Institutional Eligibility Under the Higher Education Act of 1965, as Amended; Proposed Rule DEPARTMENT OF EDUCATION

SUMMARY: The Secretary proposes to amend the regulations governing

institutional eligibility under the Higher Education Act of 1965, as

amended (HEA). The proposed regulations would implement new HEA

statutory provisions that were added by the Higher Education Amendments

of 1992 and the Higher Education Technical Amendments of 1993. In

general, these new statutory provisions tightened the eligibility

requirements for institutions participating in the student financial

assistance programs authorized under Title IV of the HEA (Title IV, HEA

programs). The proposed regulations also would clarify existing

provisions, and, in keeping with the statutory changes, tighten

procedures governing institutional eligibility determinations.

DATES: Comments must be received on or before March 14, 1994.

ADDRESSES: All comments concerning these proposed regulations should be

addressed to Cheryl Leibovitz, U.S. Department of Education, 400

Maryland Avenue, SW. (Regional Office Building 3, room 4318),

Washington, DC 20202-5346.

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: Cheryl Leibovitz. Telephone: (202)

708-7888. Individuals who use a telecommunications device for the deaf

(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-

877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through

Friday.

SUPPLEMENTARY INFORMATION: The Higher Education Amendments of 1992,

Public Law 102-325 and the Higher Education Technical Amendments of

1993, Public Law 103-208, amended the HEA in several areas relating to

institutional eligibility. These areas include, among others: The

definition and treatment of a ``branch campus,'' a ``correspondence

course,'' and a ``telecommunications course;'' the enrollment of

incarcerated students and ability-to-benefit students; the percentage

of its revenues that an eligible proprietary institution of higher

education can derive from Title IV, HEA program funds; and the filing

of an institution for bankruptcy. The Secretary discusses each of these

subjects in more detail later in the preamble.

These proposed regulations were subject to a regulations

negotiation process as required by section 492 of the HEA. Under that

process, the Secretary convened four regional meetings to obtain public

involvement in the development of these proposed regulations. These

meetings were held in San Francisco, Atlanta, New York, and Kansas

City. At these 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.

Groups that attended the regional meetings nominated individuals to

participate in regulation negotiations. The Secretary selected

regulation negotiators from the names nominated and chose negotiators

to reflect all the groups that participate in the Title IV, HEA

programs, such as students, student financial aid administrators, and

various types of eligible institutions.

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

prepared draft proposed regulations and negotiated the provisions of

that draft with the negotiators. Consensus was reached regarding

Sec. 600.7(c)(3)(ii), the proposed requirement for a degree-granting

institution to demonstrate a 50% completion rate for incarcerated

students enrolled in the institution's nonassociate or nonbachelor

degree programs if the institution wishes to qualify those programs for

a waiver from the provision that limits an institution's enrollment of

incarcerated regular students to less than 25 percent. This and other

related provisions are discussed in greater detail in the discussion on

Sec. 600.7. The remaining regulatory provisions reflect the agreement

of the great majority of the negotiators.

The following discussion reflects proposed significant changes to

the existing Institutional Eligibility regulations. Proposed changes

are discussed in the order in which they appear in the proposed

regulations text. 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 reference to its other appearances.

Section 600.2 Definitions

``Award year.'' The Secretary proposes to this definition to these

regulations from the Student Assistance General Provisions regulations

because the term ``award year'' now applies to these regulations as

well.

``Branch campus.'' Section 498(j) of the HEA directs the Secretary

to define this term. For consistency, the Secretary proposes to adopt

the existing definition set forth in 34 CFR 607.7(b) of the

Strengthening Institutions Program regulations authorized under Title

III, Part A, of the HEA.

``Correspondence course'' and ``telecommunications course.'' The

definition of a telecommunications course essentially restates the

statutory definition contained in section 484(m)(4) of the HEA. As

provided in section 484(m)(1) of the HEA, as a general rule a

telecommunications course is not considered a correspondence course.

However, as further indicated in that section, a telecommunications

course offered at an institution would be considered a correspondence

course if the sum of telecommunications courses and correspondence

courses offered by the institution equals or exceeds 50 percent of the

total courses offered at the institution.

In addition, as reflected in section 484(m)(4) of the HEA, a home

study course that is offered by an institution through video cassette

or video disc recordings in an award year would qualify as a

telecommunications course rather than a correspondence course only if

the institution also delivers the instruction on the cassettes or discs

to students in person, i.e., to students physically attending classes

at the institution, during that same award year.

If a course is part residential and part correspondence, the

Secretary considers the course to be a correspondence course. This

straightforward interpretation eliminates the need for the Secretary to

address all the troublesome issues involving the quantity of education

that an institution claims to provide in a correspondence program.

``Educational program.'' Under the HEA, a community college may

qualify as an eligible institution of higher education if it offers a

two-year educational program that is acceptable for full credit toward

a bachelor's degree at a four-year institution. Therefore, the

Secretary wishes to clarify that under the definition of an educational

program, which requires that such a program lead to a degree,

certificate, or other educational credential, the Secretary considers

that a transcript that a student receives for successfully completing

the two-year program is a recognized educational credential.

``Incarcerated student.'' The Secretary proposes to define this

term to mean a student who is confined in a correctional facility.

However, the Secretary proposes that students who are in less formal

arrangements, such as half-way houses, home detention, or sentenced to

serve only weekends, would not be considered incarcerated.

(Incarcerated students have limited costs of attendance under the Title

IV, HEA programs, they are ineligible to receive loans under Title IV

of the HEA, their enrollment may affect the eligibility of an

institution if more than 25 percent of that institution's enrollment

consists of incarcerated students, and certain incarcerated students

are ineligible for Federal Pell Grants.)

In general, if incarcerated students attend an institution of

higher education, they attend under a specific arrangement between the

institution and the facility in which they are incarcerated. Thus,

institutions are aware of the identity and number of enrolled

incarcerated students. By being so aware, institutions will be able to

abide by the limitations imposed on those students when awarding Title

IV, HEA program funds, and the institutions themselves will be able to

avoid becoming ineligible as a result of admitting too many

incarcerated students.

By defining incarcerated students to exclude students in halfway

houses and home detention, or serving weekend sentences, the admission

of those students would not affect an institution's eligibility, and

the students would not be subject to the special conditions described

above. Thus, the Secretary's proposed definition would eliminate a

burden on institutions of identifying these students as incarcerated

students and would allow the students access to Federal Pell Grant

funds and loans under Title IV of the HEA. However, if an institution

is aware that a student is living in a halfway house, is under home

detention or is serving a weekend sentence, and believes it is

inappropriate for that student to obtain a FFEL program loan, the

institution is free to refrain from certifying the FFEL program

application of the student.

``One-academic-year training program.'' The Secretary proposes to

revise the definition of a ``one-year training program'' to be

consistent with the definition of an ``academic year'' in section

481(d) of the HEA. Under the statutory definition, an academic year

must include at least ``30 weeks of instructional time.'' The Secretary

will more fully define an ``academic year'' in proposed regulations to

be published shortly after these regulations.

``Recognized equivalent of a high school diploma.'' Under the

Secretary's current policy, this term includes (1) the academic

transcript of a student who has successfully completed at least a two-

year program that is acceptable for full credit toward a bachelor's

degree; or (2) documentation that a student has excelled academically

in high school and has met the formalized, written admission policies

of the institution. This latter criterion addresses the ``academically

gifted'' early admission student at a college or university. The

Secretary proposes to amend the regulatory definition of a recognized

equivalent of a high school diploma to include those criteria. Based on

negotiated rulemaking, the Secretary is considering requiring that a

student be in at least the upper quartile of his or her high school

class to have ``excelled academically in high school''.

Section 600.3 Special Conditions

The Secretary proposes to delete this section because it is no

longer needed. The requirements contained in paragraphs (a) and (b) are

no longer needed because institutions offering only correspondence

courses are no longer eligible institutions. The requirement that an

institution be legally authorized to provide postsecondary education in

the State in which it is physically located is now contained in

Secs. 600.4, 600.5, and 600.6.

The Secretary proposes to delete paragraph (c)(1) because that

paragraph restates the requirement in section 1201(a)(2) of the HEA,

i.e. an institution must be legally authorized to provide postsecondary

education in its State, that is made applicable to proprietary

institutions of higher education under section 481(b)(2) of the HEA,

and made applicable to postsecondary vocational institutions by section

481(c)(2) of the HEA. Institutions are required to abide by those

statutory requirements regardless of whether they are repeated in

regulations. Thus, the Secretary wishes to reiterate that it is the

Secretary's view that if the State in which an institution is

physically located requires an institution to provide its programs in

clock hours in order to be legally authorized to provide postsecondary

education in that State, that institution satisfies section 1201(a)(2)

of the HEA only if it provides its programs in clock hours. The

elimination of Sec. 600.3(c)(1) does not affect that result.

The Secretary proposes to delete paragraph (d)(1) in view of the

regulations published in the Federal Register of July 23, 1993 (58 FR

39618-39623) that established a relationship between credit hours and

clock hours for Title IV, HEA program purposes. The Secretary proposes

to delete paragraphs (c)(2) and (d)(2) because ``vocational schools''

are no longer eligible institutions under the HEA.

Section 600.4 Institution of Higher Education

Section 496(e) of the HEA provides that the Secretary may not

recognize the accreditation or preaccreditation of an institution

unless the institution agrees to submit any dispute involving the final

denial, withdrawal, or termination of its accreditation to arbitration

before initiating any other legal action. The Secretary, in this

section and Secs. 600.5 and 600.6, proposes that the referenced

arbitration be binding arbitration so that any legal action after

arbitration would be limited to whether the arbitrator's decision was

arbitrary or capricious. The Secretary believes that this approach best

carries out the purpose of section 496(e) by limiting, to the maximum

extent possible, litigation in this area. This same provision is also

included in Secs. 600.5 and 600.6.

The Higher Education Amendments of 1992 removed the transfer-of-

credit alternative to accreditation from the definition of an

institution of higher education in section 1201(a) of the HEA. However,

section 2(n) of the Higher Education Technical Amendments of 1993

provides that unaccredited institutions that lost their institutional

eligiblity because the transfer-of-credit alternative was removed from

section 1201(a) of the HEA may regain that institutional eligibility,

for a limited time, provided they meet certain conditions. Because

section 2(n) affects only a dozen institutions and the provision for

regaining eligibility is only temporary, the Secretary proposes to

remove the references to the transfer-of-credit alternative to

accreditation in this section. Under section 2(n), an unaccredited

institution that satisfied the transfer-of-credit alternative to

accreditation on July 22, 1992 will be considered to meet the

requirements of section 1201(a)(5) of the HEA (concerning accreditation

or preaccreditation) if--

(1) By February 18, 1994, the institution has applied for

accreditation to a nationally recognized accrediting agency or

association;

(2) By December 20, 1995, the institution is fully accredited by

that accrediting agency or association or, if not so fully accredited,

is preaccredited by that agency or association if that agency or

association has been recognized by the Secretary to grant

preaccreditation status; and

(3) The institution otherwise satisfies the requirements of section

1201 (a)(1) through (a)(4).

The Higher Education Technical Amendments of 1991 (Pub. L. 102-26,

enacted on April 9, 1991) amended the requirements for admitting

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

equivalent. As a result of Public Law 102-26, to maintain its

eligibility an institution is no longer required to demonstrate that a

student who does not possess a high school diploma or its recognized

equivalent has met certain requirements. Any references to these

previous requirements have been removed from this section and also from

Secs. 600.5 and 600.6.

Currently, the regulations provide that an institution is not

eligible to participate in the Part B loan programs if the institution

uses or employs commissioned salespersons to promote the availability

of Part B loan program loans at that institution. The Higher Education

Amendments of 1992 added several provisions to the institutional

program participation agreement. One of these provisions is that, with

the exception of recruiting foreign students residing in foreign

countries who are not eligible for Title IV, HEA program assistance, an

institution may not pay a commission, bonus, or other incentive payment

based directly or indirectly on success in securing enrollments or

financial aid to a person or entity engaged in recruiting, admission,

or making decisions regarding student financial assistance.

As a result of this new program participation agreement requirement

(which is broader in nature than the provision in current regulations),

the Secretary proposes to remove all references in this section to

commissioned salespersons in the current regulations. Instead,

provisions pertaining to the use of commissioned salespersons will be

proposed when the Secretary publishes, shortly after these proposed

regulations, a notice of proposed rulemaking for the Student Assistance

General Provisions regulations that deal with the program participation

agreement.

Section 600.5 Proprietary Institution of Higher Education

The statute requires that in order for an educational institution

to qualify as a proprietary institution of higher education, it must

have been in existence for at least two years. Under current

regulations, the Secretary considers an institution to have been in

existence for two years only if it has been legally authorized to

provide, and has provided, during the 24 months (except for normal

vacation periods) preceding the date of application for eligibility, a

continuous training program to prepare students for gainful employment

in a recognized occupation. The Secretary is proposing to make two

changes to this provision. Conforming proposals are also included in

Secs. 600.6 and 600.7.

Under the first proposed change, during the two-year period

preceding the institution's date of application, the institution will

not be penalized if it failed to provide training because it

temporarily closed due to a natural disaster that affected the

institution or its students. This proposed change represents the

Secretary's current policy.

The purpose of the two-year rule is to have an institution

establish that it is a viable institution that offers quality

educational programs for which students will pay their own money before

students can receive Title IV, HEA Program funds to enroll in those

programs. The Secretary believes that this purpose is strengthened if

the programs that the institution offers when it applies for

institutional eligibility are substantially the same as the programs

that the institution offered during the preceding two-year period. The

Secretary further believes that this purpose is not served if an

institution merely offers one very short program for two years and then

applies for institutional eligibility offering a host of much longer

and substantially different programs. Therefore, under the second

proposed change, the Secretary has proposed that to satisfy the two-

year rule, an institution must offer over the two-year period a

training program that is substantially the same in subject matter and

length of program as the training program it offers at the time of

application.

Section 481(b)(6) of the HEA adds a new eligibility criterion to

the definition of a proprietary institution of higher education. That

section requires that a proprietary institution must derive at least

fifteen percent of its revenues from non-Title IV, HEA program funds.

Put another way, the section prohibits a proprietary institution of

higher education from deriving more than 85 percent of its revenues

from Title IV, HEA program funds. Using this latter approach, the

Secretary proposes the fraction contained in Sec. 600.5(d)(1) to

measure this criterion, i.e., the ``85 percent rule.''

In proposing this rule, the Secretary had to interpret the term

``revenue.'' In general, at least three interpretations are possible.

One interpretation would limit revenues to those funds received by the

institution from tuition and fees; the second would allow an

institution to include revenues received by the institution from any

source for any purpose; the third would limit revenues to tuition and

fees plus revenues from other activities carried out by the institution

that are necessary to the education or training programs offered by the

institution.

These three interpretations are illustrated in the following

example. A cosmetology institution owns several beauty salons. In one

of the salons, students perform all the hair cutting as part of their

program of training. Under the first interpretation, the only revenues

that the institution could count would be the tuition and fees it

charged its students. Under the second interpretation, the institution

could count all revenues it received from all its beauty salons plus

the tuition and fees it charged to its students. Under the third

interpretation, the institution could count the tuition and fees it

charged plus revenues it received from the one beauty salon at which

the students performed the service.

The Secretary believes that the purpose of the new statutory

criterion is to require proprietary institutions to attract students

based upon the quality of their programs, not solely because the

institutions offer Federal student financial assistance. Thus, under

the statute, these institutions must attract students who will pay for

their programs with funds other than Title IV, HEA program funds. On

the other hand, the Secretary recognizes that many institutions,

because of their locations, provide educational opportunities to

students in low-income areas who cannot attend postsecondary education

without Title IV, HEA program funds. The Secretary considered these two

factors, as well as the fact that the criterion relates to whether an

institution qualifies as an educational institution, in selecting his

proposed interpretation of the term ``revenue.''

The Secretary believes that counting only the income received from

students' tuition and fees is too limiting; on the other hand, the

Secretary believes it is inappropriate to count as revenues income from

businesses that are owned and operated by the institution, regardless

of the relationship between the educational institution and the

businesses. The Secretary chose the third interpretation because the

permitted revenues generated by the institution relate to the purpose

of the institution, providing training to students, and are generated

as a necessary part of that training. The Secretary recognizes that the

third interpretation will make the rule more difficult to administer

because it will be necessary for an institution to determine which of

its revenue-producing activities are ``necessary'' for its students'

education or training.

In proposed Sec. 600.5(d)(2)(vi), the Secretary has listed criteria

that would have to be satisfied to make a determination that activities

are necessary for students' education or training. Examples of revenue-

producing activities provided by an institution that are necessary for

its students' education or training are provided below:

Revenues produced by a restaurant that is owned and

operated by a culinary institution where the institution's students

purchase the food, cook the meals, or wait on the tables.

Revenues produced by a theater that is owned and operated

by an institution that provides training in acting, music, or dance

where the artistic endeavors that produce the revenues are performed by

the institution's students or where the theater is run by the

institution's students.

Revenues produced by an auto mechanic shop that is owned

and operated by an institution providing auto mechanic training where

the institution's students repair vehicles.

To avoid inappropriate manipulation of information under the 85

percent rule, the Secretary proposes special rules regarding the

calculation of the correct percentage. Thus, Title IV, HEA program

funds provided to a student would be considered to be used to pay that

student's institutional charges regardless of whether the institution

credits the student's account with those funds or provides those funds

directly to the student. Of course, Title IV, HEA program funds would

be considered to satisfy a student's institutional charges only to the

extent of those charges. Thus, if total institutional charges are

$5,000, and the student received $6,000 of Title IV, HEA program funds,

only $5,000 would be considered to be used to satisfy institutional

charges. In addition, the Title IV, HEA program funds included in the

numerator and the revenue described in the denominator would not

include any refunds paid to or on behalf of students under the

institution's refund policy since the institution does not have access

to these funds.

The Secretary proposes two exceptions to the first rule. The

Secretary wishes to encourage proprietary institutions to obtain non-

Federal, non-loan student aid funds from independent outside sources.

As a result, under the first exception, the Secretary would not

consider that Title IV, HEA program funds were used to satisfy

institutional charges to the extent that those charges were satisfied

by grant funds received from non-Federal public agencies or from

private sources that are independent of the institution.

For example, if total institutional charges are $5,000, and the

student received $5,000 of Title IV, HEA program funds and a $1,000

scholarship from a local business, only $4,000 of the Title IV, HEA

program funds would be considered to be used to satisfy institutional

charges.

Under the second exception, the Secretary proposes that Federal

Work-Study (FWS) and State Student Incentive Grant (SSIG) program funds

not be counted as Title IV, HEA program funds. The Secretary proposes

to exclude FWS Program funds because (1) the Federal share of FWS

Program payments to students must be paid directly to the student and

cannot be applied to a student's account for institutional charges; (2)

not all FWS Program earnings are necessarily applied to a student's

cost of attendance, i.e., there may be job-related costs; and (3) FWS

Program earnings are derived from Federal, institutional, and other

sources. The Secretary proposes to exclude SSIG Program funds because a

significant portion of SSIG Program awards come from State funds, and

in many cases, an institution will not be able to determine the portion

that comes from Federal sources.

Finally, the Secretary proposes to determine whether an institution

satisfies the 85 percent rule, as well as the requirements contained in

Sec. 600.7(a)(1)(i), by evaluating an institution over a period of time

rather than at one particular point in time. Title IV, HEA program

funds, other than FFEL program funds, are generally measured over an

award year (July 1 of one year through June 30 of the next year). Thus,

with regard to the numerator of the fraction contained in

Sec. 600.5(d)(1), the Title IV, HEA program funds that would have to be

reported are those funds that were used to pay institutional charges

over a complete award year.

Under accounting principles, revenues received by an institution

are reported on a ``financial statement'' that is prepared on a fiscal

year basis. Therefore, in order to audit the revenue that an

institution includes in the denominator of the fraction in

Sec. 600.5(d)(1), it is necessary to have those revenues reported on a

fiscal year basis.

The Secretary proposes not to require an institution to change its

fiscal year to coincide with an award year. As a result, if an

institution's fiscal year is not on a July 1 to June 30 basis, and the

institution chooses not to change its fiscal year, the reporting period

for the numerator in Sec. 600.5(d)(1) would not be same as the

reporting period for the denominator. Consequently, the Secretary

proposes special rules to address this possibility.

Each year, an institution would have to determine the revenues it

received for its latest fiscal year, and would have to determine the

Title IV, HEA program funds it received for institutional charges for

the award year that most closely corresponds to that fiscal year. For

example, if an institution's fiscal year runs from October 1, 1993

through September 30, 1994, that fiscal year overlaps two award years:

October 1, 1993 through June 30, 1994 is in the 1993-94 award year, and

July 1, 1994 through September 30, 1994 is in the 1994-95 award year.

Since nine months of the institution's fiscal year are in the 1993-94

award year, that is the award year that would be used to determine the

amount in the numerator. Moreover, the institution would have to

determine the Title IV, HEA program funds that were used to pay

institutional charges for that entire award year, including the period

of July 1, 1993 to September 30, 1993. Similarly, if an institution's

fiscal year runs from May 1, 1994 through April 30, 1995, the

institution would use the Title IV, HEA program funds it received

during the 1994-95 award year because 10 months of that award year,

July 1, 1994 through April 30, 1995 fell in that institution's fiscal

year.

If the institution's fiscal year is January through December, the

fiscal year would fall equally into two award years, i.e., a fiscal

year of January 1, 1993 through December 31, 1993 would have six months

in the 1992-93 award year (January 1, 1993 through June 30, 1993) and

six months in the 1993-94 award year (July 1, 1993 through December 31,

1993). In such a case, the Secretary intends the institution to

initially elect to be counted in either the earlier or later award

year, and that election would be permanent for future years.

The Secretary also proposes reporting requirements to accommodate

the different reporting periods. In the first example where the

institution's fiscal year runs from October 1, 1993 through September

30, 1994, the appropriate award year, 1993-94, would be completed

before the institution's fiscal year. Under this circumstance, the

Secretary proposes that the institution would have to report to the

Secretary within 60 days from the end of its fiscal year, e.g.,

November 29, 1994, if it derived more than 85 percent of its revenues

from Title IV, HEA program funds. A 60-day reporting period would be

allowed in this instance to provide time for the institution to submit

an audited financial statement.

In the second example, where the institution's fiscal year runs

from May 1, 1994 through April 30, 1995, the fiscal year would be

completed before the award year was completed. Under this circumstance,

the Secretary proposes that the institution would have to report to the

Secretary within 31 days from the end of the relevant award year i.e.,

July 31, 1995, if it derived more than 85 percent of its revenues from

Title IV, HEA program funds. As institutions are tracking their use of

Title IV funds throughout the award year, they should be prepared to

have year-end data available shortly after the end of the award year.

An institution that determines that its Title IV, HEA Program

revenues did not exceed 85 percent of its revenues for the relevant

periods need not report that information to the Secretary. However, it

must have the certified public accountant who performs its annual

audited financial statement certify to the accuracy of the information

used in that calculation and the calculation itself, and have the

accountant submit that certification to ED with the audited financial

statement.

Under Sec. 600.41, Loss of eligibility, the Secretary proposes that

if an institution derived more than 85 percent of its revenues from

Title IV, HEA program funds, it would become ineligible on the last day

of the award year used in the institution's calculation, if the award

year is completed after the fiscal year used in that calculation. The

institution would become ineligible on the last day of the fiscal year

used in that calculation if the award year used in that calculation was

completed on or before the fiscal year. Thus, in the first example, the

loss of eligibility would be effective on September 30, 1994, while in

the second example, the loss of eligibility would be effective on June

30, 1995. As a result, because the institution would generally be

considered eligible until the end of the applicable award or fiscal

year, the institution would not be liable for the Title IV, HEA program

funds it disbursed or delivered during that year. However, the

Secretary expects an institution to keep track of its revenues at all

times. Therefore, the institution would be liable for the Title IV, HEA

program funds it disbursed or delivered after the relevant award or

fiscal year.

The Secretary proposes that if an institution loses its eligibility

as a result of failing to satisfy the 85 percent rule, to regain its

eligibility it would have to demonstrate that it satisfied all the

relevant eligibility requirements for a complete award year if it

became ineligible on the last day of an award year, or for a complete

fiscal year if it became ineligible on the last day of its fiscal year.

The Secretary proposes that an institution initially self-report

that it derived more than 85 percent of its revenues from Title IV, HEA

program funds. If the Secretary determines that an institution made

little or no effort to comply with this requirement over the reporting

period, the Secretary anticipates imposing a fine on the institution.

If the institution does not report that its Title IV, HEA program

revenues exceeded 85 percent of its revenues for the relevant period,

and the Secretary learns of this situation when the audited financial

statement is submitted or through other means, the Secretary

anticipates terminating the institution's eligibility and imposing a

fine on the institution. The Secretary requests comments on the manner

in which the fine amount should be determined, including whether the

fine should equal the Title IV, HEA Program funds the institution

received after the date it should have notified the Secretary that the

Title IV, HEA program funds exceeded 85 percent of its revenues.

Section 600.7 Conditions of Institutional Ineligibility

Section 481(a)(3) of the HEA provides that an otherwise eligible

institution loses that eligibility if certain conditions are met. One

of those conditions relates to the type of courses that the institution

offers. The other three conditions relate to the type of students the

institution admits.

With regard to the first condition, an otherwise eligible

institution loses that eligibility if more than 50 percent of its

courses are correspondence courses. With regard to the latter three

conditions, an otherwise eligible institution loses its eligibility if

50 percent or more of its students are enrolled in correspondence

courses, 25 percent or more of its students are incarcerated students,

or, for an institution that does not offer programs for which at least

an associate or bachelor's degree is offered, 50 percent or more of its

students are ``ability to benefit'' students. However, if an

institution satisfies the provisions of section 521(4)(C) of the

Perkins Act, it does not lose its eligibility if more than 50 percent

of its courses are correspondence courses or if 50 percent or more of

the students are correspondence students.

As indicated in the discussion regarding the 85 percent rule for

proprietary institutions, the Secretary proposes to determine whether

an institution becomes ineligible under these conditions by evaluating

an institution over a period of time rather than at one particular

point in time. The period of time the Secretary proposes for these

additional conditions is a complete award year. Moreover, as with the

85 percent rule for proprietary institutions, institutions would be

required to report to the Secretary if these conditions rendered them

ineligible. Furthermore, each institution's compliance with these

provisions would be confirmed through the institution's required

compliance audit.

The Secretary proposes that institutions report to the Secretary by

July 31 following the end of each award year if they have failed to

meet one of the conditions listed in this section. For purposes of

these conditions, if as a result of an institution's calculations, any

of the resulting percentages is within 10 percent of the applicable

percentage, the institution would have to have performed, for the

applicable award year or fiscal year, a financial and compliance audit

of its Title IV, HEA programs. The certified public accountant who

prepares the audit would have to certify the accuracy of the

institution's calculations. The institution would have to retain the

report of that audit and all relevant supporting documentation in

accordance with 34 CFR 668.23(h) (governing the establishment and

maintenance of an institution's records). The institution would only

have to submit the report to the Secretary if the certified public

accountant determined that the institution had failed to meet any of

the allowable percentages.

If an institution loses its eligibility under one of these

conditions, to regain its eligibility it would have to demonstrate that

it did not fall within one of these conditions for a subsequent

complete award year. The institution would also have to demonstrate

that it has appropriately revised its administrative policies and

procedures to prevent the institution from meeting one of these

conditions in the future.

If an institution becomes ineligible as a result of one of the

conditions in this section, the Secretary proposes that the date of

ineligibility be the last day of the award year for which the

calculation resulting in that condition is used. As a result, the

institution would not generally be liable for the Title IV, HEA program

funds it disbursed or delivered during the applicable award year but it

would be responsible for any funds it disbursed or delivered during any

subsequent award year. Furthermore, the Secretary anticipates imposing

a fine on the institution if it is determined that the institution made

no or little effort to comply with these provisions during the relevant

award year.

With regard to whether more than 50 percent of an institution's

courses are correspondence courses, the Secretary proposes special

rules dealing with telecommunications courses and the number of courses

an institution offers. The rule dealing with telecommunications courses

is derived from section 484(m)(1) of the HEA, and provides that if the

sum of correspondence and telecommunications courses equals or exceeds

50 percent of the total courses offered by the institution for an award

year, the telecommunications courses would be considered correspondence

courses.

As a result of the 1993 Technical Amendments, the Secretary may

waive the requirement that an institution may not have 50 percent or

more of its students enrolled in correspondence students, for an

institution that offers a 2-year associate-degree or 4-year bachelor's-

degree program or both, for good cause. The Secretary solicits comments

from the public as to what should be considered ``good cause''.

With regard to the counting of students, the Secretary proposes

that institutions should count only ``regular students,'' and should

count those students on the basis of a ``head count,'' rather than on

the basis of full-time equivalency. Thus, if an institution enrolls 500

regular full-time students and 500 regular half-time students, the

number of regular students considered enrolled would be 1,000.

Moreover, the Secretary proposes that institutions count a student only

once during an award year regardless of the number of times he or she

enrolls or reenrolls during that period.

Section 481(a)(3)(C) of the HEA authorizes the Secretary to waive

the 25 percent incarcerated student provision for public or nonprofit

private institutions that offer two- or four-year programs that result

in an associate or bachelor's degree. The Secretary proposes to

exercise this waiver authority under the following circumstances: If

the institution requesting the waiver only offers two- or four-year

programs leading to an associate, bachelor's or more advanced degree,

the Secretary would waive the ``incarcerated student'' provision for

the entire institution. However, based on negotiated rulemaking, if the

institution also offers other educational programs, the Secretary would

grant the waiver for the two- or four-year programs that result in

associate, bachelor's, or more advanced degrees, but would grant a

waiver for those other educational programs only if the incarcerated

students enrolled in those other programs have at least a 50 percent

completion rate. The Secretary proposes a formula for calculating that

completion rate in Sec. 600.7(d)(1)(iii).

Section 481(a)(3)(D) of the HEA, as amended by the Higher Education

Technical Amendments of 1993, allows the Secretary to waive the

limitation on the percentage of students without a high school diploma

or its recognized equivalent enrolled at a nondegree institution if the

institution is a nonprofit institution that demonstrates to the

satisfaction of the Secretary that it exceeds the limitation because it

serves, through contracts with Federal, State, or local government

agencies, significant numbers of those students. The Secretary requests

comments regarding the conditions under which the Secretary will grant

this waiver. Issues for which comments are requested are: the purpose

of the referenced contracts, what constitutes a ``significant'' number

of students, and the duration of a waiver.

Section 481(a)(4) of the HEA provides that an institution loses its

eligibility if it files for bankruptcy, or if its owner or chief

executive officer is convicted of or pleads guilty to a crime involving

the acquisition, use, or expenditure of Title IV, HEA program funds, or

has been judicially determined to have committed fraud involving Title

IV, HEA program funds.

With regard to bankruptcy, the Secretary proposes to define a

filing institution for purposes of this provision to include--(1) any

entity affiliated with the institution that seeks protection in a

bankruptcy court against an actual or prospective action against the

institution by the Secretary, a State, an accrediting agency or a

guaranty agency under the FFEL programs; and (2) any entity whose

resources were provided to the Secretary to enable the Secretary to

certify that the institution was financially responsible and

administratively capable. The Secretary proposes this expansive

definition of a filing institution to prevent an institution from

indirectly obtaining bankruptcy protection while avoiding the

consequences under the HEA of filing for bankruptcy.

Section 600.8 Treatment of a Branch Campus

Under section 498(j) of the HEA, as amended by the 1993 Technical

Amendments, the Secretary is charged with defining a ``branch campus.''

Moreover, under that section, a branch campus has to be certified by

the Secretary before it may participate as part of the institution in a

Title IV, HEA program. A branch of a proprietary institution or a

postsecondary vocational institution does not have to satisfy the

``two-year rule.'' However, such a branch campus is required to be in

existence for at least two years before it may seek certification as a

main campus or free-standing institution.

Section 600.9 Written Agreements Between an Eligible Institution and

Another Institution or Organization

This section has been revised to reflect the fact that as of

October 1, 1992, institutions that are not accredited or preaccredited

are no longer eligible institutions under the HEA.

The Secretary proposes to add a provision to this section that

would prevent an eligible institution from entering into an agreement

with an ineligible institution if that ineligible institution had its

eligibility terminated by the Secretary. The purpose of this proposal

is to prevent an institution that has lost its eligibility from

continuing to participate in the Title IV, HEA programs through a

contractual relationship with an eligible institution.

Section 600.10 Date, Extent, Duration, and Consequence of Eligibility

If an institution wishes to participate in the Title IV, HEA

programs, it has to satisfy the definitional requirements of an

eligible institution, and also has to satisfy the standards of

financial responsibility and administrative capability required for

that participation. In the past, the Secretary made separate,

independent determinations with regard to those two requirements.

However, the Secretary is now proposing to merge the procedures under

which those determinations are made.

Accordingly, the Secretary proposes that if an institution applies

to participate in the Title IV, HEA programs, the date on which the

institution would be eligible to so participate is the date on which

the Secretary signs that institution's program participation agreement

required under section 487 of the HEA. The execution of that agreement

represents the Secretary's determination that the institution satisfies

both the institutional eligibility requirements and the standards of

financial responsibility and administrative capability contained in 34

CFR, part 668, subpart B. In other words, on the date that the

Secretary signs an institution's program participation agreement, the

institution becomes both eligible for and a full participant in the

applicable Title IV, HEA programs.

With regard to an HEA program other than a Title IV, HEA program,

the Secretary would continue the current practice of designating an

institution as an eligible institution as of the date the Secretary

receives all the information necessary to make that determination.

However, designation as an eligible institution does not make the

institution a participant in any non-Title IV, HEA program. Instead,

that eligibility designation would continue to mean that the

institution is eligible to apply to participate in non-Title IV, HEA

programs.

Under Sec. 600.10(b) of the current regulations, if an institution

adds a location after the institution received its eligibility

designation from the Secretary, that new location is not included

within that designation. The Secretary proposes to amend that provision

so that a location added after the institution receives its eligibility

designation, or an existing location not previously included in that

designation, would be considered part of that eligibility designation

if the institution offers less than 50 percent of an educational

program at that location.

Under Sec. 600.10(c) of the current regulations, an institution may

add an educational program and have that program included in the

institution's eligibility without notifying the Secretary. Further, the

institution may provide Title IV, HEA program funds to students

enrolled in that program based upon the institution's determination

that the program qualified as an eligible program under applicable

statutes and regulations.

In view of the expanded certification requirements contained in

title IV, part H, subpart 3, of the HEA, the Secretary proposes that,

except as provided below, an institution would have to notify the

Secretary each time it adds an educational program and would have to

have that program designated as an eligible program by the Secretary

before students enrolled in that program may receive Title IV, HEA

program funds.

The exceptions proposed by the Secretary would allow an institution

to add an educational program, without notice and approval by the

Secretary, if (1) the program leads to an associate, bachelor's, or

more advanced degree; or (2) the program prepares students for gainful

employment in the same or related recognized occupation as a previously

designated eligible program at that institution, and the program is at

least 8 semester or trimester hours, 12 quarter hours, or 600 clock

hours. In effect, under these proposed regulations, an institution will

have to get approval from the Secretary only for two types of new

vocational programs. One type includes new vocational programs that are

not similar to the vocational programs already offered by the

institution; the other type includes vocational programs that are

similar to the vocational programs already offered by the institution

but provide between 300 and 599 clock hours of instruction. These

latter programs are the ones described in section 481(e)(2) of the HEA.

For them to become eligible programs, the institution must demonstrate

that students enrolled in those programs have a 70 percent completion

rate and a 70 percent placement rate. Moreover, if the institution can

make those demonstrations, students enrolled in those programs are

eligible only for loans under the FFEL programs. In a future NPRM, the

Secretary will propose regulations implementing the provisions

governing eligible programs as defined in section 481(e) of the HEA,

including provisions governing the calculation of placement and

completion rates.

However, there will be no change with regard to an institution's

incorrect determination of program eligibility. Under this

circumstance, the institution continues to be liable for all Title IV,

HEA program funds received by the institution or its students for

attendance in that ineligible program.

The changes in Sec. 600.10 (d) and (e) will be discussed with the

changes in Sec. 600.20, 600.21, and 600.30.

In accordance with section 498(g) of the HEA, Sec. 600.11(d)

provides that an institution's period of eligibility expires four years

after the date that the Secretary determines that the institution is

eligible, except that the Secretary may specify a shorter period of

time.

The Secretary proposes changes to Sec. 600.21, ``Eligibility

notice,'' that are necessary to reflect these proposed changes.

Section 600.11 Special Rules Regarding Institutional Accreditation

The provisions of this section would paraphrase sections 496(h)

through 496(j) of the HEA. Thus, the Secretary will not recognize an

institution's change of accrediting agency unless the institution

provides the Secretary with a reasonable basis for making the change.

The Secretary also will not recognize accreditation or preaccreditation

by more than one accrediting agency unless the institution demonstrates

the need for multiple accreditation or preaccreditation, and the

institution will have to choose one agency to be used to establish its

eligibility under the HEA.

If an accrediting agency terminates an institution's accreditation

or preaccreditation for cause, or if an institution voluntarily

withdraws its accreditation or preaccreditation under a show cause or

suspension order, the institution will be considered ineligible for 24

months unless the accrediting agency that terminated the institution

for cause or issued the show cause or suspension order rescinds its

action. Finally, if an institution loses its accreditation or

preaccreditation for religious reasons, the Secretary will consider

that institution to be otherwise eligible for an additional 18 months,

during which time the institution may obtain alternative accreditation

or preaccreditation. If the institution does not obtain that

alternative accreditation or preaccreditation during that 18-month

period, it would lose its eligibility under the HEA because of its lack

of accreditation or preaccreditation at the end of that 18-month

period.

The Secretary proposes the 18-month period for obtaining

alternative accreditation or preaccrediation under the religious

provision to be consistent with section 498(h)(2) of the HEA that has a

maximum 18-month period for an institution to obtain alternative

accreditation or preaccreditation when the institution's accrediting

agency has its recognition withdrawn by the Secretary.

Section 600.31 Change in Ownership Resulting in a Change in Control

This section would be revised to reflect changes required by

section 498(i) of the HEA. Section 498(i) of the HEA adopted the list

in current regulations of examples of changes of control. The statute

went one step further, however, in allowing the Secretary to exclude

from treatment as changes of control certain changes, including a

change resulting from the death of an owner of an institution, if the

owner's ownership interest is sold or transferred to either a family

member or a current stockholder in the corporation that owns the

institution. Similarly, the Secretary could exclude from that treatment

a change that the Secretary determines to be the result of a routine

business practice. The Secretary proposes to add these options to these

regulations without elaboration.

Section 498(i) of the HEA requires an eligible institution that

undergoes a change in ownership that results in a change of control to

be treated, for purposes of establishing its eligibility, as if it were

a new institution. A new institution, of course, is not an eligible

institution until it demonstrates to the Secretary that it satisfies

eligibility requirements and has the requisite administrative and

financial capability to merit certification to participate in the Title

IV, HEA programs. Thus, two consequences of the statutory change are

that (1) an eligible institution loses its eligibility and its

participation in any HEA program on the date that the institution

undergoes the change of ownership that results in a change in control,

and (2) the provisions of current Sec. 600.31(a) allowing the

institution to be treated as the same institution, provided that the

new owner satisfies the conditions contained therein, are superseded by

the requirement that an institution may not participate in a Title IV,

HEA program after it undergoes a change in ownership and control until

it reestablishes its eligibility.

Therefore, the Secretary would remove current paragraphs (a)(1)

through (a)(6) of Sec. 600.31, that provide that for an eligible

institution to be treated as the same institution, the new owner has to

agree to be liable, or the old and new owners have to agree to be

jointly and severally liable, for HEA program funds received and

improperly used before the change in ownership resulting in a change of

control.

Also, under those provisions of current regulations, which are

being deleted from these regulations, the new owner is required to

honor all student enrollment contracts in effect before the date of the

change; the institution is required to submit to the Secretary

financial information on the new owner and on the institution for its

most recent complete fiscal year together with other financial

information that the Secretary might request; the institution is

required to provide for the retention of records relevant to the

institution's eligibility for and participation in HEA programs; and,

for an institution that divided into two or more institutions, all

resulting institutions are required to submit jointly to the Secretary

a statement designating the successor to the original institution.

Because under section 498(i) of the HEA an eligible institution

that changes ownership resulting in a change of control must

reestablish its eligibility, that institution would have to satisfy all

the applicable requirements of this part after that change, including

the applicable institutional definition or definitions and the

requirement to reapply for eligibility. Section 498(i) exempts the

institution, in qualifying to meet the definition of a proprietary

institution of higher education or a postsecondary vocational

institution, from the requirement to be in existence for at least two

years, unless the institution was in existence as a branch campus for

less than two years. Paragraph (a)(2) of Sec. 600.31 would reflect the

exemption from the ``two-year rule.''

Because under section 498(i) the eligibility of an institution that

changes ownership resulting in a change of control and the

institution's certification for participation in any Title IV, HEA

program lapse on the date of the change, the Secretary cannot, in

entering into a new program participation agreement with the new owner

for any program, continue to make the agreement effective on the date

of the change, as has been past practice. Under the new law, the

institution becomes eligible and able to participate in a Title IV, HEA

program only when a new agreement is executed after a change of

ownership. In a separate NPRM, the Secretary will propose a revision to

34 CFR 668.12 to reflect this change in the controlling statute.

Current regulations authorize a substantial, if limited, degree of

continued Title IV, HEA funding for students enrolled at an institution

that has undergone a change of ownership resulting in a change of

control. Under 34 CFR 668.25 (governing loss of participation in a

Title IV, HEA program), an institution that does not close may continue

to deliver or disburse Title IV, HEA program funds to students who were

enrolled on the date of the end of participation and who had received

commitments of Title IV, HEA program aid or, under the FFEL programs,

the proceeds of an initial FFEL program disbursement prior to that

date. This provision reduces the negative impact of the lapse of

eligibility that occurs on the date of the change of ownership.

Students enrolled after the change of ownership takes place, however,

qualify for Title IV, HEA program funds only if they are still enrolled

on the date on which the institution receives a new program

participation agreement and regains its status as an eligible,

participating institution.

The Secretary recognizes that it may be desirable to clarify in the

regulations the standards for identifying the ``parent'' of an

institution, and for determining what constitutes a change in

``control,'' within the meaning of section 498(i). The Secretary

invites comment on what those standards should be. Some institutions

owned by publicly traded corporations are already subject to, and

presumably conversant with, Securities and Exchange Commission (SEC)

rules that rely on regulatory definitions of ``control'' and ``parent''

at 17 CFR 230.405; those definitions could prove useful to adopt

generally in these and related Title IV, HEA program regulations. For

those institutions that are owned by closely held corporations, the

Secretary invites comment on whether the Secretary should by regulation

treat the acquisition of, or relinquishment of, a 50 percent ownership

interest in the corporation as the bright line for recognizing a change

of ownership and control of that entity. For those institutions owned

or controlled by corporations that are not closely held or institutions

not owned by publicly traded corporations required to be registered

with the SEC, the Secretary invites comment on whether the acquisition

of, or relinquishment of, a 25 percent interest in the respective

corporations together with control of the corporation should be viewed

as a change of ownership and control within the meaning of this section

of the regulations, in the same way it is viewed in 34 CFR

668.13(d)(3). The Secretary also invites comment on whether a change in

organization from for-profit to nonprofit status should be regarded as

a change of ownership that results in a change of control within the

meaning of section 498(i).

Section 498(h) of the statute authorizes the Secretary to

provisionally certify an institution that undergoes a change in

ownership for participation in a Title IV, HEA program for not more

than three award years. The implementation of that provision will be

discussed in another NPRM. The Secretary notes that in many, if not

most, changes of ownership and control, the successor institution

remains liable for financial obligations incurred under the prior

ownership, whether or not the institution formally assumed or

reaffirmed its liability. This continued obligation follows as a matter

of course in those instances in which the change of ownership occurs in

a transaction such as a sale of a controlling interest in the stock of

the corporation that owns the institution. In those instances in which

the change of ownership occurs through an asset sale by the corporate

owner of the institution, the Secretary regards the purchaser as liable

for the financial obligations associated with the institution prior to

the change of ownership when there is a continuity of management,

personnel, facilities, and general business operations of the

institution through the sale, and the seller effectively ceases

business operations as a school after the sale. However, for purposes

of this discussion, it should be noted that if an institution of sound

reputation undergoes a change of ownership and demonstrates a full and

persuasive commitment to honor all obligations and liabilities incurred

under the prior ownership (including those commitments currently

provided for in paragraph (a) (1) through (6) of Sec. 600.31), the

Secretary may use that provisional certification to permit that

institution to resume participation after an accelerated Department

review.

A consequence of this provisional certification is that an

institution that is certified is not entitled to the procedural

advantages of section 487(c)(1)(F) of the HEA, which would otherwise

apply to administrative action to terminate the participation in a

Title IV, HEA program of the institution. Thus, the Secretary would

provide an opportunity for an institution that has changed ownership to

minimize the interruption between its loss of eligibility and

participation under the old ownership and its new eligibility and

participation under the new ownership in exchange for the institution's

agreeing to be provisionally certified.

Section 600.32 Eligibility of Additional Locations

The Secretary proposes to add to this section the requirement that

an ``acquiring'' institution be responsible for the payment of refunds

of the institution it is acquiring. This addition is consistent with

the treatment of this situation in the Student Assistance General

Provisions regulations, 34 CFR part 668.

Section 600.40 Loss of Eligibility

The Secretary proposes to revise this section to indicate the date

on which an institution loses its eligibility if it loses that

eligibility under the 85 percent rule in Sec. 600.5 or under the

conditions contained in Sec. 600.7(a)(1)(i). The rules for each of

those circumstances were discussed previously and are clearly stated in

the proposed regulations. The section makes explicit that an

institution loses its eligibility as a result of its violation of the

provisions of Sec. 600.5 or Sec. 600.7, regardless of its status on the

date a hearing is held to terminate that eligibility.

Section 600.41 Termination and Emergency Action Proceedings

The Secretary proposes a simpler, faster show-cause procedure for

terminating an institution's eligibility if the loss of eligibility

results from: statutory changes that made a previously eligible

institution ineligible; the loss of accreditation, preaccreditation, or

State legal authority to provide postsecondary education; or the

provisions of Sec. 600.5(a)(8) or Sec. 600.7(a). The Secretary proposes

this simpler, faster show-cause proceeding because neither the facts

nor the law would be in dispute in the proceeding.

If an institution no longer qualifies as an eligible institution

because it is in violation of a statutory or regulatory provision

governing institutional eligibility, or its type of eligibility

designation has been repealed, its status as an eligible institution

would be terminated. Moreover, since the institution itself would

report to the Secretary that it was not in compliance with the

applicable eligibility requirements of Sec. 600.5 or Sec. 600.7, there

would also be no question of fact in dispute. Similarly, there would be

no dispute that an institution lost its State license or its

accreditation since that status would be confirmed by a written

statement by the State or the accrediting agency.

Under the show-cause procedures, the Secretary would inform the

institution that it is no longer an eligible institution and the reason

for that loss of eligibility. If the institution wished to contest that

determination, it would have to provide the Secretary with

documentation supporting its continuing eligibility. In general, the

Secretary would base a final decision on written submissions. The

institution could request an oral evidentiary hearing, but the

Secretary would grant that request only if the institution could

demonstrate that its eligibility could not be decided by written

submissions. However, given the matter at issue in this type of

proceeding, the Secretary anticipates that a request for an oral

evidentiary hearing would rarely be justified.

The 1993 Technical Amendments amended section 487(c)(1)(F). Before

the amendment, the Secretary was required to provide a hearing before

terminating ``the eligibility for any (Title IV, HEA program) of any

otherwise eligible institution * * *'' After the amendment, section

487(c)(1)(F) provides that the Secretary must provide a hearing before

terminating the ``participation in any [Title IV, HEA program] of an

eligible institution * * *'' As a result of this change, the Secretary

requests comments as to whether he should remove an institution's

designation of eligibility solely through a show-cause proceeding.

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. The small entities that would be affected by these proposed

regulations are institutions of postsecondary education. These

regulations make a number of modifications and reduce potential abuse

in the Title IV, HEA programs. These changes will result in a minimal

increase in the recordkeeping burden. However, these changes would not

significantly increase institutions' workloads or costs associated with

administering the Title IV, HEA programs and therefore would not have a

significant economic impact on a substantial number of small entities.

Paperwork Reduction Act of 1980

Sections 600.4, 600.5, 600.7, 600.8, 600.10, 600.20, 600.30, and

600.31, contain information collection requirements. As required by the

Paperwork Reduction Act of 1980, the Department of Education will

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

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

These proposed regulations contain records that would affect

postsecondary institutions that wish to participate in the Title IV,

HEA programs. An estimate of the total annual reporting and

recordkeeping burden that would result from the collection of the

information is 15,900 burden hours for this package.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

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

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

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, Regional Office Building 3, 7th and D Streets,

SW., Washington, DC, 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 600

Administrative practice and procedure, Colleges and universities,

Consumer protection, Education, Grant programs--education, Loan

programs--education, Reporting and recordkeeping requirements, Student

aid.

Dated: February 2, 1994.

Richard W. Riley,

Secretary of Education.

(Catalog of Federal Domestic Assistance Number: does not apply)

The Secretary proposes to amend title 34 of the Code of Federal

Regulations by revising part 600 to read as follows:

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT

OF 1965, AS AMENDED

Subpart A--General

Sec.

600.1 Scope.

600.2 Definitions.

600.3 [Reserved].

600.4 Institution of higher education.

600.5 Proprietary institution of higher education.

600.6 Postsecondary vocational institution.

600.7 Conditions of institutional ineligibility.

600.8 Treatment of a branch campus.

600.9 Written agreement between an eligible institution and another

institution or organization.

600.10 Date, extent, duration, and consequence of eligibility.

600.11 Special rules regarding institutional accreditation or

preaccreditation.

Subpart B--Procedures for Establishing Eligibility

600.20 Application procedures.

600.21 Eligibility notification.

Subpart C--Maintaining Eligibility

600.30 Institutional notification requirements.

600.31 Change in ownership resulting in a change of control.

600.32 Eligibility of additional locations.

Subpart D--Loss of Eligibility

600.40 Loss of eligibility.

600.41 Termination and emergency action proceedings.

Authority: 20 U.S.C. 1088, 1091, 1094, 1099b, 1099c, and 1141,

unless otherwise noted.

Subpart A--General

Sec. 600.1 Scope.

This part establishes the rules and procedures that the Secretary

uses to determine whether an educational institution qualifies in whole

or in part as an eligible institution under the Higher Education Act of

1965, as amended (HEA). An eligible institution may apply to

participate in programs authorized by the HEA (HEA programs).

(Authority: 20 U.S.C. 1088, 1094, 1099b, 1099c, and 1141)

Sec. 600.2 Definitions.

The following definitions apply to terms used in this part:

Accredited: The status of public recognition that a nationally

recognized accrediting agency grants to an institution or educational

program that meets certain established qualifications and educational

standards.

Award year: The period of time from July 1 of one year through June

30 of the following year.

Branch Campus: A location of an institution that is geographically

apart and independent of the main campus of the institution. The

Secretary considers a location of an institution to be independent of

the main campus if the location--

(1) Is permanent in nature;

(2) Offers courses in educational programs leading to a degree,

certificate, or other recognized educational credential;

(3) Has its own faculty and administrative or supervisory

organization; and

(4) Has its own budgetary and hiring authority.

Clock hour: A period of time consisting of--

(1) A 50- to 60-minute class, lecture, or recitation in a 60-minute

period;

(2) A 50- to 60-minute faculty-supervised laboratory, shop

training, or internship in a 60-minute period; or

(3) Sixty minutes of preparation in a correspondence course.

Correspondence course: (1) A ``home study'' course provided by an

institution under which the institution provides instructional

materials, including examinations on the materials, to students who are

not physically attending classes at the institution. When students

complete a portion of the instructional materials, the students take

the examinations that relate to that portion of the materials, and

return the examinations to the institution for grading.

(2) A home study course that provides instruction in whole or in

part through the use of video cassettes or video discs in an award year

is a correspondence course unless the institution also delivers the

instruction on the cassette or disc to students physically attending

classes at the institution during the same award year.

(3) A course at an institution that may otherwise satisfy the

definition of a ``telecommunications course'' is a correspondence

course if the sum of telecommunications and other correspondence

courses offered by that institution equals or exceeds 50 percent of the

total courses offered at that institution.

(4) If a course is part correspondence and part residential

training, the Secretary considers the course to be a correspondence

course.

Educational program: A legally authorized postsecondary program of

organized instruction or study that leads to an academic or

professional degree, vocational degree or certificate, or other

recognized educational credential. However, the Secretary does not

consider that an institution provides an educational program if the

institution does not provide instruction itself (including a course of

independent study), but merely gives credit for one or more of the

following: instruction provided by other institutions or schools;

examinations provided by agencies or organizations; or other

accomplishments such as ``life experience.''

Eligible institution: An institution that--(a) Is one or more of

the following:

(1) An institution of higher education, as defined in Sec. 600.4.

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

Sec. 600.5.

(3) A postsecondary vocational institution, as defined in

Sec. 600.6; and

(b) Meets all the other applicable provisions of this part.

Federal Family Education Loan (FFEL) programs: The loan programs

(formerly called the Guaranteed Student Loan (GSL) Programs) authorized

by Title IV-B of the HEA, including the Federal Stafford Loan, Federal

PLUS, Federal Supplemental Loans for Students (Federal SLS), and

Federal Consolidation Loan programs, in which lenders use their own

funds to make loans to enable students or their parents to pay the

costs of the student's attendance at eligible institutions. The Federal

Stafford Loan, Federal PLUS, Federal Supplemental Loans for Students

(Federal SLS), and Federal Consolidation Loan programs are defined in

34 CFR part 668.

Incarcerated student: A student who is serving a criminal sentence

in a Federal, State, or local penitentiary, prison, jail, reformatory,

work farm, or other similar correctional institution. A student is not

considered incarcerated if that student is in a half-way house or home

detention or is sentenced to serve only weekends.

Legally authorized: The legal status granted to an institution

through a charter, license, or other written document issued by the

appropriate agency or official of the State in which the institution is

physically located.

Nationally recognized accrediting agency: An agency or association

that the Secretary recognizes as a reliable authority to determine the

quality of education or training offered by an institution or a program

offered by an institution. The Secretary recognizes these agencies and

associations under the provisions of 34 CFR part 602 and publishes a

list of the recognized agencies in the Federal Register.

Nonprofit institution: An institution that--

(1) Is owned and operated by one or more nonprofit corporations or

associations, no part of the net earnings of which benefits any private

shareholder or individual;

(2) Is legally authorized to operate as a nonprofit organization by

each State in which it is physically located; and

(3) Is determined by the U.S. Internal Revenue Service to be an

organization to which contributions are tax deductible in accordance

with section 501(c)(3) of the Internal Revenue Code.

One-academic-year training program: An educational program that is

at least one academic year as defined under section 481(d)(2) of the

HEA.

Preaccredited: A status that a nationally recognized accrediting

agency or association, recognized by the Secretary to grant that

status, has accorded an unaccredited public or private nonprofit

institution that is progressing toward accreditation within a

reasonable period of time.

Recognized equivalent of a high school diploma:

(1) A General Education Development Certificate (GED);

(2) A State certificate received by a student after the student has

passed a State authorized examination that the State recognizes as the

equivalent of a high school diploma;

(3) An academic transcript of a student who has successfully

completed at least a two-year program that is acceptable for full

credit toward a bachelor's degree; or

(4) For a person who is seeking enrollment in an educational

program that leads to at least an associate degree or its equivalent

and who has not completed high school but who excelled academically in

high school, documentation that the student excelled academically in

high school and has met formalized, written admission policies of the

institution.

Recognized occupation: An occupation that is--

(1) Listed in an ``occupational division'' of the latest edition of

the Dictionary of Occupational Titles, published by the U.S. Department

of Labor; or

(2) Determined by the Secretary in consultation with the Secretary

of Labor to be a recognized occupation.

Regular student: A person who is enrolled or accepted for

enrollment at an institution for the purpose of obtaining a degree,

certificate, or other recognized educational credential offered by that

institution.

Secretary: The Secretary of the Department of Education or an

official or employee of the Department of Education acting for the

Secretary under a delegation of authority.

State: A State of the Union, American Samoa, the Commonwealth of

Puerto Rico, the District of Columbia, Guam, the Trust Territory of the

Pacific Islands (Palau), the Virgin Islands, and the Commonwealth of

the Northern Mariana Islands.

Telecommunications course: A course offered in an award year

principally through the use of television, audio, or computer

transmission, including open broadcast, closed circuit, cable,

microwave, or satellite, audio conferencing, computer conferencing, or

video cassettes or discs. The term does not include a course that is

delivered using video cassettes or disc recordings unless that course

is delivered to students physically attending classes at an institution

providing the course during the same award year. If the course does not

qualify as a telecommunications course it is considered to be a

correspondence course, as provided for in paragraph (3) of the

definition of correspondence course in this section.

Title IV, HEA program: Any of the student financial assistance

programs listed in 34 CFR 668.1(c).

(Authority: 20 U.S.C. 1071 et seq.; 1078-2, 1085, 1088, 1099b,

1099c, and 1141 and 26 U.S.C. 501(c))

Sec. 600.3 [Reserved]

Sec. 600.4 Institution of higher education.

(a) An institution of higher education is a public or private

nonprofit educational institution that--

(1) Is in a State, or for purposes of the Federal Pell Grant,

Federal Supplemental Educational Opportunity Grant, Federal Work-Study,

and Federal TRIO programs may also be located in the Federated State of

Micronesia or the Marshall Islands;

(2) Admits as regular students only persons who--

(i) Have a high school diploma;

(ii) Have the recognized equivalent of a high school diploma; or

(iii) Are beyond the age of compulsory school attendance in the

State in which the institution is physically located;

(3) Is legally authorized to provide an educational program beyond

secondary education in the State in which the institution is physically

located;

(4) Provides an educational program--

(i) For which it awards an associate, baccalaureate, graduate, or

professional degree;

(ii) That is at least a two-academic-year program acceptable for

full credit toward a baccalaureate degree; or

(iii) That is at least a one-academic-year training program that

leads to a certificate, degree, or other recognized educational

credential and prepares students for gainful employment in a recognized

occupation; and

(5) Is--

(i) Accredited or preaccredited; or

(ii) Approved by a State agency listed in the Federal Register in

accordance with 34 CFR part 603, if the institution is a public

postsecondary vocational educational institution that seeks to

participate only in Federal assistance programs.

(b) An institution is physically located in a State if it has a

campus or other instructional site in that State.

(c) The Secretary does not recognize the accreditation or

preaccreditation of an institution unless the institution agrees to

submit any dispute involving the final denial, withdrawal, or

termination of accreditation to binding arbitration before initiating

any other legal action.

(Authority: 20 U.S.C. 1094 and 1141(a))

Sec. 600.5 Proprietary institution of higher education.

(a) A proprietary institution of higher education is an educational

institution that--

(1) Is not a public or private nonprofit educational institution;

(2) Is in a State;

(3) Admits as regular students only persons who--

(i) Have a high school diploma;

(ii) Have the recognized equivalent of a high school diploma; or

(iii) Are beyond the age of compulsory school attendance in the

State in which the institution is physically located;

(4) Is legally authorized to provide an educational program beyond

secondary education in the State in which the institution is physically

located;

(5) Provides an eligible program of training, as defined in 34 CFR

668.8, to prepare students for gainful employment in a recognized

occupation;

(6) Is accredited;

(7) Has been in existence for at least two years; and

(8) Has no more than 85 percent of its revenues derived from Title

IV, HEA program funds, as determined under paragraph (d) of this

section.

(b)(1) The Secretary considers an institution to have been in

existence for two years only if it has been legally authorized to

provide, and has provided, during the 24 months (except for normal

vacation periods and periods when the institution temporarily closes

due to a natural disaster that affects the institution or the

institution's students) preceding the date of application for

eligibility, a continuous training program to prepare students for

gainful employment in a recognized occupation that is substantially the

same in length and subject matter as the educational program it is

currently providing.

(2) In determining whether an applicant institution satisfies the

requirement contained in paragraph (b)(1) of this section, the

Secretary does not count any period during which the applicant

institution was a part of another eligible proprietary institution of

higher education, postsecondary vocational institution, or vocational

school.

(c) An institution is physically located in a State if it has a

campus or other instructional site in that State.

(d)(1) An institution satisfies the requirement contained in

paragraph (a)(8) of this section by examining its revenues under the

following formula:

Title IV, HEA program funds the institution used to satisfy

tuition, fees, and other institutional charges to students.

Revenue generated by the institution from tuition, fees, and

other institutional charges, plus revenue generated by the

institution from other activities conducted by the institution, to

the extent not included in tuition, fees, or other institutional

charges, that are necessary for its students' education or training.

(2) Under the fraction contained in paragraph (d)(1) of this

section--

(i) The revenue included in the denominator is from the

institution's last complete fiscal year;

(ii) The Title IV, HEA program funds included in the numerator are

from the award year that most closely corresponds to the fiscal year

reported in the denominator and do not include State Student Incentive

Grant (SSIG) and Federal Work-Study program funds. (The SSIG and FWS

programs are defined in 34 CFR 668.2);

(iii) The Title IV, HEA program funds in the numerator and the

revenue described in the denominator do not include any refunds paid to

or on behalf of students under the institution's refund policy;

(iv) The amount charged for books, supplies, and equipment is not

included in the numerator or the denominator unless the amount is

included in tuition, fees, or other institutional charges;

(v) With regard to the numerator, any Title IV, HEA program funds

disbursed or delivered to or on behalf of a student shall be presumed

to be used to pay the student's tuition, fees, or other institutional

charges, to the extent that those tuition, fees, and other charges were

not satisfied by grant funds provided by non-Federal public agencies or

private sources independent of the institution, regardless of whether

the institution credits those funds to the student's account or pays

those funds directly to the student; and

(vi) With regard to the denominator, revenue generated by the

institution from other activities conducted by the institution that are

necessary for its students' education or training includes only revenue

for those activities that--

(A) Are conducted on campus or at a facility under the control of

the institution;

(B) Are performed under the supervision of a member of the

institution's faculty; and

(C) Are required to be performed by all students in a specific

educational program at the institution.

(3) Notwithstanding paragraph (d)(2) of this section, for the 1992-

93 award year, the institution may not include in the numerator or

denominator of the fraction contained in paragraph (d)(1) of this

section, the Title IV, HEA program funds it disbursed or delivered to

its students before October 1, 1992.

(e) For purposes of the calculation required in paragraph (a)(8) of

this section, the institution shall substantiate the required

calculations by having the certified public accountant who prepares its

audited financial statement required under 34 CFR 668.23 certify the

accuracy of the institution's calculation, and include that

certification as part of the audited financial statement.

(f) An institution shall notify the Secretary if it fails to

satisfy the requirement contained in paragraph (a)(8) of this section

by the later of--

(1) Sixty days following the end of the fiscal year used in the

fraction contained in paragraph (d) of this section, if the award year

used in the fraction was completed on or before the end of that fiscal

year; or

(2) Thirty-one days following the end of the award year used in the

fraction contained in paragraph (d) of this section, if that award year

was completed after the fiscal year used in the fraction.

(g) If an institution loses its eligibility because it failed to

satisfy the requirement contained in paragraph (a)(8) of this section,

to regain its eligibility it must demonstrate compliance with all

eligibility requirements--

(1) For at least the fiscal year following the fiscal year used in

the fraction contained in paragraph (d) of this section, if the award

year used in that fraction was completed on or before the end of that

fiscal year; or

(2) For at least one award year following the award year used in

the fraction contained in paragraph (d) of this section, if the award

year was completed after the fiscal year used in that fraction.

(h) The Secretary does not recognize the accreditation or

preaccreditation of an institution unless the institution agrees to

submit any dispute involving the final denial, withdrawal, or

termination of accreditation to binding arbitration before initiating

any other legal action.

(Authority: 20 U.S.C. 1088)

Sec. 600.6 Postsecondary vocational institution.

(a) A postsecondary vocational institution is a public or private

nonprofit educational institution that--

(1) Is in a State;

(2) Admits as regular students only persons who--

(i) Have a high school diploma;

(ii) Have the recognized equivalent of a high school diploma; or

(iii) Are beyond the age of compulsory school attendance in the

State in which the institution is physically located;

(3) Is legally authorized to provide an educational program beyond

secondary education in the State in which the institution is physically

located;

(4) Provides an eligible program of training, as defined in 34 CFR

668.8, to prepare students for gainful employment in a recognized

occupation;

(5) Is--

(i) Accredited or preaccredited; or

(ii) Approved by a State agency listed in the Federal Register in

accordance with 34 CFR part 603, if the institution is a public

postsecondary vocational educational institution that seeks to

participate only in Federal assistance programs; and

(6) Has been in existence for at least two years.

(b)(1) The Secretary considers an institution to have been in

existence for two years only if it has been legally authorized to

provide, and has provided, during the 24 months (except for normal

vacation periods and periods when the institution temporarily closes

due to a natural disaster that directly affects the institution or the

institution's students) preceding the date of application for

eligibility, a continuous training program to prepare students for

gainful employment in a recognized occupation that is substantially the

same in length and subject matter as the educational program it is

currently providing.

(2) In determining whether an applicant institution satisfies the

requirement contained in paragraph (b)(1) of this section, the

Secretary--

(i) Counts any period during which the applicant institution

qualified as an eligible institution of higher education;

(ii) Counts any period during which the applicant institution was

part of another eligible institution of higher education, provided that

the applicant institution continues to be part of an eligible

institution of higher education; and

(iii) Does not count any period during which the applicant

institution was a part of another eligible proprietary institution of

higher education or postsecondary vocational institution.

(c) An institution is physically located in a State if it has a

campus or instructional site in that State.

(d) The Secretary does not recognize the accreditation or

preaccreditation of an institution unless the institution agrees to

submit any dispute involving the final denial, withdrawal, or

termination of accreditation to binding arbitration before initiating

any other legal action.

(Authority: 20 U.S.C. 1088 and 1094(c)(3))

Sec. 600.7 Conditions of institutional ineligibility.

(a) General rule. (1) For purposes of Title IV of the HEA, an

educational institution that otherwise satisfies the requirements

contained in Secs. 600.4, 600.5, or 600.6 nevertheless does not qualify

as an eligible institution under this part if--

(i) For its latest complete award year--

(A) More than 50 percent of the institution's courses were

correspondence courses as calculated under paragraph (b) of this

section;

(B) Fifty percent or more of the institution's enrolled regular

students were enrolled in correspondence courses;

(C) Twenty-five percent or more of the institution's regular

enrolled students were incarcerated;

(D) Fifty percent or more of its enrolled regular students had

neither a high school diploma nor the recognized equivalent of a high

school diploma, and the institution did not provide a four-year or two-

year educational program for which it awards a bachelor's degree or

associate degree, respectively;

(ii) The institution, or an affiliate of an institution that has

the power, by contract or ownership interest, to direct or cause the

direction of the management or policies of the institution, files for

bankruptcy; or

(iii) The institution, its owner, or its chief executive officer--

(A) Has pled guilty to, has pled nolo contendere to, or is found

guilty of, a crime involving the acquisition, use, or expenditure of

Title IV, HEA program funds; or

(B) Has been judicially determined to have committed fraud

involving Title IV, HEA program funds.

(2) For purposes of paragraph (a)(1)(ii) of this section--

(i) The institution includes any entity affiliated with the

institution if that entity seeks specific judicial relief in a

bankruptcy court with regard to an action taken or to be taken against

the institution by the Secretary, a State agency, an accrediting

agency, or a lender or guaranty agency under the FFEL programs; and

(ii) The institution includes all the entities whose financial

resources were presented to the Secretary, either through a combined or

consolidated balance sheet or other document, to demonstrate that the

institution was financially responsible and administratively capable

under the standards contained in 34 CFR part 668, subpart B.

(b) Special provisions regarding correspondence courses and

students--(1) Treatment of telecommunications courses. For purposes of

paragraphs (a)(1)(i) (A) and (B) of this section, the Secretary

considers a telecommunications course to be a correspondence course if

the sum of telecommunications courses and other correspondence courses

the institution provided during that award year equaled or exceeded 50

percent of the total number of courses it provided during that year.

(2) Calculating the number of courses. For purposes of paragraphs

(a)(1)(i) (A) and (B) of this section--

(i) A correspondence course may be a complete educational program

offered by correspondence, or one course provided by correspondence in

an on-campus (residential) educational program;

(ii) A course must be considered as being offered once during an

award year regardless of the number of times it is offered during that

year; and

(iii) A course that is offered both on campus and by correspondence

must be considered two courses for the purpose of determining the total

number of courses the institution provided during an award year.

(3) Exception. The provisions contained in paragraphs (a)(1)(i) (A)

and (B) of this section do not apply to an institution that qualifies

as a ``technical institute or vocational school used exclusively or

principally for the provision of vocational education to individuals

who have completed or left high school and who are available for study

in preparation for entering the labor market'' under section 521(4)(C)

of the Carl D. Perkins Vocational and Applied Technology Education Act.

(c) Special provisions regarding incarcerated students--(1)

Exception. The Secretary may waive the prohibition contained in

paragraph (a)(1)(i)(C) of this section, upon the application of an

institution, if the institution is a nonprofit institution that

provides four-year or two-year educational programs for which it awards

bachelor's or associate degrees, respectively.

(2) If the nonprofit institution that applies for a waiver consists

solely of four-year or two-year educational programs for which it

offers bachelor's or associate degrees, respectively, or both types of

programs, the Secretary waives the prohibition contained in paragraph

(a)(1)(i)(C) of this section for the entire institution.

(3) If the nonprofit institution that applies for a waiver does not

consist solely of four-year or two-year educational programs for which

it offers bachelor's or associate degrees, respectively, or both types

of programs, the Secretary waives the prohibition contained in

paragraph (a)(1)(iii) of this section--

(i) For the four-year and two-year programs that lead,

respectively, to bachelor's and associate degrees; and

(ii) For the other programs the institution offers, if the

incarcerated regular students enrolled in those other programs have a

completion rate of 50 percent or greater.

(d) Special provisions for students who do not have a high school

diploma or the recognized equivalent. The Secretary may waive the

limitation contained in paragraph (a)(1)((i)(D) of this section if a

nonprofit institution demonstrates to the satisfaction of the Secretary

that it exceeds that limitation because it serves, through contracts

with Federal, State, or local government agencies, significant numbers

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

equivalent.

(e) Special provisions. (1) For purposes of paragraph (a)(1)(i) of

this section, when counting regular students, the institution shall--

(i) Count each regular student without regard to the full-time or

part-time nature of the student's attendance (i.e., ``head count''

rather than ``full-time equivalent'');

(ii) Count a regular student once regardless of the number of times

the student enrolls during an award year; and

(iii) Determine the number of regular students who enrolled in the

institution during the relevant award year by--

(A) Calculating the number of regular students who enrolled during

that award year; and

(B) Excluding from the number of students in paragraph

(d)(1)(iii)(A) of this section, the number of regular students who

enrolled but subsequently withdrew or were expelled from the

institution and were entitled to receive a 100 percent refund of their

tuition and fees less any administrative fee that the institution is

permitted to keep under its fair and equitable refund policy;

(2) For the purpose of calculating a completion rate under

paragraph (c)(3)(ii) of this section, the institution shall--

(i) Determine the number of regular incarcerated students who

enrolled in the other programs during the last completed award year;

(ii) Exclude from the number of regular incarcerated students

determined in paragraph (d)(2)(i) of this section, the number of those

students who enrolled but subsequently withdrew or were expelled from

the institution and were entitled to receive a 100 percent refund of

their tuition and fees, less any administrative fee the institution is

permitted to keep under the institution's fair and equitable refund

policy;

(iii) Exclude from the total obtained in paragraph (d)(2)(ii) of

this section, the number of those regular incarcerated students who

remained enrolled in the programs at the end of the applicable award

year; and

(iv) From the total obtained in paragraphs (d)(2)(iii) of this

section, determine the number of regular incarcerated students who

received, during the applicable award year, the degree, certificate, or

other recognized educational credential awarded for successful

completion of the program;

(v) Divide the total obtained in paragraph (d)(2)(iv) of this

section by the total obtained in paragraph (d)(2)(iii) of this section

and multiply by 100.

(3)(i) For purposes of paragraph (a)(1)(i) of this section, the

institution shall substantiate the required calculations by having the

certified public accountant who prepares its audit report required

under 34 CFR 668.23 certify to the accuracy of the institution's

calculations. That certification must be included with the

institution's audit report.

(ii) For purposes of paragraph (a)(1)(i) of this section,

notwithstanding 34 CFR 668.23, as a result of the institution's

calculation, if the resulting percentage is within 10 percent of the

applicable percentage specified in paragraph (a)(1)(i) of this section,

the institution shall have performed for the applicable award year or

fiscal year, a financial and compliance audit of its Title IV, HEA

programs. The certified public accountant who prepares the audit shall

certify the accuracy of the institution's calculation. The institution

shall retain the report of that audit and all relevant supporting

documentation in accordance with 34 CFR 668.23(h) (governing the

establishment and maintenance of an institution's records) but, except

in accordance with paragraph (g) of this section, need not submit the

report to the Secretary.

(f) Notice to the Secretary. An institution shall notify the

Secretary--

(1) By July 31 following the end of an award year if it falls

within one of the prohibitions contained in paragraph (a)(1)(i) of this

section; or

(2) Within 10 days if it falls within one of the prohibitions

contained in paragraphs (a)(1)(ii) or (iii) of this section.

(g) Regaining eligibility. (1) If an institution loses its

eligibility because of one of the prohibitions contained in paragraph

(a)(1)(i) of this section, to regain its eligibility, it must

demonstrate--

(i) Compliance with all eligibility requirements;

(ii) That it did not fall within any of the prohibitions contained

in paragraph (a)(1) of this section for at least one award year; and

(iii) That it changed its administrative policies and practices to

ensure that it will not fall within any of the prohibitions contained

in paragraph (a)(1)(i) of this section.

(2) If an institution loses its eligibility because of one of the

prohibitions contained in paragraphs (a)(1)(ii) or (iii) of this

section, this loss is permanent. The institution's eligibility cannot

be reinstated.

(Authority: 20 U.S.C. 1088 and 1091)

Sec. 600.8 Treatment of a branch campus.

To obtain eligibility under this part, a branch campus of an

institution shall satisfy, in its own right, all the applicable

institutional eligibility requirements except the ``two-year'' rule

contained in Sec. 600.5(a)(7) or 600.6(a)(6).

(Authority: 20 U.S.C. 1099c)

Sec. 600.9 Written agreement between an eligible institution and

another institution or organization.

(a) Without losing its eligibility under this part, an eligible

institution may enter into a written agreement with another institution

or organization under which the latter provides all or a part of the

educational program of students enrolled in the eligible institution

if--

(1) The eligible institution gives credit to students enrolled in

that program on the same basis as if it provided that program itself;

and

(2) The other provisions of this section are satisfied.

(b) If an eligible institution enters into a written agreement with

another eligible institution, there is no limit on the portion of a

student's educational program that may be provided under the agreement.

(c) If an eligible institution enters into an agreement with an

institution or organization that is not an eligible institution--

(1) The ineligible institution or organization may provide up to 25

percent of the educational program of a student enrolled in the

eligible institution; or

(2) The ineligible institution or organization may provide more

than 25 percent but not more than 50 percent of the educational program

of a student enrolled in the eligible institution if--

(i) The eligible institution and the ineligible institution or

organization are not owned or controlled by the same individual,

partnership, or corporation;

(ii) The eligible institution's accrediting agency, or if the

institution is a public postsecondary vocational educational

institution, state agency listed in the Federal Register in accordance

with 34 CFR part 603, specifically determines that the institution's

agreement meets the agency's standards for the contracting out of

educational services; and

(iii) The ineligible institution has not had its eligibility

terminated by the Secretary.

(Authority: 20 U.S.C. 1094)

Sec. 600.10 Date, extent, duration, and consequence of eligibility.

(a) Date of eligibility. (1) If the Secretary determines that an

applicant institution satisfies all the statutory and regulatory

eligibility requirements, the Secretary considers the institution to be

an eligible institution as of the date--

(i) For purposes of participating in any Title IV, HEA program, the

Secretary has signed the institution's program participation agreement

described in 34 CFR part 668, subpart B; and

(ii) For purposes other than participating in any Title IV, HEA

program, the Secretary has received all the information necessary to

make that determination.

(2) If an eligible institution seeks eligibility, for purposes of a

Title IV, HEA program, for a location or educational program not

previously designated eligible, and the Secretary determines that the

location or educational program satisfies all the statutory and

regulatory eligibility requirements, the Secretary considers the

location or program to be eligible to participate in that Title IV, HEA

program as of the date the Secretary certifies that location or program

to so participate.

(b)(1) Extent of eligibility. If the Secretary determines that the

entire applicant institution, including all its locations and all its

educational programs, satisfies the applicable requirements of this

part, the Secretary extends eligibility to all educational programs and

locations identified on the institution's application for eligibility.

(2) If the Secretary determines that only certain educational

programs or certain locations of an applicant institution satisfy the

applicable requirements of this part, the Secretary extends eligibility

only to those educational programs and locations that meet those

requirements and identifies the eligible educational programs and

locations in the eligibility notice sent in accordance with

Sec. 600.21.

(3) Eligibility does not extend to any location that an institution

establishes after it receives its eligibility designation if the

institution provides at least 50 percent of an educational program at

that location.

(c) Subsequent additions of educational programs. (1) Except as

provided in paragraph (c)(2) of this section, if an eligible

institution adds an educational program after it has been designated as

an eligible institution by the Secretary, the institution must apply to

the Secretary to have that additional program designated as an eligible

program of that institution.

(2) An eligible institution that adds an educational program after

it has been designated as an eligible institution by the Secretary does

not have to apply to the Secretary to have that additional program

designated as an eligible program of that institution if the additional

program--

(i) Leads to an associate, baccalaureate, professional or graduate

degree; or

(ii)(A) Prepares students for gainful employment in the same or

related recognized occupation as an educational program that has

previously been designated as an eligible program by the Secretary; and

(B) Is at least 8 semester hours, 12 quarter hours, or 600 clock

hours.

(3) If an institution incorrectly determines under paragraph (a)(2)

of this section that an educational program satisfies the applicable

statutory and regulatory eligibility provisions without applying to the

Secretary for approval, the institution is liable to repay to ED all

the student financial assistance and other ED program funds it or its

students received who were enrolled in that educational program.

(d) Duration of eligibility. (1) If an institution participates in

a Title IV, HEA program, the Secretary's designation of the institution

as an eligible institution under the HEA expires when the institution's

program participation agreement, as described in 34 CFR part 668,

subpart B, expires.

(2) If an institution does not participate in any Title IV, HEA

program, the Secretary's designation of the institution as an eligible

institution under the HEA does not expire as long as the institution

continues to satisfy the statutory and regulatory requirements

governing its eligibility.

(e) Consequence of eligibility. (1) If, as a part of its

institutional eligibility application, an institution indicates that it

wishes to participate in the Title IV, HEA programs and the Secretary

determines that the institution satisfies the applicable statutory and

regulatory requirements governing institutional eligibility, the

Secretary will determine whether the institution satisfies the

standards of administrative capability and financial responsibility

contained in 34 CFR part 668, subpart B.

(2) If, as part of its institutional eligibility application, an

institution indicates that it does not wish to participate in any Title

IV, HEA program and the Secretary determines that the institution

satisfies the applicable statutory and regulatory requirements

governing institutional eligibility, the institution is eligible to

apply to participate in any HEA program listed by the Secretary in the

eligibility notice it receives under Sec. 600.21. However, the

institution is not eligible to participate in those programs, or

receive funds under those programs, merely by virtue of its designation

as an eligible institution under this part.

(Authority: 20 U.S.C. 1088 and 1141)

Sec. 600.11 Special rules regarding institutional accreditation or

preaccreditation.

(a) Change of accrediting agencies. For purposes of

Secs. 600.4(a)(5)(i), 600.5(a)(6), and 600.6(a)(5)(i), the Secretary

does not recognize the accreditation or preaccreditation of an

otherwise eligible institution if that institution is in the process of

changing its accrediting agency, unless the institution provides to the

Secretary--

(1) All materials related to its prior accreditation or

preaccreditation; and

(2) Materials demonstrating reasonable cause for changing its

accrediting agency.

(b) Multiple accreditation. The Secretary does not recognize the

accreditation or preaccreditation of an otherwise eligible institution

if that institution is accredited or preaccredited as an institution by

more than one accrediting agency, unless the institution--

(1) Provides to each such accrediting agency and the Secretary the

reasons for that multiple accreditation or preaccreditation;

(2) Demonstrates to the Secretary reasonable cause for that

multiple accreditation or preaccreditation; and

(3) Designates to the Secretary which agency's accreditation or

preaccreditation the institution uses to establish its eligibility

under this part.

(c) Loss of accreditation or preaccreditation. (1) An institution

may not be considered eligible for 24 months after it has had its

accreditation or preaccreditation withdrawn, revoked, or otherwise

terminated for cause, unless the accrediting agency that took that

action rescinds that action.

(2) An institution may not be considered eligible for 24 months

after it has withdrawn from its accreditation or preaccreditation

voluntarily under a show-cause or suspension order issued by an

accrediting agency, unless that agency rescinds its order.

(d) Religious exception. (1) If an institution loses its

accreditation or preaccreditation, the Secretary permits the

institution to be considered eligible for purposes of complying with

the provisions of Secs. 600.4, 600.5, and 600.6 if the Secretary

determines that its loss of accreditation or preaccreditation--

(i) Is related to the religious mission or affiliation of the

institution; and

(ii) Is not related to its failure to satisfy the accrediting

agency's standards.

(2) If the Secretary permits an unaccredited institution to be

considered eligible under the provisions of paragraph (d)(1) of this

section, the Secretary considers that unaccredited institution to be

eligible for a period sufficient to allow the institution to obtain

alternative accreditation or preaccreditation, except that period may

not exceed 18 months.

(Authority: 20 U.S.C. 1099b)

Subpart B--Procedures for Establishing Eligibility

Sec. 600.20 Application procedures.

(a) An institution that wishes to establish its eligibility to

apply to participate in any program authorized by the HEA must first

apply to the Secretary for a determination that it qualifies as an

eligible institution.

(b) A previously designated eligible institution must apply to the

Secretary for a determination that the institution continues to meet

the standards in this subpart upon the request of the Secretary or if

the institution wishes to--

(1) Continue to be eligible beyond the scheduled expiration of the

institution's current of eligibility designation;

(2) Include in the institution's eligibility--

(i) A branch campus that is not currently included in the

institution's eligibility; or

(ii) A location that is not currently included in the institution's

eligibility, if--

(A) The institution at that location offers 100 percent of an

educational program; or

(B) The institution at that location offers at least 50 percent of

an educational program and the Secretary requires the institution to

apply for eligibility under Sec. 600.30(c)(2);

(3) Continue to be eligible following a change in its name,

location, or address of the institution or continue to include in the

institution's eligibility--

(i) A branch campus that has changed its name, location, or

address; or

(ii) Another location that has changed its name, location, or

address, if--

(A) That location offers 100 percent of an educational program; or

(B) The Secretary requires the institution to apply for eligibility

under Sec. 600.30(c)(2)(ii)(B); or

(4) Reestablish eligibility following a change in ownership that

results in a change in control according to the provisions of

Sec. 600.31.

(c) An institution applying for designation as an eligible

institution shall--

(1) Apply on the form prescribed by the Secretary; and

(2) Provide all the information and documentation requested by the

Secretary to make a determination of its eligibility.

(Authority: 20 U.S.C. 1088 and 1141)

Sec. 600.21 Eligibility notification.

(a) The Secretary notifies an institution in writing--

(1) Whether the applicant institution qualifies in whole or in part

as an eligible institution under the appropriate provisions in

Secs. 600.4, 600.5, 600.6 and 600.7;

(2) Whether the institution is certified to participate in the

Title IV, HEA programs if the institution applied to participate in

those programs; and

(3) Of the HEA programs in which it is eligible to participate, and

the HEA programs for which it is eligible to apply to participate.

(b) If only a portion of the applicant qualifies as an eligible

institution, the Secretary specifies in the notice the locations or

educational programs that qualify as the eligible institution.

(c) If the Secretary receives a notice from an institution as a

result of Sec. 600.30(a)(3), the Secretary--

(1) Notifies the institution that the location is an eligible

location of that institution, identifies the HEA programs in which the

institution may participate without further action, and that the

extension of eligibility and participation is effective on the date

that the Secretary received the institution's notice; or

(2) Notifies the institution that the institution must apply for

eligibility of that location under Sec. 600.20.

(d) In making the determination under paragraph (c) of this

section, the Secretary takes into account the institution's ability

adequately to provide education or training at the location, including

such factors as--

(1) The percentage of an educational program offered at the

location; and

(2) The financial and administrative capability of the institution.

(Authority: 20 U.S.C. 1088, 1099c, and 1141)

Subpart C--Maintaining Eligibility

Sec. 600.30 Institutional notification requirements.

(a) Except as provided in paragraph (b) of this section, an

eligible institution shall notify the Secretary in writing, at an

address specified by the Secretary in a notice published in the Federal

Register, no later than 10 days after the change occurs, of any change

in the following information provided in the institution's eligibility

application:

(1) Its name.

(2) Its address.

(3) The name, number, and address of locations other than the main

campus at which it offers at least 50 percent of an educational program

and the percentages of the educational program that it provides at each

location.

(4) The way the institution measures program length (e.g. a change

from clock hours to credit hours).

(5) Its ownership, if that ownership change results in a change in

control of the institution.

(6) Its status, as a proprietary, nonprofit, or public institution.

(7) The exercise of a person's substantial control over the

institution, if the person did not previously exercise that control.

The Secretary generally considers a person to exercise substantial

control over an institution if the person--

(i) Directly or indirectly holds at least a 25 percent ownership

interest in the institution;

(ii) Holds, together with another member or other members of his or

her family, at least a 25 percent ownership interest in the

institution;

(iii) Represents, either alone or together with other persons,

under a voting trust, power of attorney, proxy, or similar agreement

one or more persons who hold either individually or in combination with

the other persons represented or the person representing them, at least

a 25 percent ownership in the institution;

(iv) Is a member of the board of directors, the chief executive

officer, or other executive officer of--

(A) The institution; or

(B) An entity that holds at least a 25 percent ownership interest

in the institution.

(b) An eligible institution that is owned by a publicly traded

corporation shall notify the Secretary in writing, at an address

specified by the Secretary in a notice published in the Federal

Register, of any change in the information that is described in

paragraphs (a) (5) through (7) of this section at the same time that

the institution notifies the institution's accrediting agency, but no

later than 10 days after the corporation learns of the change.

(c) The Secretary notifies the institution in writing if any

reported change affects the institution's eligibility, and the

effective date of that change.

(d) The institution's failure to inform the Secretary of the

information described in paragraph (a) of this section within the time

period stated in that paragraph may result in adverse action against

it, including its loss of eligibility.

(e)(1) For the purposes of this section, an ownership interest is a

share of the legal or beneficial ownership or control of, or a right to

share in the proceeds of the operation of, an institution or

institution's parent corporation.

(2) The term ownership interest includes, but is not limited to--

(i) An interest as tenant in common, joint tenant, or tenant by the

entireties;

(ii) A partnership; and

(iii) An interest in a trust.

(3) The term ownership interest does not include any share of the

ownership or control of, or any right to share in the proceeds of the

operation of--

(i) A mutual fund that is regularly and publicly traded;

(ii) An institutional investor; or

(iii) A profit-sharing plan, provided that all employees are

covered by the plan.

(f) For the purposes of this section, the Secretary considers a

member of a person's family to be a parent, sibling, spouse or child;

spouse's parent or sibling; or sibling's or child's spouse.

(Authority: 20 U.S.C. 1088 and 1141)

Sec. 600.31 Change in ownership resulting in a change of control.

(a)(1) If an eligible institution undergoes a change of ownership

that results in a change in control, the institution shall reestablish

its status as an eligible institution after the change.

(2) To establish its status as an eligible institution under this

part, an institution that undergoes a change of ownership and control

must satisfy all the applicable requirements contained in Secs. 600.4,

600.5, and 600.6, except that if the institution is a proprietary

institution of higher education or postsecondary vocational

institution, it need not have been in existence for two years before

seeking eligibility, unless it was in existence as a branch campus for

less than two years.

(b) For the purposes of this part, a change in ownership of an

institution that results in a change of control means any action by

which a person or corporation obtains new authority to control the

actions of that institution. That action may include, but is not

limited to--

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

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

institution or its parent corporation;

(3) The merger of two or more eligible institutions;

(4) The division of one institution into two or more institutions;

(5) The transfer of the controlling interest of stock or assets of

the institution to its parent corporation; or

(6) The transfer of the liabilities of an institution to its parent

corporation.

(c) Except as provided in paragraph (d) of this section, an action

that may be treated as not resulting in a change in control includes,

but is not limited to--

(1) The death or retirement of an owner of an institution, when the

owner's interest is sold or transferred to either a family member or a

current stockholder of the corporation; or

(2) Another action determined by the Secretary to be a routine

business practice.

(Authority: 20 U.S.C. 1099c)

Sec. 600.32 Eligibility of additional locations.

(a) Except as provided in paragraphs (b) and (c) of this section,

to qualify as an eligible location, an additional location of an

eligible institution must satisfy the applicable requirements of this

section and Secs. 600.4 through 600.6.

(b) To qualify as an eligible location, an additional location is

not required to satisfy the two-year requirement of Secs. 600.5(a)(7)

or 600.6(a)(6), unless--

(1) The location was a facility of another institution that has

closed or ceased to provide educational programs for a reason other

than a normal vacation period or a natural disaster that directly

affects the institution or the institution's students;

(2) The applicant institution acquired, either directly from the

institution that closed or ceased to provide educational programs, or

through an intermediary, the assets at the location; and

(3) The institution from which the applicant institution acquired

the assets of the location--

(i) Owes a liability for a violation of an HEA program requirement;

and

(ii) Is not making payments in accordance with an agreement to

repay that liability.

(c) Notwithstanding paragraph (b) of this section, an additional

location is not required to satisfy the two-year requirement of

Secs. 600.5(a)(7) or 600.6(a)(6) if the applicant institution agrees--

(1) To be liable for all improperly expended or unspent HEA program

funds received by the institution that has closed or ceased to provide

educational programs;

(2) To be liable for all unpaid refunds owed to students who

received Title IV, HEA program funds; and

(3) To abide by the policy of the institution that has closed or

ceased to provide educational programs regarding refunds of

institutional charges to students in effect before the date of the

acquisition of the assets of the additional location for the students

who were enrolled before that date.

(d) For purposes of this section, an ``additional location'' is a

location of an institution that was not designated as an eligible

location in the eligibility notification provided to an institution

under Sec. 600.21.

(Authority: 20 U.S.C. 1088 and 1141)

Subpart D--Loss of Eligibility

Sec. 600.40 Loss of eligibility.

(a)(1) Except as provided in paragraphs (a) (2) and (3) of this

section, an institution or a location or educational program of an

institution loses its eligibility on the date that--

(i) The institution, location, or educational program fails to meet

any of the eligibility requirements of this part;

(ii) The institution or location permanently closes; or

(iii) The institution or location ceases to provide educational

programs, for a reason other than a normal vacation period or a natural

disaster that directly affects the institution or a location or the

students of the institution or location.

(iv) The institution's period of participation, as specified under

Sec. 668.13, expires, or the institution's provisional certification is

revoked under Sec. 668.13; or

(v) The Secretary receives a notice from the appropriate State

Postsecondary Review Entity designated under Subpart 1 of Part H of

Title IV of the HEA that the institution's participation should be

withdrawn.

(2) If an institution loses its eligibility because it violated the

requirements of Sec. 600.5(a)(8), as evidenced by the determination

under provisions contained in Sec. 600.5(d), it loses its eligibility--

(i) On the last day of the fiscal year used in the fraction

contained in Sec. 600.5(d), if the award year used in the fraction was

completed on or before the end of that fiscal year; or

(ii) On the last day of the award year used in the fraction

contained in Sec. 600.5(d), if that award year was completed after the

fiscal year used in the fraction.

(3) If an institution loses its eligibility under the provisions of

Sec. 600.7(a)(1)(i), it loses its eligibility on the last day of the

award year being evaluated under that provision.

(b) If the Secretary undertakes to terminate the eligibility of an

institution because it violated the provisions of Sec. 600.5(a)(8) or

600.7(a), the presiding official, if a hearing is requested, must

terminate the institution's eligibility if it violated those

provisions, notwithstanding its status at the time of the hearing.

(c)(1) If the Secretary designates an institution or any of its

educational programs or locations as eligible on the basis of

inaccurate information or documentation, the Secretary's designation is

void from the date the Secretary made the designation, and the

institution or program or location, as applicable, never qualified as

eligible.

(2) If an institution closes its main campus or stops providing any

educational programs on its main campus, it loses its eligibility as a

whole, or for the programs no longer offered at its main campus,

respectively, at all its locations on the date it closes that campus or

stops providing any educational program at that location.

(d) Except as otherwise provided in this part, if an institution

ceases to satisfy any of the requirements for eligibility under this

part--

(1) It must notify the Secretary within 30 days of the date that it

ceases to satisfy that requirement; and

(2) It becomes ineligible to continue to participate in any HEA

program as of the date it ceases to satisfy any of the requirements.

(Authority: 20 U.S.C. 1085, 1088, and 1141)

Sec. 600.41 Termination and emergency action proceedings.

(a) If the Secretary believes that a previously designated eligible

institution as a whole, or at one or more of its locations, does not

satisfy the statutory or regulatory requirements that define that

institution as an eligible institution, the Secretary may--

(1) Terminate the institution's eligibility designation in whole or

as to a particular location--

(i) Under the procedural provisions applicable to terminations

contained in 34 CFR 668.81, 668.83, 668.86, 668.87, 668.88, 668.89,

668.90(a)(1), (a)(4), and (c)-(f), and 668.91; or

(ii) Under a show-cause hearing, if the institution's loss of

eligibility results from--

(A) Its previously qualifying as an eligible vocational school;

(B) Its previously qualifying as an eligible institution,

notwithstanding its unaccredited status, under the transfer-of-credit

alternative to accreditation (as that alternative existed in 20 U.S.C.

1085, 1098, and 11412 and Sec. 600.8 until July 23, 1992);

(C) Loss of accreditation or preaccreditation;

(D) Loss of legal authority to provide postsecondary education in

the State in which it is physically located; or

(E) Violations of the provisions contained in Sec. 600.5(a)(8) or

600.7(a);

(2) Limit, under the provisions of 34 CFR 668.86, the authority of

the institution to disburse, deliver, or cause the disbursement or

delivery of funds under one or more Title IV, HEA programs as otherwise

provided under 34 CFR 668.25 for the benefit of students enrolled at

the ineligible institution or location prior to the loss of eligibility

of that institution or location; and

(3) Initiate an emergency action under the provisions contained in

34 CFR 668.83 with regard to the institution's participation in one or

more Title IV, HEA programs.

(b) If the Secretary believes that an educational program offered

by an institution that was previously designated by the Secretary as an

eligible institution under the HEA does not satisfy relevant statutory

or regulatory requirements that define that educational program as part

of an eligible institution, the Secretary may in accordance with the

procedural provisions described in paragraph (a) of this section--

(1) Undertake to terminate that educational program's eligibility

under one or more of the Title IV, HEA programs under the procedural

provisions applicable to terminations described in paragraph (a) of

this section;

(2) Limit the institution's authority to deliver, disburse, or

cause the delivery or disbursement of funds provided under that Title

IV, HEA program to students enrolled in that educational program, as

otherwise provided in 34 CFR 668.25; and

(3) Initiate an emergency action under the provisions contained in

34 CFR 668.83 with regard to the institution's participation in one or

more Title IV, HEA programs with respect to students enrolled in that

educational program.

(c)(1) An action to terminate and limit the eligibility of an

institution as a whole or as to any of its locations or educational

programs is initiated in accordance with 34 CFR 668.86(b) and becomes

final 20 days after the Secretary notifies the institution of the

proposed action, unless the designated department official receives by

that date a request for a hearing or written material that demonstrates

that the termination and limitation should not take place.

(2) Once a termination under this section becomes final, the

termination is effective with respect to any commitment, delivery, or

disbursement of funds provided under an applicable Title IV, HEA

program by the institution--

(i) Made to students enrolled in the ineligible institution,

location, or educational program; and

(ii) Made on or after the date of the act or omission that caused

the loss of eligibility as to the institution, location, or educational

program.

(3) Once a limitation under this section becomes final, the

limitation is effective with regard to any commitment, delivery, or

disbursement of funds under the applicable Title IV, HEA program by the

institution--

(i) Made after the date on which the limitation became final; and

(ii) Made to students enrolled in the ineligible institution,

location, or educational program.

(d) After a termination under this section of the eligibility of an

institution as a whole or as to a location or educational program

becomes final, the institution may not certify applications for, make

awards of or commitments for, deliver, or disburse funds under the

applicable Title IV, HEA program, except--

(1) In accordance with the requirements of 34 CFR 668.25(c) with

respect to students enrolled in the ineligible institution, location,

or educational program;

(2) After satisfaction of any additional requirements, imposed

pursuant to a limitation under paragraph (a)(2) of this section, which

may include the following:

(i) Completion of the actions required by 34 CFR 668.25 (a) and

(b).

(ii) Demonstration that the institution has made satisfactory

arrangements for the completion of actions required by 34 CFR 668.25

(a) and (b).

(iii) Securing the confirmation of a third party selected by the

Secretary that the proposed disbursements or delivery of Title IV, HEA

program funds meet the requirements of the applicable program.

(iv) Using institutional funds to make disbursements permitted

under this paragraph and seeking reimbursement from the Secretary for

those disbursements.

(Authority: 20 U.S.C. 1094)

Appendix A--Summary of Attendees' Responses at Regional Meetings on

Part 600--Institutional Eligibility Under the Higher Education Act

of 1965, as Amended

Note: This appendix will not appear in the Code of Federal

Regulations.

I. Sections 481(a)(3) and (4) of the HEA provide that an

institution is no longer an eligible institution if--

It offers more than 50 percent of its courses by

correspondence, unless the institution is an institution that meets

the definition in section 521(4)(C) of the Carl D. Perkins

Vocational and Applied Technology Education Act;

It enrolls 50 percent or more of its students in

correspondence courses (unless the institution meets the definition

in section 521(4)(C) of the Carl D. Perkins Vocational and Applied

Technology Education Act);

More than 25 percent of its students are incarcerated

(except that the Secretary may waive this prohibition for a

nonprofit institution that provides a 2-year or 4-year degree);

It admits more than 50 percent of its students under

ability-to-benefit provisions in section 484(d) of the HEA and does

not provide a 2-year or 4-year degree program;

The institution has filed for bankruptcy; or

The institution, its owner, or its chief executive

officer committed a crime or fraud involving Title IV, HEA program

funds.

Issues that the community was asked to address and the

community's views:

1. How should the appropriate percentages be calculated?

Offers more than 50 percent of its courses by

correspondence. This issue was only addressed at two of the regional

meetings, where the consensus was that the calculation should be

made by dividing the number of courses offered at the institution by

correspondence by the total number of courses offered at the

institution.

Enrolls 50 percent or more of its students in

correspondence courses. This issue was only addressed at one of the

regional meetings where the consensus was that the calculation

should be made by dividing the number of students enrolled in

correspondence courses by the number of students enrolled at the

institution.

More than 25 percent of its students are incarcerated.

This issue was not addressed at any of the regional meetings.

Admits more than 50 percent of its students under

ability-to-benefit provisions in section 484(d) of the HEA and does

not provide a 2-year or a 4-year degree program. This issue was only

addressed at one of the regional meetings, where the consensus was

that the calculation should be made by dividing the number of

ability-to-benefit students admitted by the total number of students

admitted to the institution.

What courses should be considered in calculating the

correspondence percentages? This issue was only addressed at two of

the regional meetings. At one of the regional meetings, the

consensus was that only those courses offered solely by

correspondence should be counted for these purposes. At the other

regional meeting the consensus was that only courses in an eligible

program under Title IV of the HEA should be counted.

2. How should the Department collect this information?

This issue was only addressed at one of the regional

meetings, where the consensus was that a determination of compliance

with this provision should be made by the Department during a

program review and should be based on information on file at the

institution.

3. How often should the percentage be calculated or requested by

the Secretary?

There was a consensus in all four regional meetings

that the percentages should be calculated annually.

4. How should ``incarcerated students'' be defined? Should the

definition include residents of halfway houses or those under home

restriction?

There was a consensus in all four regional meetings

that an ``incarcerated student'' should be defined as an individual

confined to a penal institution and should not include individuals

in halfway houses or in home restriction.

5. What criteria should be used to determine if an institution

qualifies for a waiver of the provision governing the percentage of

incarcerated students?

This issue was addressed by three of the four regional

meetings, where the consensus appeared to be that the Secretary

should not consider waiving this provision for any institution not

already covered by the statute.

II. Section 481(b) provides that a proprietary institution must,

pursuant to regulations, obtain at least 15 percent of its revenue

from non-Title IV, HEA program sources to be an eligible

institution.

Issues that the community was asked to address and the

community's views:

1. How should the term ``revenue'' be defined?

The majority opinion in three of the four regional

meetings was that all income should be considered in calculating an

institution's revenue. The majority opinion in the fourth regional

meeting was that the term revenue should include income derived from

educational sources.

2. What process should be used to monitor compliance?

The consensus in all four regional meetings was that

the institution's annual financial statement should be used to

monitor compliance with this requirement.

3. How often should the percentage be calculated or requested by

the Department?

The consensus in three of the regional meetings was

that the percentage should be calculated and requested annually. The

consensus in the fourth regional meeting was that while the

percentage should be calculated annually, the determination of

whether an institution was in compliance with this provision should

be based on a two-year average.

4. How should FFEL program proceeds that have been delivered

directly to a student be considered in determining this percentage?

There was a consensus in all four regional meetings

that FFEL program proceeds that have been delivered directly to a

student should not be considered as revenue for purposes of this

provision.

III. Section 498(i) provides that an institution that undergoes

a change in ownership that results in a change in control may not be

considered the same institution and must be considered a new

institution for the purpose of being certified as eligible to

participate in the Title IV programs. However, the new institution

is not required to have been in existence for two years prior to

seeking that certification, unless the institution was in existence

as a branch for less than two years. The statute lists examples of

changes of ownership that result in a change in control, and allows

certain changes resulting from the death of an owner or changes from

routine business practices to be treated as changes in control.

Issues that the community was asked to address and the

community's views:

1. Should the Secretary seek by regulations to define

circumstances that do or do not constitute a change in control in

addition to those listed in the statute, or should the Secretary be

permitted to make that decision on a case-by-case basis?

This issue was only addressed at two of the regional

meetings, where the consensus was that the Secretary should not

define circumstances that do or do not constitute a change in

control in addition to those listed in the statute. Instead, the

Secretary should make the decision on a case-by-case basis.

2. What are the ``routine business practices'' that do not

produce a change in control?

This issue was only addressed at two of the regional

meetings. The consensus at one of the regional meetings was that

regulations should permit changes of ownership that result because

of dissolutions of marriages and any transfers to family members not

to be treated as changes in control. At the other regional meeting

the consensus was that situations should be reviewed on a case-by-

case basis.

IV. Section 498(j) provides that a branch of an eligible

institution is a separate institution and shall separately meet all

the requirements of Title IV of the HEA, except that the institution

may not be required (under sections 481(b)(5) or 481(c)(3) to be in

existence for 2 years prior to seeking that certification unless the

institution was in existence as a branch for less than 2 years.

Issues that the community was asked to address and the

community's views:

1. How should the term ``branch'' be defined?

A precise definition was only offered at one of the

regional meetings, where a branch campus was defined as a location

that contains an administrative staff, student services, and

instructional staff, and offers an entire educational program

leading to a degree, certificate, or diploma at that site.

2. Should a branch be specifically and separately licensed by

the State in which it is located as a branch campus?

This issue was only addressed at two of the regional

meetings, where the consensus was that a branch should be separately

licensed by the State in which it is located.

3. Should a branch be specifically accredited by its accrediting

agency?

This issue was addressed at two of the regional

meetings, where the consensus was that a branch should be

specifically accredited by its accrediting agency.

[FR Doc. 94-2863 Filed 2-9-94; 8:45 am]

BILLING CODE 4000-01-P