c) to impose on that State the sanctions

described in section 494(c) of the HEA.

Section 667.14 Allowable Costs and Activities

As required by sections 494A(c) and 494B of the HEA, a State is not

required to expend any funds under the SPRP to carry out allowable

activities unless the Secretary reimburses the State for the costs it

incurs in carrying out those activities. To the extent appropriations

are available the Secretary proposes to reimburse a State for the

direct and indirect costs of carrying out allowable SPRE activities if

those activities are included in a plan that is approved by the

Secretary.

The terms ``direct costs'' and ``indirect costs'' are defined in

the Office of Management and Budget (OMB) Circular A-87. In addition,

the Secretary proposes to rely on the cost principles described in OMB

Circular A-87 for determining allowable costs under the State

Postsecondary Review Program.

The Secretary proposes to consider as allowable activities those

activities that are directly related to--

(1) Establishing State review standards in consultation with

institutions in the State;

(2) Publicizing and providing initial and continuing training to

State and other personnel in the State, including personnel at the

institution subject to review;

(3) Establishing and implementing procedures for receiving and

responding to complaints from students, faculty, and others regarding

institutions in the State;

(4) Reviewing referred institutions; and

(5) Developing and maintaining an information system for SPRE

review activities.

In Sec. 667.14(d), the Secretary identifies a nonexhaustive list of

direct costs associated with carrying out the proposed allowable

activities.

Section 667.15 Fiscal Procedures and Records

In Sec. 667.15, the Secretary proposes requirements regarding a

State's use and accounting of the Federal funds it receives under this

part. To minimize burden on States, the Secretary proposes that a State

account for funds it receives under this part in accordance with the

procedures it uses to account for its own funds.

In addition, the Secretary proposes that a State keep fiscal and

accounting records that support, on audit, its expenditure of funds

under this part and maintain those records for five years. Finally, the

Secretary proposes that a State must have an audit performed of the

SPRE's activities under this part at least once every two years. An

audit conducted under the Single Agency Audit Act satisfies this audit

requirement.

Section 667.16 Supplement, Not Supplant, Requirement

Section 494(B) of the HEA provides that the Secretary may reimburse

a State for the costs of necessary SPRE activities ``which supplement,

but do not supplant, existing licensing or review functions conducted

by the State.'' This statutory provision is repeated in Sec. 667.16.

The Secretary requests comments on what standards and measures

would most accurately determine whether a State has satisfied the

supplement but not supplant requirement.

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

Institutional Participation

Section 667.21 State Review Standards

Section 494C(d) of the HEA requires a State to develop review

standards, in consultation with the institutions in the State, that are

consistent with the laws and constitution of the State. A State's

authority to develop review standards is further clarified in section

494C(g) of the HEA. That section prohibits the Secretary from requiring

a State to establish review standards that are unrelated to ensuring

institutional or program integrity or that violate the provisions of

the State's constitution or laws.

The SPRE reviews referred institutions under the State-developed

standards set forth in section 494C(d) of the HEA. In conducting its

review, the SPRE must determine whether a referred institution has

complied with standards that address the following areas--

(1) The availability to students and prospective students of

catalogs, admissions requirements, course outlines, schedules of

tuition and fees, policies regarding course cancellations, and the

rules and regulations of the institution relating to students and the

accuracy of such catalogs and course outlines in reflecting the courses

and programs offered by the institution;

(2) Assurance that the institution has a method to assess a

student's ability to successfully complete the course of study for

which he or she has applied;

(3) Assurance that the institution maintains and enforces standards

relating to academic progress and maintains adequate student and other

records;

(4) Compliance by the institution with relevant safety and health

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

(5) The financial and administrative capacity of the institution as

appropriate to a specified scale of operations and the maintenance of

adequate financial and other information necessary to determine the

financial and administrative capacity of the institution;

(6) For institutions financially at risk, the adequacy of

provisions to provide for the instruction of students and to provide

for the retention and accessibility of academic and financial aid

records of students in the event the institution closes;

(7) If the stated objectives of the courses or programs of the

institution are to prepare students for employment, the relationship of

the tuition and fees to the remuneration that can be reasonably

expected by students who complete the course or program and the

relationship of the courses or programs (including the appropriateness

of the length of such courses) to providing the student with quality

training and useful employment in recognized occupations in the State;

(8) Availability to students of relevant information by

institutions of higher education, including--

(A) Information relating to market and job availability for

students in occupational, professional, and vocational programs; and

(B) Information regarding the relationship of courses to specific

standards necessary for State licensure in specific occupations;

(9) The appropriateness of the number of credit or clock hours

required for the completion of programs or of the length of 600-hour

courses;

(10) Assessing the actions of any owner, shareholder, or person

exercising control over the educational institution which may adversely

affect eligibility for programs under Title IV of the HEA;

(11) The adequacy of procedures for investigation and resolution of

student complaints;

(12) The appropriateness of advertising and promotion and student

recruitment practices;

(13) That the institution has a fair and equitable refund policy to

protect students; and

(14) The success of the program at the institution, including--

(A) The rates of the institution's students' program completion and

graduation, taking into account the length of the program at the

institution and the selectivity of the institution's admissions

policies;

(B) The withdrawal rates of the institution's students;

(C) with respect to vocational and professional programs, the rates

of placement of the institution's graduates in occupations related to

their course of study;

(D) where appropriate, the rate at which the institution's

graduates pass licensure examinations; and

(E) the variety of student completion goals, including transfer to

another institution of higher education, full-time employment in the

field of study, and military service.

Except for the following standard, the statutory provisions

contained in section 494C(d) of the HEA are essentially repeated in

Sec. 667.21(a).

In Sec. 667.21(a)(4), the Secretary proposed to interpret the

standard described in 494C(d)(2) of the HEA to require that a judgement

be made regarding the effectiveness of an institution's method to

assess a student's ability to complete successfully an educational

program. The proposed standard would require a SPRE to measure the

effectiveness of its assessment method by the completion rate of the

assessed students enrolled in the institution's program.

Several negotiators indicated that the proposed standard implies a

highly predictive association between the institution's assessment

method and the students' completion of the program. According to those

negotiators, such a predictive association does not exist. Therefore,

the negotiators suggested that the success of the institution's

assessment method be judged by using measures other than completion

rates. The Secretary invites comments on this suggestion and

alternative approaches for evaluating the effectiveness of an

institution's method to assess a student's ability to complete

successfully an educational program.

With regard to the standard described in section 494C(d)(4) of the

HEA and Sec. 667.21(a)(7), the Secretary invites public comments on

whether the SPRE's review of an institution should include a review of

the institution's compliance with statutes and regulations governing

access to disabled individuals.

In Sec. 667.21(b), the Secretary has proposed a framework under

which a State develops review standards. Under that framework the

Secretary proposes--

(1) To permit States to develop different standards for different

types or categories of institutions and educational programs;

(2) That States specify the records that referred institutions

would need to maintain to satisfy State standards;

(3) That States must quantify certain review standards; and

(4) That States determine whether a Title IV, HEA program standard

would be an adequate State standard.

Negotiators disagreed among themselves with regard to the proposal

in Sec. 667.22(b)(1), to provide latitude to States to develop

different standards for different types or categories of institutions

or educational programs. While many negotiators agreed strongly with

this approach, others disagreed vociferously, arguing that States would

use this latitude to establish unreasonably stringent standards for

vocational and proprietary institutions.

The Secretary believes the statute does not prohibit the

establishment of different standards for different institutions and

therefore does not wish to preclude a State from establishing such

standards, provided the State can adequately justify that different

standards are more appropriate than uniform standards for the

institutions in its State.

In Sec. 667.21(b)(2), the Secretary proposes that a State establish

standards that specify the records and information a referred

institution would need to maintain to demonstrate to a SPRE the

institution's compliance with those standards. The Secretary wishes to

make clear that technically, only a referred institution is subject to

the recordkeeping requirements specified in the State's standards

unless, as discussed previously in Sec. 667.3 of this preamble, the

State has or creates an entity that is responsible for ensuring that

all institutions in the State remain in compliance with those

standards. Otherwise, a nonreferred institution may choose not to

maintain the specified records. However, that institution would risk

losing its participation in the Title IV, HEA programs if as a result

of some future event it triggered a statutory review criterion, and was

unable to produce the records required to demonstrate to the SPRE its

compliance with the State's standards.

In addition, concern has been raised regarding a State's authority

to collect information from all institutions in the State for the

purpose of establishing review standards. For example, a State may

establish on an annual basis a student graduation rate standard that is

equal to the average graduation rate of students at all institutions in

the State. While the Secretary believes that this method of

establishing review standards is reasonable and appropriate, a State

does not have the authority under the SPRP to require all institutions

in the State to report standards-related information to the SPRE.

Notwithstanding this limitation, the Secretary encourages all

institutions to comply with a request from a SPRE for this information,

particularly if the only alternative available to the SPRE is to

establish arbitrary standards. The Secretary wishes to make clear,

however, that a SPRE has the authority under section 494C(d) of the HEA

to require standards-related information from all referred institutions

in the State. The Secretary notes that if a State standard is based

upon an average, such as an average graduation rate, there must be a

sufficient number of institutions providing data to support that rate,

and the reporting institutions should be representative of the

institutions located in the State.

In Sec. 667.21(b)(4), the Secretary proposes that a State must

quantify certain review standards. Thus, for the standard described in

section 494C(d)(7) of the HEA and repeated in Sec. 667.21(a)(10), the

Secretary proposes 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.

Similarly, for the standard described in section 494C(d)(14) of the

HEA and repeated in Sec. 667.21(a)(18), the Secretary proposes that a

State establish acceptable percentages for--

(1) The completion and graduation rates of students enrolled in

educational programs offered by an institution;

(2) The withdrawal rate of students at an institution;

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

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

occupations related to their educational program; and

(4) The rate or rates at which the institution's graduates pass

licensure examinations.

For each of these areas, the acceptable percentage sets the level

above which a SPRE must consider an institution to be in compliance

with the review standard, and below which a SPRE makes either a finding

of noncompliance or conducts a further review of the institution to

account for the reasons the institution failed to meet that percentage.

The Secretary understands that developing such standards will be

difficult and will therefore allow States great flexibility in

developing these quantifiable standards, both in terms of the methods

used to determine an acceptable percentage and the actual acceptable

percentage. Moreover, the Secretary wishes to reiterate that the

acceptable percentage that a State establishes should reflect whether

an institution is successfully providing its educational programs to

its students rather than whether the institution should automatically

be terminated from participation in the Title IV, HEA programs solely

because it failed to satisfy that standard. The Secretary also

reiterates that a State need not recommend the termination of an

institution's participation in the Title IV, HEA programs solely

because the institution failed to meet any particular State standard.

In Sec. 667.21(b)(5) the Secretary proposes to require a State to

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

to establish as the State's review standard the comparable Title IV,

HEA standard or requirement.

The Secretary believes it is imperative that States take into

consideration the standards and requirements institutions must satisfy

to participate in the Title IV, HEA programs before increasing the

burden on those institutions by adopting entirely new standards for

this part. In this regard, the Secretary expects States to avoid

establishing standards that are weaker than similar Title IV, HEA

program standards that an institution must otherwise satisfy to

participate in those programs. In addition, when the Secretary

publishes regulations implementing the Student-Right-to-Know provisions

in section 485(a) of the HEA, the Secretary expects States to adopt the

methodology contained in those regulations for calculating student

completion and graduation rates.

For the convenience of the reader, the following Title IV, HEA

program standards and requirements are related or comparable to the

State review standards described in Sec. 667.21--

(1) With respect to the State review standards in paragraphs (a)(1)

and (a)(2), the consumer information requirements in 34 CFR part 668,

subpart D, 34 CFR 668.14, and 34 CFR 668.15; and the standards and

rules in 34 CFR part 668, subpart F, under which the Secretary

initiates an adverse action against an institution for any substantial

misrepresentation made by that institution regarding its educational

program, financial charges, or employability of its graduates;

(2) With respect to the State review standards in paragraphs (a)(3)

and (a)(4), the State process and testing requirements regarding

students who do not have a high school diploma or its recognized

equivalent in section 484(d) of the HEA;

(3) With respect to the State review standards in paragraphs (a)(5)

and (a)(6), the standards of satisfactory progress in 34 CFR 668.14;

and the record retention and audit requirements in 34 CFR 668.23;

(4) With respect to the State review standard in paragraph (a)(8),

the standards and requirements in 34 CFR 668.13, 34 CFR 668.14, and

subpart 3 of part H of the HEA regarding an institution's financial and

administrative capability;

(5) With respect to the State review standard in paragraph (a)(10),

the standards and requirements in 34 CFR 668.14 regarding an

institution's administrative capability, and 34 CFR part 600, subpart

A, regarding an educational program offered by an institution that

prepares students for gainful employment in recognized occupations; or

an educational program that is designed to provide occupational skills

to students for useful employment in recognized occupations;

(6) With respect to the State review standards in paragraphs

(a)(11) and (a)(16), the provisions in section 487(a)(8) of the HEA

that require an institution that advertises job placement rates as a

means of attracting students to provide to those students information

concerning employment statistics, graduation statistics, other

information necessary to substantiate the truthfulness of the

advertisement, and any State licensing requirements for a job for which

the institution's educational program prepares such students; and the

provisions in section 487(a)(20) of the HEA prohibiting an institution

from paying a commission, bonus, or other incentive based on securing

enrollments to any person engaged in student recruiting or admission

activities;

(7) With respect to the State review standard in paragraphs (a)(12)

and (a)(13), the formula in 34 CFR 668.8 and 34 CFR 668.9 that an

institution that offers an educational program in credit hours must use

to determine if that program satisfies the requirements of an eligible

program;

(8) With respect to the State review standard in paragraph (a)(14),

the standards in 34 CFR 668.13, regarding an institution's financial

responsibility; the provisions in 34 CFR 668.14 regarding an

institution's administrative capability; and the standards in 34 CFR

600.30 regarding a person's ability to affect substantially the actions

of an institution;

(9) With respect to the State review standard in paragraph (a)(17),

the requirements in section 484B of the HEA regarding an institution's

refund policy; and,

(10) With respect to the State review standards in paragraph

(a)(18), the provisions in section 485(a) of the HEA regarding the

calculation of the completion or graduation rate of certificate- or

degree-seeking, full-time undergraduate students; the standard in 34

CFR 668.15 regarding the withdrawal rate of students at an institution;

and, the provisions in section 481(e)(2) of the HEA regarding the

placement rate and graduation rate of students enrolled in educational

programs of less than 600 clock-hours.

The Secretary recognizes that many of the referenced Title IV, HEA

program standards will be revised or recodified in the near future as

additional regulations are published implementing changes made in the

HEA by the Higher Education Amendments of 1992.

The Secretary invites public comment regarding the development of

standards under the proposed framework and on alternative approaches

that would assure the development of meaningful and rigorous standards.

Specifically, the Secretary seeks comment on ways to establish common

methodologies for computing quantitative standards, and common

recordkeeping requirements associated with those standards, among

institutions in all States, and among the three members of the

Integrity triad in a manner that reduces the administrative burden on

institutions and the triad. In addition, the Secretary invites comments

on approaches that would minimize extreme disparities in standards

between States.

Section 667.22 Disapproval of State Review Standards

Under section 494C(d) of the HEA, State-developed standards are

``subject to disapproval by the Secretary.'' In accordance with that

section of the HEA, in Sec. 667.22, the Secretary proposes procedures

under which the Secretary evaluates a State's review standards to

determine whether to disapprove those standards.

Specifically, in Sec. 667.22(a), a State must submit to the

Secretary its review standards along with an explanation of how each

standard was established, including--

(1) A description of the manner in which institutions in the State

were consulted in the development of the standards;

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

review standards and the related or comparable Title IV, HEA program

standards or requirements; and

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

different review standards for different types of institutions or

educational programs.

In Sec. 667.22(b), the Secretary proposes criteria to determine

whether to disapprove a State's review standards. Specifically, the

Secretary proposes to disapprove a State's review standards if--

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

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

as required by section 494C(d) of the HEA;

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

standards were developed in consultation with institutions in that

State, as required in section 494C(d) of the HEA;

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

requirements and cover all the areas described in section 494C(d) of

the HEA and Sec. 667.21; or

(4) The standards the State quantified under Sec. 667.21(b)(4) do

not meet certain procedural and statistical requirements.

Finally, in Sec. 667.22(c), if the Secretary disapproves a State's

review standards, the Secretary proposes to give the State the reasons

for that disapproval and proposes to provide the State an opportunity

to either demonstrate why the Secretary's disapproval was incorrect or

submit revised standards that address the reasons for the Secretary's

disapproval.

The Secretary invites public comment regarding the proposed

evaluation criteria and on additional criteria the Secretary should use

to evaluate a State's review standards.

Section 667.23 SPRE Reviews of Institutions

In Sec. 667.23, the Secretary proposes procedures regarding SPRE

reviews of referred institutions. In general, 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 and the Secretary

approves that selection, 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.

To implement the part of section 494C(d) of the HEA that requires a

SPRE to review referred institutions in accordance with published State

standards, in Sec. 667.23(b), the Secretary proposes that the SPRE

provide written notice of the State's established review standards to

each institution in the State before the SPRE conducts reviews of

referred institutions.

In Sec. 667.23(c), the Secretary proposes that the SPRE issue a

report of its findings and provide it to the institution no later than

45 days after the SPRE completes its review. For each finding contained

in the report, the SPRE must cite the standard violated and cite the

nature of the violation. The SPRE may prescribe, if necessary, a course

of action the institution must follow to correct the violation, or the

SPRE may determine that the institution should no longer participate in

the Title IV, HEA programs. If the SPRE chooses to prescribe a

corrective action, the Secretary proposes to give the SPRE 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. Alternatively, if the SPRE determines that the

institution should no longer participate in the Title IV, HEA programs,

as provided in section 494C(h) of the HEA, the SPRE may initiate the

process described in Sec. 667.25, under which the Secretary ultimately

terminates the institution's participation in those programs.

In Sec. 667.23(d), the Secretary proposes that the SPRE give the

institution an opportunity to respond to its findings and required

actions. If the institution chooses to respond within the time

permitted by the SPRE, in Sec. 667.23(e), the Secretary proposes that

the SPRE evaluate the institution's response and issue a final report

to the institution that includes its findings and required action.

Section 494C(h)(1) provides that a SPRE must notify the Secretary

of its findings and the actions the SPRE is taking, or has taken, in

response to those findings within a time period prescribed by the

Secretary in regulations. Therefore, in Sec. 667.23(f), the Secretary

proposes that the SPRE provide to the Secretary a copy of its final

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

institution. A final report includes the report that the SPRE produces

after the institution responds to its initial findings. However, if the

institution does not respond to the SPRE's initial report in the time

permitted by the SPRE, the SPRE's initial report becomes its final

report on the day after the deadline date provided to the institution

for responding to that report.

In Sec. 667.23(g), the Secretary proposes that a SPRE may determine

that an institution should no longer participate in the Title IV, HEA

programs for reasons other than the institution's failure to meet the

State's review standards. Specifically, a SPRE may initiate a

proceeding to effect the termination of the institution's participation

in the Title IV, HEA programs under Sec. 667.25, if that institution--

(1) Does not respond to the SPRE's findings or required actions

within the time permitted by the SPRE and the SPRE's findings show

serious 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.

The Secretary wishes to make clear that these proposed regulations

do not require a SPRE to take specific actions against an institution

that fails to meet a State's review standards. The Secretary believes

strongly that SPREs be afforded the latitude to prescribe appropriate

corrective actions, or, if the SPRE finds that an institution has

continuously or egregiously violated the State's standards, make the

determination that the institution should no longer participate in the

Title IV, HEA programs. On the other hand, the Secretary would be

concerned if a SPRE failed consistently to prescribe appropriate and

adequate corrective actions for institutions that did not satisfy the

State's standards.

Finally, the Secretary intends to add to this section a requirement

that a SPRE establish performance standards that would enable the

Secretary to evaluate the conduct and quality of the SPRE's reviews.

Public comment is invited regarding the specific areas where SPRE

performance standards should be established and how that performance

should be evaluated.

Section 667.24 Peer Reviews of Institutions

For each referred institution, section 494C(d)(15) of the HEA

requires a SPRE to contract with a nationally recognized accrediting

agency or other peer review system with demonstrated competence in

assessing educational programs to carry out a review or provide

information to the SPRE regarding that agency's or system's assessment

of the quality and content of the institution educational programs.

Under a literal reading of this provision, a SPRE could contract

with the accrediting agency that had previously accredited the referred

institution for the latter to conduct another, limited accreditation

review. Under normal circumstances, the Secretary believes that use of

SPRP funds for that activity would not be a prudent use of those funds.

Therefore, under normal circumstances, the Secretary recommends that a

SPRE satisfy the requirements of section 494C(d)(15) of the HEA by

contracting with the referred institution's accrediting agency for the

latter to provide a copy of the relevant information that was included

in connection with its previous grant of accreditation.

Except for the proposal that allows a SPRE to contract with a peer

review system that it determines has competence in assessing

educational programs, the provisions in section 494C(d)(15) are

repeated in Sec. 667.24.

Several negotiators argued that the Secretary should define the

term ``peer review system'' or specify criteria to determine the

competence of a peer review system. Those negotiators believed strongly

that a peer review system selected by a SPRE would not be a credible

authority in assessing postsecondary educational programs because that

peer review system would not be subject to the requirements and

standards imposed on accrediting agencies in subpart 2 of Part H of the

HEA.

One negotiator suggested specific criteria to determine the

competence of a peer review system. In particular, that negotiator

suggested that the Secretary approve a peer review system if that

system demonstrates that--

(1) The geographical scope of the system's activities covers a

State, region, or the United States;

(2) The system has the administrative and fiscal capability to

carry out its activities in light of the system's objectives and scope;

(3) The system has established standards and adequate experience to

assess the quality and content of institutions' programs of

instruction, training, or study in relation to achieving the stated

objectives for which the courses or programs are offered;

(4) The system has effective mechanisms for evaluating compliance

with its standards and applying its standards consistently; and

(5) The system's activities will meet the needs of the State and

the Secretary in accomplishing the purposes of the SPRP and not

unnecessarily duplicate the capabilities of a nationally recognized

accrediting agency available to perform the assessment described in

Sec. 667.24(b) of these regulations.

The Secretary believes that a peer review system for purposes of

this program does not, in effect, have to qualify as a recognized

accrediting agency to be used under the SPRP. Nevertheless, the

Secretary invites comment on these suggested criteria and alternative

approaches for determining the competence of a peer review system.

Section 667.25 Termination of an Institution's Participation in the

Title IV, HEA Programs

In Sec. 667.25, the Secretary proposes the procedures a SPRE must

follow to effect the termination of an institution's participation in

the Title IV, HEA programs. Under those procedures, if a SPRE

determines, based upon its review, that an institution is in violation

of the State's review standards and should no longer continue to

participate in the Title IV, HEA programs or violates one of the

provisions proposed in Sec. 667.23(g), the SPRE provides the

institution with the opportunity to contest that determination in

accordance with procedures the Secretary has approved for that purpose

under Sec. 667.26.

If the SPRE concludes after affording the institution the

opportunity to challenge the SPRE's findings and determination, that

the institution should be terminated from participating in the Title

IV, HEA Programs, the SPRE notifies the Secretary of those findings and

that determination. Upon notice by the SPRE that the institution should

no longer participate in the Title IV, HEA programs, the Secretary

immediately terminates that institution's participation in those

programs and notifies the institution and the SPRE of the effective

date of that termination.

Further, the Secretary proposes that an institution terminated

under this part may not reapply to the Secretary to participate in a

Title IV, HEA program until 18 months have expired from the effective

date of its termination. This proposal is consistent with the

provisions in 34 CFR 668.96. Under that section of the Title IV, HEA

program regulations, an institution whose participation in the Title

IV, HEA programs has been terminated may not seek reinstatement in

those programs before the expiration of 18 months from the effective

date of its termination. Moreover, section 494C(h)(1) of the HEA does

not authorize any appeal to the Secretary of a termination

determination.

Section 667.26 Due Process Requirements

Section 494C(h)(3) of the HEA requires the Secretary to prescribe

in regulations minimum procedural standards for the disapproval of

institutions by a SPRE. Thus, in Sec. 667.26, the Secretary proposes

due process criteria that a State must satisfy when permitting 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 the Title IV, HEA programs.

Specifically, the Secretary proposes to approve the State's

procedures if those procedures satisfy basic due process requirements.

Therefore, the Secretary proposes procedures that require the SPRE to--

(1) Notify an institution of any required action and the basis for

that action;

(2) Permit the institution the opportunity to challenge that

adverse action in a hearing or in writing;

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

challenge, and the basis for that result; and

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

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not

have a significant economic impact on a substantial number of small

entities. Because these proposed regulations would affect only States

and State agencies, the regulations would not have an impact on small

entities. State and State agencies are not defined as ``small

entities'' in the Regulatory Flexibility Act.

Paperwork Reduction Act of 1980

Sections 667.3, 667.4, 667.12, 667.15, 667.21, and 667.22 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 for its

review. (44 U.S.C. 3504(h))

These proposed regulations contain information collection

requirements for States that apply to the Secretary to receive funds

under this part and for States that develop review standards and submit

those standards to the Secretary for approval. The Department needs and

uses the information collected to determine whether to approve a

State's application for funds.

Annual public reporting burden for this collection of information

is estimated to average 1480 hours for each of the 57 States that

prepare plans to perform SPRE activities, prepare budgets that account

for those activities, develop review standards, and submit those plans,

budgets, and standards to the Secretary for approval.

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.

Invitation To Comment

Interested persons are invited to submit comments and

recommendations regarding these proposed regulations.

All comments submitted in response to these proposed regulations

will be available for public inspection, during and after the comment

period, in room 4318, ROB-3, 7th & D Streets, SW, Washington, D.C.,

between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of

each week except Federal holidays.

Assessment of Educational Impact

The Secretary particularly requests comments on whether the

proposed regulations in this document would 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: January 14, 1994.

Richard W. Riley,

Secretary of Education.

The Secretary proposes to amend 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 of Federal actions.

667.8 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 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 under Title

IV, Part H, Subpart 1 of the Higher Education Act of 1965, as amended

(HEA). The purpose of the program is to strengthen State oversight of

institutions participating in the Title IV, HEA programs through the

development of State standards for those institutions, and State review

under those standards of institutions referred by the Secretary under

Sec. 667.5 or selected by the State 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) The provisions in the Education Department General

Administrative Regulations, State Administered Programs, 34 CFR Part

76, do not apply to this part except for the provisions in--

(1) 34 CFR 76.1, 76.2, and 76.50 of subpart A;

(2) 34 CFR 76.500 through 76.534, 76.561, 76.563, and 76.580

through 76.592 of Subpart F; and

(3) 34 CFR 76.700 through 76.702, 76.707, 76.720, 76.730, 76.731,

76.734, 76.760, and 76.761 of subpart G.

(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

(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 Pell Grant Program

Federal Perkins Loan Program

Federal PLUS Program

Federal Stafford Loan Program

Federal Supplemental Educational Opportunity Grant (FSEOG) Program

Federal Supplemental Loans for Students (SLS) Program

Federal Work-Study (FWS) Program

National Early Intervention Scholarship and Partnership (NEISP)

Program

State

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

instructional programs used by institutions and States for reporting

and analyzing education data at the national level.

Education and general expenditures: The total amount expended by an

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 Departments of Education and Labor

to facilitate comparisons between educational programs and related

occupations and to provide information to State employment counseling

services.

Professional program: An undergraduate or graduate educational

program that prepares individuals for an occupation, if that

occupation--

(i) Is listed in SOC or CIP;

(ii) Requires at least an associate degree to qualify for entry;

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

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

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

licensure, accreditation, or permit system.

Referred institution: An institution that a SPRE reviews as a

result of--

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

(ii) State selection under Sec. 667.6.

Standard Occupational Classification (SOC) Manual: A manual

published by the U.S. Department of Commerce, used for reporting

national statistics on occupations and employment projections, compiled

from data collected through the census and other Federal surveys.

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 baccalaureate

degree level, that is not classified as a professional program, that

prepares students for gainful employment in a recognized occupation.

(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--

(i) The SPRE has the legal authority under State law to carry out

the functions required of it under this part;

(ii) The SPRE will perform the functions required of it under this

part;

(iii) The SPRE will keep records or have access to records and

provide information to the Secretary as may be requested for financial

and compliance audits, and program evaluations;

(iv) The SPRE 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. 667.23; 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) Does not establish review standards under Sec. 667.21 that are

approved by the Secretary by the end of the second year for which the

State received an allotment under Sec. 667.11.

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

occur--

(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 seeking initial participation in that

program, any branch campus for which an institution seeks an initial

designation of eligibility under 34 CFR part 600, or any institution

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

control as determined in 34 CFR part 600, that is located in that

State;

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

part 668, to an institution 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.

The SPRE is the entity designated by the State in the agreement

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

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

State entities that will be, responsible for--

(1) Granting State authorization to provide postsecondary education

in that State; and

(2) 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;

(b) Perform the functions required of it under this part; and

(c) Keep records or have access to records and provide information

to the Secretary as may be requested for financial and compliance

audits, and program evaluations.

(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 paragraphs (c), (d), and (e) of this

section, the Secretary refers an institution to a SPRE if--

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

668.15) equal to or greater than 25 percent;

(2)(i) The institution has a cohort default rate 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 two 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 one award year

covered by those audits;

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

an 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 those students received under that

program in the award year that preceded that 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 those students received under that

program in the award year that preceded that 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 those students received under that program in

the award year that preceded that award year, unless the differences

can be accounted for by changes in that program;

(8) The institution failed to meet the financial responsibility

standards 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 programs;

(iii) The FSEOG Program;

(iv) The FWS Program; or

(v) The Federal Perkins Loan Program; or

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

from students, faculty, or others, including information provided to

the Secretary by the SPRE, 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 are sufficient to warrant review.

(c) If the Secretary refers an institution to the SPRE under

paragraph (b)(9) with regard to the same change of ownership or (b)(6)

of this section, and the SPRE conducts a review of the institution as a

result of that referral and finds no significant violations of the

State's standards, the Secretary reserves whether to refer that

institution again to the SPRE for the same reason that resulted in the

initial referral.

(d) The Secretary reserves whether to refer again to the SPRE an

institution that meets only the conditions of paragraph (b)(10) of this

section, if the SPRE previously conducted a review of that institution

and found no violations of the State's standards.

(e)(1) An institution may request the Secretary to confirm the data

used by the Secretary in referring that institution to a SPRE.

(2) The Secretary rescinds a referral if confirmation reveals that

the data used to make a referral was inaccurate and a referral would

not be required under accurate data.

(3) The Secretary does not rescind a referral if the Secretary--

(i) Confirms that the data are accurate; or

(ii) Is unable to confirm the data.

(4) In confirming data, 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 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.

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

Sec. 667.6 SPRE selection of institutions for review.

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

referred by the Secretary if--

(a) The SPRE--

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

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

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

practices; and

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

institution; and

(b) The Secretary--

(1) Approves that request; or

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

date the Secretary receives that request.

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

Sec. 667.7 Notice to SPRE of Federal actions.

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

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

located within 10 days of taking that action.

(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 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 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 State's allotment is insufficient to allow the SPRE to

review all referred institutions.

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

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

located.

(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:

(1) The Secretary--

(i) Allots $20,000 to Guam, $20,000 to American Samoa, $20,000 to

the Northern Mariana Islands, $20,000 to the Virgin Islands, and

$20,000 to the Trust Territory of the Pacific Islands;

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

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

(iii) Notifies each State of its allotment.

(2) Except for Guam, American Samoa, the Northern Mariana Islands,

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

Secretary allots those funds to a State by--

(i) Determining the percentage of institutions participating in a

Title IV, HEA program in the 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;

(ii) 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;

(iii) Averaging the two percentages determined in paragraph

(a)(2)(i) and (ii) of this section;

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

average percentage determined in paragraph (a)(2)(iii) 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;

(v)(A) Determining which States receive less than $50,000 under the

initial distribution;

(B) Providing each of those States with $50,000; and

(C) Calculating the difference between the $50,000 provided to each

of those States and those States' initial distribution;

(vi)(A) Determining which States receive more than $50,000 under

the initial distribution; and

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

initial distribution and $50,000;

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

amount obtained in paragraph (a)(2)(v)(C) of this section by the total

amount obtained in paragraph (a)(2)(vi)(B) of this section; and

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

(a)(2)(vi)(A) of this section by the product of the amount obtained in

paragraph (a)(2)(vi)(B) of this section and the reduction percentage in

paragraph (a)(2)(vii) of this section.

(b) 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 in a manner that the Secretary determines

best carries out the purposes of the State Postsecondary Review

Program.

(c) SSIG and NEISP Program Federal and State matching funds 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, which shall 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, which shall describe the

manner in which consultation will take place;

(ii) May submit a plan to 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, to identify systems in which this information is

maintained, and to 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 for providing cost estimates for the SPRE's

information system, if relevant, that does not exceed the State's

fiscal year 1993 allotment.

(2) If the State's fiscal year 1993 allotment is less than the

State's anticipated cost of carrying out the activities described in

paragraphs (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) 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.

(3) 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.

(d) If a State first applies to the Secretary to receive an

allotment after fiscal year 1993, the State must submit the information

and documentation required under paragraph (b) of this section, and may

submit the information required in paragraph (c) 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 fiscal year 1993 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 as described in

Sec. 667.12(c)(3);

(4) The proposed contracts with private agencies, 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 seeking initial participation in that

program, any branch campus for which an institution seeks an initial

designation of eligibility under 34 CFR part 600, or any institution

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

control as determined in 34 CFR part 600, that is located in that

State; 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, in paragraph (c) and described 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 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;

(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, accrediting agencies,

and peer review systems to carry out required activities; and

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

legal proceedings.

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

Sec. 667.15 Fiscal procedures and records.

(a) A State must account for the funds it received 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 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, its rules and regulations, and its enrollment

agreement if appropriate;

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

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) The extent to which the institution's method to assess that a

student has the ability to complete successfully the educational

program for which he or she applies accurately assesses that ability as

measured by the completion rate of that program;

(5) Whether the institution maintains and enforces standards

relating to satisfactory progress;

(6) Whether the institution maintains adequate student and other

records;

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

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

(8) 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;

(9) 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;

(10) If an institution provides an educational program that is

designed to prepare students for gainful employment--

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

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

successfully completes the program may reasonably be expected to earn;

and

(ii) Whether the educational 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 educational

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

number of credit or clock hours the program offers;

(11) 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;

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

quarter credit or clock hours required for the completion of an

educational program;

(13) The appropriateness of the length of 600-hour educational

programs;

(14) 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;

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

investigating and resolving student complaints are adequate;

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

and student recruiting practices are appropriate;

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

policy; and

(18) 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 program and the

selectivity of the institution's admissions 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 CIP/DOT

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, full-

time employment in their field of study, or 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) Shall specify the records and information an institution would

need to maintain to demonstrate to a SPRE the institution's compliance

with those 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 paragraphs (a)(10)(i)

and (a)(18) (i), (ii), (iii), and (iv) of this section by

establishing--

(i) 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;

(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 program; 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 his evaluation

the review standards it 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 assure the Secretary that the State's review

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

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

standards were developed in consultation with the institutions in that

State;

(3) 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

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

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

must use to calculate--

(A) 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; and

(B) The graduation or completion rates, withdrawal rates, placement

rates, and licensure examination pass rates of the institution's

students or graduates; and

(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, placement,

earnings, or licensure examination pass rates of the institution's

graduates;

(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 institutions.

(a) 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 and the Secretary approves that selection, 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.

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

the State of the review standards approved by the Secretary under

Sec. 667.22 before it may conduct reviews of referred institutions.

(c) The SPRE must issue an initial report of its 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--

(1) Must cite the standard violated and the nature of the

violation; and

(2) May--

(i) Prescribe, if necessary, 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

(ii) Initiate a proceeding under Sec. 667.25 to effect the

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

programs.

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

its findings and required actions.

(e) If the institution chooses to respond 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) 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

(2) 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

(3) 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 (c) 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 the Title IV,

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

determine that the institution should no longer participate in the

Title IV, HEA programs if that institution--

(1) Does not respond to the SPRE's findings or required actions

within the time permitted by the SPRE and the SPRE's findings show

serious 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) 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.

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

section, the accrediting agency or peer review system shall carry out a

review or provide information from its previous grant of accreditation

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 an 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 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 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, 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 and the SPRE 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 State's 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 basis for

that action;

(ii) Permit the institution the opportunity to challenge that

adverse action in a hearing or in writing;

(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)

Note: This appendix will not appear in the Code of Federal

Regulations.

Appendix A to Preamble.--Major Issues Discussed at the Regional

Meetings

The Department convened four regional meetings in September 1992 to

obtain public involvement in the development of regulations to

implement Title IV, part H, subpart 1 of the Higher Education Act of

1965, as amended by the Higher Education Amendments of 1992, Public Law

102-325. This subpart describes the rules and procedures that govern

the State Postsecondary Review Program.

The Department invited individuals and representatives of groups

involved in student financial assistance programs to the four regional

meetings. At each meeting, the Department provided for a comprehensive

discussion and exchange of information regarding the implementation of

subpart 1 by providing participants with an issue paper that raised

issues and questions with regard to the statutory provisions included

in subpart 1. The following is a summary of the information provided to

the Department by participants at the regional meetings. The section of

the proposed regulations that is the subject of the information is

provided as a reference.

Time requirement for development of State review standards--

Sec. 667.3.

Participants in the regional meetings discussed whether the

Secretary should require States to develop review standards within a

specified time. The participants agreed that the Secretary should

specify a time period but disagreed on what that time period should be.

Allotment formula--Sec. 667.11.

Participants discussed how Federal funds should be divided among

the States that have entered into an agreement with the Secretary and

suggested a funding scheme under which each participating State would

receive (1) an allotment sufficient to carry out minimum SPRE

activities, and (2) a supplemental allotment based on the number of

institutions in the State, the total Title IV, HEA program funds made

available to students attending institutions in the State, or the

number institutions referred to the State by the Secretary.

Allowable costs and activities--Sec. 667.14.

Participants discussed the extent to which a State should be

reimbursed for the costs of performing reviews and other activities and

suggested that the Secretary reimburse the State for the direct and

indirect costs of SPRE review activities, including salaries and fringe

benefits, travel and other review costs, costs for developing State

review standards and complaint procedures, and litigation costs.

Consultation with institutions--Sec. 667.12.

Participants discussed whether the Secretary should establish

procedures that a State must use to consult with institutions in its

State in the development of State review standards. They recommended

that the Secretary suggest, but not establish, consultation procedures.

Federal minimum review standards--Sec. 667.21.

Participants discussed whether the Secretary should establish

Federal minimum standards and whether a State could establish standards

that are weaker than comparable standards that govern an institution's

eligibility and participation in the Title IV, HEA programs. The

participants were divided on the first issue; the majority argued that

Federal minimums would not be appropriate because they could not be

developed in a manner that would adequately account for the mission and

diversity of all postsecondary institutions. With respect to the second

issue, some participants felt that a State should have the flexibility

to develop weaker standards, while others felt that no distinction

should be made between a ``weaker'' standard or a ``different''

standard. Those participants felt that a State should be able to

develop different standards for different types of institutions.

Quantifiable standards--Sec. 667.21.

Participants discussed whether a State should quantify review

standards and suggested that, to the extent that standards could be

quantified, they should be quantified. However, most participants felt

that the State should have the flexibility to establish the level at

which an institution would be considered to be in violation of the

quantified standard.

SPRE review findings--Sec. 667.23.

Participants discussed whether a SPRE should be required to

determine that an institution should no longer participate in the Title

IV, HEA programs based on the institution's failure to satisfy a

particular State standard. Most participants felt that a SPRE could,

but should not be required to, make that determination. The

participants suggested that, based on the nature and severity of an

institution's violations, the SPRE should have the latitude to take an

adverse action against the institution or to require the institution to

take actions to bring itself into compliance with the State's

standards.

Disapproval of State review standards--Sec. 667.22.

Participants discussed the basis under which the Secretary should

disapprove a State's review standards. Most participants felt that the

Secretary should disapprove a State's standards only if those standards

did not adequately address the statutory requirements.

[FR Doc. 94-1460 Filed 1-21-94; 10:00 am]

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