[Federal Register: October 29, 1999 (Volume 64, Number 209)]
[Rules and Regulations]
[Page 58607-58619]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc99-15]
[[Page 58607]]
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Part IV
Department of Education
_______________________________________________________________________
34 CFR Parts 600 and 668
Institutional Eligibility Under the Higher Education Act of 1965, as
Amended and Student Assistance General Provisions; Final Rule
[[Page 58608]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 600 and 668
RIN 1845-AA08
Institutional Eligibility Under the Higher Education Act of l965,
as Amended and Student Assistance General Provisions
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: We amend the regulations that govern institutional eligibility
for and participation in the student financial assistance programs
authorized under title IV of the Higher Education Act of 1965, as
amended (Title IV, HEA programs). These programs include the Federal
Pell Grant Program, the campus-based programs (Federal Perkins Loan,
Federal Work-Study (FWS), and Federal Supplemental Educational
Opportunity Grant (FSEOG) Programs), the William D. Ford Federal Direct
Loan (Direct Loan) Program, the Federal Family Education Loan (FFEL)
programs, and the Leveraging Educational Assistance Partnership (LEAP)
Program (formerly known as the State Student Incentive Grant (SSIG)
Program).
These final regulations implement statutory changes made to the
Higher Education Act of 1965, as amended (HEA), by the Higher Education
Amendments of 1998 (1998 Amendments). Many of the final regulatory
changes merely conform current regulatory provisions to the statutory
changes.
DATES: Effective Date: These final regulations are effective July 1,
2000.
Implementation Date: The Secretary has determined, in accordance
with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), at
their discretion institutions can choose to implement the provisions of
certain sections of these regulations on or after October 29, 1999. For
further information see ``Implementation Date of These Regulations''
under the SUPPLEMENTARY INFORMATION section of this preamble.
FOR FURTHER INFORMATION CONTACT: Cheryl Leibovitz, U.S. Department of
Education, 400 Maryland Avenue, SW., ROB-3, room 3045, Washington, DC
20202-5344. Telephone: (202) 708-9900. If you use a telecommunications
device for the deaf (TDD), you may call the Federal information Relay
Service (FIRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding
paragraph.
SUPPLEMENTARY INFORMATION:
Background
On July 15, 1999, we published a notice of proposed rulemaking
(NPRM) in the Federal Register (64 FR 38272-38282) proposing to amend
the regulations governing institutional eligibility for and
participation in the Title IV, HEA Programs. In the preamble to the
NPRM, we discussed the following proposed changes:
* Amending Sec. 600.2, the definition of ``State'' to
include the ``Freely Associated States,'' which are the Republic of the
Marshall Islands, the Federated States of Micronesia, and the Republic
of Palau.
* Amending Secs. 600.4(c), 600.5(h), and 600.6(d) to require
an institution to agree to submit any dispute involving the final
denial, withdrawal, or termination of accreditation to ``initial''
rather than ``binding'' arbitration.
* Amending Sec. 600.5(a)(8) to conform the provisions
previously referred to as the ``85/15 rule'' to the new ``90/10 rule''.
* Amending Sec. 600.5(d) to make explicit that institutions
must use the cash basis of accounting in determining whether they
satisfy the 90/10 rule, and by clarifying how institutional loans and
scholarships must be treated under the cash basis of accounting.
* Amending Sec. 600.5(e) to provide that an institution
could presume that a student's institutional charges were not paid with
Title IV, HEA program funds if they were paid with funds received from
a prepaid State tuition plan.
* Amending Sec. 600.7(c) to expand the waiver provision for
an institution whose enrollment of incarcerated students exceeds 25
percent to include a nonprofit institution that provides a two- or
four-year program for which it awards a ``postsecondary diploma.''
*Amending Sec. 600.8, as well as Secs. 600.5(b)(3)(i) and
600.6(b)(3)(iii) to clarify that a branch campus must exist as a branch
campus for at least two years after the Secretary certifies it as a
branch campus before seeking to be certified as a main or free-standing
campus.
* Amending Secs. 600.31 and 668.12 to allow an institution
undergoing a change in ownership that results in a change in control to
continue to participate in the Title IV, HEA programs on a provisional
basis if the institution meets certain requirements.
* Amending Sec. 600.55(a)(5)(i)(A) to provide criteria for
determining the comparability of foreign graduate medical schools to
domestic graduate medical schools.
* Amending Sec. 600.56 to subject foreign veterinary schools
to many, but not all, of the special eligibility requirements that the
statute previously applied to foreign medical schools.
* Amending Sec. 668.13 to expand the maximum period of time
that an institution may be certified to participate in the Title IV,
HEA programs from four years to six years.
* Amending Sec. 668.14 to exempt an institution that has
undergone a change in ownership/control from the requirement that it
use a Default Management Plan during the first two years of its
participation in the FFEL or Direct Loan programs if certain conditions
are met.
* Amending Sec. 668.14 by removing Secs. 668.14(d) and (e),
which govern collection and reporting of information concerning
athletically-related aid, because those requirements will be revised
and incorporated in Sec. 668.47.
* Amending Sec. 668.14(b)(24) to clarify that an institution
agrees to comply with the requirements of Sec. 668.22, which relates to
refunds and the return of Title IV, HEA program funds.
* Amending Sec. 668.14(d) to require that an institution
make a good faith effort to distribute mail voter registration forms to
its students. (The 1998 Amendments included this requirement but
prohibited any officer of the Executive Branch from instructing an
institution in the manner in which this provision is to be carried out.
Therefore, proposed Sec. 668.14(d) incorporated the provisions of
section 487(a)(23) of the HEA verbatim into Sec. 668.14(d) with minor
changes to incorporate plain language requirements.)
* Amending Sec. 668.27 to allow for a waiver for up to three
years of the requirement that an institution submit annually, a
compliance audit and audited financial statement if certain conditions
are met.
* Amending Sec. 668.92 to reflect that an individual who
exercises substantial control over an institution and willfully fails
to pay refunds on student loans is subject to the penalty established
under section 6672(a) of the Internal Revenue Code of l986 with respect
to nonpayment of taxes.
* Amending Secs. 668.95 and 668.113 to allow an institution
to correct or cure an error that results from an administrative,
accounting, or recordkeeping error, if that error was not part of a
pattern of errors and there is no evidence of fraud or misconduct
related to the error, and to clarify that the Secretary will not
[[Page 58609]]
limit, suspend, terminate, or fine the institution if such an error is
cured.
There are no significant differences between the NPRM and these
final regulations.
Implementation Date of These Regulations
Section 482(c) of the HEA, 20 U.S.C. 1089(c), provides that if we
publish these regulations before November 1, 1999, the regulations will
become effective on July 1, 2000. However, that section also permits us
to designate any of these regulations as one that an entity subject to
the regulation may choose to implement earlier. If we designate a
regulation for early implementation, we may specify when and under what
conditions the entity may implement it. Under this authority, we have
designated the following regulations for early implementation:
Upon publication, institutions have the discretion to implement
Secs. 600.4(c), 600.5(h), 600.6(d), 600.55, and Sec. 600.56.
Upon publication, institutions have the discretion to implement the
provisions of Secs. 600.5(d) and (e). However, if an institution
chooses to implement any of the provisions in those sections, it must
implement all of them.
Upon publication, institutions have the discretion to implement the
provisions dealing with a change of ownership that results in a change
in control in Secs. 600.20, 600.31, and 668.12.
Note: The changes to Secs. 600.2, 600.5(a), 600.5(b)(3)(i),
600.6(b)(3)(iii), 600.7(a)(1)(iii) and (iv), 600.7(c), 600.8,
668.13, 668.14(b)(24), 668.14(d), and 668.92 reflect statutory
provisions that already are in effect. Institutions may use these
regulations prior to July 1, 2000 as guidance in complying with
those statutory provisions.
The changes to Secs. 668.95 and 668.13 merely clarify our current
practices with regard to initiating compliance actions and assessing
liabilities.
Section 668.27 will not become effective until July 1, 2000.
However, we will begin to accept applications for waivers from
institutions as of January 3, 2000 so that we can begin to grant
waivers on July 1, 2000.
Discussion of Student Financial Assistance Regulations Development
Process
The regulations in this document were developed through the use of
negotiated rulemaking. Section 492 of the HEA requires that, before
publishing any proposed regulations to implement programs under Title
IV of the HEA, the Secretary obtain public involvement in the
development of the proposed regulations. After obtaining advice and
recommendations, the Secretary must conduct a negotiated rulemaking
process to develop the proposed regulations. All proposed regulations
must conform to agreements resulting from the negotiated rulemaking
process unless the Secretary reopens that process or explains any
departure from the agreements to the negotiated rulemaking
participants.
These regulations were published in proposed form on July 15, 1999.
With the exception of provisions relating to the ``90/10 rule'' in the
definition of ``proprietary institution of higher education'' at
Sec. 600.5, the proposed regulations reflected the consensus of the
negotiated rulemaking committee. Under the committee's protocols,
consensus meant that no member of the committee dissented from the
agreed-upon language. The Secretary invited comments on the proposed
regulations by September 13, 1999 and approximately 60 comments were
received. An analysis of the comments and of the changes in the
proposed regulations follows.
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address technical and other
minor changes in the proposed regulations, and we do not respond to
comments suggesting changes that the Secretary is not authorized by law
to make.
Analysis of Comments and Changes
Part 600--Institutional Eligibility Under the Higher Education Act of
1965, as amended
Section 600.5 Proprietary Institution of Higher Education
Comments: A number of commenters registered support of the
Secretary's proposals for implementing the 90/10 rule as reasonable and
compliant with the HEA.
Discussion: We appreciate the support for these changes.
Changes: None.
Comments: Several commenters disagreed with the requirement
contained in proposed Sec. 600.5(d)(2) that a proprietary institution
of higher education must use the cash basis of accounting in
determining whether it satisfies the 90/10 rule. These commenters
believed that all revenue should be recognized when earned (accrual
basis of accounting), and not when received (cash basis of accounting.)
Discussion: We set forth in the preamble to the proposed
regulations at 64 FR 38272, 38275 the history and rationale for the
decision to use the cash basis of accounting in reporting revenue for
the purpose of the 85/15 and now 90/10 rule. In summary an institution
must report and account for its expenditure of Title IV, HEA program
funds on the cash basis of accounting, and therefore, it must report
all its revenues on that basis in order to make a meaningful
determination of compliance with the 90/10 requirement.
Changes: None.
Comments: Two commenters requested clarification on the treatment
of institutional loans in proposed Sec. 600.5(d)(3)(i). That section
provided that under the cash basis of accounting, when calculating the
amount of revenue generated by the institution from institutional
loans, an institution may include only loan repayments received during
the relevant fiscal year.
Discussion: An institution may not count in the denominator of the
fraction in Sec. 600.5(d)(1) the loan proceeds from institutional loans
that were disbursed to students; it may include only loan repayments it
received during the relevant fiscal year for previously disbursed
institutional loans.
Changes: None.
Comments: A number of commenters objected to the treatment of
``institutional scholarships'' as proposed in Sec. 600.5(d)(3)(ii).
That section provided that under the cash basis of accounting, when
calculating the amount of revenue generated by the institution from
institutional scholarships, an institution may include only the amount
of funds it disbursed during the fiscal year from an established
restricted account, and only to the extent that the funds in the
account represent designated funds from an outside source or from fund
earnings.
Commenters who objected to our treatment of institutional
scholarships indicated that contributions to proprietary institutions
are not tax deductible, and therefore proprietary institutions
generally do not receive funds from outside sources for scholarship
funds. Other commenters indicated that the tax laws preclude a
proprietary institution from setting up a tax exempt entity for that
purpose. Thus, the commenters noted that scholarship endowments are
virtually non-existent in the proprietary sector.
The commenters noted that it would take years to amass the
principal necessary to create a substantial endowment program. They
also believed it would take even longer to earn enough interest to make
tangible scholarship distributions to students. In addition, the
commenters said that as a result of this proposed requirement, many
institutions would have no choice
[[Page 58610]]
but to limit or forgo making scholarships to deserving students.
On the other hand, several other commenters supported our treatment
of institutional scholarship funds under the cash basis of accounting.
Discussion: We understand that the tax laws preclude individuals
and entities from making tax deductible contributions to proprietary
institutions, and therefore it would be unlikely that these
institutions would have restricted funds to make scholarship awards.
However, this result is consistent with our view, as expressed in the
NPRM preamble, that institutional scholarships are not revenue
generated by the institution but are expenses of the institution, and
should not be included, except in unusual circumstances, in the
denominator of the fraction in Sec. 600.5(d)(1).
We specified in the initial NPRM on this topic in 1994 (59 FR 6446,
February 10, 1994) that we wished to encourage proprietary institutions
to obtain support from sources outside of and independent of the
institution. Accordingly, funds donated to the institution by related
parties may not count for purposes of the 90/10 calculation. An
institution could, however, use such donations to create restricted
accounts for institutional scholarships. Those scholarships would count
in the 90/10 calculation, but only to the extent of earnings on the
restricted account.
We disagree with the commenter's assertion that proprietary
institutions will reduce the funding of institutional scholarships to
their students. We believe that institutions award these scholarships
to benefit their students, not as an artifice to avoid the consequences
of the 90/10 rule.
Changes: None.
Comments: Some commenters stated that Federal Work-Study (FWS)
program funds that an institution uses to pay institutional charges
should be included in the 90/10 formula.
Discussion: Prior the 1998 Amendments, we did not include FWS funds
in the 90/10 formula because the institution was required to pay those
funds directly to the student; the institution was not permitted to use
those funds to pay the student's institutional charges. The 1998
Amendments now allow an institution to credit FWS funds against a
student's institutional charges if the student gives his or her
permission. As a result, we believe that FWS funds must now be included
in the 90/10 formula to the extent that a student takes advantage of
this new authority and authorizes FWS funds to be used to pay his or
her institutional charges.
Changes: Section 600.5(e)(1)(i) is revised to include FWS funds
that an institution uses to pay a student's tuition, fees, and other
institutional charges.
Comments: Several commenters requested that we address how credit
balances should be treated with regard to the 90/10 rule.
Discussion: In general, funds held as credit balances in
institutional accounts do not get counted in the 90/10 formula in
Sec. 600.5(d)(1). However, once funds held as credit balances are used
to satisfy institutional charges, they would be counted in both the
numerator and denominator of the formula. For example, an institution's
fiscal year is a calendar year. On December 30, 1999, the institution
disburses $100,000 of Title IV, HEA program funds to students on their
accounts, and credit balances occur because the institution has not yet
charged those accounts with related tuition and fees. On January 3,
2000, the institution charges tuition and fees to the students'
accounts, and uses all of those previously disbursed funds to pay the
students' tuition and fee charges.
For purposes of the 90/10 formula in Sec. 600.5(d)(1), none of the
$100,000 would be included in the institution's 90/10 calculation for
its 1999 fiscal year because none of the funds had been used for
tuition, fees, and other institutional charges; all of the $100,000
would be included in the institution's 90/10 calculation for its 2000
fiscal year calculation, when the funds were used to satisfy tuition,
fees, and other institutional charges.
A similar result would apply if the institution drew down $100,000
of Title IV, HEA program funds from the Department on December 30, 1999
but did not pay those funds to students for institutional charges until
January 3, 2000.
We note that under an extremely literal interpretation of the
principles underlying the cash basis of accounting, it would be
possible to determine that none of the $100,000 in the above example
would be included in the numerator or denominator for any year because
the regulation applies to cash received used to satisfy tuition, fees
and other institutional charges. Under this interpretation, an
institution would count only the funds it received in a particular
fiscal year used to satisfy institutional charges for that fiscal
year's determination of the 90/10 rule. In the above example, the
$100,000 was received by the institution in fiscal year 1999.
Therefore, when the institution used those funds to pay institutional
charges in fiscal year 2000, it did not use any funds it received in
fiscal year 2000 to pay institutional charges in that fiscal year.
We believe that this extremely literal interpretation is an
impermissible interpretation of the principles governing the cash basis
of accounting because it ignores the context of the 90/10 rule and
produces an absurd result where the funds would never be counted.
Changes: None.
Comments: One commenter asked how the Secretary would treat the
sale of institutional loans for the purpose of the 90/10 calculation.
Discussion: Revenue generated from the sale of non-recourse
institutional loans to unrelated parties would be counted as revenue in
the denominator of the 90/10 calculation to the extent of actual
proceeds.
The sale of institutional loan receivables is distinguishable from
the sale of an institution's other assets because the receivables from
institutional loans were produced by a transaction that generates
tuition revenue. Tuition revenue represents income from the major
service provided by an institution. That would not be true in the case
of the sale of other institutional assets.
An institution may use the proceeds from the sale of other assets
in the creation of a restricted account and awarding of institutional
scholarships. However, for 90/10 purposes, only the portion of proceeds
that represents a gain on the sale of the asset counts as institutional
scholarships. An institution may use the amount of the proceeds that
equal the historical cost of the asset to establish the restricted
account.
Changes: None.
Comments: Several commenters expressed concern at the provision
contained in proposed Sec. 600.5(e)(2) that presumes that all Title IV,
HEA program funds disbursed or delivered to students are used to pay
tuition, fees, or other institutional charges, regardless of whether
those funds are paid directly to students or credited to their
institutional accounts. These commenters believed that this presumption
ignored the cash contributions made by students and their families
toward the student's educational costs. These commenters further
indicated that the exceptions to the presumption in proposed
Sec. 600.5(e)(3) should be expanded to include certain savings
vehicles, such as educational IRAs.
Discussion: From the very first attempts to develop regulations to
[[Page 58611]]
implement the 85/15 rule in 1993 and 1994, we and the regulation
negotiators recognized the necessity of this presumption, in order, as
stated by the Secretary in the preamble to the NPRM that was issued for
the 85/15 rule, ``[t]o avoid inappropriate manipulation of information
under the 85 percent rule.'' 59 FR 6446, 6449 (Feb. 10, 1994). For
example, without the presumption, an institution could disburse Title
IV, HEA programs funds directly to students and then have the students
write checks to the institution for tuition, fees, and other
institutional charges. Under this approach, an institution could
contend that none of the Title IV, HEA program funds were used to pay
institutional charges.
On the other hand, we agree with the commenters that in certain
instances, the presumption would not take into account cash
contributions made by students and their parents toward the student's
educational costs. However, we believe that these instances are
ameliorated by the fact that an institution can obtain up to 90 percent
of its tuition and fee revenue from Title IV, HEA program funds, and by
the exceptions provided in Sec. 600.5(e)(3).
When we created the presumption, we also created exceptions. Thus,
in the original 85/15 rule, we provided that the presumption should not
apply to the extent that a student's tuition and fee charges were paid
with grant funds provided by third parties, or to the extent that those
charges were paid under contracts with governmental agencies. In the
proposed rule for these final regulations, the Secretary added another
exemption--tuition and fee charges that were paid from a State prepaid
tuition plan.
These three exceptions are consistent in that funds come to the
institution directly from an outside third party source and are easily
accounted for. The commenter's suggestions for additional exceptions
would satisfy neither condition, because the suggested additions would
not come from an outside third party source, and an institution would
not be able to document that a payment came from such a source. In
addition, the proposed additional sources of funds, including education
IRA funds, can be used to pay non-institutional charges as well as an
institutional charges.
Changes: None.
Section 600.7 Conditions of Institutional Ineligibility
Comments: Several commenters requested that the Secretary define
the term ``postsecondary diploma'' in proposed Sec. 600.7(c)(1). That
section provides that an institution whose enrollment of incarcerated
students exceeds 25 percent will not become ineligible for that reason
if the institution offers a two or four-year program of study for which
it awards a * * * ``postsecondary diploma.''
Discussion: This change reflects a statutory change to the HEA that
was enacted at the behest of institutions in the State of Louisiana.
The term ``postsecondary diploma'' has a specific meaning in that State
for those institutions, and as a result, we do not believe that it is
useful to define that term for purposes of this section. Consequently,
we recognize that if a nonprofit institution in another State offer a
two or four year program that leads to a credential specifically called
a ``postsecondary diploma,'' that institution may be eligible for a
waiver of the incarcerated student limitation.
Changes: None.
Section 600.30 Institutional Notification Requirements
Comments: One commenter asks that we change the 10 day notice
requirement in Sec. 600.30(a) to 10 business days because
Sec. 668.12(f) gives an institution undergoing a change in ownership/
control 10 business days after the sale date to submit a ``materially
complete application.''
Discussion: The 10 business day deadline date for submitting a
``materially complete application is required by statute. The notice
requirements in Sec. 600.30 refer to calendar days and we see no need
to change them merely because of the special statutory rule for the
change of ownership situation.
For institutions undergoing a change in ownership/control that wish
to continue participating in the Title IV, HEA programs, the critical
deadline is, of course, the one requiring the submission of the
materially complete application under Sec. 668.12(f). The deadline in
Sec. 600.30 would be relevant only if the institution did not wish to
continue participating in those programs.
Changes: None.
Section 668.12 Application Procedures
Comments: Several commenters asked whether the documents which are
required as part of an institution's ``materially complete
application'' must be submitted ``promptly'' (as indicated in the
preamble to the NPRM) or prior to the expiration date of the
provisional PPA as reflected in the proposed regulatory language.
Discussion: The commenters have confused our statement in the
preamble and the proposed regulations. As indicated in
Sec. 668.12(f)(1) in both its proposed and final form, documents that
must be submitted as part of a ``materially complete application'' must
be submitted to the Department no later than 10 business days after the
change in ownership/control takes place. These documents are described
in Sec. 668.12(f)(2).
The preamble reference to ``promptly'' refers to the documents that
are described in Sec. 668.12(g)(3), which are, for example, ``same
day'' balance sheets, that an institution must submit to have its
provisional Program Participation Agreement (PPA) extended and its
change of ownership/control application fully approved.
Changes: None.
Comments: Several commenters asked if a ``materially complete
application'' has to be submitted before or after the change of
ownership takes place.
Discussion: With the deletion of Sec. 600.31(f), institutions now
have the option of submitting materially complete applications before
the date of sale. If an institution submits a materially complete
application before the date of sale, the institution must then notify
the Department of the date the sale actually took place. We need that
date because, if the institution's materially complete application is
approved, the sale date is used in determining the expiration date of
the provisional PPA.
We will also allow an institution to submit an application for a
change in ownership/control before the change occurs without the
documents required to make the application an official ``materially
complete application.'' We will review these applications if they are
submitted no later than 45 days before the expected sale date. We
consider our review of this application to be a ``preacquisition
review''.
As part of our preacquisition review, we will determine whether the
institution has answered all the questions on the application
completely and accurately, and will notify the institution of the
results of that review. In this way, if some questions have not been
answered or have not been adequately answered, the institution would
have an opportunity to correct its application before the actual date
of the change in ownership/control. Thus, our response in a
preacquisition review will not be an official approval or denial of the
application; it will notify the institution that its application is
approvable, or it will alert the institution of any problems that need
to be addressed before the application can be approvable.
[[Page 58612]]
Changes: None.
Comments: One commenter asked if all institutions undergoing a
change of ownership/control must provide a same-day balance sheet to
the Secretary, either to ``continue'' uninterrupted participation in
Title IV, HEA programs by satisfying the requirements of
Secs. 668.12(f) and (g), or to ``resume'' participation in Title IV
programs after a loss of eligibility resulting from the ownership
change.
Discussion: Yes, it must.
Changes: None.
Comments: Several commenters asked exactly which audited financial
statements would a new owner be required to provide. The commenters
also asked for clarification as to what constitutes ``equivalent
information'' for a new owner as a substitute for the audited financial
statements. The commenters asked whether the new owner has the option
of providing ``equivalent information'' or if that determination is up
to the Department.
Discussion: One of the conditions that we have to evaluate when
deciding whether to approve a materially complete application is
whether the institution under its new ownership will be financially
responsible. To make that determination, it is necessary to evaluate
the financial condition of the purchaser.
Corporate purchasers will submit audited financial statements of
their two most recently completed fiscal years. Similarly, if the new
owner is a partnership or a single individual, the partnership and
individual must submit those audited financial statements.
However, we realize that there may be situations where a new owner
does not have two years of audited financial statements. For example,
the new corporate owner may not have been in business for two years or
a single individual or partnership may not have had these audits
performed. Under these circumstances, we require the new ownership to
provide equivalent documentation that would allow us to evaluate the
new owners' financial strength.
This equivalent documentation could take the form of an audited
personal financial status report that would show the new owners' net
worth. It could include letters of reference or personal guarantees. In
many instances, we will request the new owners to suggest the
equivalent documentation.
Finally, as noted above, it is not the new owner's option to
provide equivalent documentation. That option is available only if the
two required audited financial statements are not available. Moreover,
we make the final determination as to whether equivalent documentation
proposed by an owner is acceptable.
Changes: None.
Comments: One commenter suggested that we make conforming changes
to Secs. 600.20 and 600.31 to reflect the continued eligibility of an
institution that changed ownership/control to participate in the Title
IV, HEA programs.
Discussion: We concur with the commenters' suggestions.
Changes: We added Sec. 600.20(c)(8) and amended Sec. 600.31(a).
Comments: One commenter questioned if the Secretary considered the
potential impact of the new institutional waiver provisions regarding
annual audit submission requirements on the change of ownership
provisional certification requirements.
Discussion: The audit waiver provisions in Sec. 668.27 generally do
not have an impact on the change of ownership/control certification
requirements in Sec. 668.12(f). Under the regulatory scheme of
Sec. 668.27, an institution may not receive a waiver if it has
undergone a change in ownership/control within three years of its
application for a waiver. Moreover, if an institution received a
waiver, that waiver is rescinded if the institution undergoes that
ownership/control change.
There is, however, a facial conflict between Secs. 668.12(f) and
668.27 involving the submission of audited financial statements. Under
the former provision, an applicant institution for a change of
ownership must submit audited financial statements for its two most
recently completed fiscal years even though the latter provision may
have provided the institution with a waiver of that submission
requirement. However, if the institution changes ownership/control and
wants to keep participating in the Title IV, HEA programs, it must
follow the requirements of Sec. 668.12(f). Consequently, if an
institution received a waiver and is then sold, and the new owners wish
to continue the institution's participation in the Title IV, HEA
programs, the new owners must submit audited financial statements of
the institution's last two completed fiscal years as part of a
``materially complete application,'' even though the institution may
not have had to submit those audited financial statements under
Sec. 668.27.
We believe that this requirement is consistent with normal business
practice, because we believe that an institution's potential purchaser
would require the seller to provide such audits, as well as compliance
audits of the institution's administration of the Title IV, HEA
programs, before buying the institution.
Changes: None.
Section 668.14 Program Participation Agreement.
Comments: One commenter noted that an institution that has
undergone a change in ownership/control does not have to implement an
approved default management plan if ``The owner of the institution does
not, and has not, owned any other institution with a cohort default
rate in excess of 10 percent.'' The commenter wanted to know when the
Secretary makes this determination, which cohort default rate will be
used for the institution that the owner just purchased and which will
be used for any of the other institutions the owner owns or owned.
Discussion: For the institution being purchased, we will use the
latest published cohort default rate. For any other institution that
the new owner owns or owned, we will use all published cohort default
rates for the period that coincides with the period that the
institution was owned by that individual.
Changes: None.
Comments: Some institutions with cohort default rates under the
FFEL or Direct Loan programs that exceed 25 percent are not subject to
the default management plan requirements provided in appendix D of Part
668, but are subject to a separate set of the default management plans
that will be contained in Sec. 668.17(k). One commenter suggested that
this section be expanded to reflect that fact.
Discussion: Section 668.14 generally includes all the provisions
that section 487(a) of the HEA requires to be included in a program
participation agreement, and does not include other requirements
outside of section 487(a) that an institution may have to undertake.
Changes: None.
Comments: Several commenters opposed the requirement in proposed
Sec. 668.14(d) that institutions make a good faith effort to distribute
mail voter registration forms to its students. These commenters
indicated that this requirement would place a tremendous burden on
institutions. Commenters also suggested that the Secretary provide
guidance on acceptable methods for distributing the voter registration
materials.
Discussion: The language provided in this section is copied from
the statute. Moreover, the statute (section 487(b)(2)
[[Page 58613]]
of the HEA) specifically prohibits the Secretary from instructing
institutions in the manner in which this provision is carried out.
Changes: None.
Section 668.27 Waiver of Annual Audit Submission Requirement.
Comments: Commenters generally supported our proposed rules dealing
with waivers of the annual audit submission requirement. Some
commenters indicated there was some confusion regarding the timelines
involved in these procedures, particularly with regard to the fiscal
years that may be included in a waiver.
Discussion: We recognize that the proposed regulation did not
specifically identify which fiscal year could be included in a waiver
request. We are rectifying that omission by providing that an
institution's waiver request may include the fiscal year in which that
request is made, plus the next two fiscal years. That request may not
include an already completed fiscal year.
For example, if an institution's fiscal year is based upon an award
year (July 1-June 30), and the institution requests a waiver on May 1,
2000, that waiver request may include its 1999-2000 fiscal year (July
1, 1999 through June 30, 2000) plus its 2000-2001 and 2001-2002 fiscal
years. If that institution's fiscal year was a calendar year, the
institution's waiver request could include its calendar 2000 fiscal
year plus its 2001 and 2002 fiscal years. In the latter example, the
waiver would not include the institution's 1999 fiscal year, and
therefore, it would be required to submit its compliance audit and
audited financial statement to the Department by June 30, 2000.
Changes: Section 668.27(a)(3) is added to provide that the first
fiscal year that may be included in a waiver request is the fiscal year
in which the institution submits that waiver.
Comments: One commenter asked about liabilities that might accrue
to an institution for a fiscal year if that fiscal year was one of the
fiscal years included in a waiver.
Discussion: An institution is liable to repay title IV, HEA program
funds because it improperly expends those funds. A compliance audit is
the vehicle for discovering that improper expenditure.
These regulations do not waive the requirement that an institution
audit its administration of the title IV, HEA programs; they waive the
requirement that these audits be performed and submitted on an annual
basis. Thus, the institution will pay that liability when the
institution eventually submits a compliance audit for the fiscal year
in which it made an improper expenditure, we resolve that audit, and
request that payment.
Changes: None.
Comments: One commenter requested clarification of the reporting
requirements for institutions granted a waiver of the requirement that
an institution submit annually, a compliance audit and audited
financial statement with regard to the 90/10 rule and the institutional
ineligibility requirements of Sec. 600.7.
Discussion: Under the 90/10 rule and Sec. 600.7, at the end of each
fiscal year, an institution must report to the Department if it fails
to satisfy the 90/10 rule or if it fails one of the ineligibility
provisions in Sec. 600.7 for that year. An institution is still
required to make these annual determinations even if it is not required
to submit audits annually. This also means, of course, that if an
institution fails to comply with the 90/10 rule or one of the
ineligibility provisions in Sec. 600.7 it immediately loses its
eligibility. The institution would be liable for any funds it disbursed
subsequent to the end of the fiscal year in which it failed to meet one
of these requirements.
If an institution determines that it satisfies those requirements,
its auditor is required to indicate agreement with that determination
and report that agreement when the auditor submits that fiscal year's
audited financial statement. The auditor may also indicate agreement
with the institution's determination of eligibility under Sec. 600.7
with the institution's compliance audit.
If an institution receives a waiver, it need not submit a statement
from its auditor regarding its compliance with the 90/10 rule or the
provisions of Sec. 600.7 until its audited financial statement and
compliance audit are submitted. When those audits are submitted, the
auditor must note his or her agreement with the institution's
determinations of eligibility for each of the fiscal years covered by
the audits. For example, if the institution received a waiver and did
not have to submit an audit for the 2000-2001 and 2001-2002 fiscal
years, when the next audits are submitted on December 31, 2003, the
auditor must indicate agreement with the institution's eligibility
determinations for the 2000-2001 fiscal year, the 2001-2002 fiscal
year, and the 2002-2003 fiscal year.
The auditor must indicate agreement with the institution's 90/10
determination for each of those three years even though the auditor
need only submit an audited financial statement for the 2002-2003
fiscal year.
Changes: None.
Comment: One commenter wondered whether the criteria for a waiver
renewal were the same as the criteria for the initial waiver.
Discussion: The criteria we use to grant waivers applies equally to
requests for initial and renewal waivers.
Changes: None.
Comments: Several commenters wanted clarification on whether the
Secretary would base an action to grant or rescind a waiver on a
limitation, suspension, fine, or termination action that had only been
initiated and was not final.
Discussion: We will not grant a waiver and we will rescind a waiver
based upon the initiation of a limitation, suspension, fine, or
termination action. We initiate one of those actions because we receive
information that the subject institution has not been properly
administering the Title IV, HEA programs. We believe that an
institution under those circumstances should not have its audit
requirements waived. Moreover, under the procedures available to an
institution, a final decision in such an action may take a long period
of time, and a hearing official or the Secretary may decide not impose
the sanction requested even though the institution has been improperly
administering the Title IV, HEA programs.
Changes: None.
Comments: Two commenters noted a difference in wording on the
monetary threshold for granting a waiver. At Sec. 668.27(c)(2) the
regulation states the institution ``did not disburse $200,000 or more
of Title IV.'' At Sec. 668.27(e)(1), the criteria for rescinding the
waiver, the regulation states the institution ``disburses more than
$200,000.'' The commenters recommended that the two sections be made
parallel.
Discussion: We agree.
Changes: Section 668.27(e)(1) is changed to read ``Disburses
$200,000 or more of Title IV, HEA program funds for an award year.''
Comments: One commenter wanted to know if two waivers for three
years each were granted one after the other whether this meant that the
institution would only need one audit for the six-year period.
Discussion: No, the institution would need two sets of audits to
cover the six-year period. However, since the institution has up to six
months after the last fiscal year to be covered to submit the second
set of audits, the second set of audits would not have to be received
by the Department until six
[[Page 58614]]
months after the expiration of the six year period.
Changes: None.
Comments: One commenter wanted to know whether the requirement that
``no individual audit disclosed liabilities in excess of $10,000''
referred to the final audit liability. The commenter based his comment
on the new statutory provision that allows an institution to cure
administrative, accounting, and recordkeeping errors, and the proposed
regulations in Sec. 668.113, that provides that the Department will not
charge an institution a liability for such an error if it cures the
error and the cure eliminates the basis of the liability.
Discussion: We will use the best information available to us when
making a decision on whether to grant a waiver. Therefore, if the
latest information is the audit report submitted by the institution's
auditor, we will use that report in our waiver determination. However,
if an institution requests a waiver and its request is denied because
of audit findings that show a liability in excess of $10,000, and those
findings are subsequently revised to show liabilities of $10,000 or
less for any reason, including a cure of the error, the institution can
reapply for the waiver.
Changes: None.
Comments: One commenter asked whether the commenter was correct in
assuming that the Secretary was not going to consider an institution's
administrative capability in determining whether to grant an audit
waiver.
Discussion: We believe that the criteria we proposed for granting
waivers is a proxy for administrative capability.
Changes: None.
Discussion: In the course of responding to the commenter's
question, we realized that we did not provide any rules in the proposed
regulations that address the situation when an institution's waiver is
rescinded, vis a vis when the institution must submit audits, and what
years must be covered by the audits. Accordingly, we have revised
Sec. 668.27 to provide that if an institution has its waiver rescinded
in a fiscal year, the effective date of the rescission is the last day
of that fiscal year.
Under this approach, the institution must submit compliance audits
for the fiscal year(s) that were completed and unaudited, and an
audited financial statement of the last completed fiscal year. The
institution must submit these audits no later than six months after the
end of the fiscal year in which its waiver was rescinded. We chose this
approach to save the institution money, because the institution will
not have to enter into more than one engagement agreement with an
auditor to perform all the required audit work.
To illustrate this new provision, we use the example given in the
preamble of the NPRM for Sec. 668.12(f). An institution's fiscal year
coincides with an award year (July 1-June 30). It submits its
compliance and financial statement audit for the 1999-2000 award year,
applies for a waiver, and receives that waiver so that its next
compliance audit and audited financial statement must be submitted six
months after the end of its 2002-2003 fiscal year.
If the institution's waiver is rescinded during the 2000-2001
fiscal year, the first fiscal year of its waiver period, it has not
completed any fiscal year for which the audit requirement was waived.
Therefore, it must submit its compliance audit and audited financial
statement for that fiscal year in the regular course, i.e., no later
than six months after the end of that fiscal year, December 31, 2001.
If the institution's waiver was rescinded during the 2001-2002
fiscal year, the waiver applied to its submission of audits for the
2000-2001 fiscal year. Therefore, it must submit a compliance audit for
the 2000-2001 and 2001-2002 fiscal years, and must submit an audited
financial statement only for the 2001-2002 fiscal year. These audits
must be submitted no later than December 31, 2002, six months after the
end of its 2001-2002 fiscal year.
If the institution's waiver was rescinded during the 2002-2003
fiscal year, the waiver applied to its submission of audits for the
2000-2001 and 2001-2002 fiscal years. Therefore, it must submit a
compliance audit for the 2000-2001, 2001-2002, and 2002-2003 fiscal
years, and an audited financial statement only for the 2002-2003 fiscal
year. These audits must be submitted no later than December 31, 2003,
six months after the end of its 2002-2003 fiscal year.
Changes: As indicated above, we have revised Sec. 668.27 to provide
that if an institution has its waiver rescinded in a fiscal year, the
effective date of the rescission is the last day of that fiscal year.
Executive Order 12866
We have reviewed these final regulations in accordance with
Executive Order 12866. Under the terms of this order, we have assessed
the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those we have determined as
necessary for administering this program effectively and efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, we have determined that
the benefits of the regulations would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
We summarized the potential costs and benefits of these final
regulations in the preamble to the NPRM at 64 FR 38276-38277.
Paperwork Reduction Act of 1995
These regulations do not contain any information collection
requirements.
Assessment of Educational Impact
In the NPRM, we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have
determined that these final regulations do not require transmission of
information that any other agency or authority of the United States
gathers or makes available.
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Note: The official version of this document is the document
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Regulations is available on GPO Access at: http://
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(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032
Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students
Program;
[[Page 58615]]
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List of Subjects
34 CFR Part 600
Administrative practice and procedure, Colleges and universities,
Consumer protection, Grant programs--education, Loan programs--
education, Reporting and recordkeeping requirements, Student aid.
34 CFR 668
Administrative practice and procedure, Aliens, Colleges and
universities, Consumer protection, Grant programs--education, Reporting
and recordkeeping requirements, Selective Service System, Student aid,
Vocational education.
Dated: October 21, 1999.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
parts 600 and 668 of title 34 of the Code of Federal Regulations as
follows:
PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED
1. The authority citation for part 600 is revised to read as
follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099(c), unless otherwise noted.
2. In Sec. 600.2, the definition of the term ``State'' is revised
to read as follows:
Sec. 600.2 Definitions.
* * * * *
State: A State of the Union, American Samoa, the Commonwealth of
Puerto Rico, the District of Columbia, Guam, the Virgin Islands, the
Commonwealth of the Northern Mariana Islands, the Republic of the
Marshall Islands, the Federated States of Micronesia, and the Republic
of Palau. The latter three are also known as the Freely Associated
States.
* * * * *
3. In Sec. 600.4, paragraph (c) is revised to read as follows:
Sec. 600.4 Institution of higher education.
* * * * *
(c) The Secretary does not recognize the accreditation or
preaccreditation of an institution unless the institution agrees to
submit any dispute involving the final denial, withdrawal, or
termination of accreditation to initial arbitration before initiating
any other legal action.
* * * * *
4. In Sec. 600.5, paragraph (h) is removed; paragraph (i) is
redesignated as paragraph (h); paragraph (e) is added; and paragraphs
(a)(8), (b)(3)(i), (d), (f), (g), and redesignated paragraph (h) are
revised to read as follows:
Sec. 600.5 Proprietary institution of higher education.
(a) * * *
(8) Has no more than 90 percent of its revenues derived from title
IV, HEA program funds, as determined under paragraph (d) of this
section.
(b) * * *
(3) * * *
(i) Counts any period during which the applicant institution has
been certified as a branch campus; and
* * * * *
(d)(1) An institution satisfies the requirement contained in
paragraph (a)(8) of this section by examining its revenues under the
following formula for its latest complete fiscal year:
Title IV, HEA program funds the institution used to satisfy its
students' tuition, fees, and other institutional charges to students
The sum of revenues including title IV, HEA program funds generated by
the institution from: tuition, fees, and other institutional charges
for students enrolled in eligible programs as defined in 34 CFR 668.8;
and activities conducted by the institution, to the extent not included
in tuition, fees, and other institutional charges, that are necessary
for the education or training of its students who are enrolled in those
eligible programs.
(2) An institution must use the cash basis of accounting when
calculating the amount of title IV, HEA program funds in the numerator
and the total amount of revenue generated by the institution in the
denominator of the fraction contained in paragraph (d)(1) of this
section.
(3) Under the cash basis of accounting--
(i) In calculating the amount of revenue generated by the
institution from institutional loans, the institution must include only
the amount of loan repayments received by the institution during the
fiscal year; and
(ii) In calculating the amount of revenue generated by the
institution from institutional scholarships, the institution must
include only the amount of funds it disbursed during the fiscal year
from an established restricted account and only to the extent that the
funds in that account represent designated funds from an outside source
or income earned on those funds.
(e) With regard to the formula contained in paragraph(d)(1) of this
section--
(1) The institution may not include as title IV, HEA program funds
in the numerator nor as revenue generated by the institution in the
denominator--
(i) The amount of funds it received under the Federal Work-Study
(FWS) Program, unless the institution used those funds to pay a
student's institutional charges in which case the FWS program funds
used to pay those charges would be included in the numerator and
denominator.
(ii) The amount of funds it received under the Leveraging
Educational Assistance Partnership (LEAP) Program. (The LEAP Program
was formerly called the State Student Incentive Grant or SSIG
Program.);
(iii) The amount of institutional funds it used to match title IV,
HEA program funds;
(iv) The amount of title IV, HEA program funds that must be
refunded or returned under Sec. 668.22; or
(v) The amount charged for books, supplies, and equipment unless
the institution includes that amount as tuition, fees, or other
institutional charges.
(2) In determining the amount of title IV, HEA program funds
received by the institution under the cash basis of accounting, except
as provided in paragraph (e)(3) of this section, the institution must
presume that any title IV, HEA program funds disbursed or delivered to
or on behalf of a student will be used to pay the student's tuition,
fees, or other institutional charges, regardless of whether the
institution credits those funds to the student's account or pays those
funds directly to the student, and therefore must include those funds
in the numerator and denominator.
(3) In paragraph (e)(2) of this section, the institution may not
presume that title IV, HEA program funds were used to pay tuition,
fees, and other institutional charges to the extent that those charges
were satisfied by--
(i) Grant funds provided by non-Federal public agencies, or private
sources independent of the institution;
(ii) Funds provided under a contractual arrangement described in
Sec. 600.7(d), or
(iii) Funds provided by State prepaid tuition plans.
(4) With regard to the denominator, revenue generated by the
institution from activities it conducts, that are
[[Page 58616]]
necessary for its students' education or training, includes only
revenue from those activities that--
(i) Are conducted on campus or at a facility under the control of
the institution;
(ii) Are performed under the supervision of a member of the
institution's faculty; and
(iii) Are required to be performed by all students in a specific
educational program at the institution.
(f) An institution must notify the Secretary within 90 days
following the end of the fiscal year used in paragraph (d)(1) of this
section if it fails to satisfy the requirement contained in paragraph
(a)(8) of this section.
(g) If an institution loses its eligibility because it failed to
satisfy the requirement contained in paragraph (a)(8) of this section,
to regain its eligibility it must demonstrate compliance with all
eligibility requirements for at least the fiscal year following the
fiscal year used in paragraph (d)(1) of this section.
(h) The Secretary does not recognize the accreditation of an
institution unless the institution agrees to submit any dispute
involving the final denial, withdrawal, or termination of accreditation
to initial arbitration before initiating any other legal action.
* * * * *
5. In Sec. 600.6, paragraphs (b)(3)(iii) and (d) are revised to
read as follows:
Sec. 600.6 Postsecondary vocational institution.
* * * * *
(b) * * *
(3) * * *
(iii) Counts any period during which the applicant institution has
been certified as a branch campus; and
* * * * *
(d) The Secretary does not recognize the accreditation or
preaccreditation of an institution unless the institution agrees to
submit any dispute involving the final denial, withdrawal, or
termination of accreditation to initial arbitration before initiating
any other legal action.
* * * * *
6. In Sec. 600.7, paragraphs (a)(1)(iii), (a)(1)(iv), and (c) are
revised to read as follows:
Sec. 600.7 Conditions of institutional ineligibility.
(a) * * *
(1) * * *
(iii) More than twenty-five percent of the institution's regular
enrolled students were incarcerated;
(iv) More than fifty percent of its regular enrolled students had
neither a high school diploma nor the recognized equivalent of a high
school diploma, and the institution does not provide a four-year or
two-year educational program for which it awards a bachelor's degree or
an associate degree, respectively;
* * * * *
(c) Special provisions regarding incarcerated students--(1)
Exception. The Secretary may waive the prohibition contained in
paragraph (a)(1)(iii) of this section, upon the application of an
institution, if the institution is a nonprofit institution that
provides four-year or two-year educational programs for which it awards
a bachelor's degree, an associate degree, or a postsecondary diploma.
(2) Waiver for entire institution. If the nonprofit institution
that applies for a waiver consists solely of four-year or two-year
educational programs for which it awards a bachelor's degree, an
associate degree, or a postsecondary diploma, the Secretary waives the
prohibition contained in paragraph (a)(1)(iii) of this section for the
entire institution.
(3) Other waivers. If the nonprofit institution that applies for a
waiver does not consist solely of four-year or two-year educational
programs for which it awards a bachelor's degree, an associate degree,
or a postsecondary diploma, the Secretary waives the prohibition
contained in paragraph (a)(1)(iii) of this section--
(i) For the four-year and two-year programs for which it awards a
bachelor's degree, an associate degree or a postsecondary diploma; and
(ii) For the other programs the institution provides, if the
incarcerated regular students enrolled in those other programs have a
completion rate of 50 percent or greater.
* * * * *
7. Section 600.8 is revised to read as follows:
Sec. 600.8 Treatment of a branch campus.
A branch campus of an eligible institution must be in existence for
at least two years as a branch campus after the branch is certified as
a branch campus before seeking to be designated as a main campus or a
free-standing institution.
(Authority: 20 U.S.C. 1099c)
8. Section 600.20 is amended by adding a new paragraph (c)(8) to
read as follows:
Sec. 600.20 Application procedures.
* * * * *
(c) * * *
(8) Continue to be eligible following a change in ownership that
results in a change in control according to the provisions of
Sec. 668.12(f).
* * * * *
9. In Sec. 600.31, paragraph (a)(1) is revised to read as follows:
Sec. 600.31 Change of ownership resulting in a change in control.
(a)(1) Except as provided in Sec. 668.12(f), an institution that
undergoes a change in ownership that results in a change of control
ceases to qualify as an eligible institution upon the change in
ownership and control. A change in ownership that results in a change
in control includes any change by which a person who has or thereby
acquires an ownership interest in the entity that owns this institution
or the parent corporation of that entity, acquires or loses the ability
to control the institution.
* * * * *
Sec. 600.31 [Amended]
10. In Sec. 600.31, paragraph (f) is removed.
11. In Sec. 600.55, paragraph (a)(5)(i)(A) is revised to read as
follows:
Sec. 600.55 Additional criteria for determining whether a foreign
graduate medical school is eligible to apply to participate in the FFEL
programs.
(a) * * *
(5) * * *
(i) * * *
(A) During the academic year preceding the year for which any of
the school's students seeks an FFEL program loan, at least 60 percent
of those enrolled as full-time regular students in the school and at
least 60 percent of the school's most recent graduating class were
persons who did not meet the citizenship and residency criteria
contained in section 484(a)(5) of the HEA, 20 U.S.C. 1091(a)(5); and
* * * * *
Sec. 600.56 [Redesignated as Sec. 600.57]
12. Section 600.56 is redesignated as Sec. 600.57.
13. A new Sec. 600.56 is added to read as follows--
Sec. 600.56 Additional criteria for determining whether a foreign
veterinary school is eligible to apply to participate in the FFEL
programs.
(a) The Secretary considers a foreign veterinary school to be
eligible to apply to participate in the FFEL programs if, in addition
to satisfying the criteria in Sec. 600.54 (except the criterion that
the institution be public or private nonprofit), the school satisfies
all of the following criteria:
[[Page 58617]]
(1) The school provides, and in the normal course requires its
students to complete, a program of clinical and classroom veterinary
instruction that is supervised closely by members of the school's
faculty, and that is provided either--
(i) Outside the United States, in facilities adequately equipped
and staffed to afford students comprehensive clinical and classroom
veterinary instruction; or
(ii) In the United States, through a training program for foreign
veterinary students that has been approved by all veterinary licensing
boards and evaluating bodies whose views are considered relevant by the
Secretary.
(2) The school has graduated classes during each of the two twelve-
month periods immediately preceding the date the Secretary receives the
school's request for an eligibility determination.
(3) The school employs for the program described in paragraph
(a)(1) of this section only those faculty members whose academic
credentials are the equivalent of credentials required of faculty
members teaching the same or similar courses at veterinary schools in
the United States.
(4) Either--
(i) The veterinary school's clinical training program was approved
by a State as of January 1, 1992, and is currently approved by that
State; or
(ii) The veterinary school's students complete their clinical
training at an approved veterinary school located in the United States.
(b) [Reserved]
(Authority: 20 U.S.C. 1082 and 1088)
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
14. The authority citation for part 668 is revised to read as
follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092,
1094, 1099c, and 1099c-1, unless otherwise noted.
15. In Sec. 668.12, paragraphs (f) and (g) are added and the
authority citation is revised to read as follows:
Sec. 668.12 Application procedures.
* * * * *
(f)(1) Application for provisional extension of certification. If
an institution participating in the title IV, HEA programs undergoes a
change in ownership that results in a change of control as described in
Sec. 600.31, the Secretary may continue the institution's participation
in those programs on a provisional basis, if the institution under the
new ownership submits a ``materially complete application'' that is
received by the Secretary no later than 10 business days after the day
the change occurs.
(2) For purposes of this section, an institution submits a
materially complete application if it submits a fully completed
application form designated by the Secretary supported by--
(i) A copy of the institution's State license or equivalent
document that--as of the day before the change in ownership--authorized
or will authorize the institution to provide a program of postsecondary
education in the State in which it is physically located;
(ii) A copy of the document from the institution's accrediting
association that--as of the day before the change in ownership--granted
or will grant the institution accreditation status, including approval
of the non-degree programs it offers;
(iii) Audited financial statements of the institution's two most
recently completed fiscal years that are prepared and audited in
accordance with the requirements of Sec. 668.23; and
(iv) Audited financial statements of the institution's new owner's
two most recently completed fiscal years that are prepared and audited
in accordance with the requirements of Sec. 668.23, or equivalent
information for that owner that is acceptable to the Secretary.
(g) Terms of the extension. (1) If the Secretary approves the
institution's materially complete application, the Secretary provides
the institution with a provisional Program Participation Agreement
(PPA). The provisional PPA extends the terms and conditions of the
program participation agreement that were in effect for the institution
before its change of ownership.
(2) The provisional PPA expires on the earlier of--
(i) The date on which the Secretary signs a new program
participation agreement;
(ii) The date on which the Secretary notifies the institution that
its application is denied; or
(iii) The last day of the month following the month in which the
change of ownership occurred, unless the provisions of paragraph (f)(3)
of this section apply.
(3) If the provisional PPA will expire under the provisions of
paragraph (f)(2)(iii) of this section, the Secretary extends the
provisional PPA on a month-to-month basis after the expiration date
described in paragraph (f)(2)(iii) of this section if, prior to that
expiration date, the institution provides the Secretary with--
(i) A ``same day'' balance sheet showing the financial position of
the institution, as of the date of the ownership change, that is
prepared in accordance with ``GAAP'' (Generally Accepted Accounting
Principles published by the Financial Accounting Standards Board) and
audited in accordance with ``GAGAS'' (Generally Accepted Government
Auditing Standards published by the U.S. General Accounting Office);
(ii) If not already provided, approval of the change of ownership
from the State in which the institution is located by the agency that
authorizes the institution to legally provide postsecondary education
in that State;
(iii) If not already provided, approval of the change of ownership
from the institution's accrediting agency; and
(iv) A default management plan unless the institution is exempt
from providing that plan under 34 CFR 668.14(b)(15).
* * * * *
(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)
Sec. 668.13 [Amended]
16. In Sec. 668.13, paragraph (b)(1) is amended by removing ``four
years'' in the second sentence, and adding, in its place, ``six
years''.
17. Section 668.14 is amended by removing paragraphs (d) and (e);
by redesignating paragraphs (f), (g), (h), and (i) as paragraphs (e),
(f), (g), and (h), respectively; by removing and reserving paragraph
(b)(16); by revising paragraphs (b)(15), (b)(20), and (b)(24); and by
adding a new paragraph (d), to read as follows:
Sec. 668.14 Program participation agreement.
* * * * *
(b) * * *
(15)(i) Except as provided under paragraph (b)(15)(ii) of this
section, the institution will use a default management plan approved by
the Secretary with regard to its administration of the FFEL or Direct
Loan programs, or both for at least the first two years of its
participation in those programs, if the institution--
(A) Is participating in the FFEL or Direct Loan programs for the
first time; or
(B) Is an institution that has undergone a change of ownership that
results in a change in control and is participating in the FFEL or
Direct Loan programs.
(ii) The institution does not have to use an approved default
management plan if--
(A) The institution, including its main campus and any branch
campus, does not have a cohort default rate in excess of 10 percent;
and
[[Page 58618]]
(B) The owner of the institution does not own and has not owned any
other institution that had a cohort default rate in excess of 10
percent while that owner owned the institution.
(iii) The Secretary approves any default management plan that
incorporates the default reduction measures described in appendix D to
this part
* * * * *
(20) In the case of an institution that is co-educational and has
an intercollegiate athletic program, it will comply with the provisions
of Sec. 668.48;
* * * * *
(24) It will comply with the requirements of Sec. 668.22;
* * * * *
(d)(1) The institution, if located in a State to which section 4(b)
of the National Voter Registration Act (42 U.S.C. 1973gg-2(b)) does not
apply, will make a good faith effort to distribute a mail voter
registration form, requested and received from the State, to each
student enrolled in a degree or certificate program and physically in
attendance at the institution, and to make those forms widely available
to students at the institution.
(2) The institution must request the forms from the State 120 days
prior to the deadline for registering to vote within the State. If an
institution has not received a sufficient quantity of forms to fulfill
this section from the State within 60 days prior to the deadline for
registering to vote in the State, the institution is not liable for not
meeting the requirements of this section during that election year.
(3) This paragraph applies to elections as defined in section
301(1) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(1)),
and includes the election for Governor or other chief executive within
such State.
* * * * *
18. A new Sec. 668.27 is added to subpart B to read as follows:
Sec. 668.27 Waiver of annual audit submission requirement.
(a) General. (1) At the request of an institution, the Secretary
may waive the annual audit submission requirement for the period of
time contained in paragraph (b) of this section if the institution
satisfies the requirements contained in paragraph (c) of this section
and posts a letter of credit in the amount determined in paragraph (d)
of this section.
(2) An institution requesting a waiver must submit an application
to the Secretary at such time and in such manner as the Secretary
prescribes.
(3) The first fiscal year for which an institution may request a
waiver is the fiscal year in which it submits its waiver request to the
Secretary.
(b) Waiver period. (1) If the Secretary grants the waiver, the
institution need not submit its compliance or audited financial
statement until six months after--
(i) The end of the third fiscal year following the fiscal year for
which the institution last submitted a compliance audit and audited
financial statement; or
(ii) The end of the second fiscal year following the fiscal year
for which the institution last submitted compliance and financial
statement audits if the award year in which the institution will apply
for recertification is part of the third fiscal year.
(2) The Secretary does not grant a waiver if the award year in
which the institution will apply for recertification is part of the
second fiscal year following the fiscal year for which the institution
last submitted compliance and financial statement audits.
(3) When an institution must submit its next compliance and
financial statement audits under paragraph (b)(1) of this section--
(i) The institution must submit a compliance audit that covers the
institution's administration of the title IV, HEA programs for the
period for each fiscal year for which an audit did not have to be
submitted as a result of the waiver, and an audited financial statement
for its last fiscal year; and
(ii) The auditor who conducts the audit must audit the
institution's annual determinations for the period subject to the
waiver that it satisfied the 90/10 rule in Sec. 600.5 and the other
conditions of institutional eligibility in Sec. 600.7 and
Sec. 668.8(e)(2), and disclose the results of the audit of the 90/10
rule for each year in accordance with Sec. 668.23(d)(4).
(c) Criteria for granting the waiver. The Secretary grants a waiver
to an institution if the institution--
(1) Is not a foreign institution;
(2) Did not disburse $200,000 or more of title IV, HEA program
funds during each of the two completed award years preceding the
institution's waiver request;
(3) Agrees to keep records relating to each award year in the
unaudited period for two years after the end of the record retention
period in Sec. 668.24(e) for that award year;
(4) Has participated in the title IV, HEA programs under the same
ownership for at least three award years preceding the institution's
waiver request;
(5) Is financially responsible under Sec. 668.171, and does not
rely on the alternative standards of Sec. 668.175 to participate in the
title IV, HEA programs;
(6) Is not on the reimbursement or cash monitoring system of
payment;
(7) Has not been the subject of a limitation, suspension, fine, or
termination proceeding, or emergency action initiated by the Department
or a guarantee agency in the three years preceding the institution's
waiver request;
(8) Has submitted its compliance audits and audited financial
statements for the previous two fiscal years in accordance with and
subject to Sec. 668.23, and no individual audit disclosed liabilities
in excess of $10,000; and
(9) Submits a letter of credit in the amount determined in
paragraph (d) of this section, which must remain in effect until the
Secretary has resolved the audit covering the award years subject to
the waiver.
(d) Letter of credit amount. For purposes of this section, the
letter of credit amount equals 10 percent of the amount of title IV,
HEA program funds the institution disbursed to or on behalf of its
students during the award year preceding the institution's waiver
request.
(e) Rescission of the waiver. (1) The Secretary rescinds the waiver
if the institution--
(i) Disburses $200,000 or more of title IV, HEA program funds for
an award year;
(ii) Undergoes a change in ownership that results in a change of
control; or
(iii) Becomes the subject of an emergency action or a limitation,
suspension, fine, or termination action initiated by the Department or
a guarantee agency.
(2) If the Secretary rescinds a waiver, the rescission is effective
on the last day of the fiscal year in which the rescission takes place.
(f) Renewal. An institution may request a renewal of its waiver
when it submits its audits under paragraph (b) of this section. The
Secretary grants the waiver if the audits and other information
available to the Secretary show that the institution continues to
satisfy the criteria for receiving that waiver.
(Authority: 20 U.S.C. 1094)
19. In Sec. 668.92, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.92 Fines.
* * * * *
(d)(1) Notwithstanding any other provision of statute or
regulation, any
[[Page 58619]]
individual described in paragraph (d)(2) of this section, in addition
to other penalties provided by law, is liable to the Secretary for
amounts that should have been refunded or returned under Sec. 668.22 of
the title IV program funds not returned, to the same extent with
respect to those funds that such an individual would be liable as a
responsible person for a penalty under section 6672(a) of Internal
Revenue Code of 1986 with respect to the nonpayment of taxes.
(2) The individual subject to the penalty described in paragraph
(d)(1) is any individual who--
(i) The Secretary determines, in accordance with Sec. 668.174(c),
exercises substantial control over an institution participating in, or
seeking to participate in, a program under this title;
(ii) Is required under Sec. 668.22 to return title IV program funds
to a lender or to the Secretary on behalf of a student or borrower, or
was required under Sec. 668.22 in effect on June 30, 2000 to return
title IV program funds to a lender or to the Secretary on behalf of a
student or borrower; and
(iii) Willfully fails to return those funds or willfully attempts
in any manner to evade that payment.
(Authority: 20 U.S.C. 1094 and 1099c)
20. In Sec. 668.95, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.95 Reimbursements, refunds and offsets.
* * * * *
(d) If an institution's violation in paragraph (a) of this section
results from an administrative, accounting, or recordkeeping error, and
that error was not part of a pattern of error, and there is no evidence
of fraud or misconduct related to the error, the Secretary permits the
institution to correct or cure the error. If the institution corrects
or cures the error, the Secretary does not limit, suspend, terminate,
or fine the institution for that error.
(Authority: 20 U.S.C. 1094 and 1099c-1)
21. In Sec. 668.113, a new paragraph (d) is added and the authority
citation is revised to read as follows:
Sec. 668.113 Request for review.
* * * * *
(d)(1) If an institution's violation that resulted in the final
audit determination or final program review determination in paragraph
(a) of this section results from an administrative, accounting, or
recordkeeping error, and that error was not part of a pattern of error,
and there is no evidence of fraud or misconduct related to the error,
the Secretary permits the institution to correct or cure the error.
(2) If the institution is charged with a liability as a result of
an error described in paragraph (d)(1) of this section, the institution
cures or corrects that error with regard to that liability if the cure
or correction eliminates the basis for the liability.
* * * * *
(Authority: 20 U.S.C. 1094 and 1099c-1)
[FR Doc. 99-28171 Filed 10-28-99; 8:45 am]
BILLING CODE 4000-01-P