| 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 |