Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

(GEN-95-38) 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 the

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

Last Modified: 07/31/1995