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. |