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(GEN-95-26) Implementation of the 85 percent rule to determine eligibility for Title IV student assistance programs.

DCLPublicationDate: 5/1/95
DCLID: GEN-95-26
AwardYear:
Summary: Implementation of the 85 percent rule to determine eligibility for Title IV student assistance programs.


May 1995
GEN-95-26

SUBJECT: Implementation of the 85 percent rule to determine
eligibility for Title IV student assistance programs.

REFERENCE: Section 481(b)(6) of the Higher Education Act of
1965, as amended (HEA).

Regulatory requirements are contained in 34 CFR
600.5(a)(8), 600.5(d) through 600.5(g) and
600.40(a)(2) of the Institutional Eligibility
regulations.


Dear Colleague:

The purpose of this letter is to provide information on the
implementation of the 85 percent rule beginning July 1, 1995.

The Higher Education Act of 1965, as amended (HEA), includes
provisions that determine the eligibility of postsecondary
educational institutions to participate in the Title IV student
assistance programs. In order for a proprietary institution of
higher education to participate in the Title IV, HEA Programs, it
must have "at least 15 percent of its revenues from sources that
are not derived from [ Title IV, HEA Program ] funds, as
determined in accordance with regulations prescribed by the
Secretary." Put another way, an eligible proprietary institution may
not have more than 85 percent of its revenues derived from
Title IV, HEA Program funds. This statutory provision has come to
be known as the 85 percent rule.

On April 29, 1994, the Department published final regulations in
the Federal Register implementing the 85 percent rule. Those
regulations took effect on July 1, 1994. However, section 510 of
the Department of Education's FY 95 Appropriations Act, Public Law
103-333, precluded the Department from implementing those
regulations until July 1, 1995.

As of July 1, 1995, the Department will begin to implement the
regulations governing the 85 percent rule, and will make those
regulations applicable to institutional eligibility determinations
beginning with the 1995-96 award year. Therefore, beginning with
the 1995-96 award year, proprietary institutions will be subject
to the regulatory provisions carrying out the 85 percent rule that
are contained in 34 CFR 600.5(a)(8), 600.5(d) through 600.5(g) and
600.40(a)(2). The provisions contained in 600.5(h) will not apply
since they specifically addressed institutional eligibility for
the 1994-95 award year. However, the statutory delay in
implementing the 85 percent rule will require special considerations
for reporting and determining eligibility for the 1995-96 award year.
A discussion of these considerations follows.

- Under 600.5(d), a proprietary institution of higher
education must determine whether it satisfied the 85
percent rule during its most recently completed fiscal
year, completed prior to July 1, 1995. For example, for
an institution using the calendar year as its fiscal
year, its most recently completed fiscal year is the one
that ended on December 31, 1994; for an institution
using the award year as its fiscal year, its most recently
completed fiscal year will be the one that ends on
June 30, 1995.

- Under 600.40(a)(2), an institution that fails to satisfy
the 85 percent rule during its most recently completed
fiscal year loses its eligibility on the last day of that
fiscal year. However, because of the statutory delay in
implementing the 85 percent rule, an institution that
otherwise would have lost its eligibility prior to June
30, 1995, will be considered as losing its eligibility as
of June 30, 1995. Thus, that institution will be
ineligible to participate in the Title IV, HEA Programs
beginning with the 1995-96 award year.

- Under 600.5(f), an institution has 90 days after its
most recently completed fiscal year has ended to report
to the Secretary if it did not satisfy the 85 percent
rule for that period. However, because of the statutory
delay in implementing the 85 percent rule, an institution
that otherwise would have had to notify the Department
regarding its failure to satisfy the 85 percent rule
prior to July 1, 1995, will have until July 10, 1995, or
90 days after the end of its fiscal year, whichever is
later, to provide that notice to the Department.

- Under 600.5(e), an institution that determines that it
satisfied the 85 percent rule during its most recently
completed fiscal year must have the auditor who prepares
its audited financial statement under 34 CFR 668.15
report on the accuracy of that determination based upon
performing an "agreed-upon procedures attestation
engagement." That report is submitted as part of the
audited financial statement. However, if an institution
did not have its auditor make that report as part of the
audited financial statement because of the temporary
delay in implementing the 85 percent rule, the
institution shall have until July 31, 1995, or 90 days
after the end of its fiscal year, whichever is later, to
have that report submitted.

- Finally, because the Department will implement the 85
percent rule starting with the 1995-96 award year, the
Department will not hold any proprietary institution of
higher education liable for any Title IV, HEA Program
funds it received for the 1994-95 award year solely
because it failed to satisfy the 85 percent rule in that
year.

As noted above, if an institution determines that it failed to
satisfy the 85 percent rule, it must notify the Department; if an
institution determines that it satisfied the 85 percent rule, the
institution's auditor must report on the accuracy of that
determination and must submit that report to the Department. That
notice and report shall be submitted to:

U.S. Department of Education
Institutional Participation Division
Room 3522, R.O.B. 3
600 Independence Ave., S.W.
Washington, DC 20202
(202) 401-6485

Please remember that proprietary institutions will continue to be
subject to the regulatory provisions carrying out the 85 percent
rule that are contained in 34 CFR 600.5(a)(8) and 600.5(d) through
600.5(g) for each fiscal year ending after June 30, 1994.

For further information you may contact Cheryl Leibovitz in our
Policy Development Division. Ms. Leibovitz may be reached by
letter at 600 Independence Ave, SW, (ROB-3, Rm. 3053),
Washington, D.C. 20202 or by FAX at (202) 205-0786.
A written inquiry will enable us to respond thoroughly and promptly.

Sincerely,


David A. Longanecker

Last Modified: 04/30/1995