Student Assistance General Provisions, Federal Family Education Loan Program, the William D. Ford Federal Direct Loan (Direct Loan) Program

SUMMARY: We amend the Student Assistance General Provisions regulations

governing participation in the student financial assistance programs

authorized under Title IV of the Higher Education Act of 1965, as

amended (Title IV, HEA programs) and the Federal Family Education Loan

(FFEL) Program regulations. The student financial assistance 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) Program, and the Leveraging Educational

Assistance Partnership (LEAP) Program (formerly called the State

Student Incentive Grant (SSIG) Program). The Federal Family Education

Loan Program regulations govern the Federal Stafford Loan Program

(subsidized and unsubsidized), the Federal Supplemental Loans for

Students Program (no longer active), the Federal PLUS Program, and the

Federal Consolidation Loan Program (formerly collectively known as the

Guaranteed Student Loan Programs).

These regulations implement statutory changes made to the Higher

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

Amendments of 1998 (Public Law 105-244, enacted October 7, 1998) (the

1998 Amendments) for the treatment of Title IV, HEA program funds when

a student withdraws from an institution.

EFFECTIVE DATE: These regulations are effective July 1, 2000.

IMPLEMENTATION DATE: The Secretary has determined, in accordance with

section 482(c)(2)(A) of the HEA, that institutions may, at their

discretion, choose to implement in their entirety all provisions in

Sec. 668.22 and related provisions in Secs. 668.8, 668.14, 668.16,

668.24, 668.25, 668.26, 668.83, 668.92, 668.95, 668.164, 668.171,

668.173, 682.207, 682.209, 682.604, 682.605, 682.607, 685.211, 685.215,

685.305, and 685.306 on or after November 1, 1999. Furthermore,

pursuant to Section 484B(e) of the HEA, institutions are not required

to implement these provisions until October 7, 2000 (two years from the

enactment of the 1998 Amendments). If an institution chooses to

implement the provisions of section 484B of the HEA after publication

of these final regulations but before October 7, 2000, the

institution--

Must implement these regulations in their entirety;

Must apply these regulations to all students who withdraw

on or after the institution's implementation of these regulations

(i.e., not on a student-by-student basis); and

Cannot revert back to the old provisions of Sec. 668.22.

For further information see ``Implementation Date of These

Regulations'' under the SUPPLEMENTARY INFORMATION section of this

preamble.

FOR FURTHER INFORMATION CONTACT: Dan Klock or Wendy Macias, U.S.

Department of Education, 400 Maryland Avenue, S.W., ROB-3, Room 3045,

Washington, DC 20202-5344. Telephone: (202) 708-8242. 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

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

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

paragraph.

SUPPLEMENTARY INFORMATION: On August 6, 1999, we published a notice of

proposed rulemaking (NPRM) in the Federal Register (64 FR 43024)

proposing to implement statutory changes made to the HEA, by the 1998

Amendments for the treatment of Title IV, HEA program funds when a

student withdraws from an institution. In the preamble to the NPRM, we

discussed major changes to Sec. 668.22 in the following areas:

The conditions under which Title IV, HEA program funds

would be required to be returned and the conditions under which a

student would be owed a disbursement of Title IV, HEA program funds

upon withdrawal of a student.

The requirements for making a post-withdrawal

disbursement to a student.

The determination of a withdrawal date for a student

who withdraws.

The treatment of a leave of absence for Title IV, HEA

program purposes.

The calculation of the amount of Title IV, HEA program

funds that a student has earned upon withdrawal, including

differences in the calculation for clock-hour programs and credit-

hour programs, and non-term programs and term programs.

The responsibility of the institution to return Title

IV, HEA program funds when a student withdraws.

The responsibility of the student to return Title IV,

HEA program funds upon withdrawal.

The order in which Title IV, HEA program funds must be

returned to the Title IV, HEA programs.

A timeframe for the return of Title IV, HEA program

funds by an institution, and a timeframe for an institution to

determine a withdrawal date for a student who withdraws without

notifying the institution.

The consumer information that an institution must

provide to a student regarding the results of a student's

withdrawal.

In addition, in the preamble to the NPRM we discussed a proposed

change to Sec. 682.207(b)(1)(v) of the FFEL program regulations to

require a lender that is making a direct disbursement to a student

attending a foreign school to notify the foreign school that the

disbursement was made.

These final regulations contain a few significant changes from the

NPRM. These changes are explained fully in the Analysis of Comments and

Changes elsewhere in this preamble.

Conforming changes have been made to the following sections:

Secs. 668.8, 668.14, 668.16, 668.24, 668.25, 668.26, 668.83, 668.92,

668.95, 668.164, 668.171, 668.173, 682.207, 682.209, 682.604, 682.605,

682.607, 685.211, 685.215, 685.305, and 685.306.

Implementation Date of These Regulations

Section 482(c) of the HEA (20 U.S.C. 1089(c)) requires that

regulations affecting programs under Title IV of the HEA be published

in final form by November 1 prior to the start of the award year in

which they apply. However, that section also permits the Secretary to

designate any regulation as one that an entity subject to the

regulation may choose to implement earlier. If the Secretary designates

a regulation for early implementation, he may specify when and under

what conditions the entity may implement it. The sections designated by

the Secretary and the corresponding conditions for early implementation

are set out under the heading IMPLEMENTATION DATE, above.

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

[[Page 59017]]

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 August 6,

1999. With the exception of provisions relating to the ``50% discount''

on Title IV grant funds that a student must return, which are located

in Sec. 668.22(h)(3)(ii), 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 15, 1999, and 176 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

General

Comments: A few commenters believed that the proposed rules were

too complicated. Some commenters requested that we prepare and

distribute worksheets to clarify the application of the final

regulations. A few commenters thought that we should distribute or make

available a software program that institutions could use to calculate

the treatment of Title IV, HEA program funds when a student withdraws.

A couple of the commenters requested that we provide institutions with

examples of how the regulations should be applied when a student

withdraws during a summer term. A few commenters believed that the

proposed rules simplified the process of returning Title IV, HEA

program funds when a student withdraws.

Discussion: We believe that some of the commenters' general

concerns about the complexity of the proposed rules may be caused by

statutory provisions. We have responded throughout the Analysis of

Comments and Changes to commenters' specific concerns about complexity

caused by particular provisions of the proposed regulations. Prior to

the effective date of these final regulations, we will provide

worksheets and software that may be used to calculate the treatment of

Title IV, HEA program funds when a student withdraws. We will provide

examples of and guidance on the applicability of the final regulations

after publication through appropriate Department publications and

training.

Changes: None.

Comments: Several commenters contended that these proposed rules

would have a negative financial impact on institutions. Several of

these commenters suggested changes to the ``50 percent discount''

requirement of Sec. 668.22(h) to alleviate some of the financial

burden. Seven of the commenters stated that, because two calculations

were now necessary, one to determine the treatment of Title IV, HEA

program funds, and one to determine earned institutional charges under

the institution's refund policy, their institution would have to expend

funds to hire additional personnel. Two of the commenters contended

that institutions would have to expend funds to purchase software in

order to perform the calculation correctly.

Discussion: To the extent that there is any financial burden, we

believe that it is due to the statutory changes made to the

requirements for determining the amount of Title IV, HEA program funds

that must be returned to the Title IV, HEA programs. Commenters' more

specific concerns with the financial implications of this rule,

including the concern that institutions will now have to perform two

calculations and comments on the ``50 percent discount,'' are discussed

in detail in the Analysis of Comments and Changes for Sec. 668.22(g)

and Sec. 668.22(h). As noted above, we will assist institutions with

the calculation of earned Title IV, HEA program funds when a student

withdraws by providing worksheets, software, and examples of the

calculation.

Changes: None.

Comments: A couple of commenters felt that the proposed rules are

unfair to clock hour institutions. One commenter, a federation

representing the professional beauty industry, believed that the rules

unfairly penalize students who attend clock hour institutions, such as

cosmetology schools. The commenter was concerned that, as a result,

students would be discouraged from pursuing cosmetology careers.

Discussion: We believe that the provisions that specifically affect

clock-hour institutions are in keeping with statutory intent. These

provisions are an attempt to recognize the manner in which clock-hour

programs operate. We have responded throughout the Analysis of Comments

and Changes to commenters' concerns in this area.

Changes: None.

Effective Date

Coments: A few commenters requested that we delay implementation of

the final rules in order to establish pilot programs to evaluate the

impact of the rules on students and institutions, and to allow

institutions the time necessary to properly implement the final

regulations. One commenter suggested that institutions that choose to

implement section 484B of the HEA prior to the required implementation

date of October 7, 2000 be used as the pilot sites. Specifically, one

of these commenters contended that the rules should be delayed because

institutions have been, and will continue to be, focused on Year 2000

(Y2K) issues, and will not be able to focus on the implementation of

the new rules. One commenter recommended that these rules be effective

for students who begin an enrollment period on or after October 7, 2000

and withdraw from the institution on or after October 7, 2000. One

commenter requested that institutions be permitted to implement early

(prior to the required effective date of October 7, 2000) one portion

of the requirements of Sec. 668.22 without having to implement the

entire requirements.

Discussion: We believe that the statutorily required implementation

date of October 7, 2000 provides institutions with sufficient time to

assess the impact of these requirements, to make any necessary

administrative and systems changes, and to notify all potentially

affected students of the changes. As these provisions of section 484B

of the HEA apply to students who withdraw from an institution, we

believe that these regulations should apply to any student who

withdraws on or after October 7, 2000, rather than to any student who

begins an enrollment period on of after that date and subsequently

withdraws. Because the provisions of section 484B of the HEA, as

revised by the 1998 Amendments, are a significant departure from the

requirements of section 484B prior to the 1998 Amendments, we do not

believe that it is reasonable to permit an institution to implement

select portions of the implementing final regulations prior to October

7, 2000. If an institution chooses to implement these final regulations

prior to October 7, 2000, it must implement them in their entirety.

[[Page 59018]]

Changes: None.

Section 668.22(a) General

Definition of a Title IV Recipient

Comments: A few commenters asked us to clarify who is a ``recipient

of Title IV grant or loan assistance'' for purposes of the requirements

for the treatment of Title IV, HEA program funds when a student

withdraws. Some of these commenters believed that a student should be

counted as a Title IV, HEA program recipient only if the student

receives a disbursement of Title IV, HEA program funds before he or she

withdraws. One commenter felt that a student should also be considered

a Title IV, HEA program recipient if the student is entitled to a late

disbursement. One commenter maintained that a student who received only

Federal Work-Study funds should not be considered a Title IV, HEA

program recipient. A couple of the commenters contend that it is hard

to identify students who withdraw if they have not received aid. One of

these commenters asserted that most institutional processing systems

identify only students who have received Title IV, HEA program

assistance and alert the financial aid or bursar office when those

students withdraw. One commenter asked whether the rules would apply to

a student who withdrew if the student had applied for a Title IV, HEA

loan, but the institution had not yet certified the loan.

Discussion: We believe that it is consistent to define a Title IV,

HEA program recipient for purposes of this section as a student who has

met the requirements of Sec. 668.164(g)(2). When a student withdraws or

makes certain other changes to his or her enrollment status, the

student is no longer eligible for a regular disbursement of Title IV,

HEA program funds. Section 668.164(g)(2) lists the conditions that must

have been met prior to such a change in enrollment status in order for

the institution to make a late disbursement. For example, for a student

to receive a Direct loan, the institution must have created the

electronic origination record for the loan; for the student to receive

a FFEL Program loan, the institution must have certified the loan. The

conditions listed in Sec. 668.164(g)(2) are also used for purposes of

determining when a post-withdrawal disbursement of Title IV, HEA funds

may be disbursed. Therefore, we have defined in the regulations a Title

IV grant or loan recipient for purposes of this section as a student

who has met the requirements of Sec. 668.164(g)(2). In keeping with

section 484B(a)(1) of the HEA, which provides that the requirements of

section 484B of the HEA are not applicable to recipients of Federal

Work-Study funds, a student would not be considered a Title IV, HEA

program recipient under this section if the only Title IV, HEA program

assistance that the student had received or could have received, was

Federal Work-Study funds. Therefore, a Title IV, HEA program recipient

for purposes of this section is a student who has met the requirements

of Sec. 668.164(g)(2).

Changes: The definition of a ``recipient of Title IV grant or loan

assistance'' has been added to Sec. 668.22(l).

LEAP Program Funds

Comments: One commenter believed that it is unfair to require an

institution to count the entire amount of Leveraging Education

Assistance Partnership (LEAP) funds in the calculation of the amount of

Title IV, HEA program assistance that a student has earned upon

withdrawal, rather than just the Federal share of the grant. The

commenter stated that their institution's State Student Aid Commission

identifies their State grant program as containing LEAP funds. The

commenter noted that the State Student Aid Commission expects the

institution to return any unearned portion of the grant, based on the

institution's refund policy, to the State. The commenter is concerned

that if the institution complies with both the requirements for the

treatment of Title IV, HEA program funds when a student withdraws and

the State's return requirements, it will end up returning more than the

original amount of the grant. One commenter supported the position that

LEAP funds that are not identified as LEAP funds do not need to be

included in the calculation of the treatment of Title IV, HEA program

funds if a student withdraws.

Discussion: Section 484B of the HEA excludes only Federal Work-

Study funds from the calculation of earned Title IV, HEA program funds

when a student withdraws. Once a State agency identifies a grant as

LEAP funds, the entire amount of the grant is considered a LEAP grant

and is subject to the Federal regulations governing the LEAP program.

Therefore, if a State agency specifically identifies a grant as LEAP

funds, the entire amount of the grant must be included in the

calculation of earned Title IV, HEA funds. This guidance is consistent

with the guidance in Dear Colleague Letter GEN-89-38. We acknowledge

that the interplay between the requirements of this section and State

requirements for the handling of LEAP funds may cause some difficulties

for institutions. We will work with the States to attempt to resolve

these difficulties.

Changes: None.

Title IV Aid Disbursed

Comments: A few commenters objected to our assertion in the

preamble to the proposed rule that a pattern or practice of inadvertent

overpayments--where an institution disbursed Title IV, HEA program

funds to a student who has withdrawn because the institution was

unaware of the student's withdrawal--would be questioned in a program

review. A few commenters contended that what we refer to as

``inadvertent overpayments'' are late disbursements and, therefore, are

permissible. The commenters believed that it is inconsistent to allow

an institution to count inadvertent overpayments as Title IV, HEA

program aid disbursed, and then sanction an institution for making the

overpayments.

One commenter felt that our assertion is inconsistent with preamble

language that ``some aspects of the withdrawal process cannot occur

until the institution is aware that the student has withdrawn.'' One

commenter believed that an institution should not be sanctioned for the

practice of disbursing funds to withdrawn students if the institution

had no evidence to the contrary that the student was still enrolled at

the time the funds were disbursed. The commenter believed that an

institution has fulfilled its obligation to ensure that a student is

eligible by looking at the institution's data to ensure that the

student is an active, current, student who meets satisfactory academic

progress and other eligibility requirements. One commenter asserted

that institutions increasingly rely on computer processing of Title IV,

HEA program funds in order to process those funds as expeditiously and

efficiently as possible. The commenter noted that if a student

withdraws from an institution without notification, there is no way to

prevent such inadvertent overpayments unless the institution takes

attendance for every class; an option that the commenter felt was

unduly burdensome. One commenter questioned how many inadvertent

overpayments would be considered a ``pattern or practice'' of making

inadvertent overpayments.

Discussion: As we noted in the preamble to the proposed rule, we

agreed to permit an institution to include inadvertent overpayments in

the calculation of total aid disbursed only for the administrative ease

of the

[[Page 59019]]

institution. Specifically, the inclusion of these inadvertent

overpayments in total aid disbursed would prevent the burden of an

institution having to return Title IV, HEA program funds, only to have

to disburse them again if a post-withdrawal disbursement was due. As

stated in the NPRM, if we were to sanction a practice of inadvertent

overpayments we would be sanctioning violations of other Title IV, HEA

program regulations that require that an institution may disburse Title

IV, HEA program funds only if the student is eligible to receive those

funds.

We note that these disbursement requirements are not new. As such,

an institution would be expected to already have had in place a

mechanism for making the necessary eligibility determinations prior to

the disbursement of any Title IV, HEA program funds, such as a process

by which withdrawals are reported immediately to those individuals at

the institution who are responsible for making Title IV, HEA program

disbursements. If an institution does not have the proper mechanisms in

place, the institution must make the necessary changes to the way it

currently disburses Title IV, HEA program funds to come into

compliance.

We do not agree with the commenters who believe that these

inadvertent overpayments are legitimate late disbursements. We note

that these overpayments are not late disbursements either; late

disbursements are made in accordance with specific regulatory

requirements after the institution is aware that the student has

withdrawn.

We do not believe that it is appropriate to define a set number or

percentage of inadvertent overpayments that would constitute a pattern

or practice of making inadvertent overpayments. The determination of a

pattern or practice must be made in conjunction with an assessment of a

specific institution's demonstrated willingness and ability to prevent

inadvertent overpayments.

Changes: None.

Comments: A couple of commenters believed that institutions should

be permitted to replace a withdrawn student's Title IV, HEA loan funds

with Title IV, HEA grant funds that the student was otherwise eligible

to receive before performing the calculation for the treatment of Title

IV, HEA program funds when a student withdraws. The commenters felt

that it is always in the best interest of the student and the Federal

government to reduce student indebtedness, particularly for students

who have not completed their education.

Discussion: We continue to believe that it is inappropriate for an

institution to disburse Title IV, HEA program funds to a student who

has withdrawn unless the institution has determined under these

regulations that the student has earned more funds than were disbursed.

Therefore, an institution may not alter the amounts of Title IV, HEA

grant and loan funds that were disbursed prior to the institution's

determination that the student withdrew.

Changes: None.

Post-Withdrawal Disbursements

Comments: Some commenters confused the requirements for late

disbursements that are made to students who have withdrawn from an

institution with the late disbursements requirements that regulate how

and when late disbursements are made to students for other reasons,

such as a change in enrollment status to less than half-time.

Discussion: We believe that this confusion may be alleviated if

disbursements that are made to students who have withdrawn from an

institution are referred to as ``post-withdrawal disbursements,''

rather than ``late disbursements.''

Changes: References to ``late disbursements'' have been changed to

``post-withdrawal disbursements'' where appropriate.

Comments: Several commenters did not believe that Title IV, HEA

program funds should be disbursed directly to a student who has

withdrawn. Some of these commenters did not believe that this was the

intent of Congress. In particular, many of these commenters did not

believe that it was ever appropriate to disburse Title IV, HEA program

funds to a withdrawn student if the student owed any money to the

institution.

Several of the commenters specifically questioned whether an

institution must disburse a post-withdrawal disbursement check if a

student no longer has any institutional charges. One commenter asserted

that disbursements to withdrawn students will result in Title IV, HEA

funds being used for noneducationally-related expenses. A few

commenters believed that direct disbursements of loans to withdrawn

students would imprudently increase a withdrawn student's indebtedness

and chance of default. To mitigate this, and to reduce institutional

burden, a few commenters recommended that an institution be permitted

to determine when a post-withdrawal disbursement of Title IV, HEA

program funds should be disbursed directly to a student.

A few commenters believed that the existing late disbursement

regulations should be used instead of the proposed rules for post-

withdrawal disbursements. One commenter suggested that earned Title IV,

HEA program funds in excess of money owed to the institution should be

used to reduce any Title IV, HEA program loan debt of the student.

Another commenter alleged that the post-withdrawal disbursement

requirements conflict with other statutory requirements that allow the

institution to be the custodian of the Title IV, HEA program funds and

control whether late disbursements are made and how they are used.

Discussion: We believe that the commenters' contention that it was

not the intent of Congress to directly provide withdrawn students with

earned Title IV, HEA program funds is unfounded. Section 484B(a)(4)(A)

of the HEA requires that disbursements of earned funds be provided to a

student if the student has received less grant or loan assistance than

the amount he or she has earned. The statute does not require that the

disbursement of earned aid can only be applied to unpaid charges at the

institution. As stated in the preamble to the NPRM, the determination

of the amount of Title IV, HEA program assistance that the student has

earned has no relationship to a student's actual incurred educational

costs. The amount of earned Title IV, HEA program funds is based on the

amount of time that the student spent in attendance and is a

determination of aid that is earned by the student, not money earned by

the institution. Therefore, we believe that it would be in direct

violation of the statute to permit an institution to decrease this

amount.

We continue to believe that it is appropriate to be consistent with

the cash management requirements for disbursing Title IV, HEA program

funds, which do not permit an institution to credit a student's account

with Title IV, HEA program funds other than for tuition, fees, and room

and board (if the student contracts with the institution)--without the

student's permission. If an institution does not have permission from

the student (or parent for a PLUS loan) prior to the student's

withdrawal and does not obtain that permission after the student's

withdrawal, the undisbursed earned funds must be offered to the student

and cannot be used by the institution to pay remaining institutional

charges other than for tuition, fees, and room and board (if the

student contracts with the institution).

Changes: None.

[[Page 59020]]

Comments: A few commenters felt that the proposed post-withdrawal

disbursement procedures are too burdensome and costly for institutions

to implement. One commenter noted that it would be impossible to

process a post-withdrawal disbursement in a timely manner for a student

when the institution cannot locate the student immediately. The

commenter suggested that it would be less burdensome to permit an

institution to credit a student's account with earned Title IV, HEA

program funds for current charges for educationally-related activities

other than tuition, fees, and room and board (if the student contracts

with the institution) unless the student or parent specifically denied

permission to the institution within a certain number of days. One

commenter supported the proposed timeframes for notification, response

to, and disbursement of post-withdrawal disbursements. Two commenters

agreed that 90 days after the date of the institution's determination

that the student withdrew was an appropriate amount of time for

institutions to have to make any accepted post-withdrawal disbursements

to a student (or parent for a PLUS loan). A couple of commenters felt

that it was unreasonably burdensome to require institutions to notify a

student or parent of the outcome of any post-withdrawal disbursement

request if the student's or parent's authorization was not received at

all, or was not received within the 14 day timeframe. One of the

commenters thought that this second notification that simply restated

that the student had lost the opportunity to accept a post-withdrawal

disbursement would be confusing to a student who had never responded to

the original notification. A couple of commenters applauded our

determination that a single notification could be used for all of the

notification requirements for post-withdrawal disbursements, except for

the institution's notification to inform the student or parent

electronically or in writing concerning the outcome of any post-

withdrawal disbursement request.

Discussion: The statute requires that earned funds be provided to

the student. We recognize that it may be difficult to locate a student

who has left the institution. This was addressed in negotiated

rulemaking and it was concluded that the requirements for making a

post-withdrawal disbursement to a student provide that the institution

must offer in writing to the student (or parent for PLUS loan funds)

any amount of a post-withdrawal disbursement that is not credited to

the student's account. If a response is not received from the student

or parent, is not received within the permitted timeframe, or the

student declines the funds, the institution would return any earned

funds that the institution was holding to the Title IV, HEA programs.

As stated previously in the Analysis of Comments and Changes, we

continue to believe that it is appropriate to be consistent with the

cash management requirements for disbursing Title IV, HEA program

funds, which do not permit an institution to credit a student's account

with Title IV, HEA program funds for current charges for educationally-

related activities--other than tuition, fees, and room and board (if

the student contracts with the institution)--without the student's

permission.

We agree with the commenters who believe that it is sometimes

unreasonably burdensome or redundant to require institutions to notify

a student or parent of the outcome of any post-withdrawal disbursement

request. Therefore, if an authorization from the student (or parent for

a PLUS loan) is never received, or if the post-withdrawal disbursement

is accepted, the institution does not need to notify the student of the

outcome of the post-withdrawal disbursement request. Presumably, a

student (or parent for PLUS loan funds) who has never responded will

understand that the post-withdrawal disbursement will not be made.

Further, a student (or parent for PLUS loan funds) who has accepted the

funds will likely understand that the amount of the post-withdrawal

disbursement that he or she accepts will be provided, and any

unaccepted amount will be returned. However, in the case of a student

(or parent for PLUS loan funds) whose acceptance was not received

within the 14 day timeframe and the institution does not otherwise

choose to make the post-withdrawal disbursement, the student (or parent

for a PLUS loan) may assume incorrectly that his or her acceptance of a

post-withdrawal disbursement has been received within the timeframe and

that the post-withdrawal disbursement will be made. Therefore, if a

student's (or parent's for PLUS loan funds) acceptance was not received

within the 14 day timeframe and the institution does not otherwise

choose to make the post-withdrawal disbursement, the institution must

notify the student (or parent for PLUS loan funds) that the post-

withdrawal disbursement will not be made and why.

Changes: Section 668.22(a)(4)(ii)(E) has been changed to reflect

that an institution must notify a student (or parent for PLUS loan

funds) if the student's (or parent's for PLUS loan funds) acceptance

was received after the 14 day timeframe and the institution does not

otherwise choose to make the post-withdrawal disbursement.

Comments: Several commenters questioned how an institution could

verify the identity of the person claiming to be the student or parent

if the student or parent calls the institution to accept earned Title

IV, HEA program funds. Several commenters recommended that an

institution be allowed to refuse to mail a check of earned Title IV,

HEA program funds based on a phone call requesting that the check be

sent to a particular address. A few commenters questioned whether the

institution could insist that a student or parent come into the

institution to pick up any post-withdrawal disbursements due.

Discussion: Obviously, we would not want an institution to disburse

Title IV, HEA program funds to anyone other than the intended

recipient. We do not regulate how an institution should ensure that

Title IV, HEA program funds are disbursed to the proper individual.

However, we do not believe that it would be reasonable to require a

student who has withdrawn from an institution (or a parent of such a

student, for PLUS loan funds) to pick up a post-withdrawal disbursement

in person. Because the student is no longer attending the institution,

it would not be unlikely that the student has moved out of the area and

would not be able to return to the institution to pick up a post-

withdrawal disbursement. Presumably, in the scenario presented by the

commenters, the student or parent is calling in response to the

notification the institution mailed to the student or parent about the

funds available from a post-withdrawal disbursement. We believe that it

is reasonable to assume that a check mailed to the same address will

reach the proper party.

Changes: None.

Comments: A few commenters felt that post-withdrawal disbursements

should be available to pay prior year charges. The commenters

maintained that this would meet the intent of the negotiating committee

to mirror the cash management rules as closely as possible.

Discussion: We agree that it is desirable to mirror the cash

management regulations as closely as possible. Therefore, we agree that

an institution should be allowed to credit a student's account for

minor prior award year charges. Institutions should make every effort

to explain to a student that all or a portion of his or her post-

withdrawal disbursement has been used

[[Page 59021]]

to satisfy any charges from prior award years.

Changes: Section 668.22(a)(4)(i)(A) has been amended to permit an

institution to credit a student's account to pay minor prior year

charges in accordance with Sec. 668.164(d)(2)(ii).

Comments: One commenter maintained that the requirement that an

institution must offer a post-withdrawal disbursement to a student

within 30 days of the date that the institution determines that the

student withdrew is inconsistent with regulations that require an

institution to disburse loans within three business days of the

institution's receipt of the funds.

Discussion: Because an institution must disburse Title IV, HEA

program funds as soon as possible, but no later than three business

days after receipt of the funds, we believe that in most cases, an

institution will not possess undisbursed funds for a student as of the

date that the institution determines that the student withdrew. An

institution should not request Title IV, HEA program funds for a post-

withdrawal disbursement unless and until it has determined: (1) That a

post-withdrawal disbursement is due, (2) the amount of the post-

withdrawal disbursement, and (3) that the post-withdrawal disbursement

can be disbursed within three business days of receipt.

Changes: None.

Section 668.22(b) Withdrawal Date for a Student Who Withdraws From an

Institution That Is Required To Take Attendance

General Withdrawal Issues

Comments: A few commenters asserted that the provisions in the NPRM

for determining a student's withdrawal date favor institutions that do

not take attendance. In particular, a couple of commenters noted that,

because of the difference in requirements for determining withdrawal

dates for institutions that do not take attendance, in some

circumstances, two students who cease attendance on the same day, one

at an institution that is required to take attendance and one at an

institution that is not required to take attendance, may have different

withdrawal dates. The commenters noted that this would result in the

students earning different amounts of Title IV, HEA program aid. The

commenters believed that the NPRM will encourage institutions that do

take attendance to stop taking it, which the commenters felt would be

harmful to students. One commenter thought that it was particularly

unfair for students who withdraw without notification from institutions

that are not required to take attendance to earn 50 percent of their

Title IV, HEA program aid.

Discussion: The provisions that the commenters referred to are

those that are prescribed by the statute. Extending the provisions in

the statute that apply to institutions that are not required to take

attendance to institutions that are required to take attendance would

not be permitted under the law.

Changes: None.

Comments: Some commenters questioned how an institution would

determine a student's withdrawal date if the student withdrew from

some, but not all of his or her classes.

Discussion: The provisions of section 484B of the HEA and these

implementing regulations apply to a student who began attending an

institution and withdrew from all classes at the institution. They do

not apply to a student who withdraws from some classes but continues to

be enrolled in other classes, or a to student who leaves an institution

prior to the student's first day of class.

Changes: None.

Required To Take Attendance

Comments: Several commenters asked for clarification of the

definition of an institution that is required to take attendance for

purposes of this section. A few commenters supported the position in

the NPRM that an institution that opts to take attendance would not be

considered an institution that is required to take attendance for Title

IV, HEA program purposes. One commenter believed that all institutions

that are required to take attendance, whether required by an outside

entity or not, should be considered institutions that are required to

take attendance for Title IV, HEA purposes.

A few commenters asked if an institution must use attendance

records to determine a student's withdrawal date if the institution is

not required to take attendance, but some faculty members do take

attendance. One commenter asked if an institution would be considered

an institution that is required to take attendance if the institution's

State licensing agency or accrediting agency provided institutions with

the option of taking attendance and the institution opts to take

attendance. One commenter wanted to know if an institution would be

considered to be required to take attendance by an outside entity if

the institution's State licensing agency does not directly require an

institution to take attendance, but requires the institution to track

students, so in effect, the institution has to take attendance. For

example, the commenter noted that some institutions are required to

follow the State agency's refund policy regulations which require the

institution to refund tuition and fees based on the student's last date

of class attendance. The commenter also provided the example of an

institution's State licensing agency regulations that require the

institution to drop a student if the student misses more than a certain

number of days or hours in a term.

Two commenters believed that an institution's State licensing

agency and accrediting agency should be considered the only outside

entities that can require the institution to take attendance for

purposes of the treatment of Title IV, HEA program funds when a student

withdraws. Some commenters asked what requirements would apply for

determining a student's withdrawal date if an institution is required

to take attendance by an outside entity, such as the Department of

Veterans Affairs, that requires the institution to take attendance for

recipients of the entity's assistance only.

Discussion: We believe that only an institution that is required to

take attendance by an outside entity should be considered an

institution that is required to take attendance for purposes of

determining a student's withdrawal date. Therefore, an institution that

elects to take attendance, including an institution that voluntarily

complies with an optional attendance requirement of an outside entity,

would not be considered an institution that is required to take

attendance. However, we believe that if any requirements of an outside

entity result in an institution having to take attendance, the

institution would be considered an institution that is required to take

attendance for purposes of determining a student's withdrawal date. So,

in the two examples provided by the commenter (one where the state

agency requires the institution to refund tuition and fees based on the

student's last date of class attendance and the other where state

agency regulations require the institution to drop a student if the

student misses more than a certain number of days or hours in a term)

the institution would be considered an institution that is required to

take attendance for purposes of determining a student's withdrawal

date.

We do not agree that State licensing agencies and accrediting

agencies should be considered the only outside entities that can

require the institution to take attendance for purposes of the

treatment of Title IV, HEA program funds when a student withdraws. We

[[Page 59022]]

believe that if an institution has attendance records as the result of

the requirements of any outside entity, those attendance records must

be used to determine a student's withdrawal date. We also believe that

if an institution is required to take attendance for only some students

by an outside entity, the institution must use those attendance records

for only those students to determine the student's withdrawal date (the

last date of academic attendance). The institution would not be

required to take attendance for any of its other students, or to use

attendance records to determine any of its other students' withdrawal

dates, unless the institution is required to take attendance for those

students by another outside entity. For example, 10 students at Peabody

University receive assistance from the Veterans Administration (VA).

The VA requires the institution to take attendance for the recipients

of the VA education benefits. Peabody University is not required by any

other outside entity to take attendance for any of its other students.

Seven of the 10 students who receive VA benefits are also Title IV, HEA

program recipients. If any of those seven students withdraw from the

institution, the institution must use the VA required attendance

records for those students. For all other Title IV, HEA program

recipients at Peabody University that withdraw, the institution must

determine the withdrawal date in accordance with the requirements for

students who withdraw from an institution that is not required to take

attendance (Sec. 668.22(c)). We believe that requiring an institution

to use its attendance records to determine the withdrawal date of a

student for which another outside entity requires that attendance be

taken is consistent with our view that the goal in defining a student's

withdrawal date is to identify the date that most accurately reflects

the point when the student ceased academic attendance, and should be

based on the best information available.

Changes: We have changed Sec. 668.22(b)(3) to clarify that if an

institution is required by an outside entity to take attendance for

only some of its students, the institution must use those attendance

records for those students to determine the withdrawal date.

Comments: Several of the commenters asked what an institution's

official attendance record would be. The commenters noted that an

institution may have a master attendance record in addition to the roll

books kept by the instructors. Several commenters asked how an

institution would determine a student's withdrawal date if one of the

student's instructors took attendance, but the others did not. A couple

of commenters wanted to know how to determine a student's withdrawal

date if faculty members' attendance records differed.

Discussion: If an institution is required to take attendance, it is

up to institution to ensure that accurate attendance records are kept

for purposes of identifying a student's last date of academic

attendance. An institution must also determine which attendance records

most accurately support its determination of a student's withdrawal

date and support its use of one date over another if the institution

has conflicting information.

Changes: None.

Comments: One commenter agreed that the withdrawal date for a

student who withdraws from an institution that is required to take

attendance should be the last date of academic attendance. A couple of

commenters believed that an institution should have the discretion to

use a student's last date of academic attendance as the basis for

determining the students withdrawal date, rather than as the actual

withdrawal date.

One commenter asserted that Title IV, HEA program assistance earned

is not a reflection of time in academic attendance but, rather, is a

reflection of institutional costs. As such, the commenter believed that

the student's withdrawal date should reflect that the costs are

incurred by the student after the student's last date of academic

attendance. The commenter stated that using as a student's withdrawal

date a point beyond the student's last date of attendance would be

consistent with some institutional policies. The commenter contended

that Congress did not intend that a student's withdrawal date at an

institution that is required to take attendance be limited to the last

date of academic attendance.

One commenter believed that an institution that is required to take

attendance should be allowed to use as a student's withdrawal date the

student's last date of attendance at an academically-related activity

as documented by the institution. The commenter believed that it would

be unfair to allow institutions that are not required to take

attendance to count a student's subsequent academic activity, while not

extending this option to institutions that are required to take

attendance.

A couple of commenters also maintained that the provision for

institutions that are not required to take attendance that provides

that the withdrawal date for a student that withdrew without

notification is the midpoint of the payment period or period of

enrollment, should be extended to institutions that are required to

take attendance. One commenter noted that this extension may be

necessary if an institution that is required to take attendance has a

student who takes a portion of their program at an institution that is

not required to take attendance under a consortium agreement. The

commenter believed that if the student withdrew from the non-attendance

taking institution without providing notification, the student's

withdrawal date should be the midpoint of the payment period or period

of enrollment.

Discussion: Section 484B(c)(1)(B) of the HEA provides that

institutions that are required to take attendance must determine a

student's withdrawal date from its attendance records. We believe that

the interpretation of the statute that is most in line with our goal of

determining the date that most accurately reflects the point when a

student ceased academic attendance defines a student's withdrawal date

as the last date of academic attendance, as determined by the

institution from its attendance records. We note that if a student

continues to reside at the institution and consume goods and services

past this point, the institution is not precluded from charging the

student for these expenses. We believe that the statute makes clear

that an institution that is required to take attendance and, therefore,

has an established mechanism for tracking a student's attendance, must

use that mechanism to determine the point when the student ceased

academic attendance. We believe that a student's last date of academic

attendance, as determined by the institution from its attendance

records, accurately reflects the point when a student ceased academic

attendance. The option of using a last date of attendance at an

academically-related activity as documented by the institution has been

extended to institutions that do not take attendance in order to permit

the institutions to meet more precisely the goal of identifying as

accurately as possible the point when the student ceased academic

attendance.

The statute does not permit an institution that is required to take

attendance to use the midpoint of the payment period or period of

enrollment as the withdrawal date for a student that withdrew without

notification. In the case of a student who is attending both an

institution that is required to take attendance and an institution that

is not

[[Page 59023]]

required to take attendance through a consortium agreement, in

accordance with Sec. 600.9 of the Institutional Eligibility regulations

and Sec. 690.9 of the Federal Pell Grant Program regulations, the

institutions must specify as part of the consortium agreement which

institution will handle the administration of Title IV, HEA program

funds, which would include the determination of Title IV, HEA program

funds earned by students upon withdrawal. The designated institution

must take on all aspects of the administration of Title IV, HEA program

funds.

Changes: None.

Comments: A few commenters believed that institutions that take

attendance for only a short period of time should be considered

institutions that are required to take attendance for Title IV, HEA

purposes. Some of these commenters believed that if other agencies can

require attendance for specific periods for their purposes, so can the

Department. A few commenters supported the position taken in the NPRM

that an institution that is required to take attendance for a portion

of the payment period or period of enrollment should not be considered

an institution that is required to take attendance for Title IV, HEA

purposes. One of these commenters contended that attendance records

that are kept for census purposes would not be appropriate for

determining a student's withdrawal date for Title IV, HEA purposes.

Discussion: Although we believe that in some instances, the use of

attendance records for an institution that is required to take

attendance for a portion of the payment period or period of enrollment

may meet our goal of using the best date available, we understand that

in other instances, these records may not be appropriate for

determining a student's withdrawal date.

Changes: None.

Comments: Some commenters believe that it would be unfair to use

the student's last date of academic attendance as the withdrawal date

for a student that does not return from an approved leave of absence.

Discussion: This issue is discussed under the Analysis of Comments

and Changes for Sec. 668.22(c).

Changes: None.

Section 668.22(c) Withdrawal Date for a Student Who Withdraws From an

Institution That Is Not Required To Take Attendance

Official Notification

Comments: Several commenters asked for clarification of the meaning

of ``intent to withdraw.'' The commenters wanted to know if a student

who is only discussing and exploring the option of withdrawing would be

considered a student who is providing the institution with his or her

intent to withdraw. A couple of commenters suggested that only written

submissions from the student specifying that the student intended to

withdraw should be accepted. One of the commenters felt that oral

notifications should not be allowed because they are subject to

disagreement over what was said and when it was said. The commenter

also believed that oral notifications are subject to abuse because an

individual other than the student could phone the institution and

withdraw the student.

Several commenters wanted to know if a student would be considered

to have provided official notification to the institution of the

student's intent to withdraw if a student runs into an employee of the

designated office for official notification of intent to withdraw out

in the community and mentions that they might not be returning to

school.

A few commenters did not believe that the date that a student

notifies the institution of his or her intent to withdraw is an

accurate withdrawal date for a student who never actually withdraws,

for a student who does not withdraw until a future date, or for a

student who ceased attendance prior to the notification. One commenter

suggested that an institution be permitted to use the earlier of the

last date of class attendance as certified by the student, or the date

the student officially submits paperwork to begin the withdrawal

process.

One commenter supported the position taken in the NPRM that an

institution may designate the office or offices that a student must

notify in order for the notification to count as official notification.

Discussion: Intent to withdraw, as provided for in section

484B(c)(1)(A) of the HEA, means that the student indicates that he or

she has either ceased to attend the institution and does not plan to

resume academic attendance, or believes at the time he or she provides

notification that he or she will cease to attend the institution. A

student who contacts an institution and only requests information on

aspects of the withdrawal process, such as the potential consequences

of withdrawal, would not be considered a student who is indicating that

he or she plans to withdraw. However, if the student indicates that he

or she is requesting the information because he or she plans to cease

attendance, the student would be considered to have provided official

notification of his or her intent to withdraw.

At negotiated rulemaking, it was discussed and understood that

notification of intent to withdraw that a student provided orally would

be sufficient. We believe that a student's oral notification to an

institution is a legitimate means of communicating to the institution

his or her intent to withdraw. We believe that requiring all students

to provide a written notice of intent to withdraw would unfairly limit

and possibly delay notifications of withdrawal. The responsibility for

documenting oral notifications is the institution's; however, the

institution may request, but not require, that the student confirm his

or her oral notification in writing.

Official notification of intent to withdraw is notice that a

student provides to an office designated by the institution. If a

student provides notification to an employee of that office while that

person is acting in his or her official capacity, the student has

provided official notification. If the student provides notification to

an employee of that office while that person is not acting in his or

her official capacity, we would expect the employee to inform the

student of the appropriate means for providing official notification of

his or her intent to withdraw.

The statute provides that the withdrawal date for a student who

withdraws by providing notification to an institution that is not

required to take attendance is the date that the student began the

institution's withdrawal process or otherwise provided official

notification of his or her intent to withdraw. Although stated in the

NPRM, we believe that it is important to emphasize that an institution

that is not required to take attendance may always use a last date of

attendance at an academically-related activity as a student's

withdrawal date. Therefore, if a student begins the institution's

withdrawal process or notifies the institution of his or her intent to

withdraw and continues to attend the institution before actually

withdrawing, the attendance subsequent to the student's notification

may be taken into account by the documentation of a last date of

attendance at an academically-related activity. Likewise, an

institution could use an earlier last documented date of attendance at

an academically-related activity if this date is a more accurate

reflection of the student's withdrawal date than the date that the

student begins the institution's withdrawal process or notifies the

institution of his or her intent to

[[Page 59024]]

withdraw. We would also like to emphasize that the requirements of

these regulations for the treatment of Title IV, HEA program funds when

a student withdraws do not apply to a student who does not actually

cease attendance at the institution.

Section 484B(c) of the HEA makes clear that the determination of a

student's withdrawal date is the responsibility of the institution.

Therefore, the institution, not the student, must document a student's

attendance at an academically-related activity in order to be able to

use the date of that attendance as the student's withdrawal date. A

student's certification of attendance that is not supported by

documentation by the institution would not be acceptable documentation

of the student's last date of attendance at an academically-related

activity.

Changes: We have changed Sec. 668.22(c)(1)(ii) to make clear that a

student has provided official notification to the institution of his or

her intent to withdraw if the student indicates an intent in writing or

orally.

Resolving Instances Where a Student Triggers Two Dates

Comments: One commenter believed that it is unnecessary to define

the withdrawal date for a student that both begins the institution's

withdrawal process and also provides official notification to the

institution of his or her intent to withdraw, as the earlier of these

two dates, because a student cannot otherwise provide official

notification to the institution without having already begun the

institution's withdrawal process.

Discussion: The commenter's assertion that a student cannot

otherwise provide official notification to the institution without

having already begun the institution's withdrawal process is incorrect.

The example given in the preamble to the NPRM illustrates one scenario

where a student may otherwise provide official notification to the

institution prior to beginning the institution's withdrawal process. In

that example, a student calls the institution's designated office and

states his or her intent to withdraw on November 1. On December 1, the

student begins the institution's withdrawal process by submitting a

withdrawal form.

Changes: None.

Withdrawals Without Notification

Comments: One commenter believed that use of the midpoint as the

withdrawal date for a student who does not begin the institution's

withdrawal process or otherwise provide official notification to the

institution of his or her intent to withdraw penalizes students who

provide notification of withdrawal. The commenter asserted that this

provision provides students with an incentive to leave without

notification, which will only add to the institution's administrative

burden. The commenter believed that the withdrawal date for an

unofficial withdrawal should be the student's last date of attendance

or the date of the last homework assignment submitted by the student.

One commenter contended that an institution cannot determine until

the end of the term that a student has really dropped out because the

student would always have the right to return. A couple of commenters

maintained that there is no reliable way to determine that a student

has dropped out of the institution. For example, one commenter noted

that all failing grades for a student would not necessarily mean that

the student stopped attending. The commenter questioned how a program

reviewer would identify students that have dropped out of the

institution. Another commenter believed that other institutions often

conclude that some students have completed a semester even though the

students may have transferred to another institution. The commenter

believed that the add-drop periods established by the institution could

be used to more fairly interpret when students withdrew.

Discussion: Section 484B(c)(1)(iii) of the HEA provides that the

withdrawal date for a student who does not begin the institution's

withdrawal process or otherwise provide official notification to the

institution of his or her intent to withdraw is the midpoint of the

period for which assistance was disbursed. However, these regulations

provide that an institution may always use an earlier or later last

date of attendance at an academically-related activity as the student's

withdrawal date.

It is the responsibility of the institution to develop a mechanism

for determining whether a student who is a recipient of Title IV, HEA

grant or loan funds has ceased attendance without notification during a

payment period or period of enrollment. The requirement that an

institution identify students that have dropped out of the institution

during a payment period or period of enrollment is not new. Under the

Title IV, HEA refund requirements an institution has been required to

identify drop outs. Among other things, a reviewer may look to see if

an institution has a mechanism in place for identifying and resolving

instances where attendance through the end of the period could not be

confirmed for a student. These regulations provide institutions with

flexibility to establish their own add-drop periods and institutional

refund policies. The basis for measuring the amount the student earns

is the student's attendance, and the law requires that the funds be

earned on a pro-rata basis through the 60 percent point of the payment

period or period of enrollment.

Changes: None.

Student Does Not Return From an Approved Leave of Absence

Comments: A few commenters believed that, for a student who does

not return from an approved leave of absence, the institution should be

able to use the scheduled return date as the student's withdrawal date,

rather than the date that the student began the leave of absence (for a

student who withdraws from an institution that is not required to take

attendance) or the last date of academic attendance as determined by

the institution from its attendance records (for a student who

withdraws from an institution that is required to take attendance). One

commenter felt that the withdrawal date should be the date of the

institution's determination of the student's withdrawal. One commenter

contended that the law states that the student's withdrawal date is the

date that the student withdrew; therefore, for a student who notifies

the institution that he or she will not be returning to the

institution, the date of the student's notification should be the

withdrawal date.

A few commenters were concerned that the withdrawal date for a

student who does not return at the expiration of an approved leave of

absence as proposed in the NPRM would penalize students and

institutions if the student was a Title IV, HEA program loan recipient.

The commenters noted that if a student had been granted the full 180

days for an approved leave of absence, the student will have exhausted

all of his or her grace period and will be required to begin repayment

of the loan immediately, which would increase the likelihood that the

student would default.

A couple of commenters contended that the proposed withdrawal date

will not provide institutions with enough time to comply with the

requirements for the treatment of Title IV, HEA program funds when a

student withdraws within the required timeframes. One commenter noted

that when a student does not return from an approved leave of absence,

the institution would like the opportunity

[[Page 59025]]

to work with the student to properly prepare them for repayment.

Discussion: We do not agree with the commenters' suggested

alternative withdrawal dates for a student who does not return from an

approved leave of absence because we continue to believe that the date

that best reflects the point when the student ceased academic

attendance for this student is the date that the student began the

leave of absence (for a student who withdraws from an institution that

is not required to take attendance) or the last date of academic

attendance as determined by the institution from its attendance records

(for a student who withdraws from an institution that is required to

take attendance).

Section 484B(a)(2)(B) of the HEA states that the withdrawal date

for a student who does not return to the institution at the expiration

of an approved leave of absence is the withdrawal date as determined in

accordance with section 484B(c). However, section 484B(c) does not

specifically address the circumstance of a student who does not return

to the institution at the expiration of an approved leave of absence.

Therefore, as noted in the NPRM, we have promulgated the withdrawal

date that we believe best meets our goal to accurately reflects the

point when the student ceased attendance by treating the start of the

leave of absence as a withdrawal date documented by the institution.

We acknowledge that this withdrawal date will result in the

exhaustion of some or all of a student's grace period for Title IV, HEA

program loan recipients. We believe this is an appropriate result

because the student was not in academic attendance for that period.

However, we note that a student who has exhausted his or her grace

period and is unable to begin repayment of a loan may apply for a

deferment or forbearance of payment. Taking into account the concerns

of the commenters, we believe that a student must be informed of the

possible consequences of withdrawal on a loan grace period before he or

she is granted an approved leave of absence. Therefore, we have changed

these regulations to require an institution to provide information to a

loan recipient prior to the granting of a leave of absence about the

possible effects that the student's failure to return from the leave of

absence may have on the student's loan repayment terms. These issues

related to a student's Title IV, HEA program loan repayment status when

the student does not return from an approved leave of absence are

discussed in more detail in the Analysis of Comments and Changes for

Sec. 668.22(d).

We note that the timeframes and requirements for the handling of

post-withdrawal disbursements, maintaining documentation of a student's

withdrawal, and returning Title IV, HEA program funds for which the

institution is responsible all begin as of the date of the

institution's determination that the student withdrew, not as of the

student's withdrawal date. Therefore, the withdrawal date for a student

should have no effect on an institution's ability to meet these

requirements and deadlines.

Changes: Section 668.22(d)(1) has been changed to provide that a

leave of absence is not an approved leave of absence for purposes of

the Title IV, HEA programs unless the institution explains at or prior

to granting the leave of absence the effects that the student's failure

to return from an approved leave of absence may have on the student

loan repayment terms, including the exhaustion of some or all of the

student's grace period.

Unapproved Leave of Absence

Comments: One commenter contended that there would never be any

unapproved leaves of absence because a leave of absence would not be

allowed unless it is approved by the institution. One commenter

believed that a withdrawal that results because a student is granted an

unapproved leave of absence should be treated as a withdrawal without

official notification so that the student's withdrawal date would be

the midpoint of the payment period or period of enrollment.

Discussion: We would like to make clear that an institution may

grant a student for academic reasons a leave of absence that does not

meet the conditions of these regulations for an ``approved'' leave of

absence. However, this ``unapproved'' leave of absence must be treated

as a withdrawal for Title IV, HEA purposes. We do not agree that a

student who is granted an unapproved leave of absence should be treated

as an unofficial withdrawal. An unofficial withdrawal is one where the

institution has not received notice from the student that the student

has ceased or will cease attending the institution. If an institution

has granted a student an unapproved leave of absence, the institution

would be aware of when the student will cease attendance. In keeping

with our stated goal of identifying the date that most accurately

reflects the point when the student ceased academic attendance, we have

defined the withdrawal date for a student who takes an unapproved leave

of absence at an institution that is not required to take attendance as

the date that the institution determines that the student began the

leave of absence. The withdrawal date at an institution that is

required to take attendance is the last date of academic attendance as

determined by the institution from its attendance records. We have also

added a conforming change to define the date of the institution's

determination that the student withdrew for a student who is granted an

unapproved leave of absence as the first day of the student's leave of

absence.

Changes: We have amended Secs. 668.22(b)(1) and (c)(1)(vi) to

specify the withdrawal date for a student who takes an unapproved leave

of absence at an institution that is required to take attendance and at

an institution that is not required to take attendance, respectively.

We have added Sec. 668.22(l)(3)(v) to define the date of the

institution's determination that the student withdrew for a student who

takes an unapproved leave of absence.

Rescission of Intent To Withdraw

Comments: A few commenters did not agree that the withdrawal date

for a student who withdraws from an institution after rescinding an

intent to withdraw should be the date that the student first provided

notification to the institution or began the withdrawal process, unless

the institution chooses to document a last date of attendance at an

academically-related activity. A couple of commenters believed that an

intent to withdraw that is rescinded is completely cancelled and cannot

be referred to again. The commenters maintain that the appropriate

withdrawal date would be the date that the student subsequently

notifies the institution and actually withdraws. One commenter was

unhappy about our insinuation that an institution may abuse this area.

The commenter felt that the institution is being held responsible for

the student's actions. A couple of the commenters contended that the

original date of the student's notification was not an accurate

withdrawal date because it does not take into account the additional

charges that the student has incurred for the additional period of

attendance. One commenter asserted that it would be difficult to get a

written statement from the student that indicated that he or she will

remain in attendance. One commenter believed that the proposed

requirements for handling rescissions of withdrawal notices are too

complicated and penalize the student for deciding to remain enrolled.

[[Page 59026]]

Discussion: We continue to believe that the appropriate withdrawal

date for a student who does not complete the payment period or period

of enrollment after rescinding his or her first notification of

withdrawal is the date when the student first began the institution's

withdrawal process or otherwise provided official notification to the

institution. The Department is responsible for identifying and

responding to areas of potential abuse to the Title IV, HEA programs in

the development of regulations. The potential abuses that we identified

in the NPRM were not addressed by the alternative withdrawal dates

suggested by the commenters. We do not believe that this requirement is

onerous because an institution may always use the last date of

attendance at an academically-related activity to take into account

attendance by the student subsequent to the student's first

notification of withdrawal. For example, Dave notifies his institution

of his intent to withdraw on January 5. On January 6, Dave notifies the

institution that he has changed his mind and has decided to continue to

attend the institution, and provides the required written statement to

that effect. On February 15, Dave notifies the institution that he is

withdrawing, and actually does. The institution has a record of an exam

that Dave took on February 9. The institution may use February 9 as

Dave's withdrawal date. If the institution could not or did not choose

to document a last date of attendance at an academically-related

activity for Dave (in this case, the record of the exam), his

withdrawal date would be January 5, the date of Dave's original

notification of his intent to withdraw, not February 15.

We do not believe that it will be unduly burdensome for an

institution to obtain a statement from the student that he or she

intends to remain in academic attendance for the remainder of the

payment period or period of enrollment. Presumably, the institution is

aware that the student has changed his or her mind about withdrawing

because the student has contacted the institution to inform the

institution that he or she has changed his or her mind and are not

withdrawing. The institution may inform the student of the

certification requirement at that time.

Changes: None.

Last Date of Attendance at an Academically-Related Activity

Comments: One commenter contended that the law makes no mention of

a last date of attendance or academically-related activities, so the

regulations should only use the language of the law which states that a

later date documented by the institution may be used for a student who

withdraws without notification to the institution. The commenter did

not agree that the concept of using the last date of attendance at an

academically-related activity is a longstanding one for the Title IV,

HEA programs because it has never been included in previous laws and

was only introduced in the regulations about eight years ago. One

commenter requested clarification of the documentation required to

verify a student's attendance at an academically-related activity. One

commenter contended that using the last date of attendance at an

academically-related activity is not a realistic option because it is

difficult for an institution to track attendance.

Discussion: As stated in the preamble to the NPRM, the statute does

not specifically allow an institution to use as a withdrawal date a

student's last date of attendance at an academically-related activity,

except in the case of a student who withdraws without providing

notification (in which case the institution may use a date that is

later than the midpoint of the period). However, we continue to believe

that we have the discretion under the statute to promulgate regulations

that permit an institution that is not required to take attendance to

document a date other than the specified withdrawal dates if that date

more accurately reflects the point when the student ceased academic

attendance.

We note that the use of a last date of attendance at an

academically-related activity has been a part of the guidance for the

definition of a student's Title IV, HEA program withdrawal date for

over eight years. We believe that this qualifies as longstanding Title

IV, HEA program policy. Just as there is a wide variety in the types of

educational programs offered by institutions, there appears to be a lot

of variation in ways that institutions have been able to identify a

last date of attendance at an academically-related activity. We believe

that the guidance provided in the preamble to the NPRM is sufficient

for an institution to determine how the institution should properly

document a student's last date of attendance at an academically-related

activity without being overly prescriptive. This flexibility permits

institutions to control the process used to verify the student's

attendance in these activities. We will continue to provide guidance in

this area through Department publications to address specific concerns

that are not addressed by this guidance.

Changes: None.

Acceptable Documentation

Comments: One commenter supported the position in the NPRM that

acceptable documentation for a student's withdrawal date should not be

specified in the regulations.

Discussion: None.

Changes: None.

Section 668.22(d) Approved Leaves of Absence

Comments: A few commenters supported the position in the NPRM that

an institution would be allowed to grant more than one leave of absence

to a student. In response to the Secretary's specific request for

comment, commenters suggested the following additional categories of

unforeseen circumstances that the commenters believe warrant the

granting of more than one approved leave of absence: jury duty;

incarceration; unexpected loss of child care; the need to care for

children during the children's school breaks; changes in work schedules

(for example, a part-time employee is required to work full-time for a

few weeks); protection in cases of domestic abuse where a student has

been forced to go into hiding; dependent care outside the parameters of

the Family and Medical Leave Act of 1993 (FMLA) (no specifics

provided); financial reasons; death or illness of a family member;

student suffers injury or major illness; snow days; travel.

A few commenters believed that a list of circumstances could not

address every unforeseen circumstance that should warrant an approved

leave of absence. A couple of these commenters believed that

institutions should have the discretion to grant an approved leave of

absence, as long as the institution maintained the appropriate

documentation. One commenter suggested limiting the number of leaves of

absence to two, rather than defining all unforeseen circumstances. One

commenter thought that unforeseen circumstances should be defined, but

only two leaves of no more than 60 days each should be permitted for

these reasons. One commenter felt that one leave of absence in a 12-

month period is sufficient.

Discussion: We continue to believe that more than one leave of

absence should only be granted for limited, well-documented

circumstances due to unforeseen circumstances. As stated in the NPRM,

we believe this interpretation is supported by the language of the

statute, which refers to a student who takes ``a'' leave of absence

from an institution. This interpretation also recognizes the fact

[[Page 59027]]

that it is often not in the best interest of a student to have multiple

interruptions in their education.

We believe that jury duty, like military duty, is a circumstance

that would warrant multiple leaves of absence. We believe that some of

the circumstances suggested by the commenters, such as illness of a

family member or an injury or major illness of the student, are

adequately covered by the FMLA. We do not believe that the additional

circumstances suggested by the commenters would warrant multiple leaves

of absence, either because they are not unforeseen, are difficult to

document, or are likely to be adequately addressed by one leave of

absence. However, we recognize that some of these circumstances, as

well as other circumstances that have not been identified by either the

Department or the commenters, may force a student who would otherwise

continue their education to withdraw. We believe that the institution

is in the best position to determine if one additional leave of absence

is necessary for unforeseen circumstances that are not specifically

mentioned in the regulations. However, in keeping with our intention to

limit interruptions to a student's education, we believe that this

leave of absence should be limited to 30 days and can only be granted

if a student has already been granted an approved leave of absence at

the institution's discretion. Therefore, consistent with the NPRM, the

regulations would not specify the circumstances that would warrant one

leave of absence; rather, the institution would determine if the

student's reason for requesting a single leave of absence is

appropriate. An institution may grant subsequent leaves of absence if:

The student's circumstances meet one of the following

conditions for multiple leaves of absence: military reasons,

circumstances covered by the FMLA, or jury duty, or

For one additional leave of absence not to exceed 30 days,

the institution determines that the additional leave of absence is

necessary. This type of leave of absence would have to be subsequent to

the granting of the single leave of absence that is granted at the

institution's discretion.

In accordance with the statute, the total number of days of all leaves

of absence cannot exceed 180 days in any 12-month period.

Changes: Section 668.22(d)(2) is amended to provide that for one

additional leave of absence not to exceed 30 days, the institution may

determine that the additional leave of absence is necessary due to

unforeseen circumstances. This type of leave of absence would have to

be subsequent to the granting of the single leave of absence. Section

668.22(d)(2) is amended to provide that jury duty is another

circumstance, in addition to military reasons or circumstances covered

by the FMLA, for which an institution may grant a student subsequent

leaves of absence.

Comments: One commenter asked if leaves of absence granted for

``military reasons'' includes the National Guard.

Discussion: We believe that leaves of absence that are granted for

military reasons include training and service requirements of the

National Guard.

Changes: None.

Comments: One commenter noted that some of the circumstances

covered by the Family and Medical Leave Act of 1993 (FMLA) are covered

for a 12-month period. The commenter asked us to clarify the interplay

of the 12-month period for FMLA with the 180 days restriction of leaves

of absence.

Discussion: Two of the circumstances that are covered under the

FMLA, birth and care of a child, and adoption or foster care placement,

are covered for up to 12 months for purposes of the FMLA. For purposes

of the Title IV, HEA programs, this means that a student may be granted

an approved leave of absence for these circumstances, as long as (1)

the entire leave of absence will occur sometime during this 12 month

period of time, and (2) the total number of days of all leaves of

absence for the student does not exceed 180 days in the 12-month period

that began on the first day of the student's first leave of absence.

For example, a student has a child who is born on February 1, 2000. The

student has never taken an approved leave of absence before. The

student may be granted an approved leave of absence for the birth of

and/or care of the child for up to 180 days during the period of

February 1, 2000 through February 1, 2001, 12 months from the birth of

the child. If the student requests a subsequent leave of absence to

care for the child that would begin on January 1, 2001, the leave of

absence could be no longer than 31 days, because the circumstance that

triggered the leave of absence would no longer be covered under the

FMLA after February 1, 2001.

Changes: None.

Comments: One commenter believed that it was unreasonable to

require that a student be permitted to complete the coursework begun

before the leave of absence. Since a leave of absence can be up to 180

days, the commenter noted that this period of time exceeded the limits

most institutions permit before having a grade of ``incomplete'' turn

into a failing grade. The commenter suggested that it would be more

consistent with existing academic requirements for the term

`coursework' to be changed to `course of study or major'. One commenter

suggested that the requirement to exclude periods of excused absences

from the calendar days used in the return calculation does not work

because any leave of absence that extended beyond the end of the

payment period or period of enrollment would automatically qualify the

student to earn 100 percent of the Title IV, HEA program funds.

Discussion: Approved leaves of absence are viewed as interruptions

in a student's academic attendance. Therefore, when a student returns

from a leave of absence, the student should be continuing the academic

program where it left off. Approved leaves of absence must conform to

the institution's policy, and institutions are expected to play an

active role in evaluating whether a requested leave of absence should

be granted and how it can be structured to permit a student to complete

the payment period or period of enrollment. Although a leave of absence

may extend for up to 180 days, we anticipate that most requests will be

for shorter periods that will conform to an institution's requirements

for completing courses within specified time limits. Furthermore, the

scenario provided by the commenter is one where a student has not

ceased to perform academically if the student is completing the course

work through independent study rather than by taking classes at the

institution. Therefore, this would not be considered a leave of absence

for Title IV, HEA program purposes. When a student returns from an

approved leave of absence the payment period or period of enrollment

used for a return calculation would be adjusted to reflect the new

ending date. In order to prevent a situation where a student is able to

earn funds simply by taking a leave of absence, those days must be

excluded from the return calculation.

Changes: None.

Comments: One commenter believed that retroactive requests for

leaves of absence should be permitted because students often do not

know that they will need a leave of absence until they have been absent

from the institution for a few days.

Discussion: We continue to believe that it is reasonable to expect

an institution to collect a written request for an approved leave of

absence from the student prior to the leave of absence, unless the

student is unable to provide the written request prior to the leave of

[[Page 59028]]

absence due to unforeseen circumstances. In such cases, the institution

must document the reason for its decision to grant the leave of absence

prior to receiving a written request and collect the written request

from the student at a later date.

Changes: None.

In-School Status for Title IV Loans

Comments: Several commenters believed that a student should be

considered to have in-school status for Title IV, HEA loan purposes

during an approved leave of absence. The commenters argued that

considering a student to have in-school status for Title IV, HEA loan

purposes is consistent with the assertion that a student on an approved

leave of absence is still considered to be enrolled at the institution.

The commenters contended that the inconsistency of placing a student in

an out-of-school status for loan purposes, while the student is still

considered enrolled in the institution, would be too confusing and

burdensome to students and their families, institutions, lenders, and

guaranty agencies. Some commenters noted that leaves of absence are

granted to encourage a student to continue his or her education. The

commenters believed that guaranteeing that a student will not exhaust

any or all of their grace period will be an added incentive to return

and avoid immediate repayment. One commenter noted that most loan

servicing systems generate letters to a borrower beginning in the first

month of the borrower's grace period. The commenter contended that

these notices will confuse students who are considered to be in

enrollment for other Title IV, HEA purposes.

Discussion: We agree with the commenters' arguments that the

inconsistency of treating a student on an approved leave of absence as

a withdrawn student for purposes of terminating a student's in-school

status would not be in the best interest of the student and would

possibly create undue burden for institutions, lenders and guaranty

agencies. We agree that a student who is granted an approved leave of

absence should be considered to remain in an in-school status for Title

IV, HEA loan repayment purposes. However, as discussed previously, if a

student does not return from an approved leave of absence, the

student's withdrawal date, and the beginning of the student's grace

period, is the date that the student began the leave of absence (for a

student who withdraws from an institution that is not required to take

attendance) or the last date of academic attendance as determined by

the institution from its attendance records (for a student who

withdraws from an institution that is required to take attendance).

Therefore, an institution must report to the loan holder the student's

change in enrollment status as of the withdrawal date.

Changes: Section 668.22(d)(1) has been changed to reflect that if a

Title IV, HEA program loan borrower has been granted an approved leave

of absence, the borrower is considered to be enrolled in the

institution for purposes of reporting the student's in-school status

for Title IV, HEA program loans.

Scheduled Breaks

Comments: A few commenters supported the position that a student

would not have to be granted an approved leave of absence for periods

of nonattendance for a scheduled break. The commenters assumed that

this position would apply to summer sessions when the student is not

scheduled to be in attendance.

Discussion: The commenters are correct that an approved leave of

absence would not be necessary for a summer session for which the

student was not scheduled to be in attendance. However, if a scheduled

break falls within a payment period or period of enrollment and the

student does not return at the end of the scheduled break, the

withdrawal date would reflect that the scheduled break was a period of

non-attendance.

Changes: None.

Sec. 668.22(e) Calculation of the Amount of Title IV Assistance Earned

by the Student

Use of Payment Period or Period of Enrollment

Comments: A few commenters suggested that institutions that use

period of enrollment for the calculation should be allowed to use aid

awarded rather than the aid that was disbursed or could have been

disbursed as of the date of the student's withdrawal. The commenters

said that the use of aid awarded was provided for in the law, and that

the option of using period of enrollment is made void unless an

institution is allowed to use the aid awarded in the calculation. The

commenters explained that the proposed requirement to only use the

amount of aid disbursed or that could have been disbursed at the time

of the student's withdrawal is unfair because students who withdraw

during the first payment period will not have been enrolled long enough

for the institution to have disbursed all aid awarded for the period of

enrollment. The commenters believe that institutions will be acting

against the interests of their students by using the period of

enrollment in the calculation rather than the payment period because

less aid could be considered in the calculation.

Discussion: Although the commenters point out that the law refers

to aid awarded when describing the institution's option to use either

payment period or period of enrollment in the calculation, that

reference simply describes the relevant period to use in the

calculation. The law gives institutions the option to use either the

payment period or period of enrollment ``for which assistance was

awarded'' in the calculation, but specifies that the percentage of

assistance earned is applied to the assistance that ``was disbursed

(and that could have been disbursed). . . as of the day the student

withdrew''.

Changes: None.

Comments: A small number of commenters pointed out that the

requirement for an institution to consistently use either the payment

period or period of enrollment measure poses a problem in some

circumstances, particularly for students that are transferring to the

institution or are re-entering to complete their program. Some of those

commenters said that they read the law to allow institutions to choose

on a student-by-student basis to address differences in student

circumstances. The commenters noted that many institutions would decide

to use the payment period as a basis for doing most return

calculations, because that calculation would be better for most

students. The commenters said that the choice in the law to use payment

period or period of enrollment was supposed to give them flexibility to

use a calculation that matched the way they charged for their programs.

Discussion: Institutions must choose between using payment period

or period of enrollment on a program by program basis. This requirement

promotes consistency in administration of the programs and makes it

simpler for schools to explain the return of funds provision to

students. Students enrolling in a program at an institution will also

be subject to the same period of measure for return of unearned aid

calculations throughout their attendance. We therefore reject the

suggestion that institutions should be able to choose the appropriate

period for this calculation on a student by student basis for the

students that regularly enroll in their programs. Some different

treatment is being permitted for

[[Page 59029]]

students that transfer into an institution or re-enter, and this is

discussed below.

Changes: None.

Comments: A few commenters said that the proposed regulation is

confusing because it does not distinguish between financial aid awarded

(which is subject to the student meeting certain criteria to receive

any amount awarded) and financial aid that the student was eligible to

receive. The commenters illustrated this by explaining that a first

time borrower must attend 30 days before being awarded the financial

aid for the first loan disbursement. The student must then continue

attending into the second payment period in order to receive the second

disbursement of the loan proceeds. The commenters recommended revising

the regulation to provide that the amount to be returned may never

exceed the difference of the amount disbursed and the amount earned.

Discussion: The calculation in the NPRM determines whether more aid

was actually disbursed than the student earned. If so, the unearned

portion must be returned. The proposed language has already been

written to clarify that the only amount that needs to be returned is

the amount of aid that was actually disbursed that exceeded the amount

of earned aid. We believe that the proposed language accurately

describes the steps needed to perform the calculation, and believe that

this language better describes the processes that institutions will use

when performing these calculations.

Changes: None.

Comments: A few commenters asked how to determine tuition and fee

costs to be paid in a payment period or period of enrollment when the

program is longer than those periods. These commenters pointed out that

some institutions charge for equipment and supplies up front, even

though that equipment may be used throughout a program that could last

for two years or perhaps longer. Other questions dealt with whether

such charges could be pro-rated, and asked how registration fees or

book charges would be handled in the calculation. The commenters

suggested that deference should be given to the recommendations made by

the schools and their students who are affected by this provision. Some

of these commenters said that the Department has a longstanding policy

to include up-front charges in the first period of enrollment so that

there would be no tuition and fee costs for subsequent periods.

Discussion: An institution would be permitted to pro-rate the total

program charges for the program to correspond to the payment period if

the institution has elected to use payment period rather than period of

enrollment for the return calculations. If the institution retained a

higher amount of charges to the student for the payment period for any

reason, including allocating costs for equipment and supplies to the

front of the program, the funds retained by the institution are

attributed to that payment period because they are a better measure of

the institutional charges paid by the student for that period.

Changes: None.

Comments: A few commenters raised concerns about the statutory

requirements of the return calculation. For example, one commenter

argued that forcing institutions to return unearned Title IV, HEA

program funds through 60 percent of the period could cause the

institutions to delay disbursing funds to their students until after

this point. Those schools pointed out that students that withdraw after

the beginning of a payment period cannot be replaced, and the cost to

the institution of providing that program does not decrease. Another

commenter pointed out that his state required a shorter refund policy

that the commenter believed was fairer than the return calculation.

Other commenters complained about the additional costs institutions

would face from adding additional staff and returning larger amounts of

unearned funds. Other commenters objected to having students earn funds

on a pro-rata basis because it does not correspond to the costs

incurred by the student for attending the institution, and complained

that the statutory formula does not round the percentages earned in 10

percent portions like the prior version of the law did.

Discussion: The commenters address components of the return

calculation that are statutory and cannot be changed by regulation.

Changes: None.

Re-Entry and Transfer Students

Comments: Some institutions pointed out that it was impossible for

an institution to use a consistent number of hours in a payment period

for students that transferred into the institution or re-entered it,

because the first payment period for those students will be whatever

portion of a payment period remains to be completed before the student

can begin a subsequent full payment period. A few commenters pointed

out that the Title IV, HEA program funds at issue during this partial

payment period are, in effect, discounted twice, once at entry, due to

the Federal Pell Grant proration requirements, and once at the time of

withdrawal for the return calculation. Other schools also complained

that this problem was further complicated because institutions are not

allowed to use aid awarded in the calculation. Another commenter noted

that the benefit of using payment periods for the regularly enrolled

students would be negated if the institution used payment periods for

the transfer and re-entry students as well. The commenter believed that

it may be fairer for those students to have their period of enrollment

used in a return calculation.

Discussion: We acknowledge that students transferring to an

institution or re-entering a nonstandard term or non-term based program

are more likely to have a short, non-standard payment period that would

have to be completed before their schedules could fit into the standard

payment periods at the institution. Both these groups of students are

distinct from students who have attended a program from the beginning

of the payment period or period of enrollment, and it may be

appropriate for an institution to choose to use either a payment period

or period of enrollment basis for a return calculation for one of these

groups of students, even if a different period is used for the students

who have been in attendance from the beginning of the payment period or

period of enrollment in that program.

Changes: Section 668.22(e)(5)(ii) has been modified to permit an

institution to make a separate selection of payment period or period of

enrollment for return of unearned aid calculations for students that

transfer to the institution and for those who reenter the institution

for students who attend a nonterm-based or a nonstandard term-based

educational program.

Comments: A small number of commenters pointed out that the return

calculation does not provide for treatment of aid that was awarded but

not disbursed, including situations where the institution elects to do

multiple disbursements. The commenters suggested that the multiple

disbursements should not be treated as funds that would be applied to

institutional charges, but that institutional charges should be applied

against the amount the student and the institution must repay. Another

commenter said that the return calculation does not adequately address

how undisbursed funds should be treated because of the many different

scenarios that can occur at a college where a student withdraws before

[[Page 59030]]

receiving all funds that have been disbursed to him.

Discussion: As discussed above, the law determines the amount of

funds earned by the student in the return calculation by applying the

percentage the student completed of the payment period or period of

enrollment to the funds that were disbursed, or could have been

disbursed, as of the day the student withdrew. Students that have not

received aid that could have been disbursed to them at the time they

withdrew are entitled to receive any additional sum earned that is

greater than the amount already disbursed to them. This snapshot

approach to considering whether additional aid may be awarded will

provide a consistent set of procedures that will prevent post-

withdrawal disbursements of unearned aid. Even though multiple

disbursements may have been scheduled for a student at the time he or

she withdrew, the return calculation will limit those disbursements to

actual amounts earned. A student receiving a post-withdrawal

disbursement will have earned all aid that had been disbursed, and the

subsequent disbursement will only be for the additional amount earned.

A student receiving a post-withdrawal disbursement will therefore never

have any unearned funds that would be the responsibility of the student

in the return calculation, as might be the case if all of the student's

disbursements were made at the beginning of the period. This rule will

prevent institutions from making post-withdrawal disbursements of aid

that could be manipulated to alter the grant/loan mix of funds used in

the return calculation. We believe it is consistent with the law to

base the return calculation on the actual aid that had been disbursed

at the time the student withdrew.

Changes: None.

Sec. 668.22(f) Percentage of Payment Period or Period of Enrollment

Completed

Credit Hour Programs

Comments: Several commenters questioned how holidays and weekends

should be treated in the calculation of days completed, particularly

when combined with a short break. One commenter suggested that the

calendar days used in the calculation should be defined as school days,

and exclude weekends and holidays from the calculation. The commenter

argued that this treatment would provide consistency among terms and

would comport with the current method of determining repayments. Other

commenters agreed that including weekends and short breaks complicates

the calculation and does not accurately reflect the actual course

completion. Conversely, other commenters pointed out that students are

often studying during weekends and during short breaks, and they argued

that all calendar days should count in the return calculation. Another

commenter preferred basing the calculation on weeks completed, and

suggested that some rounding of calendar days completed be permitted in

order to simplify the calculation.

A few commenters argued that the proposed exclusion of 5 day breaks

was too short if the weekend days would be considered a part of that

period. The commenter noted that every break of 3 days or more

occurring prior to or after a weekend would create a period that would

be excluded from the return calculation, and recommended that the

number of days of closure be increased to more accurately reflect the

expenses incurred by the institution during short-term closure. One

commenter pointed out that most colleges have a one week Spring break

in the Spring term, but only one-day or two-day holidays in the Fall

even though the number of teaching days are the same. The commenter

believed that this disparity in breaks would require students

withdrawing in the Spring to have to return more funds than students

that withdraw at a comparable point in the Fall payment period.

Discussion: The law generally requires the use of calendar days in

the return calculation. The proposed rule would exclude breaks of five

or more consecutive days in order to provide for more equitable

treatment to students that withdraw near each end of a scheduled break.

In those instances, the student that withdrew after the break would not

be given credit for earning an additional week of funds during the

scheduled break, but would instead earn only an additional day or two

more funds than a student that withdrew right before the start of the

break. We intend for institutions to exclude all days between the last

scheduled day of classes before a scheduled break and the first day

that classes resume. For example, where classes end on a Friday and do

not resume until Monday following a one-week break, both weekends would

be excluded from the return calculation. If classes were taught on

either weekend for the programs that were subject to the scheduled

break, those days would be counted.

Changes: None. Comments: One commenter pointed out that the

proposed regulation does not fully address non-term credit hour

programs and nontraditional program formats, especially those non-term

credit hour programs that consist of consecutive courses where students

may be scheduled to attend one or two days a week or every other

weekend. In those instances, five or more days would routinely occur

between class meetings, and the commenter asked if those days would be

treated as scheduled breaks. Another comment suggested that we should

continue to work with the financial aid community to identify the best

way to measure the period used in the return calculation for these non-

traditional programs.

Discussion: We note that the proposed rule excludes scheduled

breaks of at least five consecutive days. For a program that regularly

met each weekend for its entirety, the days between classes would not

be excluded because they were not part of any regularly scheduled

break. If classes were not held on at least one of the scheduled days

during a weekend, the period from the last scheduled day of class

before the scheduled break until the next scheduled day of class after

the break would be excluded from the return calculation. We believe

that this result is consistent with the application of this rule to

traditional institutions, since a program that usually offered classes

on Saturday and Sunday would be taking a break from half of a week's

classes if it did not meet on one of those days.

Changes: None.

Clock Hour Programs

Comments: One commenter said that the proposed regulations for

clock hour institutions were too complex. A few commenters argued that

the return calculations for clock hour institutions should use

scheduled clock hours to determine the amount of aid earned rather than

considering the actual clock hours completed in the program, because

this is more consistent with the requirement to use calendar days as

the measure of aid earned at credit hour institutions. Other commenters

argued that the law was intended to create similarity between rules for

credit hour and clock hour institutions by permitting the use of

scheduled hours. These commenters pointed out that credit hour students

can attend the first day of classes and not again until the 30th day

and receive aid for that 30-day enrollment if they withdraw.

Furthermore, if the student unofficially withdrew, he would receive aid

through the midpoint of the payment period.

A small number of commenters also argued that the proposed

regulations did

[[Page 59031]]

not correctly interpret the law concerning when scheduled clock hours

are used instead of completed clock hours. These commenters believe the

law permits the Secretary to establish a threshold of minimum hours

such as 10 percent of the payment period that, when completed, would

entitle a student to be paid for scheduled hours from that point on

whenever he or she withdraws.

Other commenters recommended a number lower than 70 be used for the

percentage of completed hours that would allow a student to be paid for

scheduled hours, or argued that it was punitive to limit some students

to being paid for completed hours if they only completed 69 percent of

the hours they were scheduled to take when a student completing 70

percent would get the bonus of being paid for all scheduled hours. A

few commenters also suggested that the 70 percent number be changed to

66 percent in order to correspond with our satisfactory academic

progress measures that require a student to complete a program in no

more than 150 percent of the scheduled time, so that a student could be

paid for up to 150 percent of the actual hours completed at the time of

withdrawal.

Discussion: The law provides clear authority for the Secretary to

establish the percentage of attendance a student must achieve in order

to be paid for scheduled hours rather than completed hours. Under the

new regulation, that measure will be based upon the student's success

at completing at least 70 percent of the hours scheduled to be

completed at the time he or she withdrew. The 70 percent requirement is

a bright line, and students that meet the attendance threshold will be

paid for scheduled hours, while students with lower attendance rates

will not. The 70 percent attendance requirement was reached after

numerous meetings with a work group that were held during the

negotiated rulemaking process. We reject the suggestion that the number

be lowered in order to mirror our satisfactory academic progress

provisions, which serve the very different purpose of providing

students that remain enrolled beyond the scheduled length of their

program with additional time to complete their studies.

Changes: None.

Comments: A few commenters objected to the proposed requirement

that a student in a clock hour program actually complete 60 percent of

the program before earning 100 percent of the funds. The commenters

argued that the 60 percent measure identified in the law should be

based on the student's scheduled hours if the student were entitled to

be paid for scheduled hours, as discussed above. The commenters said

that there is no specific statutory basis for imposing this

restriction, and they asserted that it discriminates against clock hour

students because no comparable restrictions are imposed on students

enrolled in credit hour programs. One commenter pointed out that some

states approve clock hour programs that permit students to attend with

accelerated schedules, so that a student would withdraw with more

completed hours than scheduled. The commenter sought either

clarification or a change in language to provide that a student could

be paid for completed hours if they exceeded the amount of scheduled

hours.

Discussion: The law permits a student to earn 100 percent of the

funds when completing 60 percent of a program, and we view the actual

completion of that amount of the program as a substantive requirement.

We refuse to dilute this measure by treating a student that completes

42 percent (70 percent of 60 percent) of a program as having earned 100

percent of his or her Title IV, HEA program aid. We note that the

student completing 42 percent of the program in this example will still

get the substantial benefit of having earned aid for 60 percent of the

scheduled hours because the student met the 70 percent attendance

requirement when he withdrew. We note that the language in the

regulation permits the institution to use either the hours completed or

the scheduled hours (subject to the 70 percent attendance requirement)

in the calculation, so that a student completing more hours than were

scheduled to be completed at the time he or she withdrew could be paid

for the completed hours.

Changes: None.

Excused Absences

Comments: Many commenters suggested that excused absences should be

treated as completed hours, because we currently permit clock hour

institutions to count up to 10 percent of the missed hours in the

program as completed hours. The commenters noted that this was also

consistent with higher education community practice.

A few commenters further suggested that the 10 percent limit on

excused absences should be raised to 15 percent or whatever standard

was permitted in state regulations. Some commenters also suggested that

excused absences should include jury duty, military service, court

appearances, sickness, medical reasons and family emergencies since

these are all circumstances beyond the student's control.

One commenter claimed that not counting excused absences as

completed hours would create potential problems for transfer students

and re-entry students because the state would recognize hours for

excused absences as completed even though the Department would not.

Other commenters said it was not fair to exclude excused absences from

being treated as completed hours because credit hour institutions are

allowed to count weekends and holidays in the return calculation.

One commenter supported the proposed regulation because the 70

percent completion measure used to permit students to be paid for

scheduled hours rather than completed hours would already include these

absences.

Discussion: Excused absences will not count as completed hours in

the return calculation. For students that withdraw from their programs,

the absences will be classified as scheduled hours that were not

completed. In order to be paid for those hours, the student must

satisfy the 70 percent attendance measure. We believe that the

allowance of up to 30 percent of the scheduled hours to be missed is

sufficient to cover most of the situations for unexpected absences that

were posed by the commenters. We also note that some of the suggestions

for reasons to recognize excused absences would appear to come within

the criteria an institution could use to give a student a leave of

absence. For students that do not withdraw from their programs, the

existing policy in the cash management regulations, Sec. 668.164(b)(3),

of not requiring clock hours to be completed for excused absences of up

to 10 percent of the program will be retained.

Changes: None.

Rounding

Comments: Some commenters pointed out that there was no mention of

rounding the numbers used in the return calculation, and they requested

guidance.

Discussion: The return calculation should use the following

rounding procedures. Use three decimal places for most steps in the

calculation, rounding the third decimal place up one if the fourth

decimal place is 5 or above. For example, .4486 would be rounded to

.449, or 44.9 percent. There is one exception to this general rule.

Monetary amounts may be reported in dollars and cents using normal

rounding rules to round to the nearest penny. Final repayment amounts

that the institution and student are each responsible to

[[Page 59032]]

return may be rounded to the nearest dollar.

Changes: None.

Section 668.22(g) Return of Unearned Aid, Responsibility of the

Institution

Comments: A few commenters believed that it was unduly financially

burdensome to hold an institution responsible for repaying Title IV,

HEA program funds that were disbursed directly to the student. The

commenters contended that the assumption of the proposed rules that an

institution has retained Title IV, HEA program funds to cover

institutional charges before disbursing any Title IV, HEA program funds

to the student is incorrect.

A few commenters argued that it would be unfair to include

institutional charges that are paid by other sources of aid that are

restricted to institutional charges--such as State funding programs,

State grant programs or veteran's grants--in the amount of

institutional charges that is used for purposes of determining the

portion of unearned Title IV, HEA program funds that the institution

must return. One commenter noted that in the case of restricted

funding, when a student withdraws, the institution will have to refund

a portion of the aid to the other source. The commenter believed that

it would be financially burdensome for the institution to have to also

return funds for the same institutional charges to the Title IV, HEA

programs. A few of the commenters contended that if the amount of

restricted aid was removed from the amount of institutional charges,

the student would be able to repay the same amount under the more

beneficial repayment terms of a Title IV, HEA program loan.

A few commenters contended that an institution would have to take

undesirable actions to mitigate their financial loss. A few of these

commenters maintained that an institution will have to pass on the bill

to the student for the amount of Title IV, HEA program funds that the

institution had to return in excess of the Title IV, HEA program funds

that were actually received by the institution. A few commenters

maintained that an institution will have to change its refund policy so

that the institution will earn more institutional charges when a

student withdraws. A few commenters asserted that institutions will

have to delay some loan disbursements to avoid having to repay Title

IV, HEA program funds they never received. One commenter, a state

community college trustees association, believed that requiring

institutions to return Title IV, HEA program funds that were given to

the student will force the community colleges in the commenters State

to discourage thousands of students from enrolling if they believe that

the student may not complete the term. The commenter believed that

state community college enrollment could be reduced by more than 10

percent.

A few commenters contended that institutions with low or no

institutional charges, such as many community colleges, should be

exempt from the requirement that the institution return Title IV, HEA

program funds that it has not received because of the enormous negative

effects that this provision would have on these institutions and their

students.

A couple of the commenters believed that there should be an

exemption for institutions like those in the California community

college system, when institutional charges are paid or waived by a

State program. The commenters asserted that because Title IV, HEA

program funds are never used to pay the fees for these students, it

would be unfair to require the institution to return Title IV, HEA

program funds that were never received by the institution to cover

these fees. The commenter noted that any funds returned by the

institution will come at the expense of other programs or services to

students.

A few of the commenters maintained that students at low- or no-cost

institutions will be the hardest hit by this provision. The commenters

noted that the students who enroll at these institutions have the

greatest chance of owing a large overpayment because the amount of

Title IV, HEA program funds that the institution will be responsible

for returning--which is capped at the lesser of the total unearned

amount of aid or the student's institutional charges multiplied by the

percentage of unearned Title IV, HEA program assistance--will be quite

small.

Discussion: We do not agree with the suggestion that these

regulations should take into consideration whether other sources of aid

were actually used to pay a student's institutional charges when

allocating repayment responsibilities between the institution and the

student. The proposed regulation implements the statutory framework

that divides responsibility for repaying unearned Title IV, HEA program

funds between the institution and the student under a new system that

no longer controls the actual charges assessed by the institution. In

the statute, the allocation of repayment responsibilities looks first

to the institution to repay unearned Title IV, HEA program funds

because the Title IV, HEA program funds are provided under the

presumption embodied in the current regulations that they are used to

pay institutional charges ahead of all other sources of aid. The

regulations do not provide for institutions to adjust this allocation

by taking into consideration other sources of aid that might be used to

pay institutional charges for a student. We believe that it would be

administratively burdensome to try and take into consideration when

other sources of aid would be deemed to have paid some portion of

institutional costs for a student, particularly given the variations in

timing and conditions that may be associated with those sources of aid.

The commenters noted that institutions will have to change their

institutional refund policies to adjust to the new provisions. The new

provisions of section 484B of the HEA for the return of unearned Title

IV, HEA program funds have freed institutions to make such changes. The

law requires institutions to disclose and explain their refund policies

to students, and this should include some discussion of how the

institution might adjust a student's charges to take into account

repayments that the institution was required to make under these

provisions. As noted by some commenters, institutions may also consider

changing the disbursement schedules for students in order to have the

disbursements better match the rate at which the student is earning the

funds.

In response to the predictions by some commenters that some

community colleges may discourage enrollments by students that are less

likely to complete the term, we note that many options are available to

institutions to screen their applicants and actively work with them to

keep them enrolled. An institution should only admit students who have

an intention of completing the program in which they enroll.

Institutions should inform students of their responsibilities under

these rules to repay unearned funds if they withdraw.

The law does not permit exemptions of any institutions that are

participating in the Title IV, HEA grant or loan programs from the

requirements of section 484B, as implemented by these final

regulations. We note that institutions may instead waive the

institutional charges for their students rather than paying them state

scholarships, provided that the waiver of those fees is taken into

consideration when calculating the student's cost of attendance. This

would result in no institutional responsibility for repayment of

unearned Title IV, HEA program funds because there would be no

institutional charges. As pointed out

[[Page 59033]]

by the commenters, the students receiving the largest grant payments

for living expenses are the students most likely to have a large grant

overpayment if they withdraw from the program. These students are also,

therefore, the ones that will derive the largest benefit from having 50

percent of their grant overpayment eliminated under the return

calculation. In addition, we have developed repayment terms for

overpayments of Title IV, HEA grants that we believe will mitigate some

of the possible negative effects of these requirements on students.

Institutions that are particularly concerned about the impact of these

provisions on their students may wish to consider alternative

disbursement schedules or at least making additional disclosures to

students at the time the grant funds are disbursed to them.

Changes: None.

Comments: Commenters asked for clarification of, and suggested a

few changes to, the guidance in effect on the definition of

institutional charges. One commenter encouraged us to continue to

include the financial aid community in any revision efforts. One

commenter suggested that institutions be permitted to define

institutional charges based on the regulatory language proposed in the

NPRM.

Discussion: As stated in the preamble to the NPRM, we will revisit

the current guidance of the January 7, 1999 policy bulletin on the

definition of institutional charges to determine if revisions would be

appropriate given the changes to section 484B of the HEA. We will take

into account the comments received in response to the NPRM as part of a

larger effort to include the financial aid community in the evaluation

of the current guidance. Until further guidance is issued, the guidance

of the January 7, 1999 policy bulletin remains in effect.

Changes: None.

Comments: A few commenters believed that ``institutional charges

incurred by the student'' should be the institutional charges for which

the student is held responsible by the institution at the time the

student withdrew. The commenters maintain that this definition will

take into account revisions to a student's institutional charges based

on changes in the student's enrollment status or in the number of

classes in which the student is enrolled. One commenter explained that

some institutions will assess housing charges throughout the payment

period, and that the institutions do not withhold Title IV, HEA program

funds to pay those costs. The commenter suggested that, in this

situation, the institution's repayment responsibilities should only

consider the initial charges that were assessed to the student because

the subsequent housing charges were paid by the student throughout the

payment period. A student that withdrew could, therefore, cause the

institution to repay institutional charges that had never actually been

collected from the student.

One commenter asked which amounts of Title IV, HEA program funds

would be used in the calculation of earned aid, the original amounts or

the net amounts after an institution adjusts the student's aid because

of an enrollment change. One commenter believed that aid received to

pay for tuition, fees, and books, should be considered fully earned by

the institution on the day that the institution no longer considers

students eligible for refunds. One commenter questioned whether Federal

Work-Study funds that are credited to a student's account for

institutional charges would be included in determining the amount of

Title IV, HEA program assistance retained for institutional charges.

One commenter questioned whether Title IV, HEA program aid retained by

the institution as of the withdrawal date must be considered in

determining the amount of Title IV, HEA program assistance retained for

institutional charges for a non-term program where the institution

chooses to calculate the treatment of Title IV, HEA program funds when

a student withdraws using the payment period basis, but institutional

charges are for a longer period, or only the Title IV, HEA program aid

that is retained by the institution to cover the charges the

institution imposed under its refund policy as of the student's

withdrawal date.

Discussion: We do not agree that the return calculation should be

based upon the student's enrollment status at the time of withdrawal,

or reduced to reflect whatever adjusted institutional charges were

assessed by the institution after the student withdrew. The allocation

of repayment responsibilities is based upon the institutional charges

that were initially assessed. Unless the institution had processed a

change in enrollment status for a student prior to his or her

withdrawal and made any attendant changes in the amount of

institutional charges at that point, the institution would be required

to use in the return calculation the charges that were initially

assessed to the student. While we understand that the actual charging

practices at some institutions may not conform to the standard practice

of assessing all charges to the student for the payment period, we

believe that it would not be feasible to create exceptions because of

the potential for abuse. Since the Title IV, HEA program funds are

provided to the student for the entire payment period or the period of

enrollment, it follows that repaying the unearned institutional charges

assessed throughout that period should be deemed to be the

responsibility of the institution.

Since the basis for earning Title IV, HEA program funds is the time

that the student was in attendance at the institution, the time periods

covered by the institution's refund policy are not taken into

consideration. For that reason, there is no separate measure used to

determine when a student has earned specific amounts of funds for

particular charges. The institution's refund policy will govern what

charges a student may owe after withdrawing, but that policy will not

affect the amount of aid the student has earned under the return

calculation. An institution's refund policy is also not taken into

consideration for establishing the repayment obligations of the

institution and the student. Furthermore, we note that the

institution's refund policy is not required to take into consideration

the formula in the return calculation when establishing whether the

student owes any funds to the institution.

The return calculation does not take into consideration the

individual requirements of an institution's refund policy. The

repayment responsibilities for the Title IV, HEA program aid is

allocated between the institution and the student based upon the total

institutional charges that were initially assessed to the student.

Because Federal Work-Study funds are not included in the

calculation of earned Title IV, HEA program funds when a student

withdraws, Federal Work-Study funds that are credited to a student's

account would not be included as Title IV, HEA program assistance

retained for institutional charges.

Section 668.22(h) Return of Unearned Aid, Responsibility of the Student

General

Comments: Several commenters were concerned about the financial

burden and the consequences of that burden that the proposed rules

would place on students and institutions. The commenters contended that

the proposed rules will result in the availability of less Title IV,

HEA funds for a withdrawn student than under former provisions of

section 484B of the

[[Page 59034]]

HEA. As a result, the commenters maintained that in many cases,

students will owe both the institution (for unpaid institutional

charges under the institution's refund policy) and the Title IV, HEA

programs (for the return of unearned Title IV, HEA program funds).

The commenters noted that many of these students will have limited

funds to make these payments and will have to choose whether to pay the

institution or the Title IV, HEA programs. The commenters contended

that, either way, a student will not be able to re-enroll in the

institution or attend another institution, either because the student

chooses to pay the institution rather than the Title IV, HEA programs

and defaults on their Title IV, HEA program loans thereby losing

eligibility for additional Title IV, HEA program funds, or because the

student chooses to pay the Title IV, HEA programs rather than the

institution, thereby being denied the opportunity to re-enroll or

obtain transcripts to attend another institution. A couple of

commenters believed that because students would not be able to re-

enroll and complete their education, the institution will lose its

relationship with employers in the community because the institution

will not be able to provide employers with qualified candidates.

A few commenters suggested that institutions be permitted to change

the way that they disburse Title IV, HEA program funds so that the

institution can lessen or eliminate the occurrence of grant or loan

repayment for a student. For example, one commenter suggested that, to

decrease the chance of a student owing a repayment of Title IV, HEA

program funds, an institution should be permitted to disburse Title IV,

HEA program funds as the aid is earned in accordance with the schedule

for determining the amount of aid a student has earned upon withdrawal.

One commenter suggested that an institution be permitted to establish

disbursement dates based on withdrawal patterns at the institution.

One commenter argued that the return calculation will encourage

students to borrow to avoid possible grant overpayments if they

withdraw, and another commenter said that the return of unearned Title

IV, HEA program funds under the proposed rules did not provide for

equitable treatment for students receiving Title IV, HEA program

funding compared to students that did not receive such funding. The

commenters also reasoned that, because students will have less Title

IV, HEA program funds to cover the institutional charges that the

students will owe the institution under the institution's refund

policy, the institution will be forced to increase costs for all

students. One commenter believed that an institution should be allowed

to pay the amount the student is responsible for returning to the Title

IV, HEA programs and then be allowed to bill the student. A couple of

the commenters believed that an institution could not resolve a debt

owed by a student that is difficult or impossible to collect by

writing-off the debt because the institution would be considered

fiscally irresponsible under the 90/10 rules and other regulations if

they did not pursue payment.

Many of the commenters believed that many, if not all, of the

negative effects delineated here could be mitigated by requiring a

student to return 50 percent of the amount of grant funds that were

originally disbursed or that could have been disbursed to the student.

Discussion: The commenters are correct that these new statutory

provisions may result in more aid being returned to the Title IV, HEA

programs. The difference will be primarily due to the absence of

rounding in 10 percent segments as done under the prior pro-rata refund

provisions, and to the use of the same refund formula for successive

payment periods rather than switching to a different schedule that

permits institutions to earn Title IV, HEA program funds faster. It

will be incumbent upon institutions to work closely with their students

to ensure that they understand their responsibilities for earning the

aid being provided for the payment period or period of enrollment.

Other steps can also be taken to minimize the potential hardships

to students that withdraw. We note that institutions already have some

flexibility in holding back some portion of disbursements of Title IV,

HEA program funds if they work with the student to set up a budget. For

example, an institution may disburse Federal Pell Grant program funds

at such times and in such installments as it determines will best meet

the student's needs. We believe that this flexibility permits an

institution to tailor Title IV, HEA program disbursements to meet the

circumstances of the institution's student body. Institutions will also

be able to work with a student that owes a grant repayment in order to

preserve the student's eligibility for additional Title IV, HEA program

funds, or the student may also enter into a repayment agreement with

the Department. These flexibilities provide institutions and students

with opportunities to either avoid substantial repayment obligations or

to minimize the impact of the repayment burden when a student

withdraws.

We question the statement that students may minimize their exposure

to grant overpayments by increasing their borrowing. In some instances,

such borrowing could actually increase the amount of a grant

overpayment if the institution is responsible for returning funds

toward the student's Title IV, HEA loan, leaving the student with the

entire Title IV, HEA grant repayment. Situations where a grant

overpayment is required are also instances where a direct benefit was

conferred upon the student because half of the repayment amount is

forgiven. Under these scenarios, it is not clear how there is any

disfavorable treatment of a Title IV, HEA program funds recipient when

compared to a student that does not receive Title IV, HEA program

funds. We also note that the impact of these new rules will vary among

institutions based upon the relative numbers of students that withdraw

and the points at which those withdrawals occur, as well as the

relative ability of their students to repay the institutions for

amounts owed under the institution's refund policies. Institutions

will, over time, adjust to these new rules by changing their policies,

by working more closely with their students that are considering

withdrawing, and by adjusting their charges.

As requested by a commenter, we note that an institution may repay

a Title IV, HEA program grant overpayment on a student's behalf and

collect the debt from the student. The student will no longer be

considered to owe an overpayment and will be eligible for Title IV, HEA

program funds provided that all other eligibility requirements are met.

An institution that repaid a grant overpayment and then forgave the

student's debt to the institution would not be considered fiscally

irresponsible under the 90/10 rule or other regulations. The 90/10

rule, which requires that an institution may derive no more than 90

percent of its revenues from the Title IV, HEA programs, does not

require an institution to pursue payment of debts. However, if an

institution does not collect a student debt for institutional charges,

the institution may not include the amount of the debt as non-federal

revenue in its 90/10 calculations.

The commenters' belief that the negative effects could be mitigated

by requiring a student to return 50 percent of the amount of grant

funds that were originally disbursed or that could have been disbursed

is discussed in detail in the Analysis of Comments and Changes

[[Page 59035]]

for the ``Grant Overpayments'' portion of Sec. 668.22(h).

Changes: None.

Grant Overpayments

Comments: Several commenters believed that Title IV, HEA grant

overpayment amounts should be minimized as much as possible. To this

end, many of these commenters supported the non-federal negotiators'

interpretation of the law that the statute should be read to relieve

the student of 50 percent of the amount of grant funds that were

originally disbursed or that could have been disbursed to the student,

rather than the Secretary's interpretation of the statute that would

provide that a student does not have to repay 50 percent of the

student's grant repayment amount. A few commenters believe that 50

percent of a student's Pell Grant funds should be protected up-front

and not included at all in the calculation of earned aid.

The commenters opposed the Secretary's position for the following

reasons:

Grant recipients, who are the students who are least

able to repay an overpayment, will lose eligibility for future Title

IV, HEA program aid if they do not repay the grant. A loss of Title

IV, HEA program eligibility will prevent these students from re-

enrolling in a postsecondary institution because they will not have

the financial resources to do so. This will deny education to the

people who need it most.

Disadvantaged students will be discouraged from

enrolling. They will not want to risk assuming an overpayment if

they are forced to withdraw for reasons beyond their control.

Grant recipients will be prevented from transferring to

another postsecondary institution that may better meet their needs.

Defaults will increase. Students will be forced to take

out Title IV, HEA program loans to avoid possible Title IV, HEA

grant overpayments if they withdraw. Many of the students will not

have the resources to repay the loans and will default. The same

will be true for students who owe both a grant overpayment and a

loan debt and do not have the resources to satisfy both. A student

may also owe the institution under the institution's refund policy,

further limiting the student's ability to repay a loan.

Up-front costs are not sufficiently acknowledged.

The proposed rules are punitive to students who

withdraw from an institution, regardless of the reason. The

implication that Title IV, HEA grant recipients are trying to take

advantage of the Title IV, HEA programs is unfounded. Our position

is not in line with stated goal for negotiated rulemaking which is,

``to develop policies that promote opportunity with

responsibility.''

Our position undercuts the intent of the Pell Grant

program, which is to give financially disadvantaged students the

opportunity to succeed. The Pell Grant Program is an incentive

program, an access program and a second chance program.

Students at low-cost institutions would be the hardest

hit because most of a student's Title IV, HEA grant funds are given

directly to student.

Every Title IV, HEA grant recipient who withdraws

should not have a grant overpayment, as our position would require.

Although a Title IV, HEA grant recipient who withdraws should not be

considered to have completely earned the funds, the amount of the

student's overpayment should be minimized as much as possible.

Society will be impacted negatively. There will be a

greater need for social programs for the students who are not able

to continue their education because of a loss of Title IV, HEA

program eligibility. The number of educated citizens to fill

technical jobs will decrease.

A few commenters specifically argued that the statute can be read

to support the nonfederal negotiators' interpretation. Some maintained

that the statutory language is ambiguous. One commenter asserted that

the phrase ``that is the responsibility of the student to repay''

refers to the grant programs to which repayments must be attributed,

and it does not limit the 50 percent discount to 50 percent of the

student's grant repayment amount. A few commenters noted that other

similar aid recipients, such as scholarship recipients, are not asked

to return any aid funds upon withdrawal. Some of these commenters

asserted that monthly social security payments are not repaid if a

recipient does not live out the entire month for which the payment has

been received. The commenters noted that other entitlement aid sources

recognize that the aid generally only funds a small portion of the

expenses for which they are intended. A few commenters noted that the

requirements for students to maintain satisfactory academic progress

has safeguards to prevent students from abusing Title IV, HEA program

funds through frequent withdrawals, because students not maintaining

satisfactory academic progress will lose eligibility for Title IV, HEA

program funds. A few commenters asked how to treat a situation where a

grant repayment is owed and the student has a credit balance on his or

her account, including whether a student would get the full benefit of

a 50 percent reduction in the repayment amount in those circumstances.

Some commenters requested changes to the existing repayment terms

for students who owe a grant overpayment to ensure that students who

cannot repay remain eligible for additional Title IV, HEA program

funds. The commenters made the following points:

It is inequitable to allow a student to repay loan

funds under the terms of a promissory note, but insist on repayment

of a grant overpayment under more immediate and punitive terms.

We should provide terms that are similar to loan

repayment terms, such as a grace period, periods of deferment and

forbearance, and the ability to repay over a longer period of time.

The institutional collection effort would be too

burdensome and costly to an institution. An institution should not

have to collect Title IV, HEA program overpayments for us.

We should consider community service as an alternative

to repayment of an overpayment.

Several commenters requested clarification of the applicable

requirements for repaying a Title IV, HEA grant overpayment.

Specifically, the commenters wanted to know how long a student will

lose eligibility if he or she owes an overpayment. One commenter urged

us to not overregulate the repayment process and let institutions work

with students to provide satisfactory repayment arrangements.

Discussion: We continue to believe that 50 percent of the student's

grant repayment amount provides the level of relief to the student that

the statute intended, while it requires a student to return a portion

of the unearned grant assistance. As stated in the preamble to the

NPRM, we believe that the conference report language for the 1998

Amendments supports this interpretation.

We note that the difference in position between the commenters and

the Secretary for purposes of the proposed rules is limited to the

question of how much grant overpayment should be forgiven, with the

Secretary proposing to forgive half of the grant repayment amount

rather than half of the total grant amount the student received. The

suggestions from commenters arguing against holding students

accountable for making any grant repayments are not permitted under the

law. To the extent that the law could be read to support either

position, we believe that we have adopted the better reading. We also

note that the proposal to discount by half the amount of any grant

repayment is simpler to explain to students and consistent with the

principle that the repayment is a shared responsibility.

The commenters suggestion to reduce grant overpayments by half of

the total grant amounts would instead create a fixed amount of grant

funds that the student was never required to earn, regardless of when

the student withdrew. For example, a student who

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was disbursed or could have been disbursed $2,000 in Title IV, HEA

grant funds would be given $1,000 of the grant funds in addition to

whatever amounts were earned regardless of whether he or she withdrew

after 5 days of attendance or 25 days.

In response to the observation from commenters that other sources

of aid are not subject to repayment requirements, such as scholarships

or monthly social security benefits, the statutory basis for this grant

repayment requirement distinguishes it from those programs.

We note that the requirements for students to maintain satisfactory

academic progress further the goals of the Title IV, HEA programs by

establishing maximum timeframes for students to complete their program,

but these requirements do not replace the proposed repayment structure

that is designed to allow students to earn over time the aid provided

for a payment period or period of enrollment.

When a student owes a grant overpayment and there are funds

available on the student's account as a credit balance, the institution

would be expected to use those funds to apply toward repaying the

student's grant overpayment. The actual amount of the grant repayment

would still be determined under the return calculation by applying the

50 percent discount to the amount of unearned grant funds. Any funds

left as a credit balance after satisfying the grant repayment would be

handled in accordance with Subpart K-Cash Management of the Student

Assistance General Provisions regulations.

We agree with the commenters who suggest that we revise the

existing repayment terms for students who owe a grant overpayment to

ensure that students who cannot repay have the opportunity to continue

their eligibility for Title IV, HEA program funds. Under changes that

are included in these final regulations, a student who owes an

overpayment as a result of withdrawal will retain his or her

eligibility for Title IV, HEA program funds for 45 days from the

earlier of the date the institution sends a notification to the student

of the overpayment, or the date the institution was required to notify

the student of the overpayment. During those 45 days, the student will

have the opportunity to take action that can continue his or her

eligibility for Title IV, HEA program funds. A student may do this in

one of three ways: (1) the student may repay the overpayment in full to

the institution, (2) the student may sign a repayment agreement with

the institution, or (3) the student may sign a repayment agreement with

the Department. If a student does not take one of these three actions

during the 45 day period, the student becomes ineligible for Title IV,

HEA program funds on the 46th day from the earlier of the date that the

institution sends a notification to the student of the overpayment, or

the date the institution was required to notify the student of the

overpayment. The student will remain ineligible until the student

enters into a repayment agreement with the Department that re-

establishes the student's eligibility.

We are sensitive to the concerns of some commenters that collection

on behalf of the Department may be unduly burdensome and costly to the

institution. We note that an institution is never required to enter

into a repayment agreement with a student, and may refer an overpayment

to the Department at any time after the student has had the opportunity

to pay off the overpayment in full to the institution or sign an

agreement with the Department. Because we are concerned with an

institution's ability to continue to track a student to obtain payment,

these final regulations provide that an institution's repayment

arrangement must provide for repayment of the entire overpayment within

two years of the date of the institution's determination that the

student withdrew. Any amount of the overpayment that remains at the end

of the two years must be referred to the Department. Other times that

an institution must refer an overpayment to the Department are: (1) If

the student did not satisfy any of the required actions for extending

his or her eligibility during the 45 day period; and (2) if at any time

a student does not meet the requirements of his or her repayment

agreement with the institution.

A student who wishes to sign a repayment agreement with the

Department will do so by contacting the Department directly. We

acknowledge that an institution may not know if a student chooses to

sign a repayment agreement with the Department within the 45 days.

Therefore, if a student does not repay the overpayment in full to the

institution or sign a repayment agreement with the institution within

the 45 days, when the institution refers the overpayment to the

Department, it must report the overpayment to the National Student Loan

Data System (NSLDS) as a referred overpayment (an institution can refer

to Dear Colleague Letter GEN-98-14 for more information on reporting

overpayment information to NSLDS). We will check to see if the student

signed an agreement with the Department and report the final status of

the overpayment to NSLDS.

A repayment agreement with the Department will include terms that

permit the student to repay the overpayment while maintaining his or

her eligibility for Title IV, HEA program funds. We will seek to

develop terms that will include a grace period and are sensitive to a

student's financial situation. We encourage institutions that choose to

enter repayment agreements with students to do the same.

We would like to stress that any overpayment resulting from a

student's withdrawal remains an overpayment until the overpayment is

repaid in full. We will provide further guidance on the repayment of

overpayments through appropriate Department publications.

Changes: Section 668.22(h)(4) has been revised to provide repayment

terms for students who owe a grant overpayment to ensure that students

who cannot repay have the opportunity to continue their eligibility for

Title IV, HEA program funds.

Section 668.22(j) Timeframe for the Return of Title IV, HEA Program

Funds

Comments: A few commenters support the 30-day timeframe for an

institution to return all Title IV, HEA program funds for which it is

responsible. In particular, the commenters felt that it is reasonable

to expect that FFEL Program funds be returned at the same time as all

other Title IV, HEA program funds. The commenters believed that this

should not be significantly burdensome to institutions because most

FFEL Program funds are delivered electronically. A couple of commenters

contended that an institution should be allowed 45 days, rather than 30

days to return all Title IV, HEA program funds for which it is

responsible. The commenters asserted that 30 days is not enough time

for an institution to adjust a student's account and perform all of the

administrative functions necessary to process funds. A few commenters

believed that 30 days is not a sufficient amount of time to determine

if a student has unofficially withdrawn from the institutions. The

commenter felt that more time was needed to permit the institution to

contact professors and students.

Discussion: We agree with the commenters who believe that it is not

unduly burdensome for an institution to return Title IV, HEA program

funds, including FFEL Program funds, within 30 days of the date of the

institution's determination that the student withdrew because these

funds are often delivered electronically. This 30 day

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period should also be enough time for the institution to contact

professors and students, as needed, to meet these responsibilities.

Changes: None.

Section 668.22(k) Consumer Information

Comments: A few commenters felt that the requirements for

determining a student's earned Title IV, HEA program aid upon

withdrawal would be too difficult for a student or potential student to

understand, especially since the student is likely to be subject to an

institutional refund policy as well. Two commenters believe that it

will be difficult to communicate to a student the actual amount of

Title IV, HEA program assistance that they will receive because it will

vary depending on if and when a student withdraws. One commenter asked

if information on determining a student's earned Title IV, HEA program

aid upon withdrawal would be in The Student Guide, our publication for

students that provides general information on Title IV, HEA program

assistance. One commenter felt that the requirements for determining a

student's earned Title IV, HEA program aid upon withdrawal will be more

easily explained to students than the current Title IV, HEA refund

requirements.

Discussion: We do not agree that the requirements for determining

the treatment of Title IV, HEA program funds when a student withdraws

will be too difficult for a student to understand. We note that a

general write-up on the treatment of a student's Title IV, HEA program

funds when he or she withdraws is contained in The Student Guide for

the 2000-2001 award year.

Changes: None.

Section 682.207 Due Diligence in Disbursing a Loan

Comments: One commenter believed that the social security number of

a parent borrower should be added to the information that a lender must

provide to an institution when the lender disburses a loan directly to

a borrower for attendance at a foreign institution, if the loan

disbursed is a PLUS loan. The commenter felt that a parent's social

security number is necessary for recordkeeping and access purposes. The

commenter noted that if the institution must return funds to the lender

or correspond with lender regarding an inquiry about the PLUS loan, the

institution will need the parent's social security number to ensure

proper identification and/or application of the funds.

Discussion: We agree that a parent's social security number is

information that an institution must have for proper recordkeeping and

identification of PLUS loan funds.

Changes: Section 682.207(b)(1)(v)(E)(2) has been amended to require

that a lender must provide the social security number of a parent

borrower that was provided on the PLUS loan application to an

institution when the lender disburses a loan directly to a borrower for

attendance at a foreign institution, if the loan disbursed is a PLUS

loan.

Executive Order 12866

We have reviewed these final regulations in accordance with

Executive Order 12866. Under the terms of the 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 to

be 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 justify the costs.

We have also determined that this regulatory action does not unduly

interfere with State, local, and tribal governments in the exercise of

their governmental fu

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