The Secretary invites comments on the Department of Education's proposal for improved oversight of the student aid programs authorized by Title IV of the Higher Education Act of 1965, as amended (HEA). An early draft of the proposal was posted on the Wor

[Federal Register: February 2, 1996 (Volume 61, Number 23)]

[Proposed Rules]               

[Page 4197-4201]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr02fe96-43]




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Part IX






Department of Education






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34 CFR Chapter VI




Federal Student Assistance Programs; Improved Oversight; Proposed Rule



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DEPARTMENT OF EDUCATION


34 CFR Chapter VI



Federal Student Assistance Programs Under Title IV of the Higher 

Education Act of 1965, as Amended


AGENCY: Department of Education.


ACTION: Advance notice of proposed rulemaking.


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SUMMARY: The Secretary invites comments on the Department of 

Education's proposal for improved oversight of the student aid programs 

authorized by Title IV of the Higher Education Act of 1965, as amended 

(HEA). An early draft of the proposal was posted on the World Wide Web 

on December 6, 1995. The Secretary particularly invites comments on the 

Department's plans to provide regulatory relief to institutions of 

higher education that have consistently demonstrated a very high level 

of performance in administering Title IV programs and strong financial 

responsibility.

    The Secretary intends to develop a notice of proposed rulemaking, 

with an opportunity for further public comment, to implement parts of 

the draft proposal after considering the comments received in response 

to this advance notice. Other parts of the proposal may be implemented 

through administrative actions by the Department. Still others may 

require statutory changes.


DATES: Comments may be submitted until March 4, 1996.


ADDRESSES: Adam Ochlis, U.S. Department of Education, 600 Independence 

Avenue, SW (Room 4050, ROB-3), Washington, DC 20202 or, by e-mail, 

adam__ochlis@ed.gov


FOR FURTHER INFORMATION CONTACT: Adam Ochlis, telephone (202) 708-9104. 

Individuals who use a telecommunications device for the deaf (TDD) may 

call the Federal Information Relay Service (FIRS) at 1-800-877-8339 

between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.


SUPPLEMENTARY INFORMATION:


Background


    The Department of Education has recently undertaken a series of 

initiatives to simplify regulations and administrative processes for 

the Federal student aid programs authorized by Title IV of the HEA and 

to ensure compliance with the requirements of those programs. In an 

effort to provide regulatory relief, on April 25, 1995, the Secretary 

invited institutions of higher education to submit proposals to 

reinvent the administration of those programs through the use of the 

experimental sites authority in section 487A(d) of the HEA. 60 FR 

20326. In June 1995, the Secretary completed a page-by-page review of 

all student financial aid regulations to identify those that should be 

eliminated or improved and reported the results of the review to the 

President.

    On August 8, 1995, the Secretary announced his intention to expand 

the Quality Assurance Program under section 487A of the HEA by 

increasing the number of participating institutions and using the 

experimental sites authority to encourage management innovation. 60 FR 

40446.

    In late November and early December 1995, the Secretary published 

several sets of regulations that will (1) reduce administrative and 

paperwork burdens on schools, students, and their families; (2) 

strengthen the Department's oversight of the student aid programs by 

focusing compliance efforts; (3) ensure that better consumer 

information is disclosed by schools to students and their families; and 

(4) make further improvements in the William D. Ford Federal Direct 

Loan Program. The Secretary will also consider whether to develop 

proposals for statutory amendments to eliminate unnecessary 

administrative burden.

    At the same time, the Department has undertaken management 

initiatives to ensure that institutions participating in the student 

aid programs comply with administrative and fiscal requirements. Since 

January 1993, the Department has terminated the participation of more 

than 300 institutions--nearly twice the number of the previous seven 

years combined. The Secretary believes the Department's strengthened 

enforcement has both deterred unqualified institutions from applying to 

participate and improved compliance by participating institutions. The 

Department is developing a risk analysis system and case management 

techniques to further improve its ability to focus its monitoring and 

enforcement activities on institutions that pose the greatest risk to 

Federal funds.


Proposal for Improved Oversight in Federal Student Aid


    The draft proposal on which the Secretary invites comments builds 

upon the Department's actions to date. Under the proposal, the 

Department would adopt regulations to provide further relief from 

administrative burden, particularly to institutions that have records 

of outstanding performance in administering Title IV programs and 

strong financial responsibility. Because such regulatory relief would 

permit a redeployment of resources, the Department would focus its 

monitoring and oversight activities on institutions that present a high 

risk to Federal funds. Finally, the Department would work to improve 

the ability of students to obtain information about the educational 

programs they are considering for enrollment.

    On December 6, 1995, the Department posted the draft proposal on 

its World Wide Web home page under the subheading of the Office of 

Postsecondary Education. The Department has also presented the proposal 

to some national higher education associations and the National 

Advisory Committee on Institutional Participation and Oversight. 

Further presentations are planned for the National Advisory Committee 

on Student Financial Assistance and representatives of institutions, 

States, accrediting agencies, national higher education associations, 

and other members of the higher education community.

    The Secretary welcomes comments on all aspects of the Proposal for 

Improved Oversight in Federal Student Aid. An updated version of the 

proposal appears immediately after the questions below. In particular, 

the Secretary requests comments on the following questions:

    1. The proposal states the Department's intention to provide 

extensive regulatory relief to institutions that have consistently 

demonstrated outstanding administration of Title IV programs and strong 

financial responsibility.

    (a) What criteria should the Department use to determine that an 

institution has consistently demonstrated outstanding administration of 

Title IV programs?

    (b) What criteria should the Department use to determine that an 

institution is financially strong? How should the criteria for 

financial strength vary by sector (public institutions, private non-

profit institutions, and private for-profit institutions)?

    2. The proposal suggests examples of areas in which regulatory 

relief could be provided to institutions with outstanding records in 

administering Title IV programs and strong financial responsibility. In 

what other areas could administrative burden on these institutions be 

eased? How much lead time would institutions need before this relief 

was provided?

    3. How should the Department ensure the continued administrative 

excellence and financial strength of the institutions that are provided 

extensive regulatory relief? 


[[Page 4199]]


    4. The proposal cites examples of administrative relief that the 

Department has provided and will provide to all participating 

institutions. In what other areas could administrative burden be 

reduced without statutory change or diminished accountability for 

Federal funds?

    5. The proposal describes the Department's efforts to provide 

regulatory relief to institutions participating in the Quality 

Assurance program. Should the Department propose regulations to set 

eligibility criteria for specific forms of relief related to 

institutional performance in specific administrative areas?

    6. The proposal describes management practices and possible 

statutory changes that the Department is considering to improve its 

oversight of institutions that pose a high risk to Federal funds. What 

other administrative and regulatory measures within current statutory 

authority should the Department consider to prevent unqualified 

institutions from participating in Title IV programs in the first 

instance and to terminate the participation of those that should not 

continue? What additional statutory changes should the Department 

consider for these purposes?

    7. The proposal describes some characteristics of an institution 

that might indicate that it should be subjected to greater monitoring 

and oversight. Are there other indicators (for example, an adverse 

opinion on a financial statement, or a material finding on a compliance 

audit) that the Department should consider for this purpose?

    8. The proposal describes efforts undertaken by the Department to 

improve students' access to information about educational programs. 

What other steps should the Department take to accomplish this 

objective? Should the Department use such student consumer information 

about performance, such as completion and graduation rates, in 

identifying institutions for regulatory relief or for heightened 

scrutiny?

    An updated version of the draft proposal follows.


Proposal for Improved Oversight in Federal Student Aid (Draft--

Updated January 1996)


    The Department of Education is proposing to strengthen and 

restructure its oversight of institutions that are participating in 

Title IV student aid programs. Under this proposal, the Department 

would continue to increase its oversight of institutions that pose 

significant risks to Federal funds and of new institutions, which may 

experience problems in administering Title IV programs. The Department 

would also provide regulatory relief to institutions that have 

consistently demonstrated a very high level of performance in 

administering Title IV programs and strong financial responsibility. 

Because increased regulatory relief would reduce the Departmental 

resources needed to monitor institutions that pose little risk to 

Federal funds, the Department could concentrate its monitoring 

resources on institutions that pose greater risk. This proposal builds 

upon regulatory relief initiatives and efforts to strengthen the 

monitoring and oversight of at-risk institutions that are already 

underway in the Department.

    The Department will use this proposal to advance discussions with 

Congress and the higher education community on the role of the Federal 

government in managing Title IV programs and providing better 

information to students. The Department requests comments and 

suggestions on this proposal and other ideas for improving the system 

of oversight of Federal student aid programs. The Department will work 

closely with the higher education community to develop the specifics of 

the proposal, including administrative and financial performance 

criteria to identify institutions eligible for regulatory relief and 

institutions needing increased oversight and support.


Regulatory Relief


    Under the proposal, the Department would engage in regulatory 

relief on two levels. First, the Department would continue to reinvent 

its regulations to reduce administrative and paperwork burden on all 

institutions where overly restrictive requirements do not improve 

accountability or protect the Federal fiscal interest. The Department 

has already streamlined the recertification application and revised the 

FAFSA form to include all statutorily-required student certifications 

that were previously on separate forms. The Department is also 

developing a less complex refund policy for all institutions; 

ultimately, statutory changes would be necessary to simplify the refund 

policy to the extent desired.

    Second, under this proposal, institutions that have consistently 

demonstrated outstanding administration of Title IV programs and strong 

financial responsibility would be eligible for additional regulatory 

relief. The Department would use its experimental sites authority to 

provide this flexibility.

    Possible criteria for determining that an institution has 

demonstrated outstanding administration of Title IV programs could 

include--

    <bullet> An unqualified opinion on financial statements;

    <bullet> No material findings in compliance audits for the previous 

five years;

    <bullet> Demonstrably sound internal controls (such as accounting, 

financial, and internal management controls);

    <bullet> Low default rates (adjustments would be made for 

institutions with a small percentage of students borrowing);

    <bullet> A history of successful participation in Title IV 

programs, as indicated by such factors as the duration and extent of 

participation in different kinds of Title IV programs (such as the 

student loan, Pell grant, and campus-based programs) and the quality of 

administrative performance in those programs;

    <bullet> Full unqualified certification; and

    <bullet> No adverse actions by accrediting agencies during the 

institution's last two full accreditation reviews.

    To assess financial responsibility, the Department would develop 

different financial responsibility standards for different sectors. 

Because different accounting standards are applicable to different 

sectors, financial statements are not consistent across sectors. The 

Department would develop financial indicators that, although different, 

nevertheless measure financial health across all three sectors.

    Institutions that met the criteria for strong administrative and 

financial performance would be eligible for such regulatory relief as 

less frequent recertification, less frequent submission of compliance 

audits, and exemption from certain regulatory requirements (such as 

those relating to multiple and delayed disbursement, verification, and 

entrance and exit counseling). A significant percentage of the 

departmental resources currently used to oversee and monitor the 

requirements for strong institutions would be used to focus more 

resources on at-risk institutions.

    Institutions that did not meet all the criteria for strong Title IV 

administrative and financial performance would still be able to apply 

for selective regulatory relief. The Department is already providing 

regulatory relief on a case-by-case basis to a large number of 

institutions under the April 25, 1995 experimental sites initiative 

referred to earlier in this notice. Under the August 8, 1995 Quality 

Assurance Program initiative, also referred to earlier, participating 

institutions may request specific regulatory relief on the basis of 

their improved administrative capability. 


[[Page 4200]]



Increased Monitoring and Oversight of At-Risk Institutions


    Under the proposal, the Department would increase monitoring and 

oversight of at-risk institutions. At-risk institutions might include 

those subjected to a limitation, suspension, or termination action in 

the previous several years; those on provisional certification 

(including all new institutions); those on reimbursement; or those 

subject to termination because of high default rates (including 

institutions appealing these rates). At-risk institutions would be 

subject to the full set of Department regulations and increased 

oversight and would receive increased technical assistance from the 

Department. Examples of increased regulation and oversight for at-risk 

institutions that the Department could implement through changes in 

administrative practices include--

    <bullet> At-risk institutions would face a higher probability of 

intensive program reviews by the Department;

    <bullet> At-risk institutions with a history of deficiencies would 

be subject to termination actions by the Department unless they 

improved their performance in the administration of Title IV programs 

to adequate levels within specific time frames;

    <bullet> At-risk institutions that had two or three major program 

review findings, such as failure to implement satisfactory progress 

standards or failure to adhere to the refund policy, would be 

terminated from participation in all Title IV programs; and

    <bullet> New institutions that did not demonstrate good performance 

would remain on provisional certification for five years rather than 

for three years, as is currently required.

    Some changes could be effected only by statutory amendments. 

Possible statutory changes that the Department is considering include--

    <bullet> Requiring a personal financial guarantee against 

liabilities from the owner of any proprietary institution placed on 

provisional certification and holding individuals with financial 

authority and responsibility at proprietary institutions personally 

liable for an institution's unpaid refunds;

    <bullet> Holding institutions that unsuccessfully appeal high 

default rates liable for the default costs and subsidies that are paid 

by the Department on loans to that school during the appeal process. 

The Department could also require a school that chooses to receive 

loans during the appeal process to post surety in an amount sufficient 

to cover these costs;

    <bullet> Extending to all non-degree vocational programs the 

current requirement that short-term vocational programs graduate and 

place 70 percent of their students; and

    <bullet> Permitting the Department to establish a new expiration 

date for a Program Participation Agreement for at-risk institutions and 

thus require a full application for recertification and enable the 

Department to make decisions based on current information.

    The Department is developing the administrative and information 

systems needed to carry out the improved oversight of at-risk 

institutions. These will include a system of risk analysis 

incorporating a variety of factors (for example, high default rates and 

material findings in compliance audits or program reviews) that will 

help identify administrative and financial problems. The risk analysis 

system will enable the Department to improve its targeting of 

institutions for compliance reviews based on administrative and 

financial performance and concentrate resources on institutions with 

potentially serious problems. Making this system viable will require 

improvement of information in the Department's databases such as the 

National Student Loan Data System, the full development of the 

Postsecondary Education Participants System, and the development of 

good tracking systems. The Department is taking steps to increase data 

integrity and is committed to providing the systems required.

    To improve its oversight of at-risk institutions, the Department is 

moving toward a new approach for monitoring institutional performance 

in Title IV programs. Currently, the Department reviews institutional 

performance through four largely independent processes--

recertification, analysis of financial statements, review of compliance 

audits, and program review. While recertification requires some cross-

analysis of these different areas, the system does not otherwise 

facilitate decisions based on all the information the Department has 

concerning an institution. The new system will consolidate these 

processes as much as possible by using case management as the core 

process. This will allow decision-making based on all information 

concerning a school that may be relevant to Title IV compliance, 

including information supplied by outside entities such as accrediting 

agencies.


Student Information


    The improved oversight system would also ensure that institutions 

provide better information about educational programs for students to 

use in making informed decisions about where to enroll. This 

information would help ensure that market forces work better to 

eliminate inadequate institutions and programs from participation in 

Title IV programs and help students make better decisions.

    Under the Student Right to Know Act, all institutions must make 

their completion and graduation rates available in their catalogs or 

other material readily available to all prospective students who 

request this information. The provision of this information should 

allow a prospective student to consider the likelihood of completing 

the program at an institution, the potential benefit to be derived from 

investing the required time and money in that program, and similar 

information about programs at other institutions. Final regulations to 

implement the Student Right to Know Act were published on December 1, 

1995. 60 FR 61776. These regulations require institutions to begin 

disclosing completion and graduation rates for students who enter the 

institution after July 1, 1996. Completion and graduation rates will be 

calculated for full-time, undergraduate certificate- or degree-seeking 

students.

    In addition to information required under the Student Right to Know 

Act, the Administration has proposed legislation that would require 

institutions that offer non-degree programs to report information about 

these programs and information on the outcomes of previous students to 

one-stop career centers that would provide this information to 

prospective students. This information could include completion rates, 

placement rates, licensure exam pass rates, or the percentage of 

graduates that meet certain skill standards. Although the specific 

provisions included in the Administration bill were not passed, the two 

versions of the job training bill being discussed by the Congress in 

late January included related provisions.

    The Department will continue to develop and support legislation and 

efforts to improve information for students and families on the 

outcomes of both degree and non-degree programs at institutions 

participating in the Title IV student aid programs. The Department 

plans to continue this focus in specific proposals included in the next 

reauthorization of the HEA.


Invitation to Comment


    Interested persons are invited to submit comments and 

recommendations regarding this draft proposal. Comments will be 

available for public inspection, during and after the comment period, 

in Room 4050, Regional Office Building 3, 


[[Page 4201]]

7th and D Streets, SW., Washington, DC, between the hours of 8:30 a.m. 

and 4 p.m., Monday through Friday of each week except Federal holidays.


    Dated: January 29, 1996.

Richard W. Riley,

Secretary of Education.

[FR Doc. 96-2262 Filed 2-1-96; 8:45 am]

BILLING CODE 4000-01-P