Summary: This letter announces standards that will be used to review 85/15 and 90/10 eligibility calculations for proprietary schools that include institutional scholarships and loans as revenue.
SUMMARY: This letter announces standards that will be used to review 85/15 and 90/10 eligibility calculations for proprietary schools that include institutional scholarships and loans as revenue.
During the recent negotiated rulemaking meetings to develop proposed regulations under the Higher Education Act (HEA) it became apparent that there have been some differing interpretations within the higher education community of the standards used to determine whether institutional scholarships and loans may be included in a proprietary school's 85/15 eligibility calculation. As a result, we are providing this policy guidance that will remain in effect until the final regulations for the changed 90/10 HEA requirements go into effect on July 1, 2000.
The preamble for the 85/15 regulations published in April 1994 established a general requirement that both the numerator and denominator of the 85/15 fraction be reported for the institution's fiscal year using a “cash basis of accounting [where] the institution reports revenues on the date that the revenues are actually received.” 59 FR 22328. The preamble also explained that institutional scholarships and loans could only be treated as revenue in the eligibility calculation if they were valid and not part of a scheme to artificially inflate an institution's charges. If institutional loans are provided, the facts must show that the students routinely repay the loans. 59 FR 22328. Institutions have commented that these specific guidelines for institutional loans and scholarships were understood by some to supersede the general requirement that all funds in the 85/15 calculation must be revenue under a cash basis of accounting, and have requested additional guidance on this point.
Until the new regulations for measuring 90/10 eligibility calculations go into effect on July 1, 2000, the Department will use the following process for determining whether institutional loans and scholarships may be counted as revenue in an 85/15 or 90/10 eligibility calculation. The Department will continue to examine institutions closely to determine whether the institutional loans and scholarships are valid, particularly where a substantial amount of revenue is attributed to institutional loans and institutional scholarships. Institutional loans will only be valid if the students routinely repay them and they do not otherwise appear to be part of a scheme to artificially inflate an institution's tuition and fee charges. Institutional scholarships will only be valid for this purpose if a substantial number of the comparable students at the institution are paying the stated institutional charges without receiving scholarships, and the scholarships do not otherwise appear to be artificial transactions.
The Department will exclude institutional loans and scholarships from being treated as revenue
in an 85/15 or 90/10 calculation when they are not valid under this analysis. Institutional loans and scholarships that fail this validity test may also be challenged on the basis that they do not constitute revenue under a cash basis of accounting. As to loans and scholarships that are determined to be valid under this analysis, the Department, absent unusual d to be valid under this analysis, the Department, absent unusual ty against institutions that count these loans and scholarships as revenue solely on the grounds that the loans and scholarships fail to comply with cash basis accounting requirements.
We believe that this enforcement policy, which is expected to remain in effect until the new regulation's effective date of July 1, 2000, provides institutions with a reasonable opportunity to demonstrate compliance with the requirements during prior fiscal years. The enforcement policy will apply to school audits and 85/15 or 90/10 eligibility calculations that are submitted to the Department before July 1, 2000. This policy will also provide ample time for institutions to ensure that they will be in compliance with the new regulations that will go into effect on July 1, 2000, including the requirement that all institutional loans and scholarships comply fully with the cash basis of accounting.
If you have any questions about this letter, please contact Keith Kistler in the Performance Improvement and Procedures Division at (202) 260-5742.
Diane E. Rogers
Chief of Staff to the Deputy Secretary
D. Jean Veta
Deputy General Counsel
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