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(P-96-03) (P-96-03) This letter provides information regarding the provision in the Department's Fiscal Year 1996 Appropriation Act that precludes a student from receiving a Federal Pell Grant for the 1996-97 award year, if the student's school is ineligible to

DCLPublicationDate: 8/1/96
DCLID: P-96-3
AwardYear:
Summary: This letter provides information regarding the provision in the Department's Fiscal Year 1996 Appropriation Act that precludes a student from receiving a Federal Pell Grant for the 1996-97 award year, if the student's school is ineligible to participate in the Federal Family Education Loan Program or the William D. Ford Federal Direct Loan Program as a result of cohort default rates.

August, 1996
P-96-3


SUMMARY: This letter provides information regarding the
provision in the Department's Fiscal Year 1996
Appropriation Act that precludes a student from
receiving a Federal Pell Grant for the 1996-97
award year, if the student's school is ineligible to
participate in the Federal Family Education Loan
Program or the William D. Ford Federal Direct
Loan Program as a result of cohort default rates.

FEDERAL STUDENT FINANCIAL AID HANDBOOK
REFERENCE: This letter supplements the information contained
in Chapters 4 and 10 of the 1996-97 Federal Student Financial Aid
Handbook.

Dear Colleague:

Section 512 of the Omnibus Consolidated Rescissions and
Appropriations Act of 1996, P.L. 104-134 (Appropriations Act),
prohibits certain students from receiving Federal Pell Grant
Program funds if the institution that those students attend loses
eligibility to participate in the Federal Family Education Loan
(FFEL) Program or the Federal Direct Loan (Direct Loan) Program
because of high cohort default rates. Specifically, Section 512
states:

None of the funds made available in this Act may be used for
Pell Grants under subpart 1 of Part A of title IV of the
Higher Education Act of 1965 to students attending an
institution of higher education that is ineligible to participate
in a loan program under such title as a result of a final default
rate determination made by the Secretary under the Federal
Family Education Loan or Federal Direct Loan program under
parts B and D of such title, respectively, and issued by the
Secretary on or after February 14, 1996. The preceding sentence
shall not apply to an institution that (1) was not participating in
either such loan program on such date (or would not have been
participating on such date but for the pendency of an appeal of a
default rate determination issued prior to such date) unless the
institution subsequently participates in either such loan program;
or (2) has a participation rate index (as defined at 34 CFR
668.17) that is less than or equal to 0.0375.

No institution may be subject to the terms of this section unless
it has had the opportunity to appeal its default rate determination
under regulations issued by the Secretary for the FFEL and
Federal Direct Loan Programs.

By law, an institution whose cohort default rates are equal to or
greater than 25 percent for each of the three most recent fiscal years
loses its eligibility to participate in the FFEL Program and/or the
Direct Loan Program. See, section 435(a)(2) of the Higher
Education Act of 1965, as amended (HEA) and 34 CFR 668.17.
Despite three years of cohort default rates greater than 25 percent,
an institution may retain its eligibility to participate in the loan
programs if it submits a complete and timely appeal of its cohort
default rates in accordance with the criteria and procedures
described in 34 CFR 668.17.

In implementing the provisions of the Appropriations Act,
institutions need to be aware of the following:

o The Appropriations Act affects Federal Pell Grant funds for the
1996-97 award year (July 1, 1996 through June 30, 1997).
Barring additional legislation, the funding limitations imposed
by the Appropriations Act will expire at the end of the 1996-97
award year (June 30, 1997).

o The Department will apply the funding limitations based upon
two separate cohort default rate eligibility determinations:

Official FY 1993 cohort default rates were issued on
February 14, 1996. If a school loses eligibility to
participate in the FFEL Program and/or Direct Loan
Program based upon the three cohort default rates ending
with the FY 93 rate (FY 91, FY 92, and FY 93), students
at that institution will not be entitled to receive 1996-97
Federal Pell Grants.

Official FY 94 cohort default rates will also be issued
before the end of the 1996-97 Federal Pell Grant Program
award year. If a school loses eligibility to participate in
the FFEL Program and/or Direct Loan Program based
upon the three cohort default rates ending with the FY 94
rate (FY 92, FY 93, and FY 94), students at that institution
will not be entitled to receive 1996-97 Federal Pell Grants.

o The Appropriations Act allows students that would otherwise
be prohibited from receiving Federal Pell Grants under the
Appropriations Acts to continue to receive such Federal Pell
Grants if their school demonstrates that it has a participation
rate index that is less than or equal to 0.0375, as defined in 34
CFR 668.17. A school determines its participation rate index
by multiplying its FFEL Program cohort default rate by the
percentage of its regular students enrolled on at least a half-
time basis who received a loan under the FFEL Program. For
example, if a school has an FFEL cohort default rate of 27.0
percent and 13.0 percent of its regular half-time or greater
students borrowed under the FFEL Program, the school would
meet the participation rate criterion (i.e., .27 x .13 = 0.0351,
which is less than 0.0375).

o The issuance of FY 1993 cohort default rates on
February 14, 1996, resulted in a potential loss of FFEL and/or
Direct Loan eligibility to 246 schools. A number of these
institutions did not appeal their FY 1993 rates within the
allowable time. Students at institutions that chose not to appeal
their FY 1993 official cohort default rates may not receive
1996-97 Federal Pell Grants. However, students at those
schools can regain the right to receive 1996-97 Federal Pell
Grants if those schools demonstrate that they had a low
participation rate, as discussed in the previous bullet.

o Students attending Historically Black Colleges and
Universities (HBCUs), Tribally Controlled Community
Colleges and Navajo Community Colleges are not subject to a
limitation on their 1996-97 Federal Pell Grants based upon
three years of cohort default rates equal to or greater than 25
percent. These schools are exempt from the statutory
consequences of their cohort default rates. SEE, section 435
(a)(2)(C) of the HEA. Please note, however, these schools are
not exempt from regulatory actions to limit, suspend, or
terminate their eligibility -- or any consequences of such
actions -- under subpart G of part 668 if their cohort default
rate for any one year exceeds 40 percent. SEE 34 CFR
668.17(a)(1).

o In accordance with the Appropriations Act, students at schools
that were not participating in either the FFEL Program or the
Direct Loan Program on February 14, 1996, will not lose
Federal Pell Grant funding, even if their school has lost or will
lose its eligibility to participate in the FFEL Program and/or
Direct Loan Program based upon high cohort default rates. A
school was not participating if, on or before February 14, 1996,
the school notified the Department of its intent to withdraw and
thereafter received official notification of the withdrawal from
the Department. Simply discontinuing the making or
disbursing of loans is not a withdrawal.

o Students at schools that were participating in either the FFEL
Program or the Direct Loan Program on February 14, 1996,
solely because of pending cohort default rate appeals, are
likewise not subject to the loss of Federal Pell Grants.

o An institution that is notified that its students may no longer
receive 1996-97 Federal Pell Grants because of this provision
will be permitted to disburse 1996-97 Federal Pell Grant funds
up to and including the payment period during which the
school is notified of the loss of its FFEL Program and/or Direct
Loan Program eligibility, but only if it had received a valid
Student Aid Report (SAR) or Institutional Student Information
Record (ISIR) prior to that notification.

We hope this information is useful to you. If you have questions
concerning cohort default rates, please contact the Default
Management Section on (202) 708-6048. Additionally, if you have
other questions related to the loss of Federal Pell Grant Program
funding, please contact the Policy Development Division on
(202) 708-4607 for policy issues and the Institutional Financial
Management Division on (202) 708-9807 for accounting and
reporting issues.

Sincerely,


Elizabeth M. Hicks
Deputy Assistant Secretary
for Student Financial Assistance

Last Modified: 07/31/1996