| DCLPublicationDate: 8/1/95 DCLID: GEN-95-38 AwardYear: Summary: This letter advises institutions of the recent court decision regarding the regulations dealing with the relationship between clock hours and credit hours, and of the steps that affected institutions must take to come into compliance with these regulations. August 1995 GEN-95-38 Summary: This letter advises institutions of the recent court decision regarding the regulations dealing with the relationship between clock hours and credit hours, and of the steps that affected institutions must take to come into compliance with these regulations. Dear Colleague: In the Spring of 1994, the Career College Association (CCA) and several vocational institutions filed suit in Federal District Court in Washington, D.C. to enjoin the Department from implementing §§668.8(k) and (l) of the Student Assistance General Provisions regulations, 34 CFR 668.8(k) and (l). These regulations were to become effective on July 1, 1994. Moreover, since the requirements contained in §668.9 of the Student Assistance General Provisions regulations are based upon the provisions in §§668.8(k) and (l), CCA in effect filed suit to enjoin implementation of that section as well. Section 668.8(k) provides that, for title IV, HEA program purposes, an institution that offers certain undergraduate educational programs in credit hours must calculate the number of those credit hours under a formula contained in §668.8(l). However, provisions in §668.8(k) and §668.9(b) provide that an institution does not have to use the formula contained in §668.8(l) to calculate the number of credit hours in any undergraduate educational program (1) that is at least two academic years in length and provides an associate, bachelor's or professional degree, (2) where each course within the program is acceptable for full credit towards that institution's associate, bachelor's or professional degree, provided that such degree requires at least two academic years of study, or (3) that is offered by a public or private nonprofit hospital-based school of nursing that awards a diploma for the successful completion of the program. Section 668.9 provides that if a student is enrolled in an educational program that is described in §668.8(k), the institution must use the formula contained in §668.8(l) to determine the amount of title IV, HEA program funds that the student is eligible to receive. On June 30, 1994, the District Court, in Career College Association v. Riley, Civ. No. 94-830 (RCL), granted CCA's motion for a preliminary injunction preventing the Department from enforcing the provisions of §§668.8(k) and (l) pending a decision by the Court. On June 16, 1995, the Court granted the Department's motion for summary judgment and lifted that preliminary injunction. The lifting of the preliminary injunction means that the Department could have chosen to enforce the regulations as of their original effective date, July 1, 1994. However, the Department has decided to require institutions to comply with these regulations as of June 16, 1995, the date the injunction was lifted. THEREFORE, THE PURPOSE OF THIS DEAR COLLEAGUE LETTER IS TO ADVISE INSTITUTIONS OF THE STEPS THEY MUST TAKE TO COMPLY WITH THE PROVISIONS IN §§668.8(k) AND (l) AND §668.9. These steps are set forth below. Please note that the compliance procedures described in Steps 1 and 2 below do not apply in cases where an institution disbursed all of a student's 1994- 95 award year title IV, HEA program funds before June 16, 1995. Step 1: Determine program eligibility. As of June 16, 1995, an institution offering an educational program in credit hours must determine whether that program qualifies as an "eligible program" using the formula contained in §668.8(l) if so required under §668.8(k). Under the formula in §668.8(l), for that program to qualify as an eligible program providing at least 16 semester or trimester credit hours or 24 quarter credit hours, the program must include at least 480 clock hours of instruction. In order for that program to qualify as an eligible program providing at least 8 semester or trimester credit hours or 12 quarter credit hours, the program must include at least 240 clock hours of instruction. See 34 CFR 668.8(d)(1) and (2) for additional eligibility requirements for each type of program. A program that fails to include these minimum numbers of clock hours of instruction does not qualify as an eligible program regardless of whether the Department previously designated that program as an eligible program. CONSEQUENTLY, AS OF JUNE 16, 1995, AN INSTITUTION MAY NOT DISBURSE ANY TITLE IV, HEA PROGRAM FUNDS OR DELIVER THE PROCEEDS OF ANY TITLE IV, HEA PROGRAM LOAN TO A STUDENT ENROLLED IN SUCH A PROGRAM, REGARDLESS OF WHEN THAT PROGRAM BEGAN. Moreover, an institution must return to the appropriate title IV, HEA program account or to a lender, as applicable, any title IV, HEA program funds that the institution disbursed or delivered on or after June 16, 1995 to or on behalf of students enrolled in a program that does not qualify as an eligible program. The title IV, HEA programs include the Federal Pell Grant Program, the William D. Ford Federal Direct Loan (Direct Loan) Program, the Federal Family Education Loan (FFEL) Programs and the campus-based programs (Federal Perkins Loan, Federal Supplemental Educational Opportunity Grant, and Federal Work Study). Step 2: Calculate or recalculate a student's award. Assuming that an institution determines that a program continues to qualify as an eligible program under §668.9, for funds disbursed or delivered on or after June 16, 1995, the institution must calculate or recalculate the amount of a student's Federal Pell Grant award and Direct Loan and FFEL Program loan amounts in accordance with program awarding rules as indicated below. Except for determining whether an educational program qualifies as an eligible program, as discussed in Step 1 above, the provisions in §§668.8(k) and (l) do not apply to the calculation of campus-based program award amounts. Federal Pell Grant Program For the 1995-96 award year. FOR ANY PAYMENT PERIOD, AN INSTITUTION MUST CALCULATE THE AMOUNT OF A STUDENT'S FEDERAL PELL GRANT AWARD BASED ON THE NUMBER OF CREDIT HOURS DETERMINED USING THE FORMULA IN §668.8(l), REGARDLESS OF WHEN THE PAYMENT PERIOD BEGAN. For the 1994-95 award year. AN INSTITUTION MUST CALCULATE THE AMOUNT OF A DISBURSEMENT MADE ON OR AFTER JUNE 16, 1995 BASED ON THE NUMBER OF CREDIT HOURS FOR THAT PAYMENT PERIOD AS DETERMINED UNDER THE FORMULA IN §668.8(l). For example, an institution defines its academic year as 24 semester hours and 30 weeks of instructional time. The institution offers a program on a non-term basis, with two equal payment periods of 12 semester hours. Assuming the appropriate EFC and COA, a student's scheduled award is $2,100. However, under §668.8(l) the program consists of 16 semester hours, making each payment period 8 semester hours. For any disbursements made on or after June 16, 1995, the institution must calculate the student's Federal Pell Grant award for that payment period based on the number of semester hours under the formula contained in §668.8(l). Accordingly, in this example the student's award for that payment period would be $700: Correct number of credit hours in the payment period (8) Scheduled award ($2100) X --------------------------------- = $700 Credit hours in the program's definition of an academic year (24) If the institution made disbursements prior to June 16, 1995 that represented a partial award for a payment period, any subsequent disbursements for that payment period made on or after June 16, 1995 may not, when combined with the prior disbursements for that payment period, exceed the Federal Pell Grant award for that payment period calculated using the formula in §668.8(l). For instance, assume in this example that the institution made a disbursement prior to June 16, 1995 of $525. The student's remaining disbursement for that payment period would be $175, i.e., the correct award amount for the payment period, $700, minus the $525 previously disbursed. Please note that an institution must consider the amount of a Federal Pell Grant disbursement made before June 16, 1995 only in cases where the institution made or plans to make, on or after June 16, 1995, additional disbursements for the same payment period. For either the 1994-95 or 1995-96 award year, if an institution made disbursements on or after June 16, 1995 that exceed the amounts determined using the formula in §668.8(l), the institution must (1) recalculate those disbursements and return to the Federal Pell Grant Program account any funds that exceed the recalculated amounts, and (2) report the corresponding changes through the Pell Grant Payment System. For more information on calculating Federal Pell Grant payments, please refer to Chapter 4 of The Federal Student Financial Aid Handbook. Direct Loan and FFEL Programs/Non-PLUS Loans An institution may not certify or originate a loan for an amount in excess of the maximum amounts permitted under §682.204 or §685.203. These sections provide for different annual loan limits depending on whether students are enrolled in educational programs that are between 1/3rd and 2/3rds of an academic year, 2/3rds and up to a full academic year, and at least one academic year. As provided in §668.2, an institution determines the academic year length of an educational program based, in part, on the number of credit hours in that program. BASED ON THAT DETERMINATION, AN INSTITUTION MAY NOT, ON OR AFTER JUNE 16, 1995, CERTIFY OR ORIGINATE A LOAN IN EXCESS OF THE MAXIMUM AMOUNT UNDER §§682.204 OR 685.203. ADDITIONALLY, AN INSTITUTION MAY NOT, ON OR AFTER JUNE 16, 1995, DISBURSE OR DELIVER ANY LOAN PROCEEDS FROM A PREVIOUSLY CERTIFIED OR ORIGINATED LOAN THAT EXCEED THE APPLICABLE MAXIMUM LOAN AMOUNT FOR THE LOAN PERIOD REGARDLESS OF WHETHER IT IS AN INITIAL OR SUBSEQUENT DISBURSEMENT OR DELIVERY, WHETHER THE INITIAL DELIVERY OF LOAN PROCEEDS WAS MADE BEFORE JUNE 16, 1995, OR WHEN THE LOAN PERIOD BEGAN. Moreover, if an institution delivered loan proceeds on or after June 16, 1995, the institution must recalculate the amount of a previously certified or originated loan so that the loan amount that the student is obligated to repay does not exceed the maximum amount allowed under §§682.204 or 685.203 using the formula contained in §668.8(l). Specifically, to calculate the correct loan amount, or to recalculate the correct loan amount of a previously certified or originated loan, an institution must determine the number of credit hours in a student's educational program using the formula in §668.8(l). Next, based on this determination, the institution must determine whether the length of the student's educational program constitutes a complete academic year, at least two-thirds of an academic year, at least one-third of an academic year, or less than one-third of an academic year. The institution must then calculate the loan amount that reflects the length of the student's educational program. (Of course, a student enrolled in a program that is less than one-third of an academic year is not eligible to receive a loan under the FFEL or Direct Loan programs.) An institution that previously certified or originated a loan for an amount equal to or less than the appropriate maximum amount calculated under §§682.204 or 685.203 and 668.8(l) may deliver the scheduled loan proceeds to the student. However, if an institution previously certified or originated a loan for an amount greater than the appropriate maximum amount, the institution must take the following steps. For an FFEL Program loan, if the institution has not delivered any of the loan proceeds to the student, the institution must either revise the original loan certification provided to the lender, or cancel it and certify a new application with the correct loan amount. In canceling the loan, the institution must return any loan checks or EFT funds the institution received from a lender for that student. Similarly, for a Direct Loan Program loan, the institution must submit to the Direct Loan Servicing Center a change record correcting the approved loan amount and the anticipated disbursements. In either program, if the institution disbursed or delivered all or part of the loan proceeds to the student on or after June 16, 1995, the institution must first determine the difference between the original loan amount and the recalculated loan amount. Next, the institution must either return this difference to the FFELP lender or to the Direct Loan account or, if the proceeds have not yet been fully delivered or disbursed, cancel all or part of any scheduled loan disbursements in a manner that ensures that the student's loan for that loan period does not exceed the recalculated amount. For example, an institution considered that one of its programs consisted of 24 semester hours and certified an FFEL program loan based on the full academic year amount of $2,625. However, under §668.8(l), that program consists of 16 semester hours, i.e., two- thirds of an academic year, making the correct loan maximum $1,750 under §682.204 or §685.203. The loan proceeds were scheduled to be disbursed to the student in two equal payments. The difference between the original approved loan amount and the recalculated amount is $875, ($2,625 minus $1,750). Thus, the institution must return $875 to the lender if the institution delivered all of the loan proceeds to the student on or after June 16, 1995. If only the first-half of the loan proceeds were disbursed, the institution would cancel or adjust the remaining scheduled disbursement so that the student's loan obligation does not exceed $1,750. PLUS program loans THE FEDERAL PLUS AND FEDERAL DIRECT PLUS PROGRAMS DO NOT REQUIRE LOANS TO BE REDUCED BASED UPON THE LENGTH OF A STUDENT'S EDUCATIONAL PROGRAM. Therefore, if the institution determines under Step 1 that the student is enrolled in an eligible program, no further action is necessary. If the institution determines that the student is not enrolled in an eligible program, it cannot make any further delivery of loan proceeds on or after June 16, 1995. Additional information. The Department will monitor and enforce compliance with the provisions of §§668.8 and 668.9, including the guidance provided in this letter, through its normal audit, program review, and recertification activities. For further information you may contact the Department's Customer Support Inquiry Service, between the hours of 9:00 AM and 5:00 PM Eastern Time, at 1-800-433-7327. After hours calls will be accepted by an automated voice response system. Callers leaving their name and phone number will receive a return call the next business day. You may FAX your inquiry to the Customer Support Inquiry Service at any time by using calling (202) 260-4199. Sincerely, Elizabeth M. Hicks, Deputy Assistant Secretary Student Financial Assistance Programs |