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Institutional Eligibility and Administrative Requirements - Applying for Participation, Status Changes, and Corrective Actions

AwardYear: 1995-1996
EnterChapterNo: 3
EnterChapterTitle: Institutional Eligibility and Administrative Requirements
SectionNumber: 10
SectionTitle: Applying for Participation, Status Changes, and Corrective Actions
PageNumbers: 167-186



In this section we will discuss how a school applies to
participate in the SFA programs, and the changes that can
affect a school's participation, ranging from changes in
ownership or location to corrective actions taken by the
Department.


APPLYING FOR PARTICIPATION

Schools wishing to participate in any of the SFA
programs -- the Federal Pell Grant program, the
Federal Direct Loan program, the Federal Family
Education Loan (FFEL) programs (Stafford/SLS/PLUS),
and the campus-based programs (FSEOG, FWS,
and Perkins Loans) -- must receive Department
approval (currently, the Direct Loan program has a separate
application and approval system). In evaluating a school and
deciding to grant or deny approval to participate, the
Department examines three major factors: eligibility,
administrative capability, and financial responsibility.
Each of these subjects is discussed in detail in
Sections One and Two of this Chapter.

A school that wishes to apply for SFA participation should
write to or call the Institutional Participation Division (IPD):

U.S. Department of Education/OPE/SFAP
Institutional Participation Division
600 Independence Ave., S.W., Room 3522
(ROB-3)
Washington, D.C. 20202
(202)401-6485

The school will receive an Application for Institutional
Participation (ED Form 40-34P). The school should complete
the Application and return it (with financial statements and
other requested documents) to IPD.

[[Department reviews application; on-site review may be requested]]
In addition to reviewing the materials to determine whether the
school meets the basic institutional eligibility requirements and
is capable of effectively administering the SFA programs, IPD
will evaluate the school's financial responsibility. Schools
participating in any SFA program for the first time are required
to send representatives to the Department's pre-certification
training; if either of those persons have already attended the
training, the school can instead request an on-site review.

[[The chart " Pre-certification Training Requirement" on
page 3-168 is currently unavailable for viewing. Please
reference your paper document for additional information.]]

In addition to the Application, other documentation, and
review findings, IPD may request additional information.
The Department willreview the school's application materials
and, if the applicationis approved, will send the school two
copies of the Program ParticipationAgreement(PPA) (see
Section Two of this Chapter.) Once a school has
signed and returned the PPA, the Department will send the
school an Institutional Approval Notice*1* and one copy of
the PPA, signed and dated by the Secretary (or Department
representative).The Institutional Approval Notice will specify
the locations and programs that are eligible.

A school may specify on its application that it does not wish
to participate in any SFA program. The school is eligible to
APPLY for participation in any SFA program listed, but it is
not yet eligible to participate in any program. If such a school
isdetermined to be eligible to apply for participation, its
students would be eligible for deferment of Perkins and FFEL
loan repayment.

[[Effective date for participation]]
The date the Secretary signs the PPA is the date a school may
begin SFA participation. Financial aid disbursements to
students may begin in the payment period that the PPA is
signed by the Department. IPD will notify the Program
Systems Service, the regional offices, and State guaranty
agencies of the school's approval to participate.

[[Provisional certification]]
In certain cases, the Department may choose to grant a school
temporary, conditional approval to participate in the SFA
programs. Referred to as "provisional certification" in the law,
this temporary approval may be granted (at the Department's
discretion) in the following cases --

- a school is applying for participation for the first time,

- a particiipating school is reapplying because it has
undergone a change of ownership (see the discussion below),

- a school (whose participation has been limited or suspended, or
voluntarily enters into provisional certification) is judged by
the Department to be in an administrative or financial condition
that may jeopardize its ability to perform its responsibilities
under the PPA,

- a participating school's (or branch campus') State does not
participate in the State Postsecondary Review Program
(provided there has been no change of control),

- a school whose participation expired and is reapplying,

- a participating school's accrediting agency has lost its
Departmental approval,

- a school has been determined not to be financially responsible
but has met other requirements and has accepted provisional
certification, or

- a school that is reapplying for certification has a
high default rate.

A school seeking first-time participation may be granted
provisional certification for up to one complete award year. A
school whose accrediting agency lost approval can be
provisionally certified for no more than 18 months after the
agency's loss of approval. Schools in other categories can be
provisionally certified for up to three complete award years.

[[Revoking provisional certification]]
While a school is provisionally certified, if the Department
determines that the school cannot to meet its responsibilities
under the PPA, it may revoke the school's SFA participation.
The Department will notify the school of such a determination
by certified mail or other expeditious means. The revocation
takes effect on the date that the Department mails the notice,
which will state the basis and consequences of the
determination. The school may request a redetermination by
submitting, within 20 days of the receipt of the notice, written
evidence (filed by hand-delivery, mail, or facsimile) that the
finding is unwarranted . A Department official will review the
request and will notify the school of his or her decision by
certified mail.

If the Department official determines that the revocation is
warranted, the notice will specify the applicable reinstatement
procedures. The school may apply for reinstatement no earlier
than 18 months after the revocation or a debarment/suspension
action, whichever is later.

[[Renewing certification]]
All participating SFA schools are required to renew their
approval prior to the expiration of their current PPA. In
accordance with the Higher Education Amendments of 1992,
the Secretary will develop a renewal schedule by which all
currently participating schools will renew their participation
over the next five years. Schools are responsible for
monitoring the expiration date on their PPA and submitting an
application for recertification in a timely manner.

If a school submits a complete renewal application at least 90
days prior to the expiration of its current PPA, its eligibility
and participation will be extended on a month-to-month basis
until the Department either grants or denies the school's
renewed participation.


STATE POSTSECONDARY REVIEW PROGRAM

The Higher Education Amendments of 1992 authorized the
State Postsecondary Review Program to ensure program
integrity through State oversight and review of certain
institutions. Final regulations were published on April 29,
1994, and were effective beginning with the 1994-95 award
year.

The Department will identify schools (according to criteria
given below) and refer those schools to the appropriate State.
That State's review entity (SPRE) will then review the schools
to determine their compliance with State standards. If a
school fails to meet the State standards, the SPRE may
prescribe corrective actions or determine that the school
should no longer participate in SFA programs.

[[Funding by Congress]]
The Department will provide Federal funds to each SPRE for
performing these review functions, according to Congressional
appropriations. A State is not required to perform these
functions if Congress does not appropriate funds for the
program.

The SPRE will first review those schools that are scheduled to
be recertified by the Department of Education, under a priority
review system established by the SPRE.

[[Federal criteria for referring schools for State review]]
The Department will initially review all participating schools
and will refer to the appropriate State review entities any
school that meets any of the following criteria --

- Has an FFEL program cohort default rate of at least 25%,

- Has a cohort default rate of at least 20% if 2/3 or more of its
undergraduates, enrolled at least half-time, receive SFA funds
or if 2/3 or more of its education and general expenses are
derived from SFA funds provided to its students),

- Has 2/3 or more of the its educational and general expenses
covered by Federal Pell Grant funds provided to its students,

- Has been subject to a limitation, suspension, or termination
action by the Department within the last 5 years,

- Has been required, as a result of a finding from its 2 most
recent audits, to repay more than 5% of the SFA funds from any
one year,

- Has been cited by the Department for failing to submit timely
audits,

- Has shown a year-to-year fluctuation (unaccounted for by
program changes) of more than 25% in the amounts received by
its students from either the Federal Pell, Federal Stafford, or
Federal SLS programs,

- Has failed to meet the statutory financial responsibility
standards (see Section Two of this Chapter).

- Has participated in the SFA programs (other than SSIG or
Federal Direct Loans) for less than 5years (excluding public
institutions affiliated with a State system of higher education),

- Has undergone an ownership change that resulted in a change
of control, and

- Has shown a pattern of student complaints related to SFA
program management or to misleading/inappropriate
advertising and promotion of its educational program.

[[School may challenge a referral]]
Before referring a school for SPRE review, the Department
will notify the school and supply all applicable reasons for the
referral. The Department will delay the referral if, no later than
seven days after the school receives such notification, the
school notifies the Department of its intent to challenge the
accuracy of the information on which the referral is based.
(The notice of intent to challenge may be hand-delivered or
mailed.)

[[How to challenge]]
To challenge a referral, the school must prove that the referral
was based on inaccurate information, and must submit such
proof, along with appropriate documentation, to the
Department no later than 30 days after the school first received
notification of the Department's intention of referral. (If the
challenge is based on the claim that a school's cohort default
rate is inaccurate, the school must file a timely appeal of that
rate, under the applicable provisions found in 34 CFR 668.17.)

If the notice and challenge are received by the Department
within the required period, the Department will review the
school's challenge and supporting documentation. If the
Department's decision is in the favor of the school, the referral
will not occur. Otherwise, the school will be referred for
SPRE review as originally intended.

[[State review components]]
Upon receiving referrals from the Department, the SPRE will
review the referred schools. The SPRE reviews referred
institutions based on standards developed in consultation with
schools in the State, focusing on areas such as: student
consumer information requirements; ability-to-benefit and
satisfactory progress procedures; recordkeeping requirements;
applicable health and safety standards; financial and
administrative capability criteria; student complaint
procedures; advertising, promotion, and recruiting practices;
refund policies and practices; educational quality and program
length; completion, graduation, placement, and withdrawal
rates; and the actions of owners, shareholders, or other
persons with control, that may adversely affect SFA program
participation.

[[Quality of education assessed]]
The State must also contract with an appropriate accrediting
agency, association, or peer review entity to review or provide
information regarding the agency's or system's assessment of
the quality and content of the institution's courses or programs
of instruction or training in relation to achieving the objectives
for which the courses and programs are offered.

[[Student complaints]]
In addition to reviewing schools referred by the Department,
the SPRE may also request to review schools that meet a
review criteria based on more recent data available to the State
or, in the judgment of the State, are engaged in fraudulent
practices. State requests for the review of additional schools
are subject to Departmental approval. States will also, in
consultation with schools, establish procedures for receiving
and responding to student complaints about schools, and will
maintain records of such complaints.

[[Findings]]
If a SPRE finds that a referred school's SFA participation
should be terminated, the SPRE must provide the school with
an opportunity to contest that finding before an impartial
official (designated by the State) within a specified period of
time. The State must give the school written notice of the
appeal result (and the basis for that result), after which the
Department will abide by the findings of the SPRE and will
terminate a school's participation upon notification from the
State.

[[Consequences of State refusal to participate]]
The State entity cannot substitute audits performed by
guaranty agencies or accrediting agencies for its required
review. However, the State entity may contract with such
agencies, with the Department's approval, for assistance in
performing the required reviews. If any State declines to enter
into an agreement with the Department, appropriate review
arrangements will be made with other agencies or
organizations. Further, a State's refusal to enter into this
agreement or failure to meet the requirements of it will
negatively affect SFA schools in that State: the Department
will not approve the SFA participation of any new school
(including new branch campuses) or any school that has
changed ownership; and participating schools in the State will
be granted only provisional certification. Also, the State will
be ineligible to receive SSIG funds.


CHANGE OF OWNERSHIP OR CONTROL

The law states that, in the case of a change in ownership that
results in a change of control, a school's SFA participation
does not automatically continue. The PPA signed by the
previous owner is terminated when the change of ownership
that results in a change of control takes place, and the school
must reestablish its eligibility to participate.*2* However, the
school retains the previous owners' default rates, withdrawal
rates, and other administrative capability factors. (The school
is not expected to meet the two-year rule requirement if it is a
Proprietary Institution or a Postsecondary Vocational
Institution.)

[[Change in controlling interest]]
A change in ownership or control occurs when a person or a
corporation obtains new authority to control a school's
actions, whether the school is a proprietorship, partnership, or
corporation. The most common example of this is when the
school is sold to a new owner.

[[Transfer of assets or liabilites; mergers or divisions;
change in tax status]]
Control of a school can change in other ways, though. For
instance, a school's control changes when the school transfers
its controlling (more than 50%) interest of stock or its assets
to the parent corporation. A school's control also changes in
situations where two or more schools merge, one school
divides into two or more schools, or the school transfers its
liabilities to its parent corporation. A change from a taxable to
a tax-exempt status (and vice versa) is also considered a
change in control. For a more complete list of the types of
circumstances that signify a change in ownership or control,
see Section 600.31 of the Institutional Eligibility regulations
published on April 29, 1994.

[[Owner's death or retirement]]
Note that a school does not have to meet the Department's
requirements for a change of ownership that results in a change
of control if the change of ownership occurs as the result of
the owner's death or retirement, ownership transfers to a family
member*3* or a person with ownership interest who has been
involved in the management of the school for at least two years
preceding the transfer.

[[Steps to be taken by current owners]]
To continue participation in the SFA programs, a school that
is changing control must take steps to reaffirm its eligibility to
participate. The current owner(s) should notify IPD of the
date the change of control will take place. The school must
notify IPD at the same time that it notifies its accrediting
agency, but no later than 10 days after the change occurs. (If
the current owner(s) fail to notify IPD of the proposed change
in ownership, the new owner is responsible for doing so.)

The current owner should also notify the appropriate State
agency that licensed or approved the school, and should give
the new owner(s) copies of the school's current Institutional
Approval Notice, program reviews, audit reports, and audited
financial statements. The school must submit financial
statements for the new owners, listing their assets, liabilities,
and net worth, and either (1) a profit and loss statement and
balance sheet for the latest complete fiscal year, or (2) an
audited financial statement for the latest complete fiscal year,
prepared by a licensed certified public accountant (CPA).

[[Steps to be taken by new owner]]
[[Contingent transfers]]
IPD will then notify the school if, effective on the date of the
change, it is no longer participating in the SFA programs, until
its new owner renews its participation and has a new PPA
signed by the Secretary. At this point, the new owner is
expected to follow the application procedures described earlier
in this section, such as completing the Application and the
PPA. A school may not submit an Application until the
transfer is complete, but many transfers involving schools
eligible for SFA participation are contingent upon the school
retaining its eligibility for the SFA programs. Provided such a
transfer is final in all other aspects, it is considered complete
and the new owner can proceed with the application process.

[[Acceptance of liabilities and refund policy]]
The school must provide to the Department proof that its
accreditation is continued under the new ownership or control,
and a copy of its State legal authorization under the new
ownership. The new owner is expected to assume the
liabilities of the previous owner's SFA program administration.
(Or the new and the old owners may agree to be jointly and
severally liable.) The new owner would accept liability for any
Federal funds given the school that were improperly spent
before the effective date of the change of ownership or
control. The new owner should also abide by the refund
policy that applied to students enrolled before the effective
date of the change, and should honor all student enrollment
contracts signed before the date of the change.

[[Impact of cohort default requirements]]
As mentioned above, the school remains responsible for
current and past cohort default rates and for implementing any
requirements associated with those rates. In fact, cohort
default rates calculated for fiscal years prior to the change of
ownership may affect the school's SFA participation. A
school undergoing a change of ownership may be denied
approval for SFA participation on the basis of current cohort
default rates.

[[Payments to eligible students]]
Before the change of control occurs, the current owner should
make sure all students have received any SFA payments
already due them for the current payment period, and that all
records are current and comply with Federal regulations. If a
school needs additional funds for its students for the current
payment period, it should request them and disburse them to
all eligible students before the change of control takes place.
THE NEW OWNER(S) MAY NOT DISBURSE FUNDS
AWARDED UNDER THE PPA OF THE PREVIOUS OWNER(S),
NOR MAY THE PREVIOUS OWNER(S) CONTINUE TO
DISBURSE FUNDS AFTER THE DATE OF THE OWNSERSHIP
CHANGE. The school is considered to have lost eligibility and
does not regain eligibility until a new PPA is signed.

[[Audits and close-out procedures]]
Although a compliance audit is not required, the new owner
may choose to have the accounts audited before they are
closed out. Any questions concerning SFA accounts or
close-out procedures can be answered by the area
representative for the Federal Pell Grant Program, or the
Federal campus-based or FFEL branches of the Program
Systems Service (see Chapter One of this Handbook for
phone numbers). The new owner should also check with the
Department's Regional Office for information on whether the
school owes any Department liabilities resulting from program
reviews or audits.

New owners should make sure that, before the date of
purchase, all students have received their award payments for
any payment period that began before the date of purchase,
that all student assistance accounts have been closed out, and
that all reports have been filed properly. The school should
notify all new students that no funds can be disbursed until the
school's eligibility is reaffirmed and the new PPA is signed by
the Department.

[[Steps to be taken by IPD]]
Once IPD determines that the school is eligible,
administratively capable, and financially responsible, a new
Institutional Approval Notice and signed PPA will be sent.
The appropriate offices will be notified that the school is
certified to participate under the new ownership. The school
may begin disbursing SFA funds in the payment period in
which the new PPA is signed.


OTHER CHANGES IN CONTROL

[[Accountability regulations]]
The Institutional Eligibility regulations also require that a
school report any changes under which an individual or
corporation acquires the ability to affect substantially the
actions of the school. Such a change must be reported within
10 days of the change; a school owned by a publicly traded
corporation must report the change within 10 days after the
corporation learns of the change. All schools are subject to
these requirements, which are enforced during the institutional
approval process as well as in the program review and audit
requirements.

As stated in Section Two of this Chapter, an individual or
corporation has the ability to substantially affect the school's
actions when he or she or it --

- personally holds, or holds in partnership with one or more
family members,*3* at least a 25% ownership interest in the
school,

- personally represents (with voting trust, power of attorney, or
proxy authority), or represents in partnership with one or more
family members, any individual or group holding at least a 25%
ownership interest in the school,

- is the school's chief executive officer (or other executive officer)
or a member of the school's board of directors, or

- is the chief executive officer (or other officer) for any entity that
holds at least 25% ownership interest in the school, or is a
member of the board of directors for such an entity.

Ownership Interest -- A share of the legal or beneficial ownership
or control of the school or parent corporation, or a right to share
in the proceeds of the operation of the school or parent
corporation.

The regulations [34 CFR Part 600.30(e) and 668.15(f)] include
examples of ownership interest as an interest as tenant, joint
tenant, or tenant by the entities, a partnership, and an interest in
a trust. The regulations specifically exclude from the term the
proceeds of the operation of a mutual fund that is regularly and
publicly traded, an institutional investor, or a profit-sharing
plan that covers all employees.

[[Reporting procedures]]
To ensure that its participation will not be jeopardized, the
school must report the change (including the name[s] of the
person[s] involved) to IPD. Upon receipt of this notification,
IPD will investigate and notify the school
of its determination. The school may be required to take
corrective action. If the school is unwilling or unable to
correct the violation, the Department may initiate a fine,
limitation, suspension or termination action.


ADDING LOCATIONS OR PROGRAMS

[[Adding locations and extensions]]
The Institutional Approval Notice that the Department sends to
the school sometimes lists the educational programs and
locations that are eligible. (The eligibility of a school and its
programs does not automatically include separate locations
and extensions.) If, after receipt of the Institutional Approval
Notice, a school wishes to add a location at which AT LEAST 50%
of an educational program is offered, it must notify the
Department. Upon receipt of this notice, the Department will
either confirm the program's eligibility without requiring an
application or will instruct the school to apply for an eligibility
and certification determination. (A school that is adding a
location must notify its accrediting agency, State licensing
agency, and IPD.)

[[Final Rule 11-29-94]]
Previously, a school that wanted to add a location that offered
100% of a program was automatically required to apply for an
eligibility and certification determination. Beginning with the
1995-96 award year, an automatic application is no longer
required. However, as is the case with a school that wishes to
add a location that will offer at least 50% of a program, the
school is required to notify the Department of its desire to add
a location that offers 100% of the program.

For a location to be added, it must meet all the institutional
eligibility requirements as described in Sections One and Two
of this Chapter, EXCEPT the two-year rule. Each site must be
legally authorized. To apply for a determination of eligibility
for an added location, the school must send the Department
the required application schedule(s), a copy of the accrediting
agency's notice certifying that the new location is included in
the school's accredited status, and a copy of the State legal
authorization from each State in which the school is physically
located.

IPD will review the information, evaluating the school's
financial responsibility, administrative capability, and eligibility.
Depending upon the circumstances, the Department may
conduct an on-site review. If it approves the additional
location, a revised Institutional Approval Notice or Institutional
Acknowledgment Notice will be issued. The location is
eligible as of the date of the Department's determination. The
Department may require a new PPA, in which case the school
may disburse funds to students enrolled at that location only
after both the school and the Secretary have signed the new
PPA.

[[Acquiring a previously closed school]]
Note that if a Proprietary Institution or a Postsecondary
Vocational Institution attempts to acquire a closed school (or
any locations of a closed school) as an additional location, and
that closed school owes SFA refunds or liabilities that are not
being properly repaid, the acquiring school must either assume
responsibility for those liabilities or wait two years for that
additional location to become eligible. (This applies to any
acquisition of the closed school's assets, even an indirect
acquisition.)

[[School may make own determination in certain cases]]
If a school adds other educational PROGRAMS after receiving the
Institutional Approval or Eligibility Notice, the school may
make its own determination as to their eligibility in two cases --

- The added program leads to anassociate, bachelor's, profession
or graduate degree, or

- the added program is at least 8 semester hours, 12 quarter
hours, or 600 clock hours in length and prepares students for
gainful employment in the same or similar field as that of a
program at the school that the Secretary has already designated
as an eligible program.

The added eligible programs will be reflected in the school's
PPA when the school next renews its participation. Approvals
from both the State and accrediting agencies will be required if
the agencies have requirements for approving additional
programs. If the school's eligibility determination for such a
program is found to be incorrect, the school is liable for all
SFA funds received for that program and all SFA funds
received by or for students enrolled in that program.

[[The Department must approve
programs to be added]]
IN ALL OTHER CASES, the eligibility of an added program must
be determined by the Department. (Previously, a school was
allowed to make its own determination as to the eligibility of
any added program, but was liable if it erroneously determined
that eligibility. Because the occurrence of error--and the
resulting liabilities--have been so high, the Department has
reconsidered its position.) IPD will evaluate the quality of the
new program and of the school. If it approves the additional
program(s), a revised Institutional Approval Notice or
Acknowledgment Notice will be issued. The program is
eligible as of the date of the Department's determination. After
the Department sends the Institutional Approval or
Acknowledgment Notice, the school may disburse funds to
students enrolled in that program. For more on program
eligibility, see Section Two of this Chapter.


OTHER SUBSTANTIVE CHANGES

[[Name and address changes]]
Eligibility does not automatically continue if a school changes
its name, address, level of offering, etc. In addition to the
changes discussed previously, a school must notify IPD when
any of the following changes occur--

- The name, location, and/or address of the school or of a branch
campus,

- The name, location, and/or address of additional which at least
50% of a program is offered,

- The method of measuring educational programs (e.g. clock
hour to quarter hours), and

- Change in the level of a program (e.g., associate
degree to bachelor's degree.)

A school that has made such a change should provide any
information requested by IPD. Among other items, the school
must send a new Application for Institutional Participation (or
applicable schedules) showing the change. After receiving the
required documents, IPD will reconfirm the school's eligibility
and participation by sending a new Institutional Approval or
Acknowledgment Notice and/or a new PPA.

[[New written agreements]]
The school must also notify the Department when it
establishes new written agreements with ineligible schools or
organizations that will provide more than 25% of an
educational program (see Section Six of this Chapter). The
school must notify the Department at the same time as its
accrediting agency or association, but within at least 10 days
of the change.

[[Review of changes in accreditation]]
Changes in accreditation may also affect a school's eligibility
to participate in the SFA programs. As mentioned in Section
One of this Chapter, the Department will not recognize the
school's accreditation if the school is in the process of
receiving new accreditation or changing its accrediting agency
or association, unless the school submits to the Department all
materials relating to the prior accreditation, including materials
demonstrating reasonable cause for the change.


REQUIREMENTS WHEN A SCHOOL LOSES ELIGIBILITY

[[Steps to be taken when school loses eligibility]]
A school loses its eligibility to participate in the SFA programs
when it no longer meets the requirements of 34 CFR Part 600,
or when the Department terminates the school under Subpart
G of the General Provisions. Examples of situations that
trigger loss of eligibility include the loss of accreditation and/or
State licensure, expiration of a school's certification, the
Department's revocation of a school's provisional certification,
excessive cohort default rates, or a SPRE determination that
the school is ineligible. The school (or one of its eligible
locations) loses its eligibility if it stops providing educational
instruction for reasons other than a natural disaster or normal
vacation. 34 CFR 600.40 gives the notification requirements
applicable to a school that loses its eligibility. In general, a
school that ceases to be eligible must notify the Department
within 30 days of the loss of eligibility.


REQUIREMENTS WHEN A SCHOOL'S SFA PARTICIPATION
ENDS

The SFA participation of schools with high default rates is
particularly at risk. In fact, many schools with high default
rates have recently withdrawn voluntarily from the FFEL
programs. Participating schools wishing to withdraw from the
FFEL programs must notify the Department. For more
information on the requirements and procedures, contact the
Default Management Section at (202)708-9396.

[[See 34 CFR 668.26(b) for all requirements]]
When a school's participation in an SFA program ends, the
school must immediately notify the Department and comply
with the following minimum requirements--

- Submit to the Department within 45 days after the effective date
of end of participation all financial, performance, and other
reports required by each appropriate SFA program regulation,
and a letter of engagement for an independent audit of all SFA
funds it received under the program(s). (The completed audit
report must be submitted to the Department within 45 days after
the date of the letter of engagement.)

- Report to IPD on the arrangements for retaining and storing
(for a minimum of five years) all records concerning the
administration of the SFA programs. (See Section Eight.)

- Tell the Department how it will provide for collecting any
outstanding SFA student loans.

- Refund unearned tuition and fees. (See Section Five.)

In addition, a school that closes must refund to the Federal
Government, or otherwise dispose of (by written instruction
from the Department) any unexpended SFA funds it has
received, except its administrative allowance, if applicable.
The school must also return to the appropriate lender any loan
proceeds the school has received but not delivered (or
credited) to students. (If a school's participation in the NEISP
or SSIG program ends, the school must inform the State and
follow the State's instructions.)

If a school's participation ends during a payment period (or
enrollment period, for the FFEL programs), but the school
continues to provide education in the formerly eligible
programs until the end of the payment or enrollment period,
the school may--

- use SFA funds in the school's possession to satisfy unpaid
Federal Pell Grant or campus-based commitments made for that
payment period or previously completed payment periods before
the school's participation ended (the school may request
additional funds from the Department),

- satisfy any unpaid FFEL commitment made to a student for that
period of enrollment by delivering subsequent FFEL
disbursements to the student or by crediting them to his or her
account (if the first disbursement was delivered or credited
before the school's participation ended), and

- use SFA funds in the school's possession to satisfy unpaid
Federal Direct Loan commitments made, for that period of
enrollment before the end of participation (the school may
request additional funds from the Department), to a student by
delivering subsequent disbursements to the student or by
crediting his or her account (if the first disbursement was
delivered or credited before the school's participation ended).

Contact the Department's regional office staff for guidance in
fulfilling these requirements and responsibilities.


LOSS OF ACCREDITATION

[[School may not be recertified for two years]]
As mentioned earlier, a school that loses its accreditation is no
longer eligible to participate in the SFA programs. The
Department may not certify or recertify a school to participate
in the SFA programs for two years after the school has had its
accreditation withdrawn, revoked, or otherwise terminated for
cause, or after the school has voluntarily withdrawn from its
accreditation under a show cause or suspension order. For
information on how other changes in accreditation affect
institutional eligibility, see Section One of this Chapter.

[[Exceptions]]
However, if the Department determines that the loss of
accreditation was due to the school's religious mission or
affiliation, the school can remain certified for up to 18 months
while it obtains alternative accreditation. (The school also has
up to 18 months in which to obtain new accreditation if its
accrediting agency loses its Department recognition.)

The Department will not recertify a school that has lost its
accreditation in the previous two years unless the original
accrediting agency rescinds its decision to terminate the
school's accreditation. (The school may not be recertified
based on accreditation granted by a different accrediting
agency during the two-year period.) Similarly, if a school
voluntarily withdrew from accreditation during the last two
years under a "show cause" or suspension order, the
Department will not recertify unless the original order is
rescinded by the accrediting agency.

Note that it is possible for accreditation to be withdrawn for
one of the programs at the school, without affecting the
accreditation (and eligibility) of the other programs at the
school.


CORRECTIVE ACTIONS AND SANCTIONS*4*

[[Actions due to loss of eligibility]]
Corrective action will be taken against any school that--

- Violates the law or regulations governing the SFA programs,
the PPA, or any agreement made under the law or regulations,
and/or

- Substantially misrepresents the nature of its educational
programs, finance charges, or its graduates' employability. (For
details on misrepresentation, see Section Nine.

Corrective sanctions include emergency action, fines,
limitation, suspension, and termination. Each of these
procedures is discussed in detail below. In addition to its
authority to sanction individual SFA schools, the Department
can now (as a result of Reauthorization) sanction a third- party
servicer. Further, the Department has the authority to sanction
a group of schools or servicers if it finds that a person or
entity with substantial control over all the schools/servicers has
violated any of the SFA program requirements or has been
suspended or debarred from program participation.
(Substantial control is defined earlier in this section, and
discussed in Section Two of this Chapter.)

[[Actions due to program violations or misrepresentation]]
If it appears that a school has violated program requirements,
the Department may first allow the school to respond to the
problem and indicate how it will correct it. If these informal
means to correct the situation fail, or if the school has
repeatedly violated the law or the regulations, the Department
will initiate a limitation, suspension, or termination. It may also
fine the school or take an emergency action.

The Department also has the authority to take emergency
action against or terminate a school or program that no longer
meets the eligibility criteria given in Section One of this
Chapter. For details on steps that a school should follow in
any of these situations, see Subpart G of the General
Provisions regulations and section 600.41 of the Institutional
Eligibility regulations.

[[Emergency action]]
The Department may take an emergency action to withhold
SFA funds from a school or its students if the Department
receives information, determined by a Department official to
be reliable, that the school is violating applicable laws,
regulations, special arrangements, agreements, or limitations.
To take an emergency action, the official must determine that
the school is misusing Federal funds, that immediate action is
necessary to stop this misuse, and that the potential loss
outweighs the importance of using the established procedures
for limitations, suspensions, and terminations. The school is
notified by registered mail (or other more expeditious means)
of the action and the reasons for it. The action becomes
effective on the date the notice is mailed.

An emergency action suspends the school's participation in all
SFA programs and prohibits the school from disbursing SFA
funds or certifying FFEL applications. The action may not
last more than 30 days, unless a limitation, suspension, or
termination proceeding is begun during that period. In that
case, the emergency action is extended until the proceeding,
including appeal, is concluded. The school is given an
opportunity to "show cause" that the action is unwarranted.

[[Fine]]
The Department may fine a school up to $25,000 for each
statutory or regulatory violation. (The Department first notifies
the school of the intent to fine so that the school can request a
hearing, if it chooses.) If the school is proven guilty of
violations, it may appeal to the Department for a compromise
on the amount of the fines imposed at the hearing. In
determining this amount, the Department will consider the
school's size and the seriousness of its violation or of its
misrepresentation.

[[Limitation]]
A limitation means that a school has agreed to abide by certain
specific conditions or restrictions in its administration of SFA
funds, so that it can continue to participate in any SFA
program. A limitation lasts for at least 12 months. If the
school fails to abide by the limitation's conditions, a
termination proceeding may be initiated.

[[Suspension]]
A suspension removes a school's participation in the SFA
programs for a period not to exceed 60 days, unless a
limitation or termination proceeding has begun. Suspension
actions are used when a school can be expected to correct a
program violation in a short time.

[[Termination and reinstatement]]
A termination ends a school's participation in the SFA
programs. Participants who have violated the law or
regulations governing the SFA programs, their PPA, or any
other agreement made under the SFA regulations, may not be
reinstated for at least 18 months, even if the school changes
ownership. After 18 months have passed, the school may
request reinstatement from the Department. A school that
substantially misrepresented the nature of its educational
programs, its financial charges, or the employability of its
graduates, may not be reinstated for at least three months, even
if it changes ownership.

The reinstatement request must be in writing and must show
that the school has corrected the violation(s) on which the
termination was based including repayment of all funds (to the
Department or to the eligible recipients) that were improperly
received, disbursed, caused to be disbursed, or withheld.
Also, the school must demonstrate that it meets the standards
in Subpart B of the General Provisions (discussed in Section
One), and enter into a new Program Participation Agreement.
Within 60 days of receiving the request for reinstatement, the
Department must either grant the request, deny the request, or
grant the request subject to limitations.

[[Repayment of funds to student or ED]]
As part of any fine, limitation, suspension, or termination
proceeding, the Department may require the school to take
corrective action. This action may include making payments
to eligible students or repaying any illegally used funds to the
Department of Education. The Department may offset any
funds to be repaid against any benefits or claims due the
school.

The Higher Education Amendments of 1992 have expanded
the authority of guaranty agencies to initiate limitation,
suspension, and termination proceedings, according to their
own standards for institutional participation (as approved by
the Department). As discussed earlier in this section, State
review entities may request that the Department terminate a
school, and schools should be aware that the Department of
Education, State agencies, and guaranty agencies will readily
share between themselves information regarding program
violations and will generally abide by each other's disciplinary
determinations.


*1* The Approval Notice must be kept available for review
by auditors and department officials, including SFA program
review staff.

*2* As discussed previously in this section, a schol under-
going a change in owndership or conrol may be provisionally
certified by the Department for up to three of four years

*3* A family member is defined as a parent, sibling,
spouse, or child; a spouse's parent or sibling or a child's
spouse

*4* In addition to the penalties the Department may impose
against a school, an individual is subject to a fine, or
imprisonment, or both if he or she misappropriates SFA
funds, destroys or conceals any financial aid report relating
to an SFA program, illegally pays an eligible lender as an
inducement to make a move or acquire a guaranteed loan,
or gives false information or conceals information concerning
the assignment of an SFA loan.