AwardYear: 1995-1996 EnterChapterNo: 3 EnterChapterTitle: Institutional Eligibility and Administrative Requirements SectionNumber: 2 SectionTitle: Administrative and Fiscal Standards PageNumbers: 33-54 [[Trusteeship of SFA funds]] [[Administrative requirements found in the law and regulations]] Administrative and fiscal standards are important because all SFA funds received by a participating school are held in trust by that school, solely for the intended student beneficiaries. A school may contract with a consultant for assistance in administering the SFA programs. However, the school ultimately is responsible for the use of SFA funds and will be held accountable if the consultant mismanages the programs. (See the "Third-Party Servicers" discussion on pg. 3-46 for more details.) Administrative requirements to which a participating school is subject are found in the Higher Education Act of 1965, as amended, the General Provisions regulations, and the regulations for each SFA program. The law requires that all individuals who make decisions about SFA program administration or SFA student eligibility must report (when asked by the Department) on any financial interests held in other SFA schools. This requirement applies to all employees, consultants, lenders, guaranty agencies, servicers, accrediting agencies, State licensing boards, and secondary markets (including all officers, general partners, and directors of the above-mentioned entities). The law also states that a school is not considered eligible for SFA program participation if it filed for bankruptcy on or after July 23, 1992, or if the school (or its CEO or owner) was convicted or pled guilty or nolo contendre to a crime or was judicially determined to have committed fraud involving SFA funds. A school's eligibility and participation are considered terminated as of the date of the bankruptcy filing, or on the date of conviction or guilty plea (or the date of fraud determination). These are just some of the SFA administrative and fiduciary requirements. This section reviews the many requirements that apply to SFA schools, with emphasis on the recent changes in the regulations. THE PROGRAM PARTICIPATION AGREEMENT An eligible school must enter into a Program Participation Agreement (PPA or Agreement) with the Department to participate in any SFA program other than the State Student Incentive Grant (SSIG) program or the National Early Intervention Scholarship Program (NEISP). The PPA covers the school's participation in the following programs: Pell Grant, FSEOG, FWS, Federal Perkins (Perkins), FFEL, and PAS. Currently, schools participating in the Direct Loan program have a separate PPA. [[Purpose and scope of the PPA]] Under the PPA, the school agrees to comply with the laws and regulations governing the SFA programs. The Agreement automatically terminates when the school is recertified, loses eligibility, has a change of ownership that results in a change of control, loses its provisional certification, stops providing education, or voluntarily terminates SFA participation. The Agreement may also be terminated if the Department or a SPRE finds the school to be in violation of statutory or regulatory requirements. For more on the PPA and loss of approval to participate, see Section Ten of this Chapter. When entering into an Agreement, the school must demonstrate that it is financially responsible and administratively capable of providing the education it promises and of properly managing the SFA programs. After being certified for SFA participation, the school must administer SFA funds in a prudent and responsible manner. [[PPA requirements]] The PPA lists some of the basic administrative requirements of SFA participation. Many of these are discussed in this or other chapters of this Handbook, as noted below -- 1. The school will provide timely information on its administrative capability and financial responsibility to the Department, and to the appropriate State, guaranty, and accrediting agencies. (Sect. 2) 2. If the school advertises job placement rates to attract students, it must provide to prospective students any relevant information on State licensing requirements for the jobs for which the offered training will prepare them. (Sect. 8) 3. The school cannot deny SFA on the grounds that a student is studying abroad in an approved-for-credit program. (Sect. 1) 4. To begin participation in the FFEL programs (or if a school changes ownership or changes its status as a parent or subordinate institution), the school must develop a Default Management Plan for approval by the Department, and must implement the plan for at least two years. (Chapter 10) 5. The school must acknowledge the authority of the Department and other entities to share information regarding fraud, abuse, or the school's approval to participate in the SFA programs. (Sect. 10) 6. The school cannot knowingly employ or contract with (in the administration of or receipt of SFA funds) any individual, agency, or organization that has been convicted of or pled guilty or nolo contendre to a crime or was judicially determined to have committed fraud involving the misuse of SFA funds. (Sect. 2) 7. The school must, in a timely manner, complete surveys under the Integrated Postsecondary Education Data System (IPEDS) or any other data collection effort of the Department. (Sect. 8) 8. If the school offers athletically related student aid, it must annually compile data relating to its revenues and expenses, total and those related to athletics; this data must be audited and provided to the Department and to the public. (Sect. 2) 9. The school cannot penalize in any way a student who is unable to pay institutional costs due to compliance with the SFA program requirements, or due to a delay in Federal aid disbursement caused by the school. (Sect. 2) 10. The school cannot pay commissions or other incentives based directly or indirectly on securing enrollment or financial aid (except when recruiting foreign students ineligible for SFA funds) to persons engaged in recruiting, admission, or financial aid administration. (Sect. 2) 11. The school must comply with the requirements of the Department, as well as those of SPREs and accrediting agencies. (Sect. 2) 12. The school must have a fair and equitable refund policy in accordance with regulations. (Sect. 5) [[Processing fee for SFA funds prohibited]] 13. Schools cannot charge for processing or handling any application or data used to determine a student's SFA eligibility. For instance, the school may not charge (or include in the student's cost of attendance) a fee to certify a loan application, complete a deferment form, process a Pell Grant payment, verify an application, or send or request a financial aid transcript. [[Use of free Federal form]] 14. A student may always use the Free Application for Federal Student Aid (FAFSA) to apply for SFA funds. However, a school may require additional data that is not provided on the Federal form to award institutional or State aid. Effective for the 1993-94 award year, institutional charges for collecting such data must be reasonable and within marginal costs. The above list is not exhaustive; schools must carefully review all of the requirements listed on their PPA and those specified in 34 CFR 668.14. In addition, a school must meet any requirements for participation specific to an individual SFA program. When a school signs the Program Participation Agreement, it agrees to comply with the civil rights and privacy requirements contained in the Code of Federal Regulations (CFR), which apply to all students in the educational program, not just SFA recipients. FINANCIAL RESPONSIBILITY [[Standards of financial responsibility]] In order to participate in the SFA programs, a school must demonstrate that it is financially responsible. To provide the Department with the information necessary to evaluate a school's financial responsibility, schools are required to submit an audited financial statement to the Department every year, within four months of the end of the school's fiscal year. A school is also required to submit a compliance audit that is used to evaluate the school's administration of the SFA programs. See Section Seven of this Chapter for more information on the submission of a compliance audit.*1* [[New regulations published]] Final regulations published on April 29, 1994 have greatly modified the standards that a school must meet in order to demonstrate financial responsibility. In addition, the November 29, 1994 final regulations made a couple of changes to the financial responsibility standards. What follows is a general overview of those standards; however, schools should refer to 34 CFR 668.15 for complete information. [[Three categories]] The financial responsibility standards can be divided into three categories: (1) GENERAL STANDARDS (basic financial standards that all schools are required to meet), (2) TYPE-SPECIFIC STANDARDS (standards that apply specifically to each type of school--for-profit, nonprofit, and public), and (3) PERFORMANCE AND AFFILIATION STANDARDS (standards to evaluate a school's past performance and persons affiliated with the school). [[General standards for all schools]] To prove financial responsibility, a school must demonstrate that it is -- - providing the services described in its official publications and statements, - providing the administrative resources necessary to comply with the requirements for SFA participation, - meeting all of its financial obligations, which includes but is not limited to making refunds that it is required to make and repayment of SFA program liabilities, and - current in its debt payments. A school must also demonstrate that it has not had a statement by the accountant in its audit report for the school's most recently completed fiscal year expressing substantial doubt about the school's ability to continue as a "going concern," or a disclaimed or adverse opinion. [[Final Rule 11-29-94]] Beginning with the 1995-96 award year, most schools are not required to maintain a cash reserve fund for the payment of refunds as was required for the 1994-95 award year. Instead a school is considered to have sufficient cash reserves to make refunds if, for the past two years, the school has been financially responsible and has paid all required refunds on time. If a school has not demonstrated financial responsibility, the school is required to post a letter of credit in accordance with the letter of credit exemption to the general financial responsibility standards discussed below. If a school has not paid refunds on time, the school must post a letter of credit equal to 25% of the SFA refunds it was required to make for the past year. [[Type-specific standards]] In addition to the general standards of financial responsibility, a school must meet the requirements specific to the school type (for-profit, nonprofit, or public), as explained below. In lieu of meeting these specific standards, a school may demonstrate that it has a superior bond rating, as defined in regulations. A FOR-PROFIT SCHOOL IS FINANCIALLY RESPONSIBLE IF IT DEMONSTRATES: - an "acid test" ratio of at least 1:1, - a positive tangible net worth, AND - no operating losses over either or both of its two latest fiscal years that total more than 10% of the school's total net worth A NONPROFIT*2* SCHOOL IS FINANCIALLY RESPONSIBLE IF IT DEMONSTRATES - an "acid test" ratio of at least 1:1, AND - a positive unrestricted current fund balance or positive unrestricted net assets, OR not had an excess of current fund expenditures over current fund revenues over both of its two latest fiscal years that total more than 10% of either the unrestricted current fund balance or the unrestricted net assets A PUBLIC SCHOOL IS FINANCIALLY RESPONSIBLE IF IT DEMONSTRATES - - liabilities backed by the full faith and credit of a State, or by an equivalent governmental entity, - a positive current unrestricted fund balance if reporting under the Single Audit Act, OR - a positive unrestricted current fund in the State's Higher Education Fund OR, if it submits to the Department a statement from the State Auditor General that the school has met all of its financial obligations during the past year, and that it continues to have sufficient resources to meet all of its financial obligations. [[Performance and affiliation standards]] A school's financial responsibility is also evaluated based on the past performance of the school and persons affiliated with the school. A school is not financially responsible if a person who exercises substantial control over the school (or any members of the person's family alone or together) owes a liability for an SFA program violation, or has ever exercised substantial control over another school (or a third-party servicer) that owes a liability for an SFA program violation, unless that person, family member, institution, or servicer is making payments in accordance with an agreement to repay the liability. SUBSTANTIAL CONTROL -- Direct or indirect control over at least 25% ownership interest (either alone or with family members); representation (under voting trust, power of attorney, or proxy) of a person who individually or with a group has at least 25% ownership interest; status as CEO or other executive officer or member of a board of directors of an entity holding at least 25% ownership interest. OWNERSHIP INTEREST -- A share of the legal of beneficial ownership or control of, or a right to share in the proceeds of the operation of, a school or a schoolÂ’s parent corporation; including (but not limited to) sole proprietorship, interest as tenant, partnership, or interest in a trust. [[Substantial control/financial guarantees]] The Secretary can require financial guarantees from the owners of a school or from other persons with substantial control over the school. The same persons may be required to assume personal liability for financial losses to the Federal government and students, and for civil/criminal monetary penalties authorized under the HEA of 1965, as amended. Such financial guarantees will not be required for a school that -- - has not been subject to a limitation, suspension, or termination action by the Department or a guaranty agency in the last five years, - has not had, in the last two SFA program reviews or audits, findings that required a repayment of more than 5% of its SFA funds for any year, - has not failed to resolve any compliance problems identified in program reviews or audit reports, - meets, and has met for the last five years, the financial responsibility requirements given above, and - has not been cited during the last five years for failing to submit audits as required under the HEA of 1965, as amended. EXCEPTIONS TO FINANCIAL RESPONSIBILITY STANDARDS. If a school does not meet the general, type-specific, or performance and affiliation standards of financial responsibility (as discussed above), it may still be financially responsible if it meets one of the following exceptions. [[Exception to cash reserve requirement]] [[Final Rule 11-29-94]] CASH RESERVE REQUIREMENT (25% LETTER OF CREDIT): A school that has not paid refunds on time does not have to post a letter of credit equal to 25% of the SFA refunds it was required to make for the past year, if the Department determines that the State in which the school is located (and is legally authorized to operate) has a tuition recovery fund that ensures that the school is able to pay all required refunds, the fund is acceptable to the Department, and the school contributes to the fund. A school is also exempt from the 25% letter of credit requirement if the school has its liabilities backed by the full faith and credit of the State, or an equivalent government entity. When a State submits a tuition recovery fund for evaluation by the Department, the Department will consider the extent to which the recovery fund -- - provides refunds to both in-State and out-of-State students, - complies with SFA requirements for the order of return of refunds to sources of assistance, and - will be replenished should any claims arise that deplete the fund. [[Exception to general and type-specific standards]] GENERAL AND TYPE-SPECIFIC STANDARDS: A currently participating school that does not meet one or more of the general or the specific standards (excluding the cash reserve requirement) is still financially responsible if the school submits to the Department an acceptable irrevocable letter of credit equal to at least one-half of the SFA program funds received by the school during the last complete award year, or demonstrates (in accordance with the regulations) that the school has sufficient resources to ensure that it will not close precipitously. [[Exception to acid test ratio]] ACID TEST RATIO: A school that does not meet the acid test requirement is still financially responsible if it provides a two- year or four-year associate or baccalaureate degree program and the school can demonstrate to the satisfaction of the Department that -- - There is no reasonable doubt as to its continued solvency and ability to deliver quality educational services, - It is current in its payment of all current liabilities, including student refunds, repayments to the Department, payroll, and payment of trade creditors and withholding taxes, and - It has substantial equity in school-occupied facilities, the acquisition of which was the direct cause of its failure to meet the acid test ratio requirement. [[Exception to substantial control standard]] SUBSTANTIAL CONTROL: A school that does not meet the requirement that persons who exercise substantial control over the school may not owe a liability for an SFA program violation is still financially responsible if the school - - notifies the Department that the person repaid to the Department an acceptable portion of the liability, in accordance with the regulations, - notifies the Department that the liability is currently being repaid in accordance with a written agreement with the Department, or - demonstrates why the person(s) who exercise substantial control should nevertheless be considered to lack that control. [[Audited financial statement required]] A school's audited financial statement must cover the school's two most recently completed fiscal years. In addition to a school's financial statements, the Department may request that the school submit additional information, such as submission of or access to the accountant's work papers. Also, if the Department finds it necessary to evaluate a particular school's financial condition, it can require a school to submit an audited financial statement more frequently than once a year. A school that has an audit performed under the Single Audit Act (an A-133 audit, or an A-128 audit) may submit its financial statement to the Department in accordance with the requirements for that particular audit. (For details on these audits and related requirements, see Section Seven of this Chapter.) [[Fidelity bond coverage]] In the past, schools were required to maintain fidelity bond coverage for its employees. This is no longer a Federal requirement for schools that participate in the SFA programs. However, some schools are still required to maintain fidelity bond coverage because State laws require it. Even if it is not required to do so, a school may choose to maintain fidelity bond coverage to protect itself when losses occur resulting from a lack of integrity, honestly, or fidelity on the part of the school's employees or officers. [[Changes in control]] A school must report any changes of control under which a person acquires the ability to affect substantially the actions of the school. Such changes in control could call into question the school's financial responsibility. For more information, see Section Ten of this Chapter. STANDARDS OF ADMINISTRATIVE CAPABILITY As directed in the law, the Secretary has developed procedures and requirements concerning the assessment of a school's administrative capability, taking into consideration the school's past SFA-related performance and recordkeeping. [[Coordination of aid]] An eligible school must designate a capable individual*3* to administer the SFA programs and to coordinate aid from these programs with the school's other Federal and nonFederal student aid programs. The school's administration must be coordinated in such a way that all the information it receives concerning a student's SFA eligibility --from any school office-- is communicated to the financial aid administrator. To properly package and most effectively use the various types of student assistance (Federal, school, State, private, etc.), a financial aid administrator must be aware of all sources of aid at the school, and be able to coordinate with all financial aid programs a school offers to ensure that a student's aid does not exceed his or her need. [[Consistency of student information]] The school must have a system of identifying and resolving discrepancies in the SFA-related information received by various school offices. Such a system would include a review of all financial aid and need analysis documents, Statements of Educational Purpose and Registration Status, Federal and State income tax forms, and documents relating to admissions, citizenship, and previous educational experience. For instance, if a student receives veterans benefits through one school office, that office must notify the aid administrator of these benefits to ensure that the amounts are correctly reported on the student's aid application, and are counted as a resource for the campus-based programs and estimated financial assistance for the FFEL programs. As another example, the school's admissions or registrar's office must provide the financial aid office with any information that it has affecting a student's eligibility--the student's enrollment in an ineligible program, for instance, or past educational experience. [[OIG referrals]] If the school finds that a student may have engaged in fraud or other criminal misconduct in applying for SFA funds, it must refer this information to the Department's Office of Inspector General (OIG), which will in turn notify other officials as appropriate. (Please note that this requirement does not preclude the school from notifying other law enforcement agencies as necessary.) Some examples of fraudulent information: the use of false identities, forgery of signatures or certifications, and false claims of income, citizenship, or independent student status. [[Counseling]] The school must provide adequate financial aid counseling to all enrolled and prospective students and their families. Counseling must include, at a minimum, information about the source and amount of each type of aid offered, the method by which aid is determined and disbursed or applied to a student's account, and the rights and responsibilities of the student associated with the student's enrollment and receipt of financial aid. This information should include a description of the school's refund policy, satisfactory progress standards, and any other conditions or factors that may affect the student's aid package. The school must also provide entrance and exit counseling for student borrowers in the Perkins, Federal Stafford, and Federal Direct Loan programs. (See Section Nine of this Chapter, and Chapters Six and Ten of this Handbook for further information on exit counseling.) [[Adequate staffing]] To manage a school's aid programs effectively, the aid administrator must be supported by an adequate number of professional, paraprofessional, and clerical personnel. An "adequate" staff depends on the number of students aided, the number and types of programs in which the school participates, the number of applicants evaluated and processed, the amount of funds administered, and the type of financial aid delivery system the school uses. What may be adequate at one school may be completely insufficient at another. The Department will determine, on a case-by-case basis, whether a school has an adequate number of qualified persons, based on program reviews, audits, and information provided on the school's application for approval to participate. [[Separation of function]] In addition to having a well-organized financial aid office staffed by qualified personnel, a school must ensure its administrative procedures for the SFA programs include an adequate system of internal checks and balances. This system, at a minimum, must separate the functions of AUTHORIZING PAYMENT and DISBURSING OR DELIVERING FUNDS so that no one person or office exercises both functions for any student receiving SFA funds. Small schools are not exempt from this requirement, even though they may have limited staff. Individuals working in either authorization or disbursement may perform other functions as well, but not both authorization and disbursement. An eligible school must also have a policy to measure the academic progress of its students, according to the elements of a reasonable standard of satisfactory progress as provided in the regulations. See Chapter Two of this Handbook for an overview of satisfactory progress. In addition, a school is not administratively capable when -- [[High default rates]] - the cohort default rate for Perkins loans made to students for attendance at the school exceeds 15%.*4* - the cohort default rate for Stafford or SLS loans made to students for attendance at the school equals or exceeds 25% for three consecutive years. (See Chapter Ten of this Handbook for details.) If a school is not administratively capable because of a high default rate ONLY, the Department will provisionally certify the school. A school may appeal this loss of full participation under the procedures for appealing lost FFEL participation due to a high default rate. (See Chapter Ten for more details.) [[Final Rule 11-29-94]] Prior to the 1994-95 award year, all schools had to have an undergraduate withdrawal rate for regular students of no more than 33% in order to be administratively capable (prior to the 1994-95 award year, the withdrawal rate was used as an INDICATOR of administrative capability, not as an absolute standard). Beginning with the 1995-96 award year, the 33% withdrawal rate is applicable only to new schools (schools that seek to participate in an SFA program for the first time). In addition, the withdrawal rate requirement has been changed to require all new schools to report their withdrawal rates for an award year period, rather than for an academic year period. [[Calculating the withdrawal rate]] As in the past, when calculating the withdrawal rate, all regular, enrolled students must be must be included. The definition of "enrolled" does not require either payment of tuition or class attendance; therefore, the withdrawal rate calculation must include enrolled students who have not yet paid tuition or who did not actually begin attending classes. A student is considered to have withdrawn if he or she officially withdraws, unofficially drops out, or is expelled from the school or receives a refund of 100% of their tuition and fees (less any permitted administrative fee). Students who withdraw from one or more courses or programs, but do not withdraw entirely from the school, do not meet the definition of "withdrawn." Note that the 33% withdrawal rate applies to all enrolled, regular students--not just to SFA recipients. ENROLLED -- a student enrolls when he or she completes the registration requirements (except payment of tuition and fees) at the school. Correspondence students are enrolled if they have been admitted to the program and have submitted one lesson (that was completed without the assistance of a school representative). [[Default management plan required]] As a part of the Default Reduction Initiative (regulations published June 5, 1989 and April 29, 1994), schools whose Federal Stafford/SLS default rate EXCEEDS 20% (BUT IS LESS THAN 40.1%) are required to implement a default reduction plan that is in accordance with 34 CFR part 668, Appendix D of the General Provision regulations (or a similar plan, with Departmental approval). Schools with a default rate that EXCEEDS 40% must implement ALL Appendix D default reduction measures within 60 days of notification from the Department that the school's cohort default rate exceeds 40%. New schools are required to develop a Default Management Plan prior to certification. (See Chapter Ten of this Handbook for more information on default requirements.) [[Loss of FFEL eligibility]] Additionally, for FY 1994 and subsequent fiscal years, schools with default rates that equal or exceed 25% for three consecutive years will not be eligible to participate in the FFEL programs (schools may appeal). DEBARMENT AND SUSPENSION CERTIFICATION. Debarment and suspension requirements are also a part of the administrative capability standards. Before it can receive Pell Grant or campus-based funding, a school must certify that neither the school nor its employees have been debarred or suspended by a Federal agency. This certification is on the PPA and, for schools participating in the campus-based programs, is included on ED Form 80-0013, which is a part of the FISAP package mailed to schools each summer. [[Debarment of school or its principals]] If the school or its principals have been suspended or debarred by one Federal agency, the school is no longer eligible to participate in any SFA program. The PRINCIPALS of the school include the owners, the directors, officers, partners, employees or any other person with primary management or supervisory responsibilities. A principal can also be someone who is not employed by the school, but who has critical influence on or substantive influence over a covered transaction (such as the receipt of Pell Grant or campus-based funds). If a school discovers that a person employed in a "primary management or supervisory capacity" has been suspended or debarred by a Federal agency, the school must remove that person from such a position or risk losing its SFA eligibility. [[Checking prospective employees or contractors]] To protect itself, a school might ask prospective employees and contractors about previous debarment or suspension, either in person or on a written application. A school may also call the Institutional Participation Division (IPD) to find out if an individual or organization is on the Nonprocurement List. (The debarment or suspension of a person who is not a principal of the school and who does not work in the financial aid office will not affect the school's SFA eligibility, so long as that person is not involved in any covered transactions.) [["Lower-tier covered transactions"]] A school must not enter into LOWER-TIER COVERED TRANSACTIONS with a debarred or suspended individual or organization. A lower-tier covered transaction is any transaction between a participant in a covered transaction (such as the school) and another individual or organization, if that transaction stems from a covered transaction. Examples of common lower-tier covered transactions are a school's contracts with a financial aid consultant service, or with a loan collection or billing agency. A school must obtain a certification from any "lower-tier" organizations if the amount of the lower-tier transaction is $25,000 or more. (The required certification clause is given on pg. 25 of Dear Colleague Letter GEN-89-21.) It is the responsibility of the lower-tier organization to inform the school in writing if the organization or its principals are debarred or suspended. Therefore, the certification does not need to be renewed from year to year. [[NPRM 12-20-94]] The Department published a Notice of Proposed Rulemaking (NPRM) on December 20, 1994 (with public comments due by February 21, 1995) that proposes to make changes to the debarment and suspension procedures as follows -- [[Proposed changes to debarment and suspension provisions]] - To reflect changes made by the Higher Education Amendments of 1992, the NPRM proposes that the Department, in determining an entity's eligibility to participate in a Title IV, HEA program, take into consideration only debarment and suspension actions that have been imposed under procedures that provide due process protections equivalent to those afforded under Subpart G of the General Provisions and the Federal Family Education Loan programs. - The NPRM proposes to apply similar debarment and suspension procedures to debarments and suspensions of lenders or loan servicers under the FFEL program. - The NPRM proposes to make a governmentwide debarment or suspension of a school or third-party servicer mandatory grounds for termination or suspension. - Finally, the NPRM proposes that whenever a school, lender, or third-party servicer is suspended under the governmentwide debarment and suspension provisions, the Department determine whether an emergency action should be taken against the entity. CONTRACTS WITH THIRD-PARTY SERVICERS [[New requirements]] Section 668.25 of the General Provisions regulations published April 29, 1994, added new requirements for all participating institutions that contract with third-party servicers. These requirements were effective July 1, 1994. As defined by regulation, a THIRD-PARTY SERVICER is a individual or organization that enters into a contract (written or otherwise) with an school to administer any aspect of the institution's SFA participation. [[Activities included in "servicer" definition]] Examples of functions that are covered by this definition include -- - processing student financial aid applications, performing need analysis, and determining student eligibility or related activities, - certifying loan applications, servicing loans, or collecting loans, - processing output documents for payment to students, and receiving, disbursing, or delivering SFA funds, - conducting required student consumer information services, and - preparing and certifying requests for advance or reimbursement funding, preparing and submitting notices and applications required of eligible and participating schools, or preparing the Fiscal Operations Report and Application to Participate (FISAP). [[Excluded activities]] Examples of functions that are not covered by this definition include -- - performing lock-box processing of loan payments, - performing normal electronic fund transfers, - publishing ability-to-benefit tests, - performing functions as a Multiple Data Entry Processor (MDE), - financial and compliance auditing, - mailing documents prepared by the institution, or warehousing institutional records, and - providing computer services or software. [[Final Rule 11-29-94]] [[Defintion of "employee"]] The November 29, 1994 final regulations clarified that an employee of a school is NOT a third-party servicer. For this purpose, an EMPLOYEE -- - works on a full-time, part-time, or temporary basis, - performs all duties on site at the school under the supervision of the school, - is paid directly by the school, - is not employed by or associated with a third- party servicer, and - is not a third-party servicer for any other school. [[Eligibile servicer; applicable requirements]] A school can only contract with an eligible third-party servicer, as determined by specific regulatory criteria. Under such a contract, the servicer agrees to comply with all applicable requirements, to refer any suspicion of fraudulent or criminal conduct in relation to SFA program administration to the Department's Inspector General, and, if the servicer disburses funds, to confirm student eligibility and make required refunds. If the contract is terminated, or the servicer ceases to perform any functions prescribed under the contract, the servicer must return all applicable SFA funds and related records to the school. [[School is liable]] Although an eligible servicer is responsible for meeting all these and other requirements, the school remains liable for any and all SFA-related actions taken by the servicer on its behalf, under the terms of the contract. [[DCL GEN-95-13]] In January 1995, the Department requested that all schools provide the Department with the following information for each third-party servicer with which the school contracts: name, address, employer identification number, telephone number, fax number, and Internet address. Schools are not required to provide copies of the actual contracts with third-party servicers until the school applies for recertification, or the Department specifically requests the school to submit the contracts. [[Must report contracts]] The requested information was to be submitted to the Department by March 31, 1995. If your school has not submitted this information to the Department, it must do so immediately. If a school has submitted information regarding its third-party servicers as part of an application for certification or recertification, no additional submission is required. Also, a school is not required to notify the Department if it does not contract with any third-party servicers. Schools are also required to notify the Department if the school enters into a new contract with a third-party servicer, significantly modifies a contract with an existing third-party servicer, the school or one of its third-party servicers terminates a contract, or a third-party servicer ceases to provide contracted services, goes out of business, or files for bankruptcy. Notification to the Department (which must include the name and address of the servicer and the nature of the change or action) must be made within ten days of the date of the change or action. When submitting information on third-party servicers to the Department, a school must display its OPEID (the institutional identifier found on the eligibility or approval letter establishing its HEA eligibility) on the upper right side of the transmittal. The information should be sent to one of the following addresses: If by mail: U.S. Department of Education Institutional Participation Division Attn: Third-Party Servicer Team 600 Independence Avenue, S.W. Washington, D.C. 20202-5323 If by overnight mail or courier delivery: U.S. Department of Education Institutional Participation Division Attn: Third-Party Servicer Team 7th and D Streets S.W. GSA Building, Room 3030 Washington, D.C. 20024 If by fax - (202) 260-6107 ATTN: 3rd PSTeam If by internet: serve@sfa.ope.ed.gov ADMINISTRATIVE COST ALLOWANCE [[Federal Pell Grant allowance]] The Department pays an administrative cost allowance (ACA) to schools to offset some of the administrative costs related to the Pell Grant, campus-based, and Direct Loan programs. As defined in regulation, the Pell Grant program ACA is $5.00 for each Pell Grant recipient at the school (calculated by the Department, based on the number of Pell Grant recipients reported by the school). Schools are notified of their Pell Grant ACA by mail, three times during the processing year. The Pell Grant allowance is paid directly to the school by the U.S. Treasury. (For more information, see Chapter Four of this Handbook.) [[Campus-based allowance]] A school calculates its own campus-based program ACA in its annual Fiscal Operations Report and Application to Participate (FISAP), based on a percentage of its campus-based expenditures in the previous award year (see Chapter Five of this Handbook). Unlike the Pell Grant ACA procedures, the school must draw down the campus-based ACA from the ED Payment System. (A school may use up to 10% of the FWS-based ACA for expenses incurred for its community service program.) [[Direct Loan allowance]] For schools that originate loans under the Direct Loan program, the ACA is $10.00 for each Direct Loan borrower for schools that print the promissory notes, and $7.00 for each Direct Loan borrower for schools that do not print the promissory notes. SPECIAL REQUIREMENTS FOR SCHOOLS AWARDING ATHLETICALLY RELATED FINANCIAL AID As discussed earlier in this section, the Higher Education Amendments of 1992 added language to the PPA concerning additional administrative requirements for institutions offering athletically related financial aid. ATHLETICALLY RELATED STUDENT AID -- any scholarship, grant, or other form of financial assistance, the terms of which require the recipient to participate in a program of intercollegiate athletics at the school in order to be eligible to receive such assistance. Participating schools must compile an annual report, within six months of the end of each fiscal year, that provides the following figures -- - total school revenues earned from intercollegiate athletics, - revenues earned from each of the following sports: football, men's basketball, women's basketball, other men's sports combined, and other women's sports combined, - total expenses of intercollegiate athletics, - expenses for each of the following sports: football, men's basketball, women's basketball, other men's sports combined, and other women's sports combined, and - total revenues and total operating expenses of the school. REVENUE -- Includes, but is not limited to, gate receipts, broadcast revenues and other conference distributions, appearance guarantees and options, concessions, and advertising (student activity fees, alumni contributions, and investment income not allocable to a sport may be counted in total revenues only). EXPENSES -- Includes grants-in-aid, salary and payroll, travel costs, equipment and supply purchases (general and administrative overhead costs may be counted in total expenses only). The school's reports must be independently audited every three years, and the information contained in both the report and the audits must be made available to the Secretary and the public. At this time, schools are not required to submit this information to the Department. ANTI-DRUG ABUSE REQUIREMENTS The HEA of 1965, as amended, requires a school to certify to the Department that it operates a drug abuse prevention program that is accessible to its students, employees, and officers. Two other laws have added related requirements for postsecondary schools that receive SFA funds. The Drug-Free Workplace Act of 1988 (P.L. 101-690) requires a FEDERAL GRANT RECIPIENT to certify that it provides a drug- free workplace. Because a school applies for and receives its campus-based allocation directly from the Department, the school is considered to be a "grantee" for purposes of the Act. Therefore, to receive campus-based funds, a school must complete the certification on ED Form 80-0013, which is part of the FISAP package (the application for campus-based funds). This certification must be signed by the school's CEO, or other official with authority to sign the certification on behalf of the entire institution. [[Requirements for a drug-free workplace]] The certification lists a number of steps that the school must take to provide a drug-free workplace, including -- - establishing a drug-free awareness program to provide information to employees, - distributing a notice to its employees of prohibited unlawful activities and the school's planned actions against an employee who violates these prohibitions, and - notifying the Department and taking appropriate action when it learns of an employee's conviction under any criminal drug statute. The school's ACA may be used to help defray related expenses, such as the cost of printing informational materials given to employees. [[Scope of drug-free workplace]] The drug-free workplace requirements apply to all offices and departments of a school that receives campus-based funds. Organizations that contract with the school are considered "subgrantees" - only grantees are subject to the requirements of the Drug-Free Workplace Act. [[Information to be distributed to students]] The Drug-Free Schools and Communities Act (P.L. 101-226) requires a school to certify that it has adopted and implemented a program to prevent drug and alcohol abuse by its students. Unlike the annual drug-free workplace certification, a school usually will only submit this new certification to the Department once. (An exception would be a school that changes ownership.) The drug prevention program adopted by the school must include annual distribution to all students and employees of information concerning drug and alcohol abuse as described above, except that these steps must be taken by schools that receive ANY FEDERAL FUNDING and must include the school's STUDENTS as well as its employees. The information that must be distributed is more specifically described in Section Nine of this Chapter. [[Developing a drug prevention program]] A school must review its drug prevention program once every two years to determine its effectiveness and to ensure that its sanctions are being enforced. The development of a drug prevention program, although it is a condition for SFA funds, is usually an enterprise that is undertaken by the school administration at large, not by the financial aid office. The regulations originally published on this topic (August 16, 1990) were mailed to participating schools at the time; they offer a number of suggestions for developing a drug prevention program. Also, several organizations that can serve as resources are listed on the facing page. [[Measuring the effectiveness of the program]] The effectiveness of a school's drug prevention program can be measured by tracking -- - The number of drug- and alcohol-related disciplinary actions, - The number of drug- and alcohol-related treatment referrals, - The number of drug- and alcohol-related incidents recorded by campus police or other law enforcement officials, - The number of drug- and alcohol-related incidents of vandalism, - The number of students or employees attending self-help or other counseling groups related to alcohol or drug abuse, and - Student, faculty, and employee attitudes and perceptions about the drug and alcohol problem on campus. A school that does not certify that it has a drug prevention program, or that fails to carry out a drug prevention program, may lose its approval to participate in SFA programs. (See the regulations for details on Department sanctions and appeals procedures available to the school.) [[The chart "Additional Sources of Information" on page 3-53 is currently unavailable for viewing. Please reference your paper document for additional information.]] ANTI-LOBBYING CERTIFICATION AND DISCLOSURE In accordance with P.L. 101-121 (and regulations published December 20, 1989), school receiving more than $100,000 for campus-based programs must provide the following to the Department for each award year -- [[Forms required for schools with campus-based allocation over $100,000]] - CERTIFICATION FORM (Combined with Debarment and Drug-Free Workplace certifications, ED-80-0013) the school will not use Federal funds to pay a person for lobbying activities in connection with Federal grants or cooperative agreements. This certification must be renewed each year for your school to be able to draw down campus-based funds. - DISCLOSURE FORM (Standard Form LLL) If the school has used nonFederal funds to pay a noninstitutional employee for lobbying activities, it must disclose these lobbying activities to the Department. The school must update this disclosure at least quarterly, when changes occur. Both of these forms are sent to schools with the campus-based fiscal report/application (FISAP) each summer. The certification form and the disclosure form must be signed by the Chief Executive Officer or other individual who has the authority to sign on behalf of the entire institution. Schools are advised to retain a copy in their files. [[ACA may not be used for membership fees]] This certification primarily covers the use of the campus-based ACA. Schools may not use the ACA to pay for their membership in professional associations (such as NASFAA, NATTS, AICS, or NACUBO), regardless of whether the association engages in lobbying activities. Association membership is not a legitimate administrative cost of the SFA programs. The school is also responsible for payments made ON ITS BEHALF, and must include the certification in award documents for any subgrantees or contractors (such as need analysis servicers, financial aid consultants, or other third parties paid from the ACA). *1* Beginning with the 1995-96 award year, a school's compliance audit is due within six months of the end of the school's fiscal year. *2* To demonstrate its compliance with the financial responsibility standards, a nonprofit school must prepare a classified statement of financial position in accordance with generally accepted accounting principles or provide the required information in notes to the audited financial statement. *3* An individual is "capable" if he or she is certified by the State in which the school is located), if State certification is required. Other factors include the individual's successful completion of SFA program training provided or approved by the Department, and previous experience and documented success in SFA program administration. *4* A school with a Perkins cohort default rate that equals or exceeds 15% must develop and implement a default reduction plan. See Chapter Six, Section Eight of this Handbook. |