Institutional Eligibility Under the Higher Education Act of l965, as Amended and Student Assistance General Provisions

SUMMARY: The proposed regulations amend the regulations that govern

institutional eligibility for and participation in the student

financial assistance programs authorized under title IV of the Higher

Education Act of 1965, as amended (title IV, HEA programs). These

programs include the Campus-based programs (Federal Perkins Loan,

Federal Work-Study (FWS), and Federal Supplemental Educational

Opportunity Grant (FSEOG) Programs), the William D. Ford Federal Direct

Loan (Direct Loan) Program, the Federal Family Education Loan (FFEL)

programs, the Federal Pell Grant Program, and the Leveraging

Educational Assistance Partnership (LEAP) Program (formerly known as

the State Student Incentive Grant (SSIG) Program). These proposed

regulations implement statutory changes made to the Higher Education

Act of 1965, as amended (HEA), by the Higher Education Amendments of

1998 (1998 Amendments). Many of the proposed regulatory changes merely

conform current regulatory provisions to the statutory changes.

DATES: We must receive your comments on or before September 13, 1999.

ADDRESSES: Address all comments about these proposed regulations to

Cheryl Leibovitz, U.S. Department of Education, P.O. Box 23272,

Washington, DC 20026-3272. If you prefer to send your comments through

the Internet, use the following address:

[email protected]

If you want to comment on the information collection requirements

you must send your comments to the Office of Management and Budget at

the address listed in the Paperwork Reduction Act section of this

preamble. You may also send a copy of these comments to the Department

representative named in this section.

FOR FURTHER INFORMATION CONTACT: Cheryl Leibovitz. Telephone: (202)

708-9900. If you use a telecommunications device for the deaf (TDD),

you may call the Federal information Relay Service (FIRS) at 1-800-877-

8339.

Individuals with disabilities may obtain this document in an

alternative format (e.g., Braille, large print, audiotape, or computer

diskette) on request to the contact person listed in the preceding

paragraph.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

We invite you to submit comments regarding these proposed

regulations. To ensure that your comments have maximum effect in

developing the final regulations, we urge you to identify clearly the

specific section or sections of the proposed regulations that each of

your comments addresses and to arrange your comments in the same order

as the proposed regulations.

We invite you to assist us in complying with the specific

requirements of Executive Order 12866 and its overall requirement of

reducing regulatory burden that might result from these proposed

regulations. Please let us know of any further opportunities we should

take to reduce potential costs or increase potential benefits while

preserving the effective and efficient administration of the programs.

During and after the comment period, you may inspect all public

comments about these proposed regulations in Room 3045, Regional Office

Building 3, 7th and D Streets, SW., Washington, DC, between the hours

of 8:30 a.m. and 4:00 p.m., Eastern time, Monday through Friday of each

week except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking

Record

On request, we will supply an appropriate aid, such as a reader or

print magnifier, to an individual with a disability who needs

assistance to review the comments or other documents in the public

rulemaking record for these proposed regulations. If you want to

schedule an appointment for this type of aid, you may call (202) 205-

8113 or (202) 260-9895. If you use a TDD, you may call the Federal

Information Relay Service at 1-800-877-8339.

General

The proposed regulations revise the current Institutional

Eligibility regulations, 34 CFR part 600, and the Student Assistance

General Provisions regulations, 34 CFR part 668, which govern

institutional eligibility for, and participation in, the title IV, HEA

programs. The revisions implement the 1998 Amendments, Pub. L. 105-244,

enacted October 7, 1998.

Negotiated Rulemaking Process

Section 492 of the HEA requires that, before publishing any

proposed regulations to implement programs under title IV of the Act,

the Secretary obtain public involvement in the development of the

proposed regulations. After obtaining advice and recommendations, the

Secretary must conduct a negotiated rulemaking process to develop the

proposed regulations. All published proposed regulations must conform

to agreements resulting from the negotiated rulemaking process unless

the Secretary reopens the negotiated rulemaking process or provides a

written explanation to the participants in that process of why the

Secretary has decided to depart from the agreements.

To obtain public involvement in the development of the proposed

regulations, we published a notice in the Federal Register (63 FR

59922, November 6, 1998) requesting advice and recommendations from

interested parties concerning what regulations were necessary to

implement title IV of the HEA. We also invited advice and

recommendations concerning which regulated issues should be subjected

to a negotiated rulemaking process. We further requested advice and

recommendations concerning ways to prioritize the numerous issues in

title IV, in order to meet statutory deadlines. Additionally, we

requested advice and recommendations concerning how to conduct the

negotiated rulemaking process, given the time available and the number

of regulations that needed to be developed.

In addition to soliciting written comments, we held three public

hearings and several informal meetings to give interested parties an

opportunity to share advice and recommendations with the Department.

The hearings were held in Washington, DC, Chicago, and Los Angeles, and

we posted transcripts of those hearings to the Department's Information

for Financial Aid Professionals website (http://ifap.ed.gov).

We then published a second notice in the Federal Register (63 FR

71206, December 23, 1998) to announce the Department's intention to

establish four negotiated rulemaking committees to draft proposed

regulations implementing title IV of the HEA. The notice announced the

organizations or groups believed to represent the interests that should

participate in the negotiated rulemaking process and announced that the

Department would select participants for the process from nominees of

those organizations or

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groups. We requested nominations for additional participants from

anyone who believed that the organizations or groups listed did not

adequately represent the list of interests outlined in section 492 of

the HEA. Once the four committees were established, they met to develop

proposed regulations over the course of several months beginning in

January. Except as noted elsewhere in this preamble, the proposed

regulations contained in this notice of proposed rulemaking (NPRM)

reflect the final consensus of Committee IV on the issues addressed in

this notice of proposed rulemaking (NPRM). Committee IV was made up of

the following members:

American Association of Collegiate Registrars and Admissions

Officers

American Association of Community Colleges

American Association of Cosmetology Schools

American Association of State Colleges and Universities

American Council on Education

Association of American Universities

Association of Jesuit Colleges and Universities

Career College Association

Council for Higher Education Accreditation

Council of Recognized National Accrediting Agencies

Council for Regional Accrediting Commissions

Education Finance Council

Legal Services Counsel (a coalition)

National Association of College and University Business Officers

National Association for Equal Opportunity in Higher Education

National Association of Independent Colleges and Universities

National Association of State Student Grant and Aid Programs/

National Council of Higher Education Loan Programs (a coalition)

National Association of State Universities and Land-Grant Colleges

National Association of Student Financial Aid Administrators

National Direct Student Loan Coalition

National Women's Law Center

State Higher Education Executive Officers Association

The College Board

The College Fund/United Negro College Fund

United States Department of Education

United States Student Association

U.S. Public Interest Research Group

As stated in the committee protocols, consensus means that there

must be no dissent by any member in order for the committee to be

considered to have reached agreement. Consensus was reached on all the

proposed regulations contained in this NPRM except for the regulations

governing the implementation of the ``90/10 rule,'' which is part of

the definition of an eligible ``proprietary institution of higher

education'' that can be found in Sec. 600.5.

Discussion of the proposed regulations will first cover those areas

on which the negotiators reached a consensus, and will then cover the

proposed regulations implementing the 90/10 rule.

Section 600.2 Definitions

Prior to the 1998 Amendments, a State was defined to include the

``Trust Territory of the Pacific Islands.'' Now, instead of that term,

a State includes the ``Freely Associated States.'' The Freely

Associated States include the Republic of the Marshall Islands, the

Federated States of Micronesia, and the Republic of Palau. The proposed

regulations would amend the definition of the term ``State'' to reflect

those changes.

Section 600.4 Institution of Higher Education; Sec. 600.5

Proprietary Institution of Higher Education; and Sec. 600.6

Postsecondary Vocational Institution

Each of these sections has a provision that states that the

Secretary does not currently recognize the accreditation of an

institution unless the institution agrees to submit any dispute

involving the final denial, withdrawal, or termination of accreditation

to ``binding'' arbitration. The proposed regulations would change these

provisions to require an institution to agree to submit any such

dispute to ``initial'' arbitration to conform them to the literal

language of the statute imposing that requirement (section 496(e) of

the HEA).

Section 600.7 Conditions of Institutional Ineligibility

The proposed regulations would amend Sec. 600.7(a) to make

technical changes to Sec. 600.7(a)(1) (iii) and (iv) to more accurately

reflect the statute (section 102(a)(3) (C) and (D) of the HEA). Section

600.7(a)(1)(iii) currently provides that an educational institution

does not qualify as an eligible institution if twenty-five percent or

more of the institution's regular enrolled students were incarcerated.

Section 600.7(a)(1)(iv) provides that an educational institution does

not qualify as an eligible institution if fifty-percent or more of its

regularly enrolled students had neither a high school diploma nor the

recognized equivalent of a high school diploma. The proposed

regulations would change these provisions to read ``more than twenty-

five percent'' and ``more than fifty percent,'' respectively, to

reflect the wording of the statute (sections 102(a)(3)(C) and (D) of

the HEA).

The proposed regulations would amend Sec. 600.7(c) to reflect a

change made by the 1998 Amendments that expands the waiver provision

for institutions whose enrollment of incarcerated students exceeds 25

percent. Prior to the 1998 Amendments, a public or nonprofit private

institution could obtain a waiver of this limitation only if it

provided a two- or four-year program for which it awarded an associate

degree or bachelor's degree. As amended, the institution could also

obtain a waiver if it provides a two- or four-year program for which it

awards a ``postsecondary diploma.''

Section 600.8 Treatment of a Branch Campus

The proposed regulations would amend this section to reflect a

change made by the 1998 Amendments that clarifies that a branch campus

must exist as a branch campus for at least two years after the

Secretary certifies it as a branch campus before seeking to be

certified as a main or free-standing campus. The proposed regulations

would also conform changes in Sec. 600.5(b)(3)(i) and

Sec. 600.6(b)(3)(iii).

Section 600.31 Change in Ownership Resulting in a Change of

Control

As amended by the 1998 Amendments, section 498(i)(4) of the HEA

authorizes the Secretary to permit an institution undergoing a change

in ownership that results in a change in control to continue to

participate in the title IV, HEA programs on a provisional basis if the

institution meets certain requirements. Those requirements include

submitting a materially complete application that is received by the

Department within 10 business days of the date on which the change of

ownership takes place.

The proposed regulations would amend Sec. 600.31 by deleting

Sec. 600.31(f), which prohibits an institution from submitting a

materially complete application before the change of ownership takes

place. Because section 498(i)(4) of the HEA supersedes the limitation

in Sec. 600.31(f), the revised regulations would permit institutions to

submit applications before a change in ownership takes place.

Section 600.55 Additional Criteria for Determining Whether a

Foreign Medical School is Eligible To Apply To Participate in the

FFEL Programs

Section 600.55(a)(5)(i)(A) is amended to reflect the amendment to

section 484(a)(5) of the HEA made by the 1998 Amendments. Section

484(a)(5) contains

[[Page 38274]]

citizenship and residency requirements that the Secretary is required

to reference under section 102(a)(2)(A)(i)(I) of the HEA in fashioning

criteria to determine the comparability of foreign graduate medical

schools to domestic graduate medical schools.

Section 600.56 Additional Criteria for Determining Whether a

Foreign Veterinary School is Eligible To Apply To Participate in

the FFEL Programs

The 1998 Amendments added special eligibility provisions for

foreign veterinary schools. Those schools are now subject to many, but

not all, of the same special eligibility requirements that the statute

previously applied to foreign medical schools. Most notably, a foreign

veterinary school is now ineligible to apply to participate in the FFEL

Program unless either its clinical training program has been approved

by a State continuously since 1992, or its students complete clinical

training at an approved veterinary school located in the United States.

The proposed regulation follows the amendments, treating foreign

veterinary schools and foreign medical schools identically for

eligibility purposes to the extent indicated by the statute.

Section 668.12 Application Procedures

As previously noted with regard to Sec. 600.31, amended section

498(i)(4) of the HEA authorizes the Secretary to permit an institution

seeking approval of a change in ownership to continue to participate in

the title IV, HEA programs on a provisional basis if the institution

meets certain requirements. One of those requirements is the submission

of a materially complete application that is received by the Department

within 10 business days of the date on which the change of ownership

takes place.

If an institution submits a materially complete application in a

timely manner, the institution may continue to participate in the title

IV, HEA programs on a provisional basis until the earlier of (1) the

date the Secretary approves or disapproves the application, or (2) the

end of the month following the month in which the change in ownership

occurred. However, if the Secretary has not issued a decision on the

application within that period, the institution may continue to

participate provisionally on a month-to-month basis until the Secretary

issues a decision on the institution's application, provided the

institution submits any additional documentation requested by the

Department promptly.

The proposed regulations would implement these provisions in

Sec. 668.12(f) and (g). In particular, proposed Sec. 668.12(f)

specifies the documents that must be submitted to be considered a

``materially complete application.'' Proposed Sec. 668.12(g) contains

the terms and conditions under which the institution may continue to

participate in the title IV, HEA programs while its application is

being reviewed. This paragraph also includes the additional documents

that must be submitted before the Secretary will issue a decision on

the application or extend the institution's participation on a month-

to-month basis. The Secretary wishes to clarify that all institutions

that undergo a change of ownership must submit a ``same day'' balance

sheet showing the financial position of the institution, as of the date

of the ownership change, in order to continue participation in the

Title IV, HEA programs.

Section 668.13 Certification Procedures

The proposed regulation would change the maximum period of time

that an institution may be certified to participate in the Title IV,

HEA programs from four years to six years. This change implements a

statutory change in the HEA made by the 1998 Amendments.

Section 668.14 Program Participation Agreement

As a result of a statutory change to the HEA by the 1998

Amendments, an institution that has undergone a change in ownership

that results in a change in control does not have to use a Default

Management Plan during the first two years of its participation in the

FFEL or Direct Loan Programs if certain conditions are met. These

conditions are (1) that the institution, including any branch campus,

does not have a cohort default rate in excess of 10 percent, and (2)

that the institution's owners do not own and have not owned an

institution with a cohort default rate in excess of 10 percent. The

proposed regulations would amend Sec. 668.14 to reflect that change.

The proposed regulations would combine the provisions requiring

Default Management Plans currently included in Sec. 668.14(b)(15) and

(b)(16) into a single paragraph, Sec. 668.14(b)(15), and remove and

reserve Sec. 668.14(b)(16).

The proposed regulations would revise Sec. 668.14(b)(20) to require

that a co-educational institution that has an intercollegiate athletic

program agree to comply with the provisions of Sec. 668.48. This change

conforms the regulations to changes made to the HEA by the l998

Amendments.

The proposed regulations would simplify the regulations by removing

Sec. 668.14(d) and (e), which govern collection and reporting of

information concerning athletically-related aid, because those

requirements also are contained in Sec. 668.48. In a separate NPRM, the

proposed amendments to Sec. 668.48 would implement statutory changes

made to the HEA by the l998 Amendments on that issue.

The proposed regulations would amend Sec. 668.14(b)(24) to clarify

that the institution is agreeing to comply with the requirements of

Sec. 668.22, currently titled ``Institutional Refunds and Repayments.''

Another NPRM proposes to incorporate into Sec. 668.22 the new statutory

requirements for the return of Title IV, HEA program funds.

The proposed regulations would add a new Sec. 668.14(d) to reflect

the addition of section 487(a)(23) to the HEA. That new section

requires an institution to make a good faith effort to distribute mail

voter registration forms to its students. The 1998 Amendments, however,

prohibit any officer of the Executive Branch from instructing an

institution in the manner in which this provision is carried out.

Therefore, the proposed regulations incorporates the provisions of

section 487(a)(23) verbatim into Sec. 668.14(d) with minor changes to

incorporate plain language requirements.

The amended HEA provides that section 487(a)(23) applies only to

institutions that are located in States to which section 4(b) of the

National Voter Registration Act, 42 U.S.C. 1973gg-2(b) does not apply.

If an institution must comply with Sec. 668.14(d), it must make a

good faith effort to distribute mail voter registration forms to its

students for elections for governor and for elections defined in

section 301(1) of the Federal Election Campaign Act of 1971, 2 U.S.C.

431(1). That section defines the term ``election'' to be ``(A) a

general, special, primary, or runoff election; (B) a convention or

caucus of a political party which has authority to nominate a

candidate; (C) a primary election held for the selection of delegates

to a national nominating convention of a political party; and (D) a

primary election held for the expression of a preference for the

nomination of individuals for election to the office of President.''

Section 668.27 Waiver of Annual Audit Submission Requirement

As amended by the 1998 Amendments, the HEA authorizes the waiver of

the requirement that an institution submit on an annual basis a

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compliance audit of its administration of the Title IV, HEA programs

and audited financial statements. If the waiver is granted, the waiver

may extend for up to three fiscal years.

The proposed regulations would add Sec. 668.27 to implement the

following waiver requirement. The 1998 Amendments provide that in order

to receive a waiver, the institution must have delivered less than

$200,000 of Title IV, HEA program funds in each of the two award years

preceding the waiver period. The 1998 Amendments further provide that

the institution must also post a letter of credit in an amount equal to

50 percent of the institution's ``annual potential liability.''

What is being proposed to be waived under this provision is the

annual audit submission requirement for compliance audits. The

institution is still required to have its administration of the Title

IV, HEA programs audited for the waiver period. Therefore, if an

institution is granted a waiver for three years, when the waiver period

expires and the institution must submit its next compliance audit, that

audit must cover the institution's administration of the Title IV, HEA

programs since the end of the period covered by its last submitted

compliance audit.

For example, an institution's fiscal year coincides with an award

year. It submits a compliance audit for its fiscal year that ends on

June 30, 2000, and then receives a waiver so that its next compliance

audit is due six months after the end of its 2002-2003 fiscal year.

When it submits that audit, the audit must cover its administration of

the Title IV, HEA programs for the 2000-2001 and 2001-2002 fiscal years

as well as the 2002-2003 fiscal year.

With regard to the audited financial statement, an institution will

need to submit an audit only of its latest fiscal year.

However, the auditor who conducts its compliance audit or prepares

its audited financial statement must determine that the institution

satisfied the conditions of institutional eligibility set forth in

Sec. 600.7 (dealing with, for example, correspondence courses and

students, and incarcerated students) for each year covered by the

waiver. Similarly, if the institution is a proprietary institution of

higher education, the auditor must audit the institution's

determination that it satisfied the 90/10 rule for each year covered by

the waiver.

In implementing this provision, the committee recognized that for

this provision to have any practical value, an institution's cost of

obtaining a letter of credit in an amount equal to 50 percent of

``annual potential liability'' must be less than the cost of performing

the required audits. The committee concluded that a letter of credit in

an amount equal to 10 percent of an institution's Title IV, HEA

programs disbursements for an award year was the appropriate amount to

satisfy that purpose. However, such a low amount is reasonable only for

a low-risk institution that is strong financially and has a history of

proper administration of the Title IV, HEA programs. Accordingly, the

committee agreed to permit waivers only for institutions that met the

criteria in Sec. 668.27(c).

Section 668.92 Fines

The 1998 Amendments revised the HEA to provide that an individual

who exercises substantial control over an institution and willfully

fails to pay refund obligations on student loans must pay those

refunds, and is subject to the penalty established under section

6672(a) of the Internal Revenue Code of l986 with respect to nonpayment

of taxes. The committee determined that this provision applies to both

individuals who fail to pay refunds under the terms of Sec. 668.22 when

that section refers to refund obligations, i.e., up to and including

June 30, 2000, and to individuals who fail to return Title IV, HEA

program funds when that section refers to the return of Title IV, HEA

program funds, i.e., on or after July 1, 2000.

Section 668.95 Reimbursements, Refunds and Offsets; Section

668.113 Request for Review

The proposed regulations would add paragraph (d) to Sec. 668.95 to

implement the statutory change to the HEA made by the l998 Amendments

that allows institutions to correct or cure an error that results from

administrative, accounting, or recordkeeping error, if that error was

not part of a pattern of error and there is no evidence of fraud or

misconduct related to the error. Section 668.92(d) provides that the

Secretary will not limit, suspend, terminate, or fine the institution

if such an error is cured.

A similar addition has been made to Sec. 668.113(d). That paragraph

provides that the Secretary will permit an institution to correct or

cure an error and will not impose a liability if the institution

eliminates the basis of the liability by curing or correcting the

error.

90/10 Rule

Section 600.5 Proprietary Institution of Higher Education

Prior to the 1998 Amendments, an eligible proprietary institution

had to derive at least 15 percent of its revenues from non-title IV,

HEA sources. The 1998 Amendments reduced that percent to 10 percent.

The proposed regulations would amend Sec. 600.5(a)(8) to reflect that

change.

Cash Basis of Accounting. Treatment of Institutional Scholarships and

Loans

The Committee IV negotiators did not reach consensus on how to

implement the statutory provision that requires a proprietary

institution of higher education to derive a portion of its revenue from

sources outside of the Title IV, HEA programs.

The Higher Education Amendments of 1992 changed the statutory

definition of a proprietary institution of higher education to require

that such an institution derive at least 15 percent of its revenue from

non-Title IV, HEA program funds. The Secretary implemented that

provision with the so-called 85/15 rule that is contained primarily in

Sec. 600.5(d).

In the notice of proposed rulemaking for the 85/15 rule that was

published in the Federal Register of February 10, 1994 (59 FR 6446-

64675), the Secretary proposed that, in calculating their compliance

with the 85/15 rule, institutions could report the amount of Title IV,

HEA program funds in the numerator of the 85/15 rule fraction (Title IV

revenue over total revenue) using the cash basis of accounting, and

total revenue generated in the denominator using the accrual basis of

accounting. The Secretary received overwhelming negative comments on

that proposal. The commenters pointed out that it did not make sense to

calculate the numerator and denominator under different bases of

accounting.

The Secretary agreed, and in the final rule required that

institutions use the cash basis of accounting to report Title IV

revenue in the numerator and total revenue in the denominator. The

Secretary chose that method because institutions report and account for

their Title IV, HEA program expenditures under that basis of

accounting.

After Sec. 600.5(d), which set forth the 85/15 rule, was published

as a final regulation in the Federal Register of April 29, 1994 (59 FR

22324, 22328), questions arose with regard to the treatment of

institutional scholarships and loans under the cash basis of

accounting.

[[Page 38276]]

Therefore, to remove any apparent or perceived ambiguities that may

exist with regard to the current regulations, the Secretary is

proposing a number of clarifications regarding compliance with the

``85/15 rule'', including its application to institutional scholarships

and loans. These revisions are in addition to those needed to reflect

the new statutory minimum percentage of income that such an institution

must derive from non-Title IV HEA program funds.

In these proposed regulations, the Secretary makes explicit in

Sec. 600.5(d)(2) that an institution must use the cash basis of

accounting in reporting Title IV, HEA program funds in the numerator

and revenues generated in the denominator of the fraction in

Sec. 600.5(d)(1). Further, in Sec. 600.5(d)(3), the Secretary describes

the circumstances under which institutional scholarships and loans may

be considered as revenue generated by the institution in the

denominator of the fraction.

During the course of the regulatory negotiations, some negotiators

expressed the view that the circumstances under which the proposed

regulations permit institutional scholarships to be included as revenue

were too narrow. The Department's negotiator, as well as others

disagreed. The Department's position on this matter is based on the

following.

It is the Secretary's understanding that, in general, as an

accounting matter, revenue is an inflow or other enhancement of assets

to an entity, or a reduction of its liabilities, resulting from the

delivery or production of goods or services. Under the cash basis of

accounting, revenue is recognized by an entity when that entity

receives cash, i.e., when there is an inflow of cash to the entity. In

contrast, under the accrual basis of accounting, an entity recognizes

revenue when it earns that revenue, regardless of whether there is any

inflow of cash at the point revenue is recognized.

As a result, in order for an institution to recognize revenue under

the cash basis of accounting, that revenue must represent cash received

from a source outside the institution. With regard to institutional

loans, when an institution makes a loan to a student, it does not

receive cash from an outside source; in fact, it does not receive any

cash. Accordingly, cash revenue from institutional loans are recognized

only when those loans are repaid, because that is when there is an

inflow of cash from an outside source.

Similarly, institutional grants and scholarships awarded to

students do not generally result in revenue for the institution. In

fact, the American Institute of Certified Public Accountants (AICPA)

and the National Association of College and University Business

Officers (NACUBO) instruct institutions to treat institutional

scholarships as a reduction in revenue or as an expense. However, the

Secretary proposes to allow institutional grants or scholarships that

represent funds that originated from a source outside of the

institution, to be considered to be income to the institution. For

example, if an alumnus of the institution donated funds to the

institution and expressly provided that the funds were to be used for

institutional scholarships, scholarships from an account designated for

scholarships and made up solely of those funds (and earnings on those

funds) would be considered to represent income to the institution.

Institutional grants in the form of tuition waivers do not count as

revenue because no new revenue is generated. Similarly, internal

transfers of cash among accounts are generally not considered revenue

to the institution because they do not represent an inflow of cash to

the institution. An exception to this general rule would be a case,

like the one noted previously, in which the account in question that is

the source of a scholarship is a scholarship account made up of funds

that originated from outside of the institution that represent income

(and of interest on those funds). The proposed rule would allow an

institution to include institutional grants and scholarships in the

calculation of compliance with the rule if the institution can

demonstrate that those funds represent an increase in cash to the

institution that would be counted as income. Examples of cash that does

not represent income include borrowing money and using the proceeds

from the borrowing to make institutional scholarships or the sale of

stock where the institution uses the proceeds to make institutional

scholarships.

Treatment of FWS, LEAP and Matching Funds

In proposed Sec. 600.5(e)(1), the Secretary clarifies that, in

calculating compliance with the rule, an institution does not count, in

the numerator or denominator, funds it receives under the Federal Work

Study or LEAP (formerly SSIG) Program, and does not include in the

denominator any funds it uses to satisfy a required match in a Title

IV, HEA program.

Presumption That Title IV, HEA Program Funds Are Used To Pay

Institutional Charges

Some negotiators objected to the current rule contained in

Sec. 600.5(d)(v) that provides that Title IV, HEA programs funds

disbursed to students must be presumed to be used to pay the students'

tuition, fees and other institutional charges so that those funds are

included in the numerator of the fraction. These negotiators proposed

exceptions to this rule over and above those already included in

Sec. 600.5(d)(2)(v)(A) and (B). (In this NPRM, Sec. 600.5(d)(2)(v) is

redesignated as Sec. 600.5(e)(2), and Sec. 600.5(d)(2)(v)(A) and (B) is

redesignated as Sec. 600.5(e)(3)(i) and (ii)).

The Secretary has agreed to include one additional exception,

prepaid State tuition plans, and has included that exception in

proposed Sec. 600.5(e)(3)(iii). The rationale for including this

exception is that funds from this type of plan are generally

transmitted directly from the State to the institution for

institutional charges. The Secretary did not agree to include other

potential sources of payment of institutional charges because funds

from those other sources, such as Education IRAs, are either no

different from other types of family investments, or the tracking of

those funds would be extremely problematic.

Several other changes have been made to this section that simply

remove references that dealt with periods of time that are no longer

relevant.

Executive Order 12866

1. Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs

and benefits of this regulatory action.

The potential costs associated with the proposed regulations are

those resulting from statutory requirements and those we have

determined as necessary for administering this program effectively and

efficiently.

In assessing the potential costs and benefits of this regulatory

action--both quantitative and qualitative--we have determined that the

benefits would justify the costs.

We have also determined that this regulatory action would not

unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

We note that, as these proposed regulations were subject to

negotiated rulemaking, the costs and benefits of the various

requirements were discussed thoroughly by negotiators. The resultant

consensus reached on a particular

[[Page 38277]]

requirement generally reflected agreement on the best possible approach

to that requirement in terms of cost and benefit.

To assist the Department in complying with the specific

requirements of Executive Order 12866, the Secretary invites comments

on whether there may be further opportunities to reduce any potential

costs or to increase any potential benefits resulting from these

proposed regulations without impeding the effective and efficient

administration of the title IV, HEA programs.

Summary of Potential Costs and Benefits

Elsewhere in this preamble we discuss the potential costs and

benefits of these proposed regulations under the following headings:

Regulatory Flexibility Act Certification and Paperwork Reduction Act of

1995.

2. Clarity of the Regulations

Executive Order 12866 and the President's Memorandum of June 1,

1998 on ``Plain Language in Government Writing'' require each agency to

write regulations that are easy to understand.

The Secretary invites comments on how to make these

proposed regulations easier to understand, including answers to

questions such as the following:

Are the requirements in the proposed regulations clearly

stated?

Do the proposed regulations contain technical terms or

other wording that interferes with their clarity?

Does the format of the proposed regulations (grouping and

order of sections, use of headings, paragraphing, etc.) aid or reduce

their clarity?

Would the proposed regulations be easier to understand if

we divided them into more (but shorter) sections? (A ``section'' is

preceded by the symbol ``Sec. '' and a numbered heading; for example,

Sec. 600.5 Proprietary institution of higher education.)

Could the description of the proposed regulations in the

SUPPLEMENTARY INFORMATION section of this preamble be more helpful in

making the proposed regulations easier to understand? If so, how?

What else could we do to make the proposed regulations

easier to understand?

Send any comments that concern how the Department could make these

proposed regulations easier to understand to the person listed in the

ADDRESSES section of the preamble.

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.

Entities affected by these proposed regulations are institutions of

higher education that participate in the Title IV, HEA programs. These

institutions are defined as small entities, according to the U.S. Small

Business Administration, if they are: for-profit or nonprofit entities

with total revenue of $5,000,000 or less; or entities controlled by

governmental entities with populations of 50,000 or less. These

proposed regulations would not impose a significant economic impact on

a substantial number of small entities. These proposed regulations

would ease administrative and regulatory burden, without requiring

significant changes to current institutional system operations, by:

reducing the required percentage of revenue that a proprietary

institution must derive from non-Title IV sources; expanding

institutional eligibility for the FFEL program to include foreign

veterinary schools with clinical training programs that have been

approved by a State since January 1, 1992; simplifying application and

certification procedures; expanding the timeframe for institutional

certification to six years; and providing for a waiver of the annual

audit submission requirement.

The Secretary invites comments from small institutions as to

whether the proposed changes would have a significant economic impact

on them.

Paperwork Reduction Act of 1995

Section 600.7 contains an information collection requirement. Under

the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department

of Education has submitted a copy of this section to the Office of

Management and Budget (OMB) for its review.

Collection of Information: Conditions of Institutional Eligibility

Institutions of higher education must maintain certain conditions

and requirements to remain eligible to participate in Title IV, HEA

programs. Moreover, an institution may become ineligible if it fails to

meet, or exceeds certain thresholds as prescribed in the HEA. This

regulation monitors the composition of regular student enrollment in

the following areas: telecommunications courses, correspondence

courses, ability-to-benefit students and incarcerated students, and

also enhances the waiver provisions for institutions whose enrollment

of incarcerated students exceeds twenty-five percent. The Department

needs and uses this information to gauge continuing eligibility.

Every six years, the institution must collect and report this

information to the Department. The questions asked to determine

compliance are now affirmatively structured, so that an institution

will report to the Department if it does exceed any of the prescribed

thresholds. There are approximately 5,800 respondents that we

anticipate will be reviewed over the six-year period. We estimate the

annual reporting and recordkeeping burden for this collection of

information to average two hours per respondent for approximately 1,500

respondents in a given year. This measure includes the time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. Thus, we estimate the total annual reporting

and recordkeeping burden for this collection to be 3,000 hours.

If you want to comment on the information collection requirements,

please send your comments to the Office of Information and Regulatory

Affairs, OMB, room 10235, New Executive Office Building, Washington, DC

20503; Attention: Desk Officer for U.S. Department of Education. You

may also send a copy of these comments to the Department representative

named in the ADDRESSES section of this preamble.

We consider your comments on this proposed collection of

information in--

Deciding whether the proposed collection is necessary for

the proper performance of our functions, including whether the

information will have practical use;

Evaluating the accuracy of our estimate of the burden of

the proposed collection, including the validity of our methodology and

assumptions;

Enhancing the quality, usefulness, and clarity of the

information we collect; and

Minimizing the burden on those who must respond. This

includes exploring the use of appropriate automated, electronic,

mechanical, or other technological collection techniques or other forms

of information technology; e.g., permitting electronic submission of

responses.

OMB is required to make a decision concerning the collection of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register.

Therefore, to ensure that OMB gives your comments full consideration,

it is important that OMB receives the comments within 30 days of

publication. This does not affect the deadline for your comments to us

on the proposed regulations.

[[Page 38278]]

Intergovernmental Review

The campus-based programs (Federal Perkins Loan, Federal Work-Study

(FWS), and Federal Supplemental Opportunity Grant (FSEOG) programs),

the William D. Ford Federal Direct Loan (Direct Loan) Program, the

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

Program, and the LEAP Program are not subject to Executive Order 12372

and the regulations in 34 CFR part 79.

Assessment of Educational Impact

The Secretary particularly requests comments on whether these

proposed regulations would require transmission of information that any

other agency or authority of the United States gathers or makes

available.

Electronic Access to This Document

You may view this document in text or Adobe Portable Document

Format (PDF) on the Internet at the following sites:

http://ocfo.ed.gov/fedreg.htm

http://ifap.ed.gov/csb__htm/fedlreg.htm

http://www.ed.gov/legislation/HEA/rulemaking/

To use the PDF, you must have the Adobe Acrobat Reader Program with

Search, which is available free at the first of the previous sites. If

you have questions about using the PDF, call the U.S. Government

Printing Office, toll free, at 1-888-293-6498; or in the Washington, DC

area, at (202) 512-1530.

Note: The official version of this document is the document

published in the Federal Register. Free Internet access to the

official edition of the Federal Register and the Code of Federal

Regulations is available on GPO Access at:

http://www.access.gpo.gov/nara/index.html

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal

Supplemental Educational Opportunity Grant Program; 84.032

Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032

Federal PLUS Program; 84.032 Federal Supplemental Loans for Students

Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins

Loan Program; 84.063 Federal Pell Grant Program; 84.069 LEAP; 84.268

William D. Ford Federal Direct Loan Programs; and 84.272 National

Early Intervention Scholarship and Partnership Program.)

List of Subjects in

34 CFR Part 600

Administrative practice and procedure, Colleges and universities,

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

education, Reporting and recordkeeping requirements, Student aid.

34 CFR Part 668

Administrative practice and procedure, Aliens, Colleges and

universities, Consumer protection, Grant programs--education, Reporting

and recordkeeping requirements, Selective Service System, Student aid,

Vocational education.

Dated: July 9, 1999.

Richard W. Riley,

Secretary of Education.

For the reasons discussed in the preamble, the Secretary proposes

to amend parts 600 and 668 of title 34 of the Code of Federal

Regulations as follows:

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT

OF 1965, AS AMENDED

1. The authority citation for part 600 is amended to read as

follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,

and 1099(c), unless otherwise noted.

2. In Sec. 600.2, the definition of the term ``State'' is revised

to read as follows:

Sec. 600.2 Definitions.

* * * * *

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

Puerto Rico, the District of Columbia, Guam, the Virgin Islands, the

Commonwealth of the Northern Mariana Islands, the Republic of the

Marshall Islands, the Federated States of Micronesia, and the Republic

of Palau. The latter three are also know as the Freely Associated

States.

* * * * *

3. In Sec. 600.4, paragraph (c) is revised to read as follows:

Sec. 600.4 Institution of higher education.

* * * * *

(c) The Secretary does not recognize the accreditation of an

institution unless the institution agrees to submit any dispute

involving the final denial, withdrawal, or termination of accreditation

to initial arbitration before initiating any other legal action.

* * * * *

4. In Sec. 600.5, paragraph (h) is removed; paragraph (i) is

redesignated as paragraph (h); and paragraphs (a)(8), (b)(3)(i), (d),

(e), (f), (g), and redesignated paragraph (h) are revised to read as

follows:

Sec. 600.5 Proprietary institution of higher education.

(a) * * *

(8) Has no more than 90 percent of its revenues derived from title

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

section.

(b) * * *

(3) * * *

(i) Counts any period during which the applicant institution has

been certified as a branch campus; and

* * * * *

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

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

following formula for its latest complete fiscal year:

Title IV, HEA program funds the institution used to satisfy its

students' tuition, fees, and other institutional charges to

students.

-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION

The sum of revenues including title IV, HEA program funds

generated by the institution from: tuition, fees, and other

institutional charges for students enrolled in eligible programs as

defined in 34 CFR 668.8; and activities conducted by the

institution, to the extent not included in tuition, fees, and other

institutional charges, that are necessary for the education or

training of its students who are enrolled in those eligible

programs.

(2) An institution must use the cash basis of accounting when

calculating the amount of title IV, HEA program funds in the numerator

and the total amount of revenue generated by the institution in the

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

section.

(3) Under the cash basis of accounting--

(i) In calculating the amount of revenue generated by the

institution from institutional loans, the institution must include only

the amount of loan repayments received by the institution during the

fiscal year; and

(ii) In calculating the amount of revenue generated by the

institution from institutional scholarships, the institution must

include only the amount of funds it disbursed during the fiscal year

from an established restricted account and only to the extent that the

funds in that account represent designated funds from an outside source

or interest accrued on those funds.

(e) With regard to the formula contained in paragraph(d)(1) of this

section--

(1) The institution may not include as title IV, HEA program funds

in the numerator nor as revenue generated by the institution in the

denominator--

(i) The amount of funds it received under the Leveraging

Educational Assistance Partnership (LEAP) or Federal Work-Study (FWS)

programs. (The LEAP Program was formerly called the State Student

Incentive Grant or SSIG Program.);

(ii) The amount of institutional funds it used to match title IV,

HEA program funds;

[[Page 38279]]

(iii) The amount of title IV, HEA program funds that must be

refunded or returned under Sec. 668.22; or

(iv) The amount charged for books, supplies, and equipment unless

the institution includes that amount as tuition, fees, or other

institutional charges.

(2) In determining the amount of title IV, HEA program funds

received by the institution under the cash basis of accounting, except

as provided in paragraph (e)(3) of this section, the institution must

presume that any title IV, HEA program funds disbursed or delivered to

or on behalf of a student will be used to pay the student's tuition,

fees, or other institutional charges, regardless of whether the

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

funds directly to the student, and therefore must include those funds

in the numerator and denominator.

(3) In paragraph (e)(2) of this section, the institution may not

presume that title IV, HEA program funds were used to pay tuition,

fees, and other institutional charges to the extent that those charges

were satisfied by--

(i) Grant funds provided by non-Federal public agencies, or private

sources independent of the institution;

(ii) Funds provided under a contractual arrangement described in

Sec. 600.7(d), or

(iii) Funds provided by State prepaid tuition plans.

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

institution from activities it conducts, that are necessary for its

students' education or training, includes only revenue from those

activities that--

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

the institution;

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

institution's faculty; and

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

educational program at the institution.

(f) An institution must notify the Secretary within 90 days

following the end of the fiscal year used in paragraph (d)(1) of this

section if it fails to satisfy the requirement contained in paragraph

(a)(8) of this section.

(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 for at least the fiscal year following the

fiscal year used in paragraph (d)(1) of this section.

(h) The Secretary does not recognize the accreditation of an

institution unless the institution agrees to submit any dispute

involving the final denial, withdrawal, or termination of accreditation

to initial arbitration before initiating any other legal action.

* * * * *

5. In Sec. 600.6, paragraphs (b)(3)(iii) and (c) are revised to

read as follows:

Sec. 600.6 Postsecondary vocational institution.

* * * * *

(b) * * *

(3) * * *

(iii) Counts any period during which the applicant institution has

been certified as a branch campus; and

* * * * *

(c) The Secretary does not recognize the accreditation of an

institution unless the institution agrees to submit any dispute

involving the final denial, withdrawal, or termination of accreditation

to initial arbitration before initiating any other legal action.

* * * * *

6-7. In Sec. 600.7, paragraphs (a)(1)(iii), (a)(1)(iv), and (c) are

revised to read as follows:

Sec. 600.7 Conditions of institutional ineligibility.

(a) * * *

(1) * * *

(iii) More than twenty-five percent of the institution's regular

enrolled students were incarcerated;

(iv) More than fifty percent of its regular enrolled students had

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

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

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

an associate degree, respectively;

* * * * *

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

Exception. The Secretary may waive the prohibition contained in

paragraph (a)(1)(iii) 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

a bachelor's degree, an associate degree, or a postsecondary diploma.

(2) Waiver for entire institution. If the nonprofit institution

that applies for a waiver consists solely of four-year or two-year

educational programs for which it awards a bachelor's degree, an

associate degree, or a postsecondary diploma, the Secretary waives the

prohibition contained in paragraph (a)(1)(iii) of this section for the

entire institution.

(3) Other waivers. If the nonprofit institution that applies for a

waiver does not consist solely of four-year or two-year educational

programs for which it awards a bachelor's degree, an associate degree,

or a postsecondary diploma, the Secretary waives the prohibition

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

(i) For the four-year and two-year programs for which it awards a

bachelor's degree, an associate degree or a postsecondary diploma; and

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

incarcerated regular students enrolled in those other programs have a

completion rate of 50 percent or greater.

* * * * *

8. Section 600.8 is revised to read as follows:

Sec. 600.8 Treatment of a branch campus.

A branch campus of an eligible institution must be in existence for

at least two years as a branch campus after the branch is certified as

a branch campus before seeking to be designated as a main campus or a

free-standing institution.

(Authority: 20 U.S.C. 1099c)

9. In Sec. 600.31, paragraph (f) is removed.

10. In Sec. 600.55, paragraph (a)(5)(i)(A) is revised to read as

follows:

Sec. 600.55 Additional criteria for determining whether a foreign

graduate medical school is eligible to apply to participate in the FFEL

programs.

(a) * * *

(5) * * *

(i) * * *

(A) During the academic year preceding the year for which any of

the school's students seeks an FFEL program loan, at least 60 percent

of those enrolled as full-time regular students in the school and at

least 60 percent of the school's most recent graduating class were

persons who did not meet the citizenship and residency criteria

contained in section 484(a)(5) of the HEA, 20 U.S.C. 1091(a)(5); and

* * * * *

11. Section 600.56 is redesignated as Sec. 600.57.

12. A new Sec. 600.56 is added to read as follows--

Sec. 600.56 Additional criteria for determining whether a foreign

veterinary school is eligible to apply to participate in the FFEL

programs.

(a) The Secretary considers a foreign veterinary school to be

eligible to apply to participate in the FFEL programs if,

[[Page 38280]]

in addition to satisfying the criteria in Sec. 600.54 (except the

criterion that the institution be public or private nonprofit), the

school satisfies all of the following criteria:

(1) The school provides, and in the normal course requires its

students to complete, a program of clinical and classroom veterinary

instruction that is supervised closely by members of the school's

faculty, and that is provided either--

(i) Outside the United States, in facilities adequately equipped

and staffed to afford students comprehensive clinical and classroom

veterinary instruction; or

(ii) In the United States, through a training program for foreign

veterinary students that has been approved by all veterinary licensing

boards and evaluating bodies whose views are considered relevant by the

Secretary.

(2) The school has graduated classes during each of the two twelve-

month periods immediately preceding the date the Secretary receives the

school's request for an eligibility determination.

(3) The school employs for the program described in paragraph

(a)(1) of this section only those faculty members whose academic

credentials are the equivalent of credentials required of faculty

members teaching the same or similar courses at veterinary schools in

the United States.

(4) Either--

(i) The veterinary school's clinical training program was approved

by a State as of January 1, 1992, and is currently approved by that

State; or

(ii) The veterinary school's students complete their clinical

training at an approved veterinary school located in the United States.

(Authority: 20 U.S.C. 1082 and 1088)

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

13. The authority citation for part 668 is amended to read as

follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092,

1094, 1099c, and 1099c-1, unless otherwise noted.

14. In Sec. 668.12, paragraphs (f) and (g) are added and the

authority citation is revised to read as follows:

Sec. 668.12 Application procedures.

* * * * *

(f)(1) Application for provisional extension of certification. If

an institution participating in the title IV, HEA programs undergoes a

change in ownership that results in a change of control as described in

Sec. 600.31, the Secretary may continue the institution's participation

in those programs on a provisional basis, if the institution under the

new ownership submits a ``materially complete application'' that is

received by the Secretary no later than 10 business days after the

change occurs.

(2) For purposes of this section, an institution submits a

materially complete application if it submits a fully completed

application form designated by the Secretary supported by--

(i) A copy of the institution's State license or equivalent

document that--as of the day before the change in ownership--authorized

or will authorize the institution to provide a program of postsecondary

education in the State in which it is physically located;

(ii) A copy of the document from the institution's accrediting

association that--as of the day before the change in ownership--granted

or will grant the institution accreditation status, including approval

of the non-degree programs it offers;

(iii) Audited financial statements of the institution's two most

recently completed fiscal years that are prepared and audited in

accordance with the requirements of Sec. 668.23; and

(iv) Audited financial statements of the institution's new owner's

two most recently completed fiscal years that are prepared and audited

in accordance with the requirements of Sec. 668.23, or equivalent

information for that owner that is acceptable to the Secretary.

(g) Terms of the extension. (1) If the Secretary approves the

institution's materially complete application, the Secretary provides

the institution with a provisional Program Participation Agreement

(PPA). The provisional PPA extends the terms and conditions of the

program participation agreement that were in effect for the institution

before its change of ownership.

(2) The provisional PPA expires on the earlier of--

(i) The date on which the Secretary signs a new program

participation agreement;

(ii) The date on which the Secretary notifies the institution that

its application is denied; or

(iii) The last day of the month following the month in which the

change of ownership occurred, unless the provisions of paragraph (f)(3)

of this section apply.

(3) If the provisional PPA will expire under the provisions of

paragraph (f)(2)(iii) of this section, the Secretary extends the

provisional PPA on a month-to-month basis after the expiration date

described in paragraph (f)(2)(iii) of this section if, prior to that

expiration date, the institution provides the Secretary with--

(i) A ``same day'' balance sheet showing the financial position of

the institution, as of the date of the ownership change, that is

prepared in accordance with ``GAAP'' (Generally Accepted Accounting

Principles published by the Financial Accounting Standards Board) and

audited in accordance with ``GAGAS'' (Generally Accepted Government

Auditing Standards published by the U.S. General Accounting Office);

(ii) If not already provided, approval of the change of ownership

from the State in which the institution is located by the agency that

authorizes the institution to legally provide postsecondary education

in that State;

(iii) If not already provided, approval of the change of ownership

from the institution's accrediting agency; and

(iv) A default management plan unless the institution is exempt

from providing that plan under 34 CFR 668.14(b)(15).

* * * * *

(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)

15. In Sec. 668.13, paragraph (b)(1) is amended by removing ``four

years'' in the second sentence, and adding, in its place, ``six

years''.

16. Section 668.14 is amended by removing paragraphs (d) and (e);

by redesignating paragraphs (f), (g), (h), and (i) as paragraphs (e),

(f), (g), and (h), respectively; by removing and reserving paragraph

(b)(16); by revising paragraphs (b)(15), (b)(20), and (b)(24); and by

adding a new paragraph (d), to read as follows:

Sec. 668.14 Program participation agreement.

* * * * *

(b) * * *

(15)(i) Except as provided under paragraph (b)(15)(ii) of this

section, the institution will use a default management plan approved by

the Secretary with regard to its administration of the FFEL or Direct

Loan programs, or both for at least the first two years of its

participation in those programs, if the institution--

(A) Is participating in the FFEL or Direct Loan programs for the

first time; or

(B) Is an institution that has undergone a change of ownership that

results in a change in control and is participating in the FFEL or

Direct Loan programs.

(ii) The institution does not have to use an approved default

management plan if--

(A) The institution, including its main campus and any branch

campus, does

[[Page 38281]]

not have a cohort default rate in excess of 10 percent; and

(B) The owner of the institution does not, and has not, owned any

other institution with a cohort default rate in excess of 10 percent.

(iii) The Secretary approves any default management plan that

incorporates the default reduction measures described in appendix D to

this part;

* * * * *

(20) In the case of an institution that is co-educational and has

an intercollegiate athletic program, it will comply with the provisions

of Sec. 668.48;

* * * * *

(24) It will comply with the requirements of Sec. 668.22;

* * * * *

(d)(1) The institution, if located in a State to which section 4(b)

of the National Voter Registration Act (42 U.S.C. 1973gg-2(b)) does not

apply, will make a good faith effort to distribute a mail voter

registration form, requested and received from the State, to each

student enrolled in a degree or certificate program and physically in

attendance at the institution, and to make those forms widely available

to students at the institution.

(2) The institution must request the forms from the State 120 days

prior to the deadline for registering to vote within the State. If an

institution has not received a sufficient quantity of forms to fulfill

this section from the State within 60 days prior to the deadline for

registering to vote in the State, the institution is not liable for not

meeting the requirements of this section during that election year.

(3) This paragraph applies to elections as defined in section

301(1) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(1)),

and includes the election for Governor or other chief executive within

such State.

* * * * *

17. A new Sec. 668.27 is added to read as follows:

Sec. 668.27 Waiver of annual audit submission requirement.

(a) General. (1) At the request of an institution, the Secretary

may waive the annual audit submission requirement for the period of

time contained in paragraph (b) of this section if the institution

satisfies the requirements contained in paragraph (c) of this section

and posts a letter of credit in the amount determined in paragraph (d)

of this section.

(2) An institution requesting a waiver must submit an application

to the Secretary at such time and in such manner as the Secretary

prescribes.

(b) Waiver period. (1) If the Secretary grants the waiver, the

institution need not submit its next annual compliance or audited

financial statement until six months after--

(i) The end of the third fiscal year following the fiscal year for

which the institution last submitted a compliance audit and audited

financial statement; or

(ii) The end of the second fiscal year following the fiscal year

for which the institution last submitted compliance and financial

statement audits if the award year in which the institution will apply

for recertification is part of the third fiscal year.

(2) The Secretary does not grant a waiver if the award year in

which the institution will apply for recertification is part of the

second fiscal year following the fiscal year for which the institution

last submitted compliance and financial statement audits.

(3) When an institution must submit its next compliance and

financial statement audits under paragraph (b)(1) of this section--

(i) The institution must submit a compliance audit that covers the

institution's administration of the title IV, HEA programs for the

period from the last waiver, and an audited financial statement for its

last fiscal year; and

(ii) The auditor who conducts the audit must audit the

institution's annual determinations for the period subject to the

waiver that it satisfied the 90/10 rule in Sec. 600.5(d) and (e) and

the other conditions of institutional eligibility in Sec. 600.7, and

disclose the results of the audit of the 90/10 rule for each year in

accordance with Sec. 668.23(d)(4).

(c) Criteria for granting the waiver. The Secretary grants a waiver

of the annual audit requirement to an institution if the institution--

(1) Is not a foreign institution;

(2) Did not disburse $200,000 or more of title IV, HEA program

funds during each of the two completed award years preceding the

institution's waiver request;

(3) Agrees to keep records relating to each award year in the

unaudited period for two years after the end of the record retention

period in Sec. 668.24(e) for that award year;

(4) Has participated in the title IV, HEA programs under the same

ownership for at least three award years preceding the institution's

waiver request;

(5) Is financially responsible under Sec. 668.171, and does not

rely on the alternative standards of Sec. 668.175 to participate in the

title IV, HEA programs;

(6) Is not on the reimbursement or cash monitoring system of

payment;

(7) Has not been the subject of a limitation, suspension, fine, or

termination proceeding, or emergency action initiated by the Department

or a guarantee agency in the three years preceding the institution's

waiver request;

(8) Has submitted its compliance audits and audited financial

statements for the previous two fiscal years in accordance with and

subject to Sec. 668.23, and no individual audit disclosed liabilities

in excess of $10,000; and

(9) Submits a letter of credit in the amount determined in

paragraph (d) of this section, which must remain in effect until the

Secretary has resolved the audit covering the award years subject to

the waiver.

(d) Letter of credit amount. For purposes of this section, the

letter of credit amount equals 10 percent of the amount of title IV,

HEA program funds the institution disbursed to or on behalf of its

students during the award year preceding the institution's waiver

request.

(e) Rescission of the waiver. The Secretary rescinds the waiver if

the institution--

(1) Disburses more than $200,000 of title IV, HEA program funds for

an award year;

(2) Undergoes a change in ownership that results in a change of

control; or

(3) Becomes the subject of an emergency action or a limitation,

suspension, fine, or termination action initiated by the Department or

a guarantee agency.

(f) Renewal. An institution may request a renewal of its waiver

when it submits its audits under paragraph (b) of this section. The

Secretary grants the waiver if the audits and other information

available to the Secretary show that the institution continues to

satisfy the criteria for receiving that waiver.

(Authority: 20 U.S.C. 1094)

18. In Sec. 668.92, a new paragraph (d) is added and the authority

citation is revised to read as follows:

Sec. 668.92 Fines.

* * * * *

(d)(1) Notwithstanding any other provision of statute or

regulation, any individual described in paragraph (d)(2) of this

section, in addition to other penalties provided by law, is liable to

the Secretary for amounts that should have been refunded or returned

under Sec. 668.22 of the title IV program funds not returned, to the

same extent with respect to those funds that such an

[[Page 38282]]

individual would be liable as a responsible person for a penalty under

section 6672(a) of Internal Revenue Code of 1986 with respect to the

nonpayment of taxes.

(2) The individual subject to the penalty described in paragraph

(d)(1) is any individual who--

(i) The Secretary determines, in accordance with Sec. 668.174(c),

exercises substantial control over an institution participating in, or

seeking to participate in, a program under this title;

(ii) Is required under Sec. 668.22 to return title IV program funds

to a lender or to the Secretary on behalf of a student or borrower, or

was required under Sec. 668.22 in effect on June 30, 2000 to return

title IV program funds to a lender or to the Secretary on behalf of a

student or borrower; and

(iii) Willfully fails to return those funds or willfully attempts

in any manner to evade that payment.

(Authority: 20 U.S.C. 1094 and 1099c)

19. In Sec. 668.95, a new paragraph (d) is added and the authority

citation is revised to read as follows:

Sec. 668.95 Reimbursements, refunds and offsets.

* * * * *

(d) If an institution's violation in paragraph (a) of this section

results from an administrative, accounting, or recordkeeping error, and

that error was not part of a pattern of error, and there is no evidence

of fraud or misconduct related to the error, the Secretary permits the

institution to correct or cure the error. If the institution corrects

or cures the error, the Secretary does not limit, suspend, terminate,

or fine the institution for that error.

(Authority: 20 U.S.C. 1094 and 1099c-1)

20. In Sec. 668.113, a new paragraph (d) is added and the authority

citation is revised to read as follows:

Sec. 668.113 Request for review.

* * * * *

(d)(1) If an institution's violation that resulted in the final

audit determination or final program review determination in paragraph

(a) of this section results from an administrative, accounting, or

recordkeeping error, and that error was not part of a pattern of error,

and there is no evidence of fraud or misconduct related to the error,

the Secretary permits the institution to correct or cure the error.

(2) If the institution is charged with a liability as a result of

an error described in paragraph (d)(1) of this section, the institution

cures or corrects that error with regard to that liability if the cure

or correction eliminates the basis for the liability.

* * * * *

(Authority: 20 U.S.C. 1094 and 1099c-1)

[FR Doc. 99-18109 Filed 7-14-99; 8:45 am]

BILLING CODE 4000-01-P