November 22, 2017

Summary of NPRM on 14 Integrity Revisions

Notice of Proposed Rulemaking Published on June 18, 2010
Addressing 13 out of the 14 Program Integrity Issues

On June 18, 2010, the Notice of Proposed Rulemaking (NPRM) on the 13 out of 14 program integrity issues that were the subject of negotiations during the months of November 2009 through January 2010 was published in the Federal Register.  The NPRM only partially addresses the 14th issue on “gainful employment”   The Department is proposing to require proprietary institutions of higher education and postsecondary vocational institutions to provide prospective students with their programs’ graduation and placement rates, beginning no later than June 30, 2013, and that colleges provide the Department with information that will allow it to determine student debt levels after program completion.  Since the Department is still developing metrics to hold programs accountable for preparing their students for gainful employment, a separate NPRM will be published later this summer. 

In a press release of June 16, 2010, Secretary of Education Arne Duncan stated: “We have many areas of agreement where we can move forward. But some issues around gainful employment are complicated and we want to get it right so we will be coming back with that shortly.”

The NPRM is subject to public comment.  Once the Department reviews all of the comments, it will issue final regulations by November 1, 2010 so that they will become effective on July 1, 2011.

Gainful Employment in a Recognized Occupation (§§ 600.2, 600.4, 600.6, 668.6, and 668.8)

Current Rules:  A proprietary institution of higher education, and a postsecondary vocational school, and one-year programs at institutions of higher education must provide eligible programs of training that prepare students for gainful employment in a recognized occupation.  A “recognized occupation” is listed in the “occupational division” of the latest edition of the Dictionary of Occupational Titles.  

Proposed Rules:  A “recognized occupation” would be defined by a Standard Occupational Classification (SOC) code established by the Office of Management and Budget (OMB) or an Occupational Information Network O* NET-SOC code established by the Department of Labor and available at: 

Under 34 CFR 668.6(a), an institution would annually submit information about students, who complete a program that leads to gainful employment in a recognized occupation, including:

• Identifying information about each student who completed a program;
• The Classification of Instructional  Program (CIP) code for that program;
• The Date the student completed the program; and
• The amounts the student received from private educational loans and institutional financing plans.

Under 34 CFR 668.6(b), an institution would be required to disclose on its Web site information about:

• The occupations that its programs prepare students to enter, along with links to occupational profiles on O*NET;
• The on-time graduation rate of students entering a program;
• The cost of each program including tuition and fees, room and board, and other institutional costs;
• Beginning no later than June 30, 2013, the placement rate for students completing each of those programs as determined under 34 CFR 668.8(g) or a State-sponsored workforce data system; and
• The median loan debt incurred by students who completed each program in the preceding three years, identified separately as Title IV loan debt and debt from private educational loans.

NOTE:  34 CFR 668.8(g) defines the calculation of a placement rate for short-term programs (between 300 and less than 600 clock hours).  The calculation states that of the students who received a degree or certificate for successfully completing the program during the award year, determine the number of student who, “within 180 days of the day they received their degree, certificate, or other recognized educational credential, obtained gainful employment in the recognized occupation for which they were trained or in a related comparable recognized occupation and, on the date of this calculation, are employed, or have been employed, for at least 13 weeks following receipt of the credential from the institution.”

Reasons: The Department plans to use this information to continue to assess the outcomes of programs that lead to gainful employment in a recognized occupation. While 34 CFR 668.43 already requires an institution to disclose program cost information, ED wishes to make it an explicit requirement to inform prospective students of this information on its web site.

Definition of Credit Hour (§§ 600.2, 602.24(f), 603.24, 668.8)

Current Rules:  There is no definition of credit hour in current regulations. Currently, 34 CFR 668.8(k) and (l) provide a formula that certain undergraduate programs must use to convert clock hours to credit hours for Title IV purposes.  (A semester is 30 clock hours and a quarter is 20 clock hours of instruction.)

Proposed Rules:  The Department proposes to add a definition of credit hour that would measure credit hours in terms of time and work during which a student is engaged in academic activity using commonly accepted academic practice in higher education, and would provide for institutionally established equivalencies as represented by learning outcomes and verified achievement.

Credit hour would be defined as follows:

(1) One hour of classroom or direct faculty instruction and a minimum of 2 hours of out of class student work each week for approximately 15 weeks for one semester or trimester of credit, or 10 to 12 weeks for 1 quarter credit;
(2) At least an equivalent amount of work as required in the first paragraph for other academic activities including laboratory work, internships, practica, studio work, and other academic work leading to the award of credit hours; or
(3)  Institutionally established reasonable equivalencies for the amount of work required in the first paragraph for the credit hours awarded, including as represented in intended learning outcomes and verified by evidence of student achievement.

Clock-to-Credit-Hour Conversion:

Except in certain cases discussed below, the method of converting clock-to-credit hour would be modified under the proposal using 900 clock hours as the minimum (currently ED uses 720 clock hours).  Therefore, a semester hour would be based on 37.5 clock hours and a quarter hour would be based on 25 clock hours.

NOTE: As a reminder, the conversion formula must be used unless:

• The program is at least 2 academic years in length and provides an associate degree, a bachelor’s degree, or an equivalent degree; or
• Each course within the program is acceptable for full credit toward the institution’s associate degree, bachelor’s degree, professional degree or equivalent degree and (what follows is new language):
o The institution’s degree requires at least two academic years of study; and
o The institution demonstrates that students enroll in, and graduate from, the degree program.

The proposed regulations would also require certain credit-hour programs to be considered clock hour programs for Title IV purposes if:
• The program is required to measure student progress in clock hours when receiving federal or state approval or licensure to offer the program; or
• The program is required to measure student progress in clock hours when completing clock hours is a requirement for graduates to apply for licensure or the authorization to practice the occupation that the student is intending to pursue;  or
• The credit hours awarded are not in compliance with the proposed definition found in 34 CFR 600.2; or
• The institution does not provide clock hours that are the basis for the credit hours awarded for the program or each course in the program and requires attendance in the clock hours that are the basis for the credit hours awarded.

NOTE:  The first two bullets do not apply if there is a limited component of the program that must include a practicum, internship, clinical experience that must include a minimum number of clock hours.

The institution’s conversions to establish a minimum number of clock hours of instruction per credit may be less than 37.5 or 25 clock hours if neither the accrediting agency nor the state agency for participation in Title IV programs has identified deficiencies with the institution’s policies and procedures, or their implementation, for determining clock hours as defined in 34 CFR 600.2 so long as:

• The institution’s students’ work outside of class combined with the clock hours of instruction meet or exceed the numeric requirements in the conversion formula; and:
o A semester or a trimester hour must include at least 30 clock hours of instruction; and
o A quarter hour must include at least 20 clock hours of instruction.

NOTE:  Page 34810 of the Preamble states that in determining whether there is outside work that a student must perform, the analysis must take into account differences in coursework and educational activities with the program.  Some portions of the program may require student work outside of class that justifies the lower conversion and it may vary within a program.  “Of course, an institution applying only proposed 34 CFR 668.8(l)(1) to a program eligible for conversion from clock hours to credit hours, without an analysis of the program’s coursework, would be considered compliant…”  That is, an institution may use the 37.5 or 25 clock hours to credit conversion without any further analysis.

Accrediting Agency Procedures:

The Department proposes to amend the accrediting agency procedures in 34 CFR 602.24 by adding a new paragraph (f) that describe the responsibilities of an accrediting agency to review and evaluate an institution’s policies and procedures for the assignment of credit hours and the institution’s application of its policies and procedures in assigning credits.  The accrediting agency meets the requirement if it reviews each institution’s:

(1) Policies and procedures for determining credit hours that the institution awards for courses and programs;
(2) The application of the institution’s policies and procedures to its courses and programs;
(3) Makes a reasonable determination of whether the institution’s assignment of credit hours conforms to commonly accepted practice in higher education;
(4) The accrediting agency may make use of sampling or other methods in the evaluation; and
(5) The accrediting agency may take such actions that it deems appropriate to address any deficiencies.

Similar responsibilities are outlined in 34 CFR 603.24 for state agencies for the approval of public postsecondary education. 

Reasons:  A credit hour is a unit of measure that gives value to the level of instruction, academic rigor, and time requirements for a course taken at an institution.  In keeping with the original purpose of providing a consistent measure of at least a minimum quantity of a student’s academic engagement, the proposed definition of “credit hour” would establish a basis for measuring eligibility for federal funding.

In recognition that other measures of educational content are being developed by institutions, the Department is proposing that an institution may provide institutional equivalencies for the amount of work specified in the proposed definition represented in intended learning outcomes and verified by evidence of their achievement.   The equivalencies must be in accordance with the accrediting agency’s process or conditions.

The proposed definition of credit hour only recognizes credit earned at the institution and, therefore, funding would not be provided for Advanced Placement or International Baccalaureate programs.

State Authorization (§§ 660.4(a)(3), 600.5(a)(4), 600.6(a)(3), and 600.9)

Current Rules:  The regulations do not define or describe the statutory requirement that an institution must be legally authorized in a State.

Proposed Rules:  An institution would be legally authorized by a State through a charter, license, approval, or other document issued by a State government agency or State entity that affirms or conveys the authority to the institution to operate educational programs beyond secondary education.  An institution would also be legally authorized in a State if the institution were authorized by the Federal Government, an Indian Tribe, or is exempt from State authorization as a religious institution.

The Secretary would consider an institution to be legally authorized by a State if:

• The authorization is given to the institution specifically to offer programs beyond secondary education but not merely to do business in the state;
• The authorization is subject to adverse action by the State; and
• The State has a process to review and appropriately act on complaints concerning the institution and enforces State laws.

Reasons:  State oversight through obtaining approval to offer postsecondary education and by ongoing activities of the State regulatory agency play an important role in protecting students.  One indicator noted on page 34813 of the Preamble is the movement of substandard institutions and diploma mills from State to State in response to changing requirements.  In the past, the State authorization requirement was viewed as minimal.  However, ED believes that a better approach is to view the State as being expected to take a more active role in approving an institution and monitoring complaints. An example cited was the lapse of the CA Bureau’s existence which permitted institutions to continue to participate in the Title IV programs.  Had the regulations been in effect, CA would have been required to keep the Bureau in place or to designate another agency during the transition to a new State oversight agency.  ED is also concerned that States are deferring all, or nearly all of their oversight responsibilities, to accrediting agencies and ED is concerned that there are no checks and balances.

The proposed regulations clarify that unlike the draft rules, legal authority could not only be provided by an approved State agency, but also another State entity.  Page 34813 of the Preamble suggests as an alternative “a State legislature or State constitution.”

The proposed regulations also clarify that the authorization must be specifically to offer programs beyond secondary education and may not be merely of the type required to do business in the State.

Student Assistance General Provisions (§ 668.2)

Current Rules:  None.

Proposed Rules:  The definition of “full-time student” would be amended to allow repeated coursework to count towards a student’s enrollment status in term-based programs.

Reasons:  Current policy provides that a student may not be paid for repeating a course unless the student will receive credit for the coursework.  The non-federal negotiators were concerned that institutions could not track this type of information.  ED decided to include the provision in the regulation to provide that repeated courses would count toward enrollment status and the student would be eligible for Title IV for term-based programs.  (This does not apply to nonterm programs.)

Written Arrangements (§§ 668.5 and 668.43)

Current Rules:  An eligible institution may enter into a written agreement or consortium agreement with another eligible institution without any limitations.  There is no requirement to provide information on written arrangements to enrolled or prospective students.

Current rules limit the arrangement between an eligible institution and an ineligible institution.  The ineligible institution can provide no more than 25% of a program or, if it provides more than 25% of an eligible program but not more than 50%, the eligible institution and the ineligible institution cannot be owned or controlled by the same individual, partnership or corporation.

Proposed Rules: The provision would be modified to make it consistent with the definition of “educational program” by specifying that if a written arrangement is between two or more eligible institutions that are owned or controlled by the same individual, partnership, or corporation, the institution that grants the degree or certificate must provide more than 50% of the educational program.  [Under 34 CFR 600.2, an “eligible program” is not considered an eligible program if an institution does not provide any instruction by itself but merely gives credit for instruction provided by other institutions.]

The proposed regulations clarify that educational programs offered under written arrangements between an eligible and ineligible institution would not be considered eligible programs if the ineligible institution had had its certification or recertification to participate in Title IV denied.

The proposed regulations would also require institutions to make available to students information about written arrangements including:

• The portion of the educational program that the institution that grants the degree or certificate is not providing;
• The name and location of the other institutions or organizations that are providing a portion of the educational program;
• The method of delivery of the portion of the educational program that the institution that grants the degree or certificate is not providing; and
• Estimated additional costs students may incur as the result of enrolling in an educational program that is provided under the written arrangement.

The institution must make available for review to any enrolled or prospective student upon request, a copy of the documents describing the institution’s accreditation and its State, Federal or other tribal approval or license.  In addition, the institution must provide its students or prospective students with contact information for filing complaints with its accreditor and State approval or licensing entity.

NOTE: Individual student-initiated written arrangements would not be subject to the disclosure requirements. In addition, the disclosure requirements would not apply to internships/externships.

Reasons:   The proposal is designed to address some concerns. First, written agreements between institutions with common ownership could be circumventing the regulations governing default rates and 90/10.  One institution could be providing substantially all of the instruction but the Title IV revenue and cohort default rates could be attributed to the other institution.  Further, campus-based institutions could be used as “portals” to attract students for online institutions under common ownership where students may not expect the program to be offered by another institution.
When non-federal negotiators had suggested that this could make it difficult for military personnel who are deployed, ED responded that the student could transfer to the institution that was providing the preponderance of courses.

Incentive Compensation (§ 668.14)

Current Rules:  In accordance with the HEA provision, an institution is prohibited from making any commission, bonus, or other incentive payments based directly or indirectly on success in securing enrollments or financial aid to any persons or entities involved in student recruiting or admissions activities, or in making decisions about the award of student financial assistance.  It also states that the prohibition does not apply to the recruitment of foreign students who are not eligible for financial aid.  It currently specifies 12 “safe harbors” that an institution may carry out without violating the provision.

Proposed Rules:  The Department is proposing to align the regulation more closely with the statute and delete the 12 safe harbors. The Department would clarify that “eligible institutions and their contractors may make merit-based adjustments to employee compensation, provided that such adjustments are not based directly or indirectly upon success in securing enrollments or the award of financial aid.”

The Department also proposes to define the following terms:

Commission, bonus or other incentive payment:  A sum of money or something of value paid to or given to a person or an entity for services rendered.

Securing enrollments or the awards of financial aid:  Activities that a person or entity engages in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid to students.  These activities include recruitment contact in any form with a prospective student, such as preadmission or advising activities, scheduling an appointment to visit the enrollment office, attendance at such appointment, or signing an enrollment agreement or financial aid application. These activities do not include making a payment to a third-party for “the provision of student contact information for prospective students provided that such payment is not based on the number of students who apply or enroll.”

Reasons:  ED believes that the regulatory language is clear and the elimination of the safe harbors best serves to effectuate congressional intent. ED stated on page 34817 of the Preamble that “unscrupulous actors routinely rely upon these safe harbors to circumvent the intent…”  From ED’s point of view, the safe harbors have obstructed congressional objectives.  An example given was the first safe harbor, which prohibits the payment of incentives based solely upon the success in securing enrollments.  While ED has seen other factors used, consideration of these other factors was minimal.   ED believes that students are the victims of compensation plans and states that “[t]he incentive to deceive or misrepresent the manner in which a particular educational program meets a student’s need increases substantially” when admissions personnel are compensated upon the number of students enrolled.

The Preamble describes how each safe harbor circumvents the rule.  It does note that the rule “does not prohibit profit distributions based upon an individual’s ownership interest. As a result, it is the Department’s view that this safe harbor is unnecessary.” (Page 34818)

The Department stated on page 34818 of the Preamble that removal of these safe harbors is necessary to ensure that the statute is properly applied.  “The Department has determined that these safe harbors do substantially more harm than good…” The Department stated that institutions can determine if a payment compensation plan is permissible by analyzing:

1. “Whether it is a commission, bonus, or other incentive payment, defined as an award of a sum of money or something of value paid to or given to a person or entity for services rendered; and
2. Whether the commission, bonus, or other incentive payment is provided to any person based directly or indirectly upon success in securing enrollments or the award of financial aid, which are defined as activities engaged in for the purpose of the admission or matriculation of students for any period of time or the award of financial aid.”

ED asserted that if the answer to each of the items above is “yes,” the commission, bonus, or incentive payment would not be permitted under the statute.

A number of concerns were raised at the negotiated rulemaking sessions including whether all previously permitted actions would be prohibited.  ED’s position as explained on page 34819 of the Preamble is that “going forward, under the proposed regulations, institutions would need to re-examine their practices to ensure that they comply with the proposed § 668.14(b)(22).”  ED goes on to say that if the safe harbor is removed, what was “permitted is now prohibited.”

Concern was also expressed during negotiated rulemaking that under the proposed rules, merit-based increases to their financial aid and admissions personnel would be prohibited.  Some asked whether adjustments could be made based on an employees’ performance in relation to an institution’s goals, such as enrollment, completion, or graduation. ED responded on page 34819 of the Preamble:  “An institution would have to use a variety of standard evaluative factors as the basis for such an increase; however, consistent with section 487(a)(20) of the HEA under proposed Sec. 668.14(b)(220, it would not be permitted to consider the employee's success in securing student enrollments or the award of financial aid or institutional goals based on that success among those factors.” (Page 34819)

ED also noted that “the incentive compensation prohibition applies all the way to the top of an institution or organization.”

Several non-federal negotiators asked whether the Department would offer private letter guidance on conduct that may violate the rules.  ED responded that it believes that the rules are clear.  However, page 34820 of the Preamble states that “to the extent ongoing questions arise on a particular aspect of the regulations,” the Department may include a clarification in a Department publication, such as the Student Financial Aid Handbook or a Dear Colleague letter

Satisfactory Academic Progress (§§ 668.16(e), 668.32(f), 668.34)

Current Rules:  The satisfactory academic progress requirements are outlined in these sections, including the appeal process and the process for re-establishing financial aid eligibility.

Proposed Rules:  The satisfactory academic progress requirements would be restructured.   34 CFR 668.16(e) would be revised to include only the requirement that an institution establish, publish and apply satisfactory academic progress standards.  The remainder of the current provision that outlines the elements that should be included would be moved to 34 CFR 668.34.  Proposed 34 CFR 668.34 would specify the elements an institution’s policy must contain to be a reasonable policy.  Institutional policies would need to describe how a student’s GPA and pace of completion are affected by transfers of credit from other institutions. “This provision would also require institutions to count credit hours from another institution that are accepted toward a student’s educational program as both attempted and completed hours.”  (Page 34820 of the Preamble)

The elements are as follows:

• The evaluation must be at the end of each payment period if the educational program is either one academic year or shorter or at the end of each payment period or at least annually for all other educational programs;
• The policy specifies the GPA that a student must achieve or a comparable assessment measured against a norm;
• If a student is enrolled in an educational program that is more than 2 academic years, the student must have a GPA of at least a C or its equivalent or have academic standing consistent with the institution’s requirements for graduation;
• The policy specifies the pace at which the student must progress within the maximum time frame and the pace is calculated by dividing the cumulative number of hours completed by the cumulative number of hours attempted (remedial courses do not have to count);
• The policy addresses incompletes, withdrawals, repetitions, and transfers of credit.  Credits from other institutions that are accepted must [emphasis added] count as both attempted and completed hours;
• At the time of evaluation, if the student does not achieve the minimum standards, the student is no longer eligible for Title IV unless the student is on financial aid warning or financial aid probation;
• If the student is on financial aid warning or probation, the policy must describe the statuses as follows:
o Financial aid warning allows a student to be eligible for financial aid for a payment period and may be assigned without an appeal. (NOTE: This is only available to schools that evaluate students at the end of each payment period);
o Financial aid probation allows a student to be eligible for financial aid for a payment period. Financial aid probation may only be assigned to a student who fails to make satisfactory academic progress and who has appealed and has had eligibility for financial aid reinstated. At the end of the payment period, the student must meet the standards or meet the requirements of the academic plan developed by the institution and the student to qualify for further Title IV;
• If the institution permits a student to appeal a determination, the school must have a policy that describes:
o How the student may re-establish eligibility for financial aid;
o The basis on which a student may appeal: the death of a relative, an injury or illness of the student, or other special circumstances; and
o Information the student must submit regarding why the student failed to make satisfactory academic progress and what has changed in the student’s situation that will allow the student to demonstrate satisfactory academic progress at the next evaluation;
• If the policy does not permit an appeal process, the policy must indicate how the student can re-establish financial aid eligibility; and
• The policy provides for the notification to students of the results of an evaluation that impacts the student’s eligibility.
• Definitions:
o Appeal:  A process by which a student who is not meeting the institution’s satisfactory academic progress standards petitions the institution for reconsideration of the student’s eligibility for Title IV;
o Financial aid probation:  A status assigned by an institution to a student who fails to make satisfactory academic progress and who has appealed and has had eligibility for aid reinstated;
o Financial aid warning:  A status assigned to a student who fails to make satisfactory academic progress at an institution that evaluates academic progress at the end of each payment period;
o Maximum time frame:
 For an undergraduate program measured in credit hours, a period that is no longer than 150% of the published length of the educational program, as measured in credit hours;
 For an undergraduate program measured in clock hours, a period that is no longer than 150% of the published length of the educational program, as measured in the cumulative number of clock hours the student is required to complete and expressed in calendar time; and
 For a graduate program, a period defined by the institution that is based on the length of the educational program.

Reasons:  Recent questions from institutions and reviews of institution’s satisfactory academic progress policies have raised concerns at the Department. Such concerns include schools using as long as 24 months for a probationary period.  Other concerns include schools that have been using a variety of methods, such as warning, probation, and amnesty, to permit students to remain in school and receive Title IV aid, even though the student was not making progress.

To encourage institutions to evaluate students more frequently than at the end of each academic year, the proposed rules would offer additional flexibility to those institutions by permitting those institutions to place students on financial aid warning for one payment period, which would encourage institutions to provide additional support to students in a timely manner and would help students be successful.

Page 34822 of the Preamble clarifies that the Department believes that a student should continue to be able to appeal a determination that the student has failed or will fail to meet the maximum time frame requirements.  ED believes that the proposed rules give institutions the flexibility to help address the needs of students who may exceed the maximum time frame.  An institution could work with the student to develop an academic plan that would require the student to meet the graduation requirements by a specific point in time.

Asked by non-federal negotiators about academic amnesty policies, ED responded on page 34822 of the Preamble that it would be appropriate for the institution to require the student who has been out of school, for instance 10 years, to submit an appeal and develop an academic plan with the institution that would specify milestones the student would be expected to meet. “As in other situations where a student has had academic difficulty and been placed on financial aid probation, the institution would have the option of placing certain restrictions on the student, such as limiting the number of hours taken or specifying a certain sequence of courses.”

Evaluating the Validity of High School Diplomas (§ 668.16(p))

• Current Rules:  There is no definition of high school diploma.   Institutions of higher education must admit as regular students only individuals who have a high school diploma or its recognized equivalent or who are beyond the age of compulsory school attendance.  In order to receive financial aid, a student must have a high school diploma or its recognized equivalent, have completed secondary school in a home school setting, or pass an independently administered examination approved by the Secretary.

Proposed Rules:  An institution would have to develop and follow procedures to evaluate the validity of a student’s high school completion if the institution or the Secretary has reason to believe that the high school diploma is not valid or was not obtained from an entity that provides secondary school education.

Reasons:  This proposal is designed to ensure that schools who report having a high school diploma have a valid high school diploma. The Department agreed to establish and maintain a list of secondary schools.  Beginning with the 2011-2012 award year, two questions will be added to the FAFSA:

• What is the name of the secondary school or entity that provided the student’s secondary school program of study?
• What is the State that awarded the student’s high school diploma?

If the secondary school does not match the list of secondary schools maintained by the Department, or if the student does not provide the name of the secondary school or entity or the State that issued the diploma, the Department may select the student’s FAFSA for further review by the institution to determine if the student has a valid high school diploma before receiving financial aid. According to page 34823 of the Preamble, the institution would have to determine the validity by following the procedures it develops to evaluate the validity of diplomas, which could include obtaining a copy of the student’s diploma.  ED will provide more specific guidance as to what procedures institutions might use to evaluate the validity of diplomas, through Federal Student Aid Handbook or other means. 

Return of Title IV HEA Funds – Treatment of Title IV, HEA Program Funds When a Student Withdraws from Term-Based Programs with Modules or Compressed Courses (§ 668.22(a) and (f))

Current Rules:  While the current rules address the institution’s and student’s responsibilities when a student does not finish the term, the regulations do not address the treatment of term-based programs in which courses are less than the length of the term.  ED established the policy in a Dear Colleague letter (GEN-00-24), which states that when a student who completes only one module or compressed course within a term in which he/she was expected to complete additional coursework, the student is not considered to have withdrawn under the return calculation.

Proposed Rules:  A student is considered to have withdrawn from a payment period or period of enrollment if he/she does not complete all the days in the payment period or period of enrollment for programs that are measured in credit hours or clock hours for programs measured in clock hours that the student was scheduled to complete prior to withdrawing.

The proposed regulation would clarify that for credit hour programs, in calculating the percentage of the payment period or period of enrollment completed, it is necessary to take into account the total number of calendar days that the student was scheduled to complete prior to withdrawing without regard to any course completed by the student that is less than the length of the term.

Reasons:  The changes would ensure more equitable treatment between students who withdraw from programs that are measured in credit hours, regardless of whether these programs span the full length of the terms or are programs with modules or compressed courses.

ED reconsidered its prior guidance because the change could provide a more equitable treatment of students who are attending for comparable periods of time during a semester because a student’s aid is based on and intended to cover in whole or in part not only tuition and fees for the term but the student’s living expenses for the term and these same amounts are earned on a prorata basis for the first 60% of the term.  Further, a student who only attends one module or compressed course and then ceases to be enrolled without attending other modules or compressed courses he or she is scheduled to attend in the term is withdrawing before completing the term and the portion of the term completed should be considered to determine how much of the Title IV aid the student earned.

Withdrawal Date for a Student who Withdraws From an Institution that is Required to Take Attendance (§ 668.22(b))

Current Rules:  An institution is required to take attendance if an outside entity (such as an accrediting agency or a State agency) requires the institution to take attendance. If required to take attendance, an institution must use the last date of academic attendance as the withdrawal date.

Proposed Rules: The Department would clarify which institutions are required to take attendance. Institutions would be required to take attendance if required by an outside entity, or the institution itself has a requirement that its instructors take attendance, or if the institution or an outside entity has a requirement that can only be met by taking attendance or a comparable process, including but not limited to, requiring that students in a program demonstrate attendance in the classes of that program or a portion of that program.  Further, the Department would remove the provision that “it is the entity that determines whether there is a requirement to take attendance since the new provision looks at the substance of the information being collected rather than the characterization of that information or process by the entity.”

The proposal would clarify that if the institution takes attendance for a limited period of time, such as the first two weeks of courses or until a “census date,” these institutions would be required to use its attendance records to determine the withdrawal date during that limited period.  If an attendance is required on a specific date to meet a census reporting requirement, the institution is not considered to take attendance.

Reasons:  The Department believes that these changes would provide a more accurate determination of how much Title IV aid a student earned who withdrew during a period when an instructor or another employees was required to take attendance.

Verification and Updating of Student Aid Application Information (Subpart E of Part 668)

Definitions (§ 668.52)

Current Rules:  Key terms used include base year, edits, institutional student information record and student aid application.

Proposed Rules:  Base year, edits, and student aid application definitions would be removed because they are no longer used.  The definition of Institutional Student Information Record (ISIR) would be revised and the terms for FAFSA and SAR, specified year, subsidized student financial assistance programs and unsubsidized student financial assistance programs would be added.

Reasons:  The new terms will be referenced in the proposed regulations.

Policies and Procedures (§ 668.53(c))

Current Rules:  Institutions are required to establish and use written policies and procedures for verifying information on the FAFSA.

Proposed Rules:  The provision would remain largely the same, except ED would add a requirement that institutions must complete verification prior to exercising professional judgment.

Reasons:  ED is codifying its longstanding policy.

Selection of FAFSA Information for Verification (§ 668.54)

Current Rules:  An institution is not required to verify more than 30% of its applicants for Title IV funds.  In addition, the Secretary excludes certain categories from verification (e.g., an applicant who is incarcerated).

Proposed Rules: Institutions would have to verify all applicants selected and the Secretary would publish an annual Federal Register notice that would describe the information that an institution and the applicant may be required to verify for those applicants selected for verification. The exclusions from verification would be restructured.

Reasons: The proposed changes are needed to align this section with the modifications to be made to the verification process.  While the non-federal negotiators were concerned about increase burden because of having to verify all selected applicants, ED noted on page 34828 of the Preamble that institutions would no longer be required to verify all five items for each applicant selected.   Moreover, information obtained through the IRS Data Retrieval process would not have to be verified and, therefore, should significantly reduce institutional burden.

Updating Information – Changes in Dependency Status (§ 668.55(c))

Current Rules:  Applicants are required to update their dependency status on the FAFSA at any time throughout the award year except for a change in dependency status change as a result of a change in marital status.
Proposed Rules:  Applicants would be required to update all changes in dependency status that occur throughout the award year.

Reasons:  This would simplify the process and ensure that the amount of assistance received by an applicant is based on the best available information.

Information to be Verified (§ 668.56)

Current Rules:  Five items must be verified when an applicant is selected:

• Adjusted Gross Income;
• U.S. income tax paid;
• Number of family members in the household;
• Number of family members in the household enrolled at least half-time in postsecondary educational institutions; and
• Untaxed income and benefits.

Proposed Rules:  These items would be eliminated.  Each award year, the Secretary would publish in the Federal Register the FAFSA information and documentation that an institution and an applicant may be required to verify.

Reasons:  The Department plans on implementing a targeted approach to verification.

Acceptable Documentation (§ 668.57(a)(2), (a)(4)(ii)(A), (a)(5), (a)(7), and (d))

Current Rules:  The rules specify the documentation an institution must obtain from an applicant to verify the required items.

Proposed Rules:  In lieu of an income tax return or an IRS form that lists tax account information, institutions could accept the electronic importation of data obtained from the IRS into an applicant’s online FAFSA. ED would clarify that an applicant’s income tax return that is signed by the preparer or stamped with the preparer’s name and address must include the preparer’s Social Security Number, Employer Identification Number or the Preparer Tax Identification Number.

Reasons:  The rules would accurately reflect the IRS documentation and processes under the IRS Data Retrieval Process, which will relieve burden on institutions by no longer requiring verification of the information that is imported from the IRS to populate a student’s online FAFSA or requiring the documentation for those items. 

ED had initially proposed to eliminate the provision that allows a tax preparer to sign an applicant’s income tax return.  Since the non-federal negotiators indicated that administrative burden would be reduced if an institution could continue to accept a tax preparer’s signature or stamp in lieu of the filer’s signature on the tax return, ED agreed to retain this provision.  But ED clarified that an applicant’s income tax return must include the preparer’s Social Security Number, Employer Identification Number or the Prepare Tax Identification Number in addition to his/her signature or a stamp of the preparer’s name and address.

The section regarding acceptable documentation for untaxed income and benefits would be deleted because many of the untaxed income elements have been eliminated by statute.  Instead specific information to verify other information will be specified in the annual Federal Register notice.

Interim Disbursements (§ 668.58(a)(3)

Current Rules:  The rules specify the conditions under which an institution may make interim disbursements of Title IV before the applicant completes verification.  If an institution does not have reason to believe that an applicant’s FAFSA information is inaccurate, it may choose to make only one disbursement before verification is completed.

Proposed Rules:  Current rules would largely remain except for a new paragraph that would allow an institution to disburse Title IV funds after verification is completed but before receiving the corrected SAR or ISIR if the changes to an applicant’s FAFSA would not change the amount of Title IV aid the applicant would receive.  However, the institution would have to ensure that all changes have been submitted to ED in order to avoid any liability for the disbursement made without the correct SAR or ISIR.

Reasons:  By adding this paragraph, ED would be ensuring institutional flexibility in disbursing Title IV.

Consequences of a Change in an Applicant’s FAFSA Information (§ 668.59)

Current Rules:  If as a result of verification, changes need to be made to the FAFSA, an applicant must submit corrected information to ED, except if the errors do not change the Expected Family Contribution (EFC) or the errors in the dollar amount are within the $400 tolerance.

Proposed Rules:  All tolerances would be removed.  All corrections would have to be submitted to ED.

Reasons: While the non-federal negotiators believed that this would increase burden, ED believes that decisions should be made on the best available information.

Deadlines for Submitting Documentation and the Consequences of Failing to Provide Documentation (§§ 668.60(b)(1)(ii), (b)(3), (c)(1), and (d))

Current Rules:  Deadlines are provided including the certification of the loan application or processing a check.

Proposed rules:  ED would remove those items that are outdated processes and would require an institution to follow the cash management requirements if the institution receives loan proceeds before the applicant has completed verification.

Reasons:   ED wants the rules to be consistent with the cash management requirements.

Recovery of Funds (§ 668.61(c))

Current Rules:  This section describes the institution’s obligations to recover funds if as a result of the verification process, it discovers that the applicant received more financial aid than the applicant was eligible to receive.

Proposed Rules:  The rules would be retained but an additional paragraph would be added that would require an institution to repay the federal account if it disbursed subsidized financial aid to a student without receiving a corrected SAR or ISIR.

Reasons:  While institutions have been given the flexibility to disburse funds before receiving the corrected SAR or ISIR, institutions would be held liable if it did not receive the SAR or ISIR.

Misrepresentation (Subpart F of Part 668)

Current Rules:  This section sets forth the types of consumer information statements and communications that constitute misrepresentation.

Proposed Rules:  Changes are being proposed to strengthen ED’s regulatory enforcement authority against eligible institutions that engage in substantial misrepresentation.

Reasons:  ED has received complaints from students that they were victims of false promises and other forms of deception.

Scope and Special Definitions (§ 668.71)

Current Rules:  The rules and standards address the standards should an institution make any substantial misrepresentations regarding the nature of its educational program, its financial charges, or the employability of its graduates.

Proposed Rules:  The rules would clarify that “misrepresentation” is any false, erroneous, or misleading statement that an eligible institution, one of its representatives, or any ineligible organization, or person with whom the eligible institution has an agreement makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or the Secretary.

“Misleading statement” would be any statement made in writing, visually, orally, or through other means that has the “capacity, likelihood, or tendency to deceive or confuse.”

ED would also retain the reference to the dissemination of a student endorsement or testimonial that a student gives because the institution required the student to make such an endorsement or testimonial to participate in a program.

Reasons:  ED believes that it is appropriate to hold the eligible institution accountable when a related person or entity makes a substantial misrepresentation.

Also added to the proposed rules was that substantial misrepresentation would be prohibited in all forms, including advertising, promotional materials, or in the marketing or sale of courses or programs of instruction offered by the institution.

ED would be broadening what misrepresentation means and to whom statements would be prohibited. ED believes that the proposed rules clarify the difference between misrepresentation and substantial misrepresentation (i.e., any misrepresentation on which the person could reasonably be expected to rely or has reasonably relied to that person’s detriment.)

Nature of Educational Program (§ 668.72)

Current Rules:  The rules describe the types of false, erroneous, or misleading statements about an institution’s educational program that would be prohibited.

Proposed Rules:  The current types of false, erroneous or misleading statements would be retained but expanded to include:

• Not only statements about institutional accreditation but statements about programmatic and specialized accreditation;
• Statements under which an institution will accept credits earned from another institution;
• Statements whether successful completion of a course of instruction qualifies a student for acceptance to a labor union or similar organization or to receive, to apply to take or to take the examination required to receive a local, State, or Federal license, or a non-governmental certification required as a precondition for employment, or to perform certain functions in the State in which the program or institution is location, or to meet additional conditions that the institution knows or should know are needed to secure employment.
• Other added types of misrepresentation would include:
o The requirements for successfully completing the course and the circumstances that would constitute grounds for termination;
o Whether the institution’s courses have been the subject of unsolicited testimonials or endorsements by vocational counselors, high schools, colleges, educational organizations, employment agencies, members of a particular industry, students, former students, or others including governmental employment;
o The subject matter, content of the course of study, or any other fact related to the degree or certificate that the student is awarded upon completion of the program; and
o Whether the academic, professional, or occupational degree that the institution will confer upon completion of the program has been authorized by the appropriate State agency.

Reasons:  Potential students should have a clear understanding about any educational program in which they may enroll.

Nature of Financial Charges (§ 668.73)

Current Rules:  The rules describe the types of false, erroneous, and misleading statements about financial charges that would be prohibited.

Proposed Rules:  The types will be retained and expanded to include the following misleading statements:

• Offers of scholarships to pay all or part of a course charge;
• Whether a particular charge is the customary charge at the institution for the course;
• Additional statements would include the following:
o The cost of the program and the institution’s refund policy if the student does not complete the program;
o The availability or nature of any financial assistance offered to students; and
o The student’s right to reject any particular type of financial assistance.

Reasons:  ED believes that students should clearly understand the costs of the program and the financial aid options so that students and parents can make informed decisions.

Employability of Graduates (§ 668.74)

Current Rules:  The rules describe the false, erroneous, or misleading statements about the employability of graduates that would be prohibited.

Proposed Rules:  The types would be retained and expanded to include the following:

• The institution’s relationship with any organization, employment agency, or other agency providing authorized training directly to employment;
• The institution’s plans to maintain a placement service for graduates or otherwise assist its graduates in obtaining employment;
• The types would be expanded to include the following:
o The institution’s knowledge about the currently or likely future conditions, compensation, or employment opportunities in the industry or occupation for which the students are being prepared;
o Whether employment is being offered by the institution or that a talent hunt or contest is being conducted through the use of such phrases as “Help Wanted;”
o Government job market statistics in relation to the potential placement of its graduates; or
o Other requirements that are generally needed in order to be employed in certain fields.

Reasons:  ED believes that students should be better informed about their likely employment options.


Relationship with the Department of Education (§ 668.75)

Current Rules: ED’s procedures for reviewing allegations or complaints are described.
Proposed Rules: ED would delete the section since these rules are not used to take enforcement action. The proposed rules would prohibit institutions from making statements that suggest that the Department approved or endorses the quality of their programs.

Ability to Benefit (§ 668.32 and Subpart J of Part 668)

Student Eligibility (§ 668.32(e))

Current Rules:  To be eligible for financial aid, a student must have a high school diploma or equivalent, have obtained a passing score on an ATB test, have been enrolled in an eligible institution that participates in a State process approved by the Secretary, or have obtained a secondary credential from a home school or, if the State law does not require such a credential, have completed a secondary school education in a home school setting that qualifies as an exemption from compulsory school attendance under State law.

Proposed Rules:  ED would add a new paragraph that would allow a student to be eligible if he/she completed 6 semester, trimester, or quarter credits or 225 clock hours that are applicable toward a degree or certificate offered by the institution.

Reasons:  This provision was added with the enactment of the HEOA.   ED noted on page 34838 of the Preamble that an institution may have a policy whereby it does not admit ATB students.  On the same page, ED stated that there was discussion as to whether the student could be paid for the payment period in which eligibility was established.   The Department’s position is that a student who establishes eligibility for Title IV by passing an ATB test during the payment period may be paid for the entire payment period.  “However, if a student establishes title IV, HEA eligibility by completing six credit hours, or the equivalent, eligibility is not established until after the end of the payment period, and the student may not be paid for the payment period during which the student took the requisite coursework.”

Scope (§ 668.151)

Proposed Rules:  The rules would provide references to the test approval process including the process for test publishers and States to identify and follow-up on test score irregularities.
Reasons:  This section would be aligned with the proposed changes to the test approval process.

Special Definitions (§ 668.142)

Current Rules:  Definitions are included for an Assessment Center, Independent Test Administrator, Individual with a Disability, Test Administrator, and Test Publisher. There is no definition for a Test.

Proposed Rules:  These definitions would be expanded.   Of particular interest is the definition of Assessment Center where the Secretary would add a requirement that the test administrators at assessment centers must have been certified by the test publisher or the State to administer ATB tests.

Reasons:  The Department hopes to clarify the definitions and for the assessment center, ensure that individuals giving the ATB tests are qualified.

Approval of State Tests or Assessments (§ 668.143)

This section will be moved to 34 CFR 668.144.

Application for Test Approval (§ 668.144)

Current Rules:  This section provides the approval process for tests submitted by test publishers.

Proposed Rules: The rules would require test publishers to describe their process for certifying test administrators, their test anomaly analysis, or the types of accommodations available for individuals with disabilities. 

Reasons:  The revisions are being proposed because ED believes that it is important for test publishers to periodically review the content and specifications of the tests and to ensure the integrity of the test administrator.

Test Approval Procedures (§ 668.145); Criteria for Ap