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

DEPARTMENT OF EDUCATION

34 CFR Parts 600 and 668

RIN 1845-AA08

Institutional Eligibility Under the Higher Education Act of l965,

as Amended and Student Assistance General Provisions

AGENCY: Department of Education.

ACTION: Final regulations.

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

SUMMARY: We 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 Federal

Pell Grant Program, 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, and the Leveraging Educational Assistance Partnership (LEAP)

Program (formerly known as the State Student Incentive Grant (SSIG)

Program).

These final 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 final regulatory

changes merely conform current regulatory provisions to the statutory

changes.

DATES: Effective Date: These final regulations are effective July 1,

2000.

Implementation Date: The Secretary has determined, in accordance

with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), at

their discretion institutions can choose to implement the provisions of

certain sections of these regulations on or after October 29, 1999. For

further information see ``Implementation Date of These Regulations''

under the SUPPLEMENTARY INFORMATION section of this preamble.

FOR FURTHER INFORMATION CONTACT: Cheryl Leibovitz, U.S. Department of

Education, 400 Maryland Avenue, SW., ROB-3, room 3045, Washington, DC

20202-5344. 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:

Background

On July 15, 1999, we published a notice of proposed rulemaking

(NPRM) in the Federal Register (64 FR 38272-38282) proposing to amend

the regulations governing institutional eligibility for and

participation in the Title IV, HEA Programs. In the preamble to the

NPRM, we discussed the following proposed changes:

Amending Sec. 600.2, the definition of ``State'' to

include the ``Freely Associated States,'' which are the Republic of the

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

of Palau.

Amending Secs. 600.4(c), 600.5(h), and 600.6(d) to require

an institution to agree to submit any dispute involving the final

denial, withdrawal, or termination of accreditation to ``initial''

rather than ``binding'' arbitration.

Amending Sec. 600.5(a)(8) to conform the provisions

previously referred to as the ``85/15 rule'' to the new ``90/10 rule''.

Amending Sec. 600.5(d) to make explicit that institutions

must use the cash basis of accounting in determining whether they

satisfy the 90/10 rule, and by clarifying how institutional loans and

scholarships must be treated under the cash basis of accounting.

Amending Sec. 600.5(e) to provide that an institution

could presume that a student's institutional charges were not paid with

Title IV, HEA program funds if they were paid with funds received from

a prepaid State tuition plan.

Amending Sec. 600.7(c) to expand the waiver provision for

an institution whose enrollment of incarcerated students exceeds 25

percent to include a nonprofit institution that provides a two- or

four-year program for which it awards a ``postsecondary diploma.''

Amending Sec. 600.8, as well as Secs. 600.5(b)(3)(i) and

600.6(b)(3)(iii) to clarify 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.

Amending Secs. 600.31 and 668.12 to allow 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.

Amending Sec. 600.55(a)(5)(i)(A) to provide criteria for

determining the comparability of foreign graduate medical schools to

domestic graduate medical schools.

Amending Sec. 600.56 to subject foreign veterinary schools

to many, but not all, of the special eligibility requirements that the

statute previously applied to foreign medical schools.

Amending Sec. 668.13 to expand 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.

Amending Sec. 668.14 to exempt an institution that has

undergone a change in ownership/control from the requirement that it

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.

Amending Sec. 668.14 by removing Secs. 668.14(d) and (e),

which govern collection and reporting of information concerning

athletically-related aid, because those requirements will be revised

and incorporated in Sec. 668.47.

Amending Sec. 668.14(b)(24) to clarify that an institution

agrees to comply with the requirements of Sec. 668.22, which relates to

refunds and the return of Title IV, HEA program funds.

Amending Sec. 668.14(d) to require that an institution

make a good faith effort to distribute mail voter registration forms to

its students. (The 1998 Amendments included this requirement but

prohibited any officer of the Executive Branch from instructing an

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

Therefore, proposed Sec. 668.14(d) incorporated the provisions of

section 487(a)(23) of the HEA verbatim into Sec. 668.14(d) with minor

changes to incorporate plain language requirements.)

Amending Sec. 668.27 to allow for a waiver for up to three

years of the requirement that an institution submit annually, a

compliance audit and audited financial statement if certain conditions

are met.

Amending Sec. 668.92 to reflect that an individual who

exercises substantial control over an institution and willfully fails

to pay refunds on student loans is subject to the penalty established

under section 6672(a) of the Internal Revenue Code of l986 with respect

to nonpayment of taxes.

Amending Secs. 668.95 and 668.113 to allow an institution

to correct or cure an error that results from an administrative,

accounting, or recordkeeping error, if that error was not part of a

pattern of errors and there is no evidence of fraud or misconduct

related to the error, and to clarify that the Secretary will not

[[Page 58609]]

limit, suspend, terminate, or fine the institution if such an error is

cured.

There are no significant differences between the NPRM and these

final regulations.

Implementation Date of These Regulations

Section 482(c) of the HEA, 20 U.S.C. 1089(c), provides that if we

publish these regulations before November 1, 1999, the regulations will

become effective on July 1, 2000. However, that section also permits us

to designate any of these regulations as one that an entity subject to

the regulation may choose to implement earlier. If we designate a

regulation for early implementation, we may specify when and under what

conditions the entity may implement it. Under this authority, we have

designated the following regulations for early implementation:

Upon publication, institutions have the discretion to implement

Secs. 600.4(c), 600.5(h), 600.6(d), 600.55, and Sec. 600.56.

Upon publication, institutions have the discretion to implement the

provisions of Secs. 600.5(d) and (e). However, if an institution

chooses to implement any of the provisions in those sections, it must

implement all of them.

Upon publication, institutions have the discretion to implement the

provisions dealing with a change of ownership that results in a change

in control in Secs. 600.20, 600.31, and 668.12.

Note: The changes to Secs. 600.2, 600.5(a), 600.5(b)(3)(i),

600.6(b)(3)(iii), 600.7(a)(1)(iii) and (iv), 600.7(c), 600.8,

668.13, 668.14(b)(24), 668.14(d), and 668.92 reflect statutory

provisions that already are in effect. Institutions may use these

regulations prior to July 1, 2000 as guidance in complying with

those statutory provisions.

The changes to Secs. 668.95 and 668.13 merely clarify our current

practices with regard to initiating compliance actions and assessing

liabilities.

Section 668.27 will not become effective until July 1, 2000.

However, we will begin to accept applications for waivers from

institutions as of January 3, 2000 so that we can begin to grant

waivers on July 1, 2000.

Discussion of Student Financial Assistance Regulations Development

Process

The regulations in this document were developed through the use of

negotiated rulemaking. Section 492 of the HEA requires that, before

publishing any proposed regulations to implement programs under Title

IV of the HEA, 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 proposed regulations

must conform to agreements resulting from the negotiated rulemaking

process unless the Secretary reopens that process or explains any

departure from the agreements to the negotiated rulemaking

participants.

These regulations were published in proposed form on July 15, 1999.

With the exception of provisions relating to the ``90/10 rule'' in the

definition of ``proprietary institution of higher education'' at

Sec. 600.5, the proposed regulations reflected the consensus of the

negotiated rulemaking committee. Under the committee's protocols,

consensus meant that no member of the committee dissented from the

agreed-upon language. The Secretary invited comments on the proposed

regulations by September 13, 1999 and approximately 60 comments were

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

proposed regulations follows.

We discuss substantive issues under the sections of the regulations

to which they pertain. Generally, we do not address technical and other

minor changes in the proposed regulations, and we do not respond to

comments suggesting changes that the Secretary is not authorized by law

to make.

Analysis of Comments and Changes

Part 600--Institutional Eligibility Under the Higher Education Act of

1965, as amended

Section 600.5 Proprietary Institution of Higher Education

Comments: A number of commenters registered support of the

Secretary's proposals for implementing the 90/10 rule as reasonable and

compliant with the HEA.

Discussion: We appreciate the support for these changes.

Changes: None.

Comments: Several commenters disagreed with the requirement

contained in proposed Sec. 600.5(d)(2) that a proprietary institution

of higher education must use the cash basis of accounting in

determining whether it satisfies the 90/10 rule. These commenters

believed that all revenue should be recognized when earned (accrual

basis of accounting), and not when received (cash basis of accounting.)

Discussion: We set forth in the preamble to the proposed

regulations at 64 FR 38272, 38275 the history and rationale for the

decision to use the cash basis of accounting in reporting revenue for

the purpose of the 85/15 and now 90/10 rule. In summary an institution

must report and account for its expenditure of Title IV, HEA program

funds on the cash basis of accounting, and therefore, it must report

all its revenues on that basis in order to make a meaningful

determination of compliance with the 90/10 requirement.

Changes: None.

Comments: Two commenters requested clarification on the treatment

of institutional loans in proposed Sec. 600.5(d)(3)(i). That section

provided that under the cash basis of accounting, when calculating the

amount of revenue generated by the institution from institutional

loans, an institution may include only loan repayments received during

the relevant fiscal year.

Discussion: An institution may not count in the denominator of the

fraction in Sec. 600.5(d)(1) the loan proceeds from institutional loans

that were disbursed to students; it may include only loan repayments it

received during the relevant fiscal year for previously disbursed

institutional loans.

Changes: None.

Comments: A number of commenters objected to the treatment of

``institutional scholarships'' as proposed in Sec. 600.5(d)(3)(ii).

That section provided that under the cash basis of accounting, when

calculating the amount of revenue generated by the institution from

institutional scholarships, an institution may 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 the

account represent designated funds from an outside source or from fund

earnings.

Commenters who objected to our treatment of institutional

scholarships indicated that contributions to proprietary institutions

are not tax deductible, and therefore proprietary institutions

generally do not receive funds from outside sources for scholarship

funds. Other commenters indicated that the tax laws preclude a

proprietary institution from setting up a tax exempt entity for that

purpose. Thus, the commenters noted that scholarship endowments are

virtually non-existent in the proprietary sector.

The commenters noted that it would take years to amass the

principal necessary to create a substantial endowment program. They

also believed it would take even longer to earn enough interest to make

tangible scholarship distributions to students. In addition, the

commenters said that as a result of this proposed requirement, many

institutions would have no choice

[[Page 58610]]

but to limit or forgo making scholarships to deserving students.

On the other hand, several other commenters supported our treatment

of institutional scholarship funds under the cash basis of accounting.

Discussion: We understand that the tax laws preclude individuals

and entities from making tax deductible contributions to proprietary

institutions, and therefore it would be unlikely that these

institutions would have restricted funds to make scholarship awards.

However, this result is consistent with our view, as expressed in the

NPRM preamble, that institutional scholarships are not revenue

generated by the institution but are expenses of the institution, and

should not be included, except in unusual circumstances, in the

denominator of the fraction in Sec. 600.5(d)(1).

We specified in the initial NPRM on this topic in 1994 (59 FR 6446,

February 10, 1994) that we wished to encourage proprietary institutions

to obtain support from sources outside of and independent of the

institution. Accordingly, funds donated to the institution by related

parties may not count for purposes of the 90/10 calculation. An

institution could, however, use such donations to create restricted

accounts for institutional scholarships. Those scholarships would count

in the 90/10 calculation, but only to the extent of earnings on the

restricted account.

We disagree with the commenter's assertion that proprietary

institutions will reduce the funding of institutional scholarships to

their students. We believe that institutions award these scholarships

to benefit their students, not as an artifice to avoid the consequences

of the 90/10 rule.

Changes: None.

Comments: Some commenters stated that Federal Work-Study (FWS)

program funds that an institution uses to pay institutional charges

should be included in the 90/10 formula.

Discussion: Prior the 1998 Amendments, we did not include FWS funds

in the 90/10 formula because the institution was required to pay those

funds directly to the student; the institution was not permitted to use

those funds to pay the student's institutional charges. The 1998

Amendments now allow an institution to credit FWS funds against a

student's institutional charges if the student gives his or her

permission. As a result, we believe that FWS funds must now be included

in the 90/10 formula to the extent that a student takes advantage of

this new authority and authorizes FWS funds to be used to pay his or

her institutional charges.

Changes: Section 600.5(e)(1)(i) is revised to include FWS funds

that an institution uses to pay a student's tuition, fees, and other

institutional charges.

Comments: Several commenters requested that we address how credit

balances should be treated with regard to the 90/10 rule.

Discussion: In general, funds held as credit balances in

institutional accounts do not get counted in the 90/10 formula in

Sec. 600.5(d)(1). However, once funds held as credit balances are used

to satisfy institutional charges, they would be counted in both the

numerator and denominator of the formula. For example, an institution's

fiscal year is a calendar year. On December 30, 1999, the institution

disburses $100,000 of Title IV, HEA program funds to students on their

accounts, and credit balances occur because the institution has not yet

charged those accounts with related tuition and fees. On January 3,

2000, the institution charges tuition and fees to the students'

accounts, and uses all of those previously disbursed funds to pay the

students' tuition and fee charges.

For purposes of the 90/10 formula in Sec. 600.5(d)(1), none of the

$100,000 would be included in the institution's 90/10 calculation for

its 1999 fiscal year because none of the funds had been used for

tuition, fees, and other institutional charges; all of the $100,000

would be included in the institution's 90/10 calculation for its 2000

fiscal year calculation, when the funds were used to satisfy tuition,

fees, and other institutional charges.

A similar result would apply if the institution drew down $100,000

of Title IV, HEA program funds from the Department on December 30, 1999

but did not pay those funds to students for institutional charges until

January 3, 2000.

We note that under an extremely literal interpretation of the

principles underlying the cash basis of accounting, it would be

possible to determine that none of the $100,000 in the above example

would be included in the numerator or denominator for any year because

the regulation applies to cash received used to satisfy tuition, fees

and other institutional charges. Under this interpretation, an

institution would count only the funds it received in a particular

fiscal year used to satisfy institutional charges for that fiscal

year's determination of the 90/10 rule. In the above example, the

$100,000 was received by the institution in fiscal year 1999.

Therefore, when the institution used those funds to pay institutional

charges in fiscal year 2000, it did not use any funds it received in

fiscal year 2000 to pay institutional charges in that fiscal year.

We believe that this extremely literal interpretation is an

impermissible interpretation of the principles governing the cash basis

of accounting because it ignores the context of the 90/10 rule and

produces an absurd result where the funds would never be counted.

Changes: None.

Comments: One commenter asked how the Secretary would treat the

sale of institutional loans for the purpose of the 90/10 calculation.

Discussion: Revenue generated from the sale of non-recourse

institutional loans to unrelated parties would be counted as revenue in

the denominator of the 90/10 calculation to the extent of actual

proceeds.

The sale of institutional loan receivables is distinguishable from

the sale of an institution's other assets because the receivables from

institutional loans were produced by a transaction that generates

tuition revenue. Tuition revenue represents income from the major

service provided by an institution. That would not be true in the case

of the sale of other institutional assets.

An institution may use the proceeds from the sale of other assets

in the creation of a restricted account and awarding of institutional

scholarships. However, for 90/10 purposes, only the portion of proceeds

that represents a gain on the sale of the asset counts as institutional

scholarships. An institution may use the amount of the proceeds that

equal the historical cost of the asset to establish the restricted

account.

Changes: None.

Comments: Several commenters expressed concern at the provision

contained in proposed Sec. 600.5(e)(2) that presumes that all Title IV,

HEA program funds disbursed or delivered to students are used to pay

tuition, fees, or other institutional charges, regardless of whether

those funds are paid directly to students or credited to their

institutional accounts. These commenters believed that this presumption

ignored the cash contributions made by students and their families

toward the student's educational costs. These commenters further

indicated that the exceptions to the presumption in proposed

Sec. 600.5(e)(3) should be expanded to include certain savings

vehicles, such as educational IRAs.

Discussion: From the very first attempts to develop regulations to

[[Page 58611]]

implement the 85/15 rule in 1993 and 1994, we and the regulation

negotiators recognized the necessity of this presumption, in order, as

stated by the Secretary in the preamble to the NPRM that was issued for

the 85/15 rule, ``[t]o avoid inappropriate manipulation of information

under the 85 percent rule.'' 59 FR 6446, 6449 (Feb. 10, 1994). For

example, without the presumption, an institution could disburse Title

IV, HEA programs funds directly to students and then have the students

write checks to the institution for tuition, fees, and other

institutional charges. Under this approach, an institution could

contend that none of the Title IV, HEA program funds were used to pay

institutional charges.

On the other hand, we agree with the commenters that in certain

instances, the presumption would not take into account cash

contributions made by students and their parents toward the student's

educational costs. However, we believe that these instances are

ameliorated by the fact that an institution can obtain up to 90 percent

of its tuition and fee revenue from Title IV, HEA program funds, and by

the exceptions provided in Sec. 600.5(e)(3).

When we created the presumption, we also created exceptions. Thus,

in the original 85/15 rule, we provided that the presumption should not

apply to the extent that a student's tuition and fee charges were paid

with grant funds provided by third parties, or to the extent that those

charges were paid under contracts with governmental agencies. In the

proposed rule for these final regulations, the Secretary added another

exemption--tuition and fee charges that were paid from a State prepaid

tuition plan.

These three exceptions are consistent in that funds come to the

institution directly from an outside third party source and are easily

accounted for. The commenter's suggestions for additional exceptions

would satisfy neither condition, because the suggested additions would

not come from an outside third party source, and an institution would

not be able to document that a payment came from such a source. In

addition, the proposed additional sources of funds, including education

IRA funds, can be used to pay non-institutional charges as well as an

institutional charges.

Changes: None.

Section 600.7 Conditions of Institutional Ineligibility

Comments: Several commenters requested that the Secretary define

the term ``postsecondary diploma'' in proposed Sec. 600.7(c)(1). That

section provides that an institution whose enrollment of incarcerated

students exceeds 25 percent will not become ineligible for that reason

if the institution offers a two or four-year program of study for which

it awards a * * * ``postsecondary diploma.''

Discussion: This change reflects a statutory change to the HEA that

was enacted at the behest of institutions in the State of Louisiana.

The term ``postsecondary diploma'' has a specific meaning in that State

for those institutions, and as a result, we do not believe that it is

useful to define that term for purposes of this section. Consequently,

we recognize that if a nonprofit institution in another State offer a

two or four year program that leads to a credential specifically called

a ``postsecondary diploma,'' that institution may be eligible for a

waiver of the incarcerated student limitation.

Changes: None.

Section 600.30 Institutional Notification Requirements

Comments: One commenter asks that we change the 10 day notice

requirement in Sec. 600.30(a) to 10 business days because

Sec. 668.12(f) gives an institution undergoing a change in ownership/

control 10 business days after the sale date to submit a ``materially

complete application.''

Discussion: The 10 business day deadline date for submitting a

``materially complete application is required by statute. The notice

requirements in Sec. 600.30 refer to calendar days and we see no need

to change them merely because of the special statutory rule for the

change of ownership situation.

For institutions undergoing a change in ownership/control that wish

to continue participating in the Title IV, HEA programs, the critical

deadline is, of course, the one requiring the submission of the

materially complete application under Sec. 668.12(f). The deadline in

Sec. 600.30 would be relevant only if the institution did not wish to

continue participating in those programs.

Changes: None.

Section 668.12 Application Procedures

Comments: Several commenters asked whether the documents which are

required as part of an institution's ``materially complete

application'' must be submitted ``promptly'' (as indicated in the

preamble to the NPRM) or prior to the expiration date of the

provisional PPA as reflected in the proposed regulatory language.

Discussion: The commenters have confused our statement in the

preamble and the proposed regulations. As indicated in

Sec. 668.12(f)(1) in both its proposed and final form, documents that

must be submitted as part of a ``materially complete application'' must

be submitted to the Department no later than 10 business days after the

change in ownership/control takes place. These documents are described

in Sec. 668.12(f)(2).

The preamble reference to ``promptly'' refers to the documents that

are described in Sec. 668.12(g)(3), which are, for example, ``same

day'' balance sheets, that an institution must submit to have its

provisional Program Participation Agreement (PPA) extended and its

change of ownership/control application fully approved.

Changes: None.

Comments: Several commenters asked if a ``materially complete

application'' has to be submitted before or after the change of

ownership takes place.

Discussion: With the deletion of Sec. 600.31(f), institutions now

have the option of submitting materially complete applications before

the date of sale. If an institution submits a materially complete

application before the date of sale, the institution must then notify

the Department of the date the sale actually took place. We need that

date because, if the institution's materially complete application is

approved, the sale date is used in determining the expiration date of

the provisional PPA.

We will also allow an institution to submit an application for a

change in ownership/control before the change occurs without the

documents required to make the application an official ``materially

complete application.'' We will review these applications if they are

submitted no later than 45 days before the expected sale date. We

consider our review of this application to be a ``preacquisition

review''.

As part of our preacquisition review, we will determine whether the

institution has answered all the questions on the application

completely and accurately, and will notify the institution of the

results of that review. In this way, if some questions have not been

answered or have not been adequately answered, the institution would

have an opportunity to correct its application before the actual date

of the change in ownership/control. Thus, our response in a

preacquisition review will not be an official approval or denial of the

application; it will notify the institution that its application is

approvable, or it will alert the institution of any problems that need

to be addressed before the application can be approvable.

[[Page 58612]]

Changes: None.

Comments: One commenter asked if all institutions undergoing a

change of ownership/control must provide a same-day balance sheet to

the Secretary, either to ``continue'' uninterrupted participation in

Title IV, HEA programs by satisfying the requirements of

Secs. 668.12(f) and (g), or to ``resume'' participation in Title IV

programs after a loss of eligibility resulting from the ownership

change.

Discussion: Yes, it must.

Changes: None.

Comments: Several commenters asked exactly which audited financial

statements would a new owner be required to provide. The commenters

also asked for clarification as to what constitutes ``equivalent

information'' for a new owner as a substitute for the audited financial

statements. The commenters asked whether the new owner has the option

of providing ``equivalent information'' or if that determination is up

to the Department.

Discussion: One of the conditions that we have to evaluate when

deciding whether to approve a materially complete application is

whether the institution under its new ownership will be financially

responsible. To make that determination, it is necessary to evaluate

the financial condition of the purchaser.

Corporate purchasers will submit audited financial statements of

their two most recently completed fiscal years. Similarly, if the new

owner is a partnership or a single individual, the partnership and

individual must submit those audited financial statements.

However, we realize that there may be situations where a new owner

does not have two years of audited financial statements. For example,

the new corporate owner may not have been in business for two years or

a single individual or partnership may not have had these audits

performed. Under these circumstances, we require the new ownership to

provide equivalent documentation that would allow us to evaluate the

new owners' financial strength.

This equivalent documentation could take the form of an audited

personal financial status report that would show the new owners' net

worth. It could include letters of reference or personal guarantees. In

many instances, we will request the new owners to suggest the

equivalent documentation.

Finally, as noted above, it is not the new owner's option to

provide equivalent documentation. That option is available only if the

two required audited financial statements are not available. Moreover,

we make the final determination as to whether equivalent documentation

proposed by an owner is acceptable.

Changes: None.

Comments: One commenter suggested that we make conforming changes

to Secs. 600.20 and 600.31 to reflect the continued eligibility of an

institution that changed ownership/control to participate in the Title

IV, HEA programs.

Discussion: We concur with the commenters' suggestions.

Changes: We added Sec. 600.20(c)(8) and amended Sec. 600.31(a).

Comments: One commenter questioned if the Secretary considered the

potential impact of the new institutional waiver provisions regarding

annual audit submission requirements on the change of ownership

provisional certification requirements.

Discussion: The audit waiver provisions in Sec. 668.27 generally do

not have an impact on the change of ownership/control certification

requirements in Sec. 668.12(f). Under the regulatory scheme of

Sec. 668.27, an institution may not receive a waiver if it has

undergone a change in ownership/control within three years of its

application for a waiver. Moreover, if an institution received a

waiver, that waiver is rescinded if the institution undergoes that

ownership/control change.

There is, however, a facial conflict between Secs. 668.12(f) and

668.27 involving the submission of audited financial statements. Under

the former provision, an applicant institution for a change of

ownership must submit audited financial statements for its two most

recently completed fiscal years even though the latter provision may

have provided the institution with a waiver of that submission

requirement. However, if the institution changes ownership/control and

wants to keep participating in the Title IV, HEA programs, it must

follow the requirements of Sec. 668.12(f). Consequently, if an

institution received a waiver and is then sold, and the new owners wish

to continue the institution's participation in the Title IV, HEA

programs, the new owners must submit audited financial statements of

the institution's last two completed fiscal years as part of a

``materially complete application,'' even though the institution may

not have had to submit those audited financial statements under

Sec. 668.27.

We believe that this requirement is consistent with normal business

practice, because we believe that an institution's potential purchaser

would require the seller to provide such audits, as well as compliance

audits of the institution's administration of the Title IV, HEA

programs, before buying the institution.

Changes: None.

Section 668.14 Program Participation Agreement.

Comments: One commenter noted that an institution that has

undergone a change in ownership/control does not have to implement an

approved default management plan if ``The owner of the institution does

not, and has not, owned any other institution with a cohort default

rate in excess of 10 percent.'' The commenter wanted to know when the

Secretary makes this determination, which cohort default rate will be

used for the institution that the owner just purchased and which will

be used for any of the other institutions the owner owns or owned.

Discussion: For the institution being purchased, we will use the

latest published cohort default rate. For any other institution that

the new owner owns or owned, we will use all published cohort default

rates for the period that coincides with the period that the

institution was owned by that individual.

Changes: None.

Comments: Some institutions with cohort default rates under the

FFEL or Direct Loan programs that exceed 25 percent are not subject to

the default management plan requirements provided in appendix D of Part

668, but are subject to a separate set of the default management plans

that will be contained in Sec. 668.17(k). One commenter suggested that

this section be expanded to reflect that fact.

Discussion: Section 668.14 generally includes all the provisions

that section 487(a) of the HEA requires to be included in a program

participation agreement, and does not include other requirements

outside of section 487(a) that an institution may have to undertake.

Changes: None.

Comments: Several commenters opposed the requirement in proposed

Sec. 668.14(d) that institutions make a good faith effort to distribute

mail voter registration forms to its students. These commenters

indicated that this requirement would place a tremendous burden on

institutions. Commenters also suggested that the Secretary provide

guidance on acceptable methods for distributing the voter registration

materials.

Discussion: The language provided in this section is copied from

the statute. Moreover, the statute (section 487(b)(2)

[[Page 58613]]

of the HEA) specifically prohibits the Secretary from instructing

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

Changes: None.

Section 668.27 Waiver of Annual Audit Submission Requirement.

Comments: Commenters generally supported our proposed rules dealing

with waivers of the annual audit submission requirement. Some

commenters indicated there was some confusion regarding the timelines

involved in these procedures, particularly with regard to the fiscal

years that may be included in a waiver.

Discussion: We recognize that the proposed regulation did not

specifically identify which fiscal year could be included in a waiver

request. We are rectifying that omission by providing that an

institution's waiver request may include the fiscal year in which that

request is made, plus the next two fiscal years. That request may not

include an already completed fiscal year.

For example, if an institution's fiscal year is based upon an award

year (July 1-June 30), and the institution requests a waiver on May 1,

2000, that waiver request may include its 1999-2000 fiscal year (July

1, 1999 through June 30, 2000) plus its 2000-2001 and 2001-2002 fiscal

years. If that institution's fiscal year was a calendar year, the

institution's waiver request could include its calendar 2000 fiscal

year plus its 2001 and 2002 fiscal years. In the latter example, the

waiver would not include the institution's 1999 fiscal year, and

therefore, it would be required to submit its compliance audit and

audited financial statement to the Department by June 30, 2000.

Changes: Section 668.27(a)(3) is added to provide that the first

fiscal year that may be included in a waiver request is the fiscal year

in which the institution submits that waiver.

Comments: One commenter asked about liabilities that might accrue

to an institution for a fiscal year if that fiscal year was one of the

fiscal years included in a waiver.

Discussion: An institution is liable to repay title IV, HEA program

funds because it improperly expends those funds. A compliance audit is

the vehicle for discovering that improper expenditure.

These regulations do not waive the requirement that an institution

audit its administration of the title IV, HEA programs; they waive the

requirement that these audits be performed and submitted on an annual

basis. Thus, the institution will pay that liability when the

institution eventually submits a compliance audit for the fiscal year

in which it made an improper expenditure, we resolve that audit, and

request that payment.

Changes: None.

Comments: One commenter requested clarification of the reporting

requirements for institutions granted a waiver of the requirement that

an institution submit annually, a compliance audit and audited

financial statement with regard to the 90/10 rule and the institutional

ineligibility requirements of Sec. 600.7.

Discussion: Under the 90/10 rule and Sec. 600.7, at the end of each

fiscal year, an institution must report to the Department if it fails

to satisfy the 90/10 rule or if it fails one of the ineligibility

provisions in Sec. 600.7 for that year. An institution is still

required to make these annual determinations even if it is not required

to submit audits annually. This also means, of course, that if an

institution fails to comply with the 90/10 rule or one of the

ineligibility provisions in Sec. 600.7 it immediately loses its

eligibility. The institution would be liable for any funds it disbursed

subsequent to the end of the fiscal year in which it failed to meet one

of these requirements.

If an institution determines that it satisfies those requirements,

its auditor is required to indicate agreement with that determination

and report that agreement when the auditor submits that fiscal year's

audited financial statement. The auditor may also indicate agreement

with the institution's determination of eligibility under Sec. 600.7

with the institution's compliance audit.

If an institution receives a waiver, it need not submit a statement

from its auditor regarding its compliance with the 90/10 rule or the

provisions of Sec. 600.7 until its audited financial statement and

compliance audit are submitted. When those audits are submitted, the

auditor must note his or her agreement with the institution's

determinations of eligibility for each of the fiscal years covered by

the audits. For example, if the institution received a waiver and did

not have to submit an audit for the 2000-2001 and 2001-2002 fiscal

years, when the next audits are submitted on December 31, 2003, the

auditor must indicate agreement with the institution's eligibility

determinations for the 2000-2001 fiscal year, the 2001-2002 fiscal

year, and the 2002-2003 fiscal year.

The auditor must indicate agreement with the institution's 90/10

determination for each of those three years even though the auditor

need only submit an audited financial statement for the 2002-2003

fiscal year.

Changes: None.

Comment: One commenter wondered whether the criteria for a waiver

renewal were the same as the criteria for the initial waiver.

Discussion: The criteria we use to grant waivers applies equally to

requests for initial and renewal waivers.

Changes: None.

Comments: Several commenters wanted clarification on whether the

Secretary would base an action to grant or rescind a waiver on a

limitation, suspension, fine, or termination action that had only been

initiated and was not final.

Discussion: We will not grant a waiver and we will rescind a waiver

based upon the initiation of a limitation, suspension, fine, or

termination action. We initiate one of those actions because we receive

information that the subject institution has not been properly

administering the Title IV, HEA programs. We believe that an

institution under those circumstances should not have its audit

requirements waived. Moreover, under the procedures available to an

institution, a final decision in such an action may take a long period

of time, and a hearing official or the Secretary may decide not impose

the sanction requested even though the institution has been improperly

administering the Title IV, HEA programs.

Changes: None.

Comments: Two commenters noted a difference in wording on the

monetary threshold for granting a waiver. At Sec. 668.27(c)(2) the

regulation states the institution ``did not disburse $200,000 or more

of Title IV.'' At Sec. 668.27(e)(1), the criteria for rescinding the

waiver, the regulation states the institution ``disburses more than

$200,000.'' The commenters recommended that the two sections be made

parallel.

Discussion: We agree.

Changes: Section 668.27(e)(1) is changed to read ``Disburses

$200,000 or more of Title IV, HEA program funds for an award year.''

Comments: One commenter wanted to know if two waivers for three

years each were granted one after the other whether this meant that the

institution would only need one audit for the six-year period.

Discussion: No, the institution would need two sets of audits to

cover the six-year period. However, since the institution has up to six

months after the last fiscal year to be covered to submit the second

set of audits, the second set of audits would not have to be received

by the Department until six

[[Page 58614]]

months after the expiration of the six year period.

Changes: None.

Comments: One commenter wanted to know whether the requirement that

``no individual audit disclosed liabilities in excess of $10,000''

referred to the final audit liability. The commenter based his comment

on the new statutory provision that allows an institution to cure

administrative, accounting, and recordkeeping errors, and the proposed

regulations in Sec. 668.113, that provides that the Department will not

charge an institution a liability for such an error if it cures the

error and the cure eliminates the basis of the liability.

Discussion: We will use the best information available to us when

making a decision on whether to grant a waiver. Therefore, if the

latest information is the audit report submitted by the institution's

auditor, we will use that report in our waiver determination. However,

if an institution requests a waiver and its request is denied because

of audit findings that show a liability in excess of $10,000, and those

findings are subsequently revised to show liabilities of $10,000 or

less for any reason, including a cure of the error, the institution can

reapply for the waiver.

Changes: None.

Comments: One commenter asked whether the commenter was correct in

assuming that the Secretary was not going to consider an institution's

administrative capability in determining whether to grant an audit

waiver.

Discussion: We believe that the criteria we proposed for granting

waivers is a proxy for administrative capability.

Changes: None.

Discussion: In the course of responding to the commenter's

question, we realized that we did not provide any rules in the proposed

regulations that address the situation when an institution's waiver is

rescinded, vis a vis when the institution must submit audits, and what

years must be covered by the audits. Accordingly, we have revised

Sec. 668.27 to provide that if an institution has its waiver rescinded

in a fiscal year, the effective date of the rescission is the last day

of that fiscal year.

Under this approach, the institution must submit compliance audits

for the fiscal year(s) that were completed and unaudited, and an

audited financial statement of the last completed fiscal year. The

institution must submit these audits no later than six months after the

end of the fiscal year in which its waiver was rescinded. We chose this

approach to save the institution money, because the institution will

not have to enter into more than one engagement agreement with an

auditor to perform all the required audit work.

To illustrate this new provision, we use the example given in the

preamble of the NPRM for Sec. 668.12(f). An institution's fiscal year

coincides with an award year (July 1-June 30). It submits its

compliance and financial statement audit for the 1999-2000 award year,

applies for a waiver, and receives that waiver so that its next

compliance audit and audited financial statement must be submitted six

months after the end of its 2002-2003 fiscal year.

If the institution's waiver is rescinded during the 2000-2001

fiscal year, the first fiscal year of its waiver period, it has not

completed any fiscal year for which the audit requirement was waived.

Therefore, it must submit its compliance audit and audited financial

statement for that fiscal year in the regular course, i.e., no later

than six months after the end of that fiscal year, December 31, 2001.

If the institution's waiver was rescinded during the 2001-2002

fiscal year, the waiver applied to its submission of audits for the

2000-2001 fiscal year. Therefore, it must submit a compliance audit for

the 2000-2001 and 2001-2002 fiscal years, and must submit an audited

financial statement only for the 2001-2002 fiscal year. These audits

must be submitted no later than December 31, 2002, six months after the

end of its 2001-2002 fiscal year.

If the institution's waiver was rescinded during the 2002-2003

fiscal year, the waiver applied to its submission of audits for the

2000-2001 and 2001-2002 fiscal years. Therefore, it must submit a

compliance audit for the 2000-2001, 2001-2002, and 2002-2003 fiscal

years, and an audited financial statement only for the 2002-2003 fiscal

year. These audits must be submitted no later than December 31, 2003,

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

Changes: As indicated above, we have revised Sec. 668.27 to provide

that if an institution has its waiver rescinded in a fiscal year, the

effective date of the rescission is the last day of that fiscal year.

Executive Order 12866

We have reviewed these final regulations in accordance with

Executive Order 12866. Under the terms of this order, we have assessed

the potential costs and benefits of this regulatory action.

The potential costs associated with the final regulations are those

resulting from statutory requirements and those we have determined as

necessary for administering this program effectively and efficiently.

In assessing the potential costs and benefits--both quantitative

and qualitative--of these final regulations, we have determined that

the benefits of the regulations 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 summarized the potential costs and benefits of these final

regulations in the preamble to the NPRM at 64 FR 38276-38277.

Paperwork Reduction Act of 1995

These regulations do not contain any information collection

requirements.

Assessment of Educational Impact

In the NPRM, we requested comments on whether the proposed

regulations would require transmission of information that any other

agency or authority of the United States gathers or makes available.

Based on the response to the NPRM and on our review, we have

determined that these final regulations do not 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;

[[Page 58615]]

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

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 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: October 21, 1999.

Richard W. Riley,

Secretary of Education.

For the reasons discussed in the preamble, the Secretary amends

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 revised 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 known 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 or

preaccreditation 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); paragraph (e) is added; and paragraphs

(a)(8), (b)(3)(i), (d), (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

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 income earned 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 Federal Work-Study

(FWS) Program, unless the institution used those funds to pay a

student's institutional charges in which case the FWS program funds

used to pay those charges would be included in the numerator and

denominator.

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

Educational Assistance Partnership (LEAP) Program. (The LEAP Program

was formerly called the State Student Incentive Grant or SSIG

Program.);

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

HEA program funds;

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

refunded or returned under Sec. 668.22; or

(v) 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

[[Page 58616]]

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 (d) 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

* * * * *

(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 initial arbitration before initiating

any other legal action.

* * * * *

6. 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.

* * * * *

7. 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)

8. Section 600.20 is amended by adding a new paragraph (c)(8) to

read as follows:

Sec. 600.20 Application procedures.

* * * * *

(c) * * *

(8) Continue to be eligible following a change in ownership that

results in a change in control according to the provisions of

Sec. 668.12(f).

* * * * *

9. In Sec. 600.31, paragraph (a)(1) is revised to read as follows:

Sec. 600.31 Change of ownership resulting in a change in control.

(a)(1) Except as provided in Sec. 668.12(f), an institution that

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

ceases to qualify as an eligible institution upon the change in

ownership and control. A change in ownership that results in a change

in control includes any change by which a person who has or thereby

acquires an ownership interest in the entity that owns this institution

or the parent corporation of that entity, acquires or loses the ability

to control the institution.

* * * * *

Sec. 600.31 [Amended]

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

11. 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

* * * * *

Sec. 600.56 [Redesignated as Sec. 600.57]

12. Section 600.56 is redesignated as Sec. 600.57.

13. 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, 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:

[[Page 58617]]

(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.

(b) [Reserved]

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

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

14. The authority citation for part 668 is revised to read as

follows:

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

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

15. 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 day

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)

Sec. 668.13 [Amended]

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

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

years''.

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

and

[[Page 58618]]

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

other institution that had a cohort default rate in excess of 10

percent while that owner owned the institution.

(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.

* * * * *

18. A new Sec. 668.27 is added to subpart B 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.

(3) The first fiscal year for which an institution may request a

waiver is the fiscal year in which it submits its waiver request to the

Secretary.

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

institution need not submit its 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 for each fiscal year for which an audit did not have to be

submitted as a result of the 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 and the other

conditions of institutional eligibility in Sec. 600.7 and

Sec. 668.8(e)(2), 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

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. (1) The Secretary rescinds the waiver

if the institution--

(i) Disburses $200,000 or more of title IV, HEA program funds for

an award year;

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

control; or

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

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

a guarantee agency.

(2) If the Secretary rescinds a waiver, the rescission is effective

on the last day of the fiscal year in which the rescission takes place.

(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)

19. 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

[[Page 58619]]

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 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)

20. 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)

21. 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. 99-28171 Filed 10-28-99; 8:45 am]

BILLING CODE 4000-01-P