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NPRM - Title IV Program Issues

FR part
V
Publication Date: August 2002
FRPart: V
RegPartsAffected:

600.8
600.21
600.31
668.2
668.3
668.4
668.8
668.14
668.22
668.32
668.151
668.164
668.165

668.171
668.173
668.174
673.5
675.2
675.21
682.603
685.301
690.75
694.10





Page Numbers: 51717-51741

NPRM - Title IV Program Issues

[Federal Register: August 8, 2002 (Volume 67, Number 153)]
[Proposed Rules]
[Page 51717-51741]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08au02-22]


[[Page 51717]]

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Part V

Department of Education

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34 CFR Part 600 et al.

Postsecondary Education; Federal Perkins Loan Program, et al.; Proposed Rule

[[Page 51718]]

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, 673, 675, 682, 685, 690, and 694

RIN 1845-AA24


Institutional Eligibility Under the Higher Education Act of 1965,
as Amended; Student Assistance General Provisions; General Provisions
for the Federal Perkins Loan Program, Federal Work-Study Program, and
Federal Supplemental Educational Opportunity Grant Program; Federal
Work-Study Programs; Federal Family Education Loan Program; William D.
Ford Federal Direct Loan Program; Federal Pell Grant Program; and
Gaining Early Awareness and Readiness for Undergraduate Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the Institutional Eligibility
Under the Higher Education Act of 1965, as Amended; Student Assistance
General Provisions; General Provisions for the Federal Perkins Loan
(Perkins Loan) Program, Federal Work-Study Program, and Federal
Supplemental Educational Opportunity Grant (FSEOG) Program; Federal
Work-Study (FWS) Programs; Federal Family Education Loan (FFEL)
Program; William D. Ford Federal Direct Loan (Direct Loan) Program;
Federal Pell Grant (Pell Grant) Program; and Gaining Early Awareness
and Readiness for Undergraduate Programs (GEAR UP) regulations. The
Secretary is amending these regulations to reduce administrative burden
for program participants, to provide benefits to students and
borrowers, and to protect taxpayers' interests.

DATES: We must receive your comments on or before October 7, 2002.

ADDRESSES: Address all comments about these proposed regulations to
Wendy Macias, U.S. Department of Education, P.O. Box 33076, Washington,
DC 20033-3076. We encourage commenters to use e-mail because paper mail
to the Washington area may be subject to delay, but please use one
method only to provide your comments. If you comment via e-mail, we
will send a return e-mail acknowledging our receipt of your comments.
If you choose to send your comments through the Internet, use the
following address: ProgramNPRM@ed.gov.
You must include the term ``Team II Program Issues'' in the subject
line of your electronic message.
If you want to comment on the information collection requirements,
you must send your comments to the Office of Management and Budget at
the address listed in the Paperwork Reduction Act section of this
preamble. You may also send a copy of these comments to the Department
representative named in this section.

FOR FURTHER INFORMATION CONTACT: Ms. Wendy Macias Telephone:
(202) 502-7526 or via the Internet: Wendy.Macias@ed.gov.
If you use a telecommunications device for the deaf (TDD), you may
call the Federal Information Relay Service (FIRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as they are discussed in the Significant Proposed Regulations section
of this document.
Section 482(c)(1) of the Higher Education Act of 1965, as amended
(HEA) provides that in order for a regulatory change to be effective
for the start of an award year on July 1, it must have been published
in final form in the Federal Register no later than the preceding
November 1. The Secretary's intent is to publish final rules resulting
from this Notice of Proposed Rulemaking (NPRM) by November 1, 2002,
making the new rules effective on July 1, 2003. However, section
482(c)(2) of the HEA allows the Secretary to designate regulatory
provisions that an entity subject to the provision may, at its option,
choose to implement earlier. Therefore, we are seeking suggestions on
which of the proposed regulatory provisions in this NPRM, if finalized,
should be so designated.
Section 482 of the HEA does not apply to regulations governing
programs other than the Federal student aid programs. Therefore, if the
proposed regulations on GEAR UP included in this NPRM are finalized,
they would be effective upon the date that the final regulations are
published in the Federal Register.
We also invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
During and after the comment period, you may inspect all public
comments about these proposed regulations at 1990 K Street, NW., (8th
Floor) Washington, DC, between the hours of 8:30 a.m. and 4 p.m.,
Eastern time, Monday through Friday of each week except Federal
holidays. If you want to schedule an appointment to inspect the public
comments, please contact the person listed under FOR FURTHER
INFORMATION CONTACT.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking
Record

On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, please contact the person
listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

Section 492 of the HEA requires the Secretary, before publishing
any proposed regulations for programs authorized by Title IV of the
HEA, to obtain public involvement in the development of the proposed
regulations. After obtaining advice and recommendations from
individuals and representatives of groups involved in the Federal
student financial assistance programs, the Secretary must subject all
proposed regulations to a negotiated rulemaking process. All proposed
regulations that the Department publishes must conform to agreements
resulting from that process unless the Secretary reopens the process or
provides a written explanation to the participants in that process
stating why the Secretary has decided to depart from the agreements.
We developed a list of proposed regulatory changes from advice and
recommendations submitted by individuals and organizations in response
to a May 24, 2001, request for recommendations on improving the Title
IV student assistance programs from Representative Howard P. ``Buck''

[[Page 51719]]

McKeon and Representative Patsy Mink, the Chairman and Ranking Member,
respectively, of the Subcommittee on 21st Century Competitiveness of
the Education and the Workforce Committee of the U.S. House of
Representatives.
On December 5, 2001, we published a notice in the Federal Register
(66 FR 63203) announcing our intent to establish two negotiated
rulemaking committees to develop proposed regulations. One committee
(Committee I) would address issues related to the Title IV student loan
programs. The other committee (Committee II) would address all other
Title IV student aid issues. The notice requested nominations of
individuals for membership on the committees who represented key
stakeholder constituencies that are involved in the student financial
assistance programs, with preference given to individuals who are
actively involved in administering the Federal student financial
assistance programs or whose interests are significantly affected by
the regulations. In the notice, we identified the constituencies with
interests that are significantly affected by the subject matter of the
negotiated rulemaking and announced that we expected that
representatives of each of those constituencies would likely be
selected as members of one, or both, committees. This NPRM is the
result of the deliberations of Committee II.
The members of Committee II were:
Jo'ie Taylor and Ellynne Bannon (alternate) representing
students; including the United States Student Association and State
PIRGs (Public Interest Research Groups) Higher Education Project;
Alan White and Elena Ackel (alternate), representing legal
assistance organizations that represent students; including Community
Legal Services and the National Consumer Law Center;
Rachael Lohman and Marty Guthrie (alternate), representing
financial aid administrators at institutions of higher education;
including the National Association of Student Financial Aid
Administrators
Laurie Quarles and Alisa Abadinsky (alternate),
representing business officers and bursars at institutions of higher
education, and institutional servicers; including the Coalition of
Higher Education Assistance Organizations and the National Association
of College and University Business Officers;
Reginald T. Cureton and William ``Buddy'' Blakey
(alternate), representing the American Indian Higher Education
Consortium, the United Negro College Fund and the National Association
for Equal Opportunity in Higher Education;
Claire M. Roemer and Patricia Hurley (alternate),
representing two-year public colleges and universities; including the
American Association of Community Colleges;
Dawn Mosisa and Jo Ann Yoshida (alternate), representing
four-year public colleges and universities; including the National
Association of System Heads, the American Association of State Colleges
and Universities, and the University Continuing Education Association;
Lydia MacMillan, Ryan Craig Williams (alternate), and
Maureen Budetti (2nd alternate), representing private, not-for-profit
colleges and universities; including the National Association of
Independent Colleges and Universities, and the Association of Jesuit
Colleges and Universities;
Robert Collins and Nancy Broff (alternate), representing
for-profit postsecondary institutions; including the American
Association of Cosmetology Schools and the Career College Association;
Charles Cook and Diane Rogers (alternate), representing
accrediting agencies; including the Council for Higher Education
Accreditation (12-hour rule only);
Neal Combs and Carl Buck (alternate), representing
guaranty agencies and loan servicers; including the National Council of
Higher Education Loan Programs (NCHELP), the CEO caucus of NCHELP, and
the National Association of Student Loan Administrators;
Francine Andrea and Wanda Hall (alternate), representing
lenders, secondary markets, and loan servicers; including the Consumer
Bankers Association, the Education Finance Council, the Student Loan
Servicing Alliance, and the National Council of Higher Education Loan
Programs;
Carney McCullough, representing the U.S. Department of
Education.
At its first meeting, Committee II reached agreement on its
protocols and agenda. During later meetings, the Committee reviewed and
discussed drafts of proposed regulations. The Committee met over the
course of several months, beginning in January 2002.
In addition to the proposed regulations discussed under the section
of this document called SIGNIFICANT PROPOSED REGULATIONS, Committee II
discussed other issues related to the administration of the Title IV
student assistance programs. Those issues, which are more
comprehensively discussed on the 2002 Negotiated Rulemaking Web site
for Team Two at: http://www.ed.gov/offices/OPE/rulemaking/
index2002.html
, include the following--
Use of electronics in the administration of the Title IV
programs,
Use of electronic signatures on timesheets in the FWS
Program,
The fifty percent grant overpayment protection in the
Return of Title IV aid regulations,
``90-10'' computations,
Equity in Athletics Disclosure Act (EADA) reporting
requirements,
FWS community service waiver requirements,
Inclusion of a computer in a student's cost of attendance,
Regaining student eligibility,
Overaward tolerances for the Title IV programs,
Effect of enrollment of certain home-schooled students on
institutional eligibility, and
The fifty percent requirements for telecommunications and
correspondence courses in institutional eligibility.
No regulatory proposals are included in this NPRM for these issues
either because the committee concluded that the proposed changes could
not be made without statutory amendments or because the committee
ultimately agreed to remove the item from the agenda and not to pursue
a regulatory change at this time. Instead, we decided to address a
number of these issues in a non-regulatory way, such as providing
clarifying policy language in the Federal Student Financial Aid
Handbook.
Tentative agreement was reached by the committee on all but three
of the agenda items. The entire committee did not reach consensus on
the proposed changes to Secs. 668.2, 668.3, 668.4, 668.8, and 690.75,
all of which are related to the proposal to replace the 12-hour rule
with the one-day rule, because three of the 13 negotiators objected to
the change. The committee also did not reach consensus on the proposed
changes to Sec. 668.14, which would have modified the section of the
program participation agreement that relates to incentive payment
restrictions, because two of the 13 negotiators opposed the proposed
changes. Finally, the committee reached conceptual agreement on the
issue of timely refunds (Sec. 668.173), but did not review or agree to
the actual text of the regulatory language. Detailed discussions of
these issues are provided in the body of this document.
The negotiated rulemaking protocols provide that, unless agreed to
otherwise, consensus on all of the amendments in

[[Page 51720]]

the proposed regulations must be achieved in order for consensus to be
reached on the entire NPRM.

Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.

Branch Campuses (Section 600.8)

Current Regulations: Section 600.8 implements the statutory
requirement that a branch campus may request certification as a main
campus or as a free-standing institution only after it has been
certified by the Secretary for at least two years. However, the
regulation does not reflect the statutory distinction that the two-year
certification requirement applies only to a branch of a proprietary
institution of higher education or of a postsecondary vocational
institution.
Suggested Change: We recommended that the regulation clarify that
the ``two-year rule'' in Sec. 600.8 applies only to an eligible branch
campus of either a proprietary institution of higher education or a
postsecondary vocational institution.
Proposed Regulations: The proposed regulation would specifically
refer to a branch campus of either an eligible proprietary institution
of higher education or an eligible postsecondary vocational institution
as the only types of institutions whose branches are covered by the
two-year certification requirement.
Reason: Under sections 102(b) and (c) of the HEA, the ``two-year
rule'' is applicable only to an eligible branch campus of either a
proprietary institution of higher education or a postsecondary
vocational institution and is not applicable to an institution of
higher education as defined in Sec. 600.4 of the regulations.
However, it should be noted that a single public or non-profit
institution can be both an institution of higher education and a
postsecondary vocational institution depending upon the programs it
offers. In such a case, the ``two year rule'' would apply if the
institution wanted a branch campus that offered vocational programs of
less than one year to become a free-standing institution.

Change of Ownership (Sections 600.21, 600.31 and 668.174)

Current Regulations: Sections 600.21(f) and 668.174(c)(4) define
who is considered a family member for purposes of transfer of
institutional ownership and control under the institutional eligibility
and financial responsibility regulations.
Section 600.31 provides for the treatment of changes of ownership
and establishes that an institution that undergoes a change in
ownership resulting in a change of control ceases to qualify as an
eligible institution until it establishes that it meets eligibility and
certification requirements. Section 600.31(e) provides that a transfer
of ownership and control due to the retirement or death of the
institution's owner to a member of the owner's family or to an
individual with an ownership interest in the institution who has been
involved in the management of the institution for two years prior to
the transfer is not considered a change of ownership and control for
purposes of institutional eligibility.
Suggested Change: A group of institutions suggested that the
definition of ``family member'' in the regulations be expanded to
include other persons in the owner's family including people who become
part of the owner's family as a result of remarriage. They also
suggested broadening the list of transactions that are not considered
changes in ownership to include situations where an owner who was
retiring from operating an institution and transferring ownership to
another family member would still perform some duties at the
institution.
Proposed Regulations: The proposed changes to Secs. 600.21(f) and
668.174(c)(4) would expand the definition of a member of the family to
include grandchildren, a spouse's children and grandchildren, and
family members as a result of remarriage.
The proposed change to Sec. 600.31(e) would expand the conditions
under which transfers of ownership and control to family members are
not considered a change of ownership for institutional eligibility
purposes. We are proposing to expand the current exception in the
regulations to allow an owner to transfer his or her interest in an
institution to a member of his or her family, provided that the
ownership transfer is reported to the Department under
Sec. 600.21(a)(6). The proposed regulations would clarify that the
excluded transfer would be only to persons that have held an ownership
interest and a management role at the institution for at least two
years.
Finally, the proposed regulations would also clarify that the
entity covered by the change of ownership requirements and that signs
the Program Participation Agreement (PPA) may be the institution
signing as a corporation or as a sole proprietorship, the institution's
parent corporation, or other entity such as a partnership. The excluded
transfer would apply to the owner's equity interest or partnership
interest in that entity.
Reason: We agree that the scope of family members in the current
exemption for transfers within a family is too narrowly defined, and
also agree that the current restriction that transfers of ownership and
control of an institution within a family may only be excluded from the
change of ownership regulations when made in connection with the death
or retirement of the owner is overly restrictive. The proposed
regulations would require that the transfer to an owner's family member
be reported under Sec. 600.21. The reporting of that transfer is
required to keep our records up-to-date.

Definition of Academic Year--``12-Hour Rule'' (Sections 668.2, 668.3,
and 668.8)

Current Regulations: The definition of an academic year appears in
Sec. 668.2. Section 481(a)(2) of the HEA provides that an academic
year, for Title IV, HEA student financial assistance purposes, must
contain at least 30 weeks of instructional time. For undergraduate
programs, the law requires that over the 30 weeks of instructional time
a full-time undergraduate student must be expected to complete at least
24 semester or trimester hours, 36 quarter hours, or 900 clock hours.
Section 481(b) of the HEA sets forth minimum lengths of time for
certain eligible programs in terms of weeks of instructional time.
Section 668.2 currently defines a week of instructional time for
educational programs that measure academic progress using credit hours
and standard terms (semesters, trimesters, or quarters) or clock hours,
as any week in which one day of regularly scheduled instruction,
examination, or preparation for examination is offered--the one-day
rule. For educational programs that measure academic progress using
credit hours and are either nonterm or nonstandard term programs, the
regulations define a week of instructional time as any week in which at
least 12 hours of instruction, examination, or preparation for
examination is offered. This regulatory requirement for programs using
credit hours in non-standard terms or without terms is commonly
referred to as ``the 12-hour rule''.
Eligible program requirements are codified in Sec. 668.8 and
include the same definitions of a week of instructional

[[Page 51721]]

time as used in the academic year definition discussed above.
Suggested Change: A large number of institutions and groups,
including the bipartisan Web-based Education Commission chartered by
the Higher Education Amendments of 1998, suggested that the 12-hour
rule be eliminated. Many suggested that the one-day rule be adopted as
the definition of a week of instructional time for all types of
educational programs, not just those measuring academic progress using
standard terms or clock hours.
Proposed Regulation: These proposed regulations would eliminate the
12-hour rule for nonstandard and nonterm educational programs that
measure progress in credit hours, and adopt a single regulatory
standard for all types of educational programs.
Under the proposed regulation, the current definition that has
applied for several years to credit hour, standard term programs would
also apply to credit hour nonstandard term and credit hour nonterm
programs. Under this longstanding definition, a week of instructional
time is a week in which there is at least one day of regularly
scheduled instruction or examinations, or after the last day of
classes, at least one day of study in preparation for final
examinations. Similar changes would be made to Sec. 668.8--Eligible
program.
Finally, the proposed regulation would move the definition of
academic year from Sec. 668.2, and place the revised definition in a
new Sec. 668.3.
Reason: Many institutions are now offering programs in shorter time
periods which may also have overlapping terms and rolling starting
dates. For many of the new nonstandard or nonterm educational programs,
compliance with the 12-hour rule has become increasingly difficult and
at odds with the educational advantages such flexible program formats
provide for students, especially non-traditional students. The 12-hour
rule also results in significant disparities in the amount of Title IV,
HEA funding that students receive for the same amount of academic
credit, based solely on whether the program that they are enrolled in
uses standard academic terms or not.
We, and most of the negotiators, are concerned that a number of the
statutory and regulatory provisions that govern the Title IV student
assistance programs, including the 12-hour rule, are stifling
innovation and creating inequities in the amount of Federal student
financial assistance that students receive. During negotiated
rulemaking, the proposal to eliminate the 12-hour rule was discussed at
length. Nearly all of the negotiators were supportive of the
elimination of the 12-hour rule and the adoption of the one-day rule as
the definition of a week of instructional time for all types of
educational programs.
One negotiator, while recognizing the need for change in this area,
felt that we should wait until the reauthorization of the HEA and then
address, in a more comprehensive manner, all issues related to
providing student financial assistance to students enrolled in
nontraditional educational programs. Every negotiator, including those
who voiced opposition to the elimination of the 12-hour rule, agreed
that the current rule was problematic, limited educational
opportunities, and needed to be changed. However, those negotiators who
voiced opposition did not propose any alternatives to the one-day rule.
While nearly all of the negotiators agreed with the proposal to
replace the 12-hour rule with the one-day rule, the committee was
unable to reach complete consensus on the proposal. However, we agree
with the vast majority of the negotiators and the constituents whose
interests they represent that the 12-hour rule is an unnecessary
barrier to flexible and innovative educational programs, and that a
week of instructional time should be defined in the same way for all
educational programs. We have not experienced any problem with the one-
day rule as it has been applied to standard term-based and clock hour
programs and believe that it is the appropriate measure to adopt for
all programs. In addition, we believe that the clock hour/credit hour
conversion regulations (34 CFR 668.8(k) and (l)), provide adequate
safeguards. Moreover, the proposed changes to the definition of payment
periods provide additional assurance that Title IV program funds will
be properly disbursed.
Finally, we note that accrediting agencies are aware of these new
educational program formats, and have taken steps to ensure the quality
of education offered in these new formats.

Payment Periods (Sections 668.4, 682.603, 685.301, and 690.75)

Current Regulations: Current regulations provide a definition of a
payment period for the Title IV student financial assistance programs.
In general, the amount of a student's Title IV award and the frequency
and timing of its disbursement are determined on a payment period basis
(with special rules for disbursements of FFEL and Direct Loans). The
regulations provide a separate payment period definition for each of
the three types of academic programs: (a) Programs that measure
progress in credit hours and have academic terms, (b) programs that
measure progress in credit hours and do not have academic terms, and
(c) programs that measure progress in clock hours.
In all three types of programs, the main point of having payment
periods is to ensure that a student's award is paid in approximately
equal increments over the course of the student's program of study,
with those payments usually being made at least twice during an
academic year. The current regulations do not specifically address how
to determine the beginning and end of a payment period when a student
who was paid for a payment period withdraws before completing that
payment period and returns to the same institution or transfers to
another institution. The ambiguity on how the regulations are to be
applied in such instances may have resulted in an uneven application of
the regulations for these students.
Suggested Change: With the proposed replacement of the 12-hour rule
with the one-day rule for determining when an institution is considered
to have provided a week of instructional time, we suggested that there
should be additional disbursement safeguards for credit hour programs
without terms.
Specifically, we suggested that the definition of a payment period
for credit hour programs without terms require that, in addition to
completing one-half of the academic coursework of the period (e.g.,
academic year, program, or remainder of the program), the student
complete one-half of the required weeks of instruction in that period.
Additionally, for the past several years institutions that offer
programs in clock hours and credit hours without terms requested that
we clarify how to determine the beginning and end of a payment period
when a student who was paid for a payment period withdraws before
completing that payment period and returns to the same institution or
transfers to another institution.
Proposed Regulations: The proposed regulations would amend the
definition of a payment period in Sec. 668.4(b) to require a student to
complete the requisite number (usually half) of weeks in that academic
year or program, in addition to the clock hours or credit hours.
The proposed regulations would also clarify the definition of a
payment period to specifically address the situation when a student
withdraws

[[Page 51722]]

from a clock hour program or a credit hour nonterm program during a
payment period, but then returns to school. The proposed regulations
provide that, if the student returns to the same program at the same
institution within 180 days of the original withdrawal, the student is
considered to be in the same payment period he or she was in at the
time of the withdrawal. Such a student would retain his or her original
eligibility for that payment period. Once the student completes the
payment period for which he or she had been paid, he or she becomes
eligible for a subsequent Title IV student aid payment.
Additionally, under the proposed regulations, a student who
withdraws from a program during a payment period and then returns to
that program after 180 days, or transfers, within any time frame, into
another program either at the same institution or at another
institution would start new payment periods. The institution would
calculate these new payment periods using the regular rules in the
appropriate part of the definition of a payment period, except that it
would consider the length of the program to be equal to the remainder
of the program that the student has to complete upon return to the
original program or transfer to another one. However, if the remainder
of a student's program is one-half of an academic year or less, that
remaining period would constitute one payment period.
Reason: We believe that an additional safeguard is needed to
prevent institutions from structuring educational programs in such a
way as to allow the second payment of Title IV aid for an academic year
to be made before half of the academic year (as measured in weeks)
actually occurs. This could happen, for example, if a 24 credit hour,
nonterm program was offered over a 30 week period, but was structured
so that the first 12 credits were earned in the first 10 weeks, with
the remaining 12 credits being earned in the last 20 weeks. Under the
current payment period definition, an institution would be able to pay
a student the second half of a Pell Grant long before the half-way
point of the academic year, which under the HEA must be a minimum of 30
weeks long.
Because of this concern, we are proposing to modify the payment
period definition for credit hour programs without terms to require
that a payment period cover half of the number of weeks of an academic
year (or of a program), in addition to covering half the number of
credits earned in that period. For example, in the situation discussed
above if a student completes the first 12 credits in 10 weeks, the
first payment period would not be considered to be completed and the
second disbursement could not be made until 15 weeks of instructional
time had elapsed in addition to the completion of 12 credit hours.
This addition of ``half of the number of weeks'' in the academic
year (or in the program) to the payment period definition is not
necessary for term-based, credit hour programs or for clock hour
programs. Standard academic terms currently result in payment periods
of relatively equal length. Likewise, in clock hour programs, the
student's payment periods are based on the completion of actual hours
of instruction completed by the student, and not on the scheduled hours
offered in the program.
We have proposed two other changes to the definition of a payment
period for clock hour programs and for credit hour programs without
terms to address situations in which a student withdraws from a program
before the completion of the payment period for which he or she was
paid and then either returns to the same institution or transfers to
another institution.
When a student withdraws from a program during a payment period and
returns to the same program at the same institution within 180 days,
the student is considered to be in the same payment period he or she
was in at the time of the withdrawal. This proposed change is similar
to a leave of absence, and the proposed regulation is consistent with
the current regulations for students who are granted leaves of absence.
The 180-day measure is consistent with the maximum 180 days allowed for
an approved leave of absence in the Return of Title IV Aid regulations.
The difference, of course, is that with an unauthorized leave of
absence the institution would not know that the student would be
returning and would have treated the student as a withdrawal. Based
upon that withdrawal, the institution would have completed the Return
of Title IV Aid calculation, which may have required it and the student
to return funds to the Title IV programs. If the student returns within
180 days to his or her original program, the student would have to
complete the remaining clock or credit hours before starting a new
payment period and receiving Title IV aid for that new payment period.
However, the institution would re-disburse any funds that it had
previously returned to the Title IV, HEA programs, including any
overpayment it had collected from the student as a result of the
earlier withdrawal.
If a student withdraws during a payment period and either returns
to the same program at the same institution after 180 days, or
transfers into another program, we believe that treating the student as
if he or she was still in the same payment period would be cumbersome
for institutions to administer and for students to understand.
Therefore, we have proposed that for such a student the institution
start a new series of payment periods.
We believe that it is reasonable to differentiate between
situations in which, on the one hand, the student returns to the same
program at the same institution within a short period of time (180
days), and, on the other hand, the student either returns to the same
program after a longer period of time or transfers into another program
(either at the same institution or at another). Because of the
continuity in the student's attendance and similarity to a leave of
absence in the first situation, we believe it appropriate, and
administratively convenient to keep such a student in the same payment
period upon his or her return to school. Conversely, because continuity
is not present in situations in which a considerable time period (more
that 180 days) has passed, or in which the student transfers into a new
program, we believe it appropriate to start that student over in terms
of the calculation of his or her payment periods.

Program Participation Agreement (Section 668.14)

Current Regulations: Section 668.14(b)(22) of the current
regulations implements the statutory restrictions on incentive payments
for success in securing enrollment or financial aid. Section 487(a)(20)
of the HEA provides that, as part of its program participation
agreement, an institution will not provide any commission, bonus, or
other incentive payment based directly or indirectly on success in
securing enrollments or financial aid. The only significant addition to
the statutory requirements in the current regulations is a provision
that exempts from the incentive payment restrictions token gifts of
less than $25.
Suggested Change: Many higher education institutions have made a
number of recommendations regarding activities that should be
specifically exempt from the current restrictions on incentive
payments. These restrictions and our interpretation of the statutory
requirements were identified by the Web-based Education Commission as a

[[Page 51723]]

barrier to students enrolling in distance education and on-line
courses.
Institutions and many others requested that the regulations be
amended to explicitly identify certain types of payments and
compensation plans that do not violate the current statutory
restrictions. Another more specific suggestion from institutions and
the Web-Based Education Commission was that the regulations should
clearly permit an institution to contract with an outside entity that
offers enrollment and information services through the World Wide Web
and allow the institution to pay for those services based on the number
of prospective students visiting the site who ultimately apply to, or
enroll at, the institution. Such services are currently not considered
to be a violation if they are done through an institution's own Web
site.
Another suggestion was that the regulations clarify that the
incentive payment restrictions do not extend to revenue-sharing
agreements between institutions and third-party service providers as
long as the third-party servicers have no decision-making authority for
admissions decisions or financial aid awards.
Proposed Regulations: The proposed regulations begin, in
Sec. 668.14(b)(22)(i), by re-stating the statutory prohibition against
incentive payments.
Paragraph (b)(22)(ii) of the proposed regulations lists 12 types of
activities and payment arrangements that an institution may carry out
without violating the incentive payment restrictions provision. We
believe that these ``safe harbors'' will allow institutions to maintain
payment and compensation plans that are in compliance with the HEA and
the regulations.
The list of ``safe harbor'' activities is derived from compensation
and payment plans that the majority of the negotiators agreed should be
included. They provide institutions with specific, concrete examples of
payments they can make that do not violate the statutory provision. We
have not, however, included in the regulations a complementary listing
of payment or compensation plans that are impermissible.
The specific types of payments or compensation plans included in
the listing in paragraph (b)(22)(ii) cover the following subjects,
which are further discussed below:
Adjustments to employee compensation
Enrollments in programs that are not eligible for Title
IV, HEA assistance
Contracts with employers
Profit-sharing or bonus payments
Compensation based upon completion of program
Pre-enrollment activities
Managerial and supervisory employees
Token gifts
Profit distributions
Internet-based activities
Payments to third parties for non-recruitment activities
Payments to third parties for recruitment activities
Reason: As indicated above, section 487(a)(20) of the HEA prohibits
an institution that participates in programs authorized under Title IV
of the HEA from providing any commission, bonus, or other incentive
payment based directly or indirectly on success in securing enrollments
or financial aid. This provision was enacted as part of the Higher
Education Amendments of 1992. While the statutory language noting
``directly or indirectly'' is broad, the conference committee report on
the legislation included the following statement to clarify the
legislative intent and limits of these restrictions:
``The conferees wish to clarify, however, that the use of the term
`indirectly' does not imply that institutions cannot base employee
salaries on merit. It does imply that such compensation cannot solely
be a function of the number of students recruited, admitted, enrolled,
or awarded financial aid.''
Consistent with this clarification of legislative intent, the
proposed regulations are based on a purposive reading of section
487(a)(20) of the HEA.
The list of specifically permitted activities provides a reasonable
and workable framework that institutions can use to determine if a
payment is a violation of the incentive payment restrictions. Most non-
Federal negotiators were supportive of this type of regulatory
structure.
What follows is a brief discussion of each of the payment types
included in the proposed regulations.
A. Adjustments to Employee Compensation
The inclusion of compensation adjustments under this provision of
the proposed regulations recognizes the balance between the need of an
institution to base its employees' salaries or wages on merit, and
concern that such adjustments do not make the statutory prohibition
against the payment of commissions, bonuses and other incentive
payments meaningless.
During the deliberations some of the non-Federal negotiators stated
that institutions commonly adjust a new employee's salary after a
probationary period and then again after the employee completes the
first year. In light of this common business practice and using the
conference report language as a guide, we believe, as did a majority of
the negotiators, that two salary adjustments within a twelve month
period is the appropriate balance. As a result, the proposed
regulations provide that an institution that makes up to two
adjustments (upward or downward) to a covered employee's (one who is
involved in recruitment, admissions, enrollment, or financial aid
activities) annual salary or fixed hourly wage rate within any twelve
month period is not in violation of the restrictions on incentive
payments. However, consistent with the conference language the basis
for any adjustment may not be solely the number of students recruited,
admitted, enrolled, or awarded financial aid.
The proposed regulations also provide that one upward adjustment
resulting from a cost of living increase within a twelve month period
that is paid to all or substantially all of the institution's employees
will not be considered an ``adjustment'' for the purpose of this
regulation.
We believe the proposed regulations for compensation adjustments
address the concern that such adjustments are not formulated in a way
that circumvents the statutory prohibition against incentive payments.
B. Enrollments in Programs That Are Not Eligible for Title IV, HEA
Assistance
The program participation agreement established under section 487
of the HEA applies only to programs eligible for Title IV HEA program
assistance. Therefore, the proposed regulations do not consider
payments to recruiters and others based upon the enrollment of students
in programs that are not eligible for Title IV funding to be a
violation of the incentive payment restrictions.
C. Contracts With Employers
Many institutions suggested that the development of contractual
agreements for training or instruction between an institution and an
employer is another area where the incentive payment restrictions
should not be applied. They argued that the restrictions on incentive
payments should not apply in situations where an individual is paid for
successfully obtaining a contract for the institution to provide
education and training to a business's employees. We agree that as long
as there is no direct contact by the institution's representative with
students and because the employer is paying a

[[Page 51724]]

significant portion (at least 50 percent) of the training costs, such
activities are not considered to be ``recruitment'' or the ``securing
of enrollments'' under the provisions of section 487(a)(20) of the HEA.
Therefore, the proposed regulations provide that incentive payments may
be paid to individuals for arranging contracts under which the
institution provides education and training to employees provided that
the employer pays 50 percent or more of the tuition and fees charged
for the training and the payments provided to the individual are not
based upon either the number of employees who enroll or on the amount
of revenue generated by those employees. The employer may pay the
tuition and fees either directly to the institution or by reimbursement
to the employee. The institution's representative may not have any
contact with the employees.
During the discussion on this issue in the negotiated rulemaking
committee much attention was given to how much, if any, of the
institutional charges should be paid by the employer for the
institution not be in violation of the incentive payment restrictions.
Some negotiators suggested that the amount or percentage paid by the
employer was irrelevant. Others thought that the payment by the
employer of a significant portion of the costs of the training was
critical in determining whether the program was a contract training
program with the employer rather than simply enrollment of individual
employees. They also argued that to the extent the employer pays a
significant share of the tuition and fees of the employees' education
and training, there would be less likelihood that unqualified students
would be enrolled.
D. Profit-Sharing or Bonus Payments
Generally, profit-sharing and bonus payments are not payments based
on success in securing enrollments or awarding financial aid unless
they are made only to employees who are involved in recruitment,
admissions, enrollment, or financial aid. Therefore, the proposed
regulations provide that such payments made by an institution are not
prohibited as long as those payments are made to all or substantially
all of the institution's full-time professional and administrative
employees and are substantially the same amount or are based upon the
same percentage of salary. During the discussion on this issue several
negotiators asked that such payments also be in compliance even if they
were not made to all of an institution's employees but to only those at
the same organizational level. We agreed with this proposal after
restating that such an organizational level could not consist
predominantly of recruiters, admissions staff, or financial aid staff.
E. Compensation Based Upon Completion of Program
Completion of an academic program is not ``enrollment'' under the
provisions of section 487(a)(20) of the HEA. We believe that one of the
reasons for the prohibition against incentive payments for success in
recruitment, admissions, enrollment, or securing financial aid, is to
prevent institutions from enrolling students into a program without
regard to their qualifications or likelihood of completing the program.
Most of the negotiators believed that the completion of the program or,
in the case of students enrolled in a program longer than one academic
year, the completion of the first academic year is a reliable indicator
that the student was qualified for the program. Therefore, the proposed
regulations allow payments made to an institution's employees based
upon students' successful completion of their educational program, or
one academic year for a longer program, not to be a violation of the
incentive payment restrictions.
F. Pre-Enrollment Activities
Generally, pre-enrollment activities are not considered
recruitment. The proposed regulations recognize the ancillary nature of
various supportive activities that, while part of the overall
recruitment or financial aid process, are somewhat removed from the
actual recruitment and admissions of students or the awarding of
financial aid. Therefore, individuals whose responsibilities are
limited to ``pre-enrollment'' activities that are clerical in nature
are outside the scope of the incentive payment restrictions. It is not
a violation of the incentive payment restrictions for employees engaged
in pre-enrollment activities to be compensated based upon such pre-
enrollment activities as long as the number of people who actually
enroll is not a factor in determining the compensation. However,
soliciting students for interviews is recruitment and not a pre-
enrollment activity.
G. Managerial and Supervisory Employees
We believe the incentive payment restrictions apply only to those
individuals who perform activities related to recruitment, admissions,
enrollment, or the financial aid awarding process and their immediate
supervisors. We believe that direct supervisors should be covered
because their actions generally have a direct, immediate, and dramatic
impact on the individuals who carry out these covered activities. The
incentive payment restrictions do not extend to supervisors who do not
directly manage or supervise employees who are directly involved in
those activities. They also do not apply when an employee, manager or
otherwise, occasionally has direct contact with a prospective student.
For example, there would be no problem if the president of an
institution, who was compensated at least partially on the
profitability of the institution, happened, on a very occasional basis,
to offer a tour of the institution to a prospective student.
H. Token Gifts
The negotiators indicated support for an increase of the current
$25 limit that is allowable for a single gift to a student or an
alumnus of the institution. We realize that the cost of a token gift
has risen since the inception of the current regulation and therefore
propose to increase the maximum cost of a token, non-cash gift that may
be provided to an alumnus or student to not more than $100. Moreover,
the proposed regulations would also expand the limitation of a single
gift provided to a student or alumnus by the institution, to not more
than one gift annually.
The cost basis of a token non-cash gift is what the institution
paid for it. The value is the fair market value of the item. Some of
the negotiators wanted to use ``value'' rather than ``cost'' because
they were concerned that an outside source would donate something of
great value to an institution, and the institution would give it to a
student or alumnus as an incentive to recruit students. One negotiator
argued that if a car were donated to the institution, the cost to the
institution would be zero, and therefore permitted to be a token gift
under the proposed regulations. In addition to pointing out the
unlikelihood of that scenario, we noted that the proposed (and current)
regulations specifically use the term ``token gift'' and anything of
great value, such as a car, would certainly not be considered ``token''
as that term is reasonably understood to mean.
I. Profit Distributions
Profit distributions to owners are not payments based on success in
securing enrollments or awarding financial aid. Therefore, the proposed
regulations specifically acknowledge that any owner, whether an
employee or not, is entitled to a share of the organization's profits.
However, any profit

[[Page 51725]]

distributions under this paragraph are permitted only to the extent
they represent a proportionate distribution based upon the employee's
ownership interest.
J. Internet-Based Activities
Institutions have indicated their need to utilize and expand the
most accessible and cost-effective means possible for recruitment and
admission activities. The report of the Web-based Education Commission
found that, ``Although not the original intent, the language [of the
incentive payment restriction] effectively bars higher education
institutions that participate in Title IV from using third-party Web
portals to provide prospective students with access to information
about many institutions or provide the same services as institutions
offer on their own Web sites * * *''. The Commission suggested that the
regulations permit an institution to contract, without violating the
incentive payment restrictions, with an outside entity that offers
services through the World Wide Web.
Moreover, we believe that for purposes of these regulations, the
Internet is simply a communications medium, much like the U.S. mail,
and direct mail solicitations and advertisements have generally not
been considered within the scope of the incentive payment restrictions.
Therefore, the proposed regulations do not preclude an institution from
compensating a service provider for Internet-based recruitment and
admission services.
K. Payments to Third Parties for Non-Recruitment Activities
Section 487(a)(20) applies only to recruiting, admissions,
enrollment, or financial aid. Therefore, these proposed regulations
would not consider payments to third parties for services to the
institution other than recruiting, admissions, enrollment, or financial
aid services, to be in violation of the incentive payment restrictions.
Under such arrangements, the third party might provide services such as
instruction, curricula, and course materials. This provision would
clearly establish that payments to third parties, including tuition
sharing arrangements, that are not for recruitment, admissions,
enrollment, or financial aid services, would not be in violation of the
incentive payment restrictions.
L. Payments to Third Parties for Recruitment Activities
Section 487(a)(20) applies both to individuals who work for the
institution and to entities outside the institution. We believe that
Congress included these outside entities because it did not want an
institution to avoid the limitations in that section merely by using an
outside entity. On the other hand, we believe that Congress did not
intend to limit an institution's ability to contract with outside
entities for recruitment, admissions, enrollment, or financial aid
services if the outside entity adheres to the same limitations that
apply to institutions. Payments made by an institution to a third party
would not violate the incentive payment restrictions as long as the
individuals performing any activities related to recruitment,
admissions, enrollment, or financial aid were compensated in a way that
would otherwise be permissible under the standards in this section for
covered employees of the institution.
At the conclusion of the discussion on the issue of incentive
payment restrictions, all the negotiators agreed that clarification was
needed in the area of the incentive payment restrictions and that the
issuance of specific guidance in the regulations was preferable to our
earlier use of private letter guidance in response to individual
inquiries. However, because universal agreement could not be reached on
some of the specific proposals presented, the committee was not able to
reach consensus on the proposed regulatory language related to the
incentive payment restrictions.

Institutions Required to Take Attendance (Section 668.22)

Current Regulations: Section 668.22(b)(3) defines, for purposes of
the Return of Title IV Aid calculations, an institution that is
``required to take attendance'' as one that is required to take
attendance by an entity outside of the institution, such as the
institution's accrediting agency or a State agency.
Suggested Change: Some institutions and the non-Federal negotiators
suggested that we provide greater specificity in the definition of when
an institution is considered to be one that is required to take
attendance. In particular, they wanted the regulations to clearly state
that an institution is one that is ``required to take attendance'' only
if the outside entity has determined that it requires the institution
to take attendance.
Proposed Regulations: Under the proposed regulations in
Sec. 668.22(b)(3)(i), for the purposes of determining the withdrawal
date of a student, an institution would be considered to be one that is
``required to take attendance'' only when an outside entity determines
that it requires that the institution take attendance for some or all
of its students. Absent a determination by an outside entity that the
institution is required to take attendance, the institution would be
considered to be one that is not required to take attendance.
Reason: Several of the negotiators expressed concern with our
current interpretation of the definition of an institution that is
required to take attendance. We have previously stated that if we
determine that the only way that an institution can comply with a
requirement of an outside entity is to take attendance, the institution
is considered to be ``required to take attendance'' even if the outside
entity states that it does not require the institution to take
attendance (Dear Colleague Letter GEN-00-24).
Several of the negotiators felt that we should defer to the outside
entity to determine when requirements of that entity mean that an
institution is required to take attendance. The negotiators believed
that the outside entity was in the better position to make that
determination, not the Department.
The committee agreed to modify the regulations to make clear that
an institution is considered to be ``required to take attendance'' only
when an outside entity has determined that the institution must, even
for a limited period of time, take attendance for some or all of its
students.
Institutions should note that we have not changed the existing
regulatory requirement in Sec. 668.22(b)(3)(ii), which provides that if
an outside entity specifically requires an institution to take
attendance for only a portion of its students, the institution is
required to use the attendance records for those students only. The
institution would not be required to take attendance for any of its
other students unless it is required to take attendance for those
students by another entity.
If an outside entity has a requirement, as determined by that
entity, for the institution to consistently take attendance for a
limited period of time (e.g., up to a census date), the institution
meets the definition of an institution required to take attendance for
that limited period of time only. If a student ceased enrollment during
that limited period, the institution must use its attendance records to
determine the student's withdrawal date. However, if an outside entity
has a requirement, as determined by the entity, to take attendance for
a single day such as attendance for census purposes, that single event
would not cause the institution to meet the definition of an

[[Page 51726]]

institution that is required to take attendance.
Also, as we have previously indicated, when an institution
administratively withdraws a student from all of his or her classes the
student is considered to have officially withdrawn as of the date of
that administrative withdrawal. This guidance applies regardless of
whether or not the institution is required to take attendance.
Consistent with that guidance, when, through a census on a certain
date or similar process, all of a student's instructors indicate that
the student is no longer in attendance, the student is considered to
have officially withdrawn as of the census date.

Leaves of Absence (Section 668.22)

Current Regulations: Section 668.22(d)(1)(vi) of the Return of
Title IV Aid regulations provides that generally, only one leave of
absence that meets certain requirements and does not exceed 180 days in
a 12-month period may be granted to a student. However, additional
leaves of absence may be granted under exceptions provided in
Sec. 668.22(d)(2). One of those exceptions allows an institution to
grant an additional leave of absence if the subsequent leave of absence
does not exceed 30 days and it is due to unforeseen circumstances.
Additionally, other leaves of absence may be granted if the institution
documents that the leaves are for jury duty, military reasons, or
circumstances covered under the Family and Medical Leave Act of 1993.
Current regulations also provide that a leave of absence for Return
of Title IV Aid purposes must have been granted by the institution
under its formal leave of absence policy. An institution's leave of
absence policy is a formal policy if it is in writing and publicized to
students, and it requires students to provide a written request for a
leave of absence.
Suggested Change: Some institutions and the non-Federal negotiators
recommended that the protection provided by the 180-day maximum
timeframe within a 12-month period for an approved leave of absence is
sufficient to prevent abuse and that tracking the reasons for requests
for subsequent leaves and evaluating them against certain limited
exceptions is administratively burdensome. They stated that
institutions should have broad flexibility to make the best
determination for each student based upon his or her unique needs and
situation rather than being limited by the number and type of leaves of
absence that they can approve.
Proposed Regulations: The proposed regulations would simplify the
approved leave of absence definition by allowing multiple leaves of
absence at the discretion of the institution, as long as the total
number of days for all leaves does not exceed 180 days within a 12-
month period. As a result, we propose to remove the current language
that describes the exceptions to the single leave of absence rule.
The requirement that an institution's leave of absence policy
require a student to submit a written request would be modified to
require that the request must include a reason.
Reason: Some of the non-Federal negotiators indicated that the
range of reasons that cause students to need multiple leaves of absence
can be outside the scope of the current regulations, but nonetheless
important for the students and their families. Also, the restriction in
the current regulations that the first subsequent leave of absence,
although it may be granted for any unforeseen circumstance, be limited
to no more than 30 days, is arbitrary in practice and results in unfair
treatment, while not providing any additional protection for either the
student or the programs. For example, if a student had taken a leave of
absence for 61 days and subsequently needed an additional leave of
absence of 31 days for unforeseen circumstances, under the current
regulations the second leave could not be an approved leave of absence.
The total of 92 days for leaves of absence is significantly less than
the maximum of 180 days allowable, but because the second leave of
absence for unforeseen circumstances is for more than 30 days, it
cannot meet the current definition in Sec. 668.22(d)(2)(i).
We agree that if there is a reasonable expectation that a student
will return from a leave of absence, it is better to keep the student
enrolled than to have the student withdraw.
The current regulations already provide that an institution must
determine, before it grants a leave of absence, that there is a
reasonable expectation that the student will return from the leave. In
order for the institution to make such a determination, it must know
the student's reason for requesting the leave. For this reason, the
proposed language would require the institution's formal leave of
absence policy to include the requirement that the student provide the
reason for the requested leave of absence.
We have been asked to clarify the requirements that an institution
must comply with when students return from a leave of absence but,
instead of resuming their academic program at the point they began the
leave of absence, they repeat prior coursework in preparation for
continuing in the original program of study.
One element of an approved leave of absence is that the institution
may not impose additional charges when the approved leave of absence
ends and the student resumes his or her program of study. The same
requirement holds when a student returns for the purpose of repeating
prior coursework to enhance his or her skills and knowledge in order to
resume the program. That is, a student may return and repeat prior
coursework as long as the student does not incur additional
institutional charges. As a result, the student would also not be
eligible for any additional Title IV program assistance for this
preparatory phase, even if the student were to start again at the
beginning of the module or course from which he or she took the leave
of absence.
Until a student described above has resumed the academic program at
the point he or she began the leave of absence, the student is
considered to still be on the approved leave of absence, including
during the time the prior coursework is being repeated. Since such a
student is considered to be on a leave of absence while repeating prior
coursework, if the student fails to begin attendance at the point in
the academic program where he or she left off at the beginning of the
leave of absence, the regulatory requirement that a student who fails
to return from an approved leave of absence must be treated as a
withdrawal back to the start of the leave of absence applies. The date
of the student's withdrawal that must be used in the Return of Title IV
Aid calculation is the date that he or she began the leave of absence
and not the date the student ceased participation in the repeated
courses.

Overpayments (Sections 668.35, 673.5, and 690.79)

Current Regulations: Section 668.35(c) provides that a student who
receives a Federal Perkins loan or Title IV grant overpayment of any
amount is eligible to receive further Title IV aid only if the student
repays the overpayment in full or makes arrangements, satisfactory to
the holder of the debt, to repay the overpayment.
Sections 673.5(f) and 690.79 establish student and institutional
liability for Perkins loan, FSEOG, and Federal Pell Grant overpayments
and specify the repayment and collection of such, as well as the
conditions for the referral of

[[Page 51727]]

FSEOG and Pell Grant overpayments to the Secretary.
For all three programs, the regulations provide that the student is
liable for any overpayment made to the student regardless of the
amount. They also provide that the institution is liable for any
overpayment that was the result of its failure to comply with the
appropriate regulatory requirements. In addition, the regulations
provide that, for any overpayment for which it is not liable, the
institution must assist the Secretary in recovering that overpayment.
For Perkins and FSEOG overpayments only, the regulations also
provide that the institution must promptly send the student a written
notice requesting repayment of the overpayment. In contrast, however,
the regulations for the Pell Grant program require the institution to
make a reasonable effort to contact the student and recover the
overpayment.
Also, the Perkins and FSEOG regulations require the institution to
consider any objection made by the student that the overpayment
determination is erroneous and to determine whether the objection is
warranted. The Pell Grant regulations do not specify this step.
For the Perkins program, the institution is responsible for
attempting to collect any overpayment and cannot refer the overpayment
to the Secretary. Any amount collected must be returned to the
institution's Federal Perkins Loan fund. If an FSEOG overpayment is not
resolved, the institution must refer it to the Secretary if it is $25
or more. An unresolved Pell Grant overpayment must also be referred to
the Secretary, but the regulations are silent on a minimum amount.
Suggested Change: At various conferences and meetings, institutions
have suggested that the regulations on the treatment of overpayments be
applied consistently to all of the Title IV programs. Further, they
suggested that the treatment of overpayments incorporate the de minimis
amount concept that currently applies to a grant overpayment under the
Return of Title IV Aid requirements. That is, they suggested that a
student not lose eligibility for Title IV funds nor be required to
repay an overpayment if the original overpayment amount is less than
$25. This request was repeated by some of the non-Federal negotiators.
Proposed Regulations: The proposed regulations would revise
Sec. 668.35(c) to allow a student to remain eligible to receive
additional Title IV aid if the amount of the Perkins Loan or Title IV
grant overpayment is less than $25 and is neither a remaining balance
nor a result of applying the overaward threshold for the campus-based
programs allowed under Sec. 673.5(d).
The proposed regulations would revise Secs. 673.5(f) and 690.79 to
specify that a student is not liable for a Perkins loan, FSEOG, or Pell
Grant overpayment that is less than $25 and is not a remaining balance
and, for a Perkins loan or FSEOG overpayment, is not the result of
applying the $300 campus-based overaward threshold. The proposed
regulations also would specify, for all three programs, that a student
is not liable for an overpayment if the institution is liable for it.
The proposed regulations would provide that for purposes of FSEOG
overpayments, the provisions apply only to the Federal share of FSEOG
awards if the institution meets its matching share by the individual
recipient method or the aggregate method. When an FSEOG award is
matched under the fund specific method, the entire amount of the award
would be subject to the provisions of Sec. 673.5(f).
The proposed regulations would make the collection and referral
requirements for a Pell Grant overpayment consistent with current
requirements for FSEOG overpayments. They would specify that when
attempting to collect a Federal Pell Grant overpayment, the institution
must provide written notice of the overpayment to the student, and if a
student objects to an overpayment determination on the grounds that it
is erroneous, the institution must determine whether the objection is
warranted.
For student overpayments that meet the conditions of the proposed
de minimis standard, an institution would not be required to attempt
recovery of the overpayment, report it to NSLDS, or refer it to the
Secretary.
Reason: Institutions have questioned the complexity created by
making students ineligible for further Title IV funding due to small
overpayments and the cost effectiveness of collecting such small
amounts. They thought that the current grant overpayment policies under
the Return of Title IV Aid requirements allowed more flexibility and
should be adopted for other types of overpayments. They further noted
an inconsistency in the treatment of different types of overpayments.
The negotiators agreed with the reasons provided by the institutions.
The regulatory changes of applying a $25 de minimis standard to other
overpayments are proposed for consistency, simplicity, and cost
effectiveness.
It is important to note that for all programs the de minimis $25
amount must not be the result of a remaining balance. A remaining
balance less than $25 occurs when the overpayment amount for which the
student was responsible was originally $25 or more, but is now less
than $25 because of payments made. In such cases, even though the
balance of the overpayment now owed is less than $25, the de minimis
standard would not apply, and the student would still be responsible
for fully repaying that remaining balance. The student would also not
be eligible for additional Title IV aid until the overpayment is fully
paid or satisfactory arrangements to repay are made.
Federal Perkins Loan and FSEOG overpayments that result from the
application of the $300 campus-based overaward threshold also would not
be subject to the de minimis standard. For example, if an institution
discovers that a student with campus-based funds subsequently received
additional sources of aid such that the student is now overawarded by
$314, the student would have a campus-based overpayment of $14 after
the $300 overaward threshold is applied. In this instance, the student
would still be responsible for the $14 overpayment and would not be
eligible for additional Title IV student aid until the overpayment is
resolved.
In order to provide consistent treatment among the programs, the
proposed change to the Pell Grant regulations would provide that an
institution must promptly send a written notice to the student
requesting repayment of an overpayment. (Note that unless specifically
indicated otherwise, any written notice requirement can be delivered by
electronic means, as well as via paper methods.)
To provide students with the opportunity to object to any
overpayment determination that they believe is in error, we are
proposing the same requirement for the Pell Grant program that
currently exists for the Perkins and FSEOG programs. That is,
institutions would be required to allow students to object to a Pell
Grant overpayment determination on the grounds that it is erroneous.
The institution would be required to consider any information provided
by the student and determine whether the objection is warranted.
The proposed regulations would not modify the responsibilities of
an institution when it is liable for an overpayment. If the institution
is liable for an overpayment of any amount, it

[[Page 51728]]

must immediately return the amount of the overpayment to the
appropriate Title IV student aid account or otherwise return the funds
to the Secretary as appropriate. These regulations would not prevent an
institution from billing or otherwise holding the student responsible
for the amount of the overpayment that the institution returned.
However, such a debt is, by definition, not a Title IV debt and cannot
be considered as such.
Further, these proposed regulations would not change the current
rule that an institution is not required to refer to the Secretary a
Federal Perkins loan overpayment, because all payments must be returned
to the institution's revolving loan fund.
Finally, the proposed regulations would not change the fact that
under the Return of Title IV Aid calculations in Sec. 668.22, Federal
Perkins loans are not treated as an overpayment. Rather, unearned
Federal Perkins funds for which the student is responsible are repaid
according to the terms of the loan.

Expiration of Ability to Benefit Tests (Sections 668.32 and 668.151)

Current Regulations: As provided in Sec. 668.32(e), an otherwise
eligible student who does not have a high school diploma or its
recognized equivalent and who does not meet the home-schooled standards
of the regulation is eligible to receive Title IV, HEA program
assistance only if the student has obtained a passing score, as
specified by the Secretary, on an approved ability-to-benefit (ATB)
test within 12 months before the date the student initially receives
Title IV program assistance.
Section 668.151(a)(2) requires an institution to use the results of
an approved test to determine a student's eligibility for Title IV
assistance if the approved test was independently and properly
administered.
Suggested Change: Institutions suggested that the 12-month
limitation on the acceptability of an ATB test passing score was not
necessary and should be removed from the regulations. They pointed out
that one of the alternatives to a passing score on an approved ATB test
is either a high school diploma or its equivalent, but neither the
diploma nor its equivalent expires after a certain period of time.
During the negotiated rulemaking discussion on ATB testing, we
suggested that the regulations should be modified to make it clear that
an institution must obtain the results of an approved ATB test directly
from either the test publisher or from the assessment center that
administered the test.
Proposed Regulations: The proposed regulations would revise
Sec. 668.32(e) by eliminating the provision that limits the duration of
a passing score on an approved ATB test to 12 months before a student
initially receives Title IV, HEA program assistance.
The proposed regulations would make it clear that an institution
must obtain the results of an approved ATB test directly from either
the test publisher or the assessment center that administered the test.
Reason: We agreed with the non-Federal negotiators that an ATB test
score should be valid for as long as the test publisher or the
assessment center that administered the test is able to provide the
institution with an official report of the original passing score. In
other words, an institution may not accept as a valid passing test
score a report it received from the student or from another institution
(unless it came from a test assessment center at another institution in
accordance with the regulations).

Late Disbursements (Section 668.164)

Current Regulations: Section 668.164(g) sets forth the conditions
that must be satisfied before an institution may make a late
disbursement to an otherwise eligible student (or the student's parent
in the case of a PLUS loan) who has become ineligible either because
the student is no longer enrolled at the institution or, for FFEL and
Direct Loan purposes, is no longer enrolled on at least a half-time
basis. One of the conditions is that the institution must have received
a SAR or ISIR for the student before the student became ineligible. If
all of the conditions are met, an institution has 90 days from the date
the student became ineligible to make the late disbursement.
Suggested Change: Institutions suggested that the regulations be
modified to reflect our private letter guidance that allows, under
limited circumstances, a late disbursement to be made after the 90-day
regulatory deadline. Under this guidance, a guaranty agency, or the
Department for a Direct Loan, may permit an institution to make a late
disbursement of the loan if the reason the disbursement was not made
within 90 days was not the fault of the student.
They also suggested that we clarify the circumstances in which an
institution must make a late disbursement and those in which it has the
option to do so. In particular, the institutions pointed to the Return
of Title IV Aid regulations under which an institution must make a late
disbursement (referred to as a ``post-withdrawal disbursement'') and a
provision of the late disbursement regulations under which an
institution appears to have the choice of whether to make the late
disbursement.
The third and fourth suggestions deal with the requirement that, as
a condition for making a late disbursement an institution must have
received a SAR or ISIR with an official EFC before the date a student
became ineligible. The non-Federal negotiators suggested that this
requirement should not apply to a late disbursement of a PLUS loan
because the EFC is not needed by an institution to certify or originate
the loan. Moreover, they believed that it was unfair that some students
do not qualify for a late disbursement solely because institutions may
not be aware (or cannot document) that they received an ISIR before the
date the student became ineligible. To make it fair for all students,
the non-Federal negotiators suggested that the date the SAR or ISIR was
received by the institution be replaced by the date the Secretary
processed a SAR or ISIR with an official EFC for the student.
Proposed Regulations: The proposed regulations would increase the
timeframe within which an institution may make a late disbursement from
90 to 120 days. In addition, the proposed regulations would provide
that, for those cases in which the student is not at fault, we may
approve an institution's request to make a late disbursement after 120
days.
With respect to when an institution must make a late disbursement
in cases in which a student withdraws and is eligible for a post-
withdrawal disbursement, the proposed regulations incorporate directly,
rather than by cross reference, the requirement that an institution
must make or offer the disbursement, as appropriate. The proposed
regulations would also require an institution to offer or make the late
disbursement to the student (or the student's parent for a PLUS loan)
for a student who completed the payment period or period of enrollment.
These proposed regulations would adopt the suggestions made by the
non-Federal negotiators to eliminate the SAR/ISIR requirement for a
late disbursement of a PLUS loan.
The proposed regulations would change the requirement that the
institution must have received a SAR or ISIR before the student became
ineligible to a requirement that a SAR or ISIR, with an official EFC,
must have been processed by the Secretary before the student became
ineligible.

[[Page 51729]]

Finally, the proposed regulations would eliminate the requirement,
that in order for an institution to make a late disbursement of a
Federal Pell Grant, it must have received a ``valid'' SAR or ISIR
before the student became ineligible. Instead, a student's eligibility
for a late Pell Grant disbursement would be based upon the rule that
the Secretary must have processed a SAR/ISIR with an official EFC while
the student was still eligible. Of course, the institution must receive
the SAR or ISIR before the actual disbursement can be made.
Reason: We agree with the non-Federal negotiators that the
Department's informal guidance allowing institutions to make late
disbursements after the established timeframe in limited cases should
be made part of the regulations. Doing so would inform all institutions
and guaranty agencies (as opposed to only those that received private-
letter guidance) that this procedure is available. However, the
proposed regulations differ from the current regulations and guidance
in two ways. First, we believe that increasing the timeframe from 90 to
120 days would benefit students and institutions by providing
sufficient time, in most cases, for a late disbursement to be made
without our approval and without regard to the reason for the late
disbursement.
Second, for the limited cases in which it is not the fault of the
student that a late disbursement was not made within the 120-day
period, an institution would seek our approval (not that of the
guaranty agency, as provided under current guidance) to make that
disbursement. During the discussion on this point, the negotiators
representing guaranty agencies, supported by others, suggested that,
for FFEL loans, guaranty agencies continue to be allowed to approve a
late disbursement based upon receiving information that the reason for
the delay was not the fault of the student. For program integrity
reasons, we believe it is more appropriate that we determine whether to
approve a late disbursement after the established deadline. We offered
assurances that, if this proposed rule is made final, we will implement
an expedited process for approving late disbursement requests. While
details have not been finalized, we expect that we will establish a
single point of contact for requests for late disbursements beyond the
proposed 120-day limit. An institution would make its request and
provide sufficient information showing that the reason for the delay
was not the fault of the student or parent.
It was noted during the discussion that there may be situations
where, because of administrative constraints, a late disbursement may
not be possible even if the request is made within the applicable
timeframes. Examples of these constraints include the closing of an
award year's disbursement processing for the Pell Grant and campus-
based programs or the termination of an FFEL lender's processing for a
year. During the negotiations, we were asked to consider what
interventions we could take in our processing to minimize the instances
in which a student who was otherwise eligible for a late disbursement
could not receive the funds because of these administrative
limitations. We will provide additional guidance on this issue at a
later time.
In the discussions pertaining to late disbursements for students
that withdraw from an institution, the non-Federal negotiators pointed
to what they viewed as an apparent conflict in the regulations. Under
the provisions of Sec. 668.22, an institution may be required to make a
late disbursement (post-withdrawal disbursement) to a student who
withdraws during a payment period or period of enrollment. However,
under the cash management provisions in Sec. 668.164(g)(3)(i), an
institution has the option of making a late disbursement to pay for
educational costs that a student incurred for the period in which the
student was enrolled and eligible. However, it would be contrary to the
primary tenet in Sec. 668.22--that a withdrawn student has earned Title
IV loan or grant assistance equal to the percent of the payment period
or period of enrollment the student completed--for an institution to
deny that student a late disbursement. The current late disbursement
regulations at Sec. 668.164(g)(1)(ii) specifically require institutions
to follow the provisions in Sec. 668.22 for a student who withdraws
from the institution. Although, we are not proposing any change to this
requirement, we are proposing to redraft the requirement in order to
eliminate any confusion regarding this issue.
Along the same lines, the proposed rule would require an
institution to pay or offer a late disbursement to a student who
completes the payment period or period of enrollment. Under the
requirements of Sec. 668.22, a student who completes more than 60
percent of the payment period or period of enrollment has earned 100
percent of his or her Title IV aid and the institution must make or
offer, as appropriate, a post-withdrawal disbursement of any of those
funds that were not received. A student who completes 100 percent of
the payment period or period of enrollment has the same entitlement to
all of his or her Title IV funds for the period. Under the proposed
regulations, the institution would be permitted to credit the student's
account to pay for current and allowable charges in accordance with the
current cash management regulations. For example, an institution would
have to provide notice to a student, or parent in the case of a PLUS
loan, when the institution credits the student's account with Direct
Loan, FFEL, or Federal Perkins Loan Program funds in order to give the
student or parent an opportunity to cancel all or a portion of the loan
disbursement.
The proposed change that allows a student to be considered for a
late disbursement when the Secretary has processed a SAR/ISIR with an
official EFC rather than when the institution receives the SAR or ISIR,
provides the institution with an easy way to document the student's
eligibility since each ISIR record includes the date that the Secretary
processed the application and created the SAR/ISIR. More importantly,
this proposed change would provide equity to students in the
consideration of a late disbursement, since eligibility would be based
upon the student's action in submitting an application (FAFSA) or
correction to the Secretary and not on when an institution happens to
draw its ISIRs from its electronic mailbox.
We agree with the reasons noted by the non-Federal negotiators for
proposing changes to the regulations regarding the relevance of the
institution receiving a SAR/ISIR for a PLUS loan, and the proposed
regulations would not require the institution to rely upon a SAR/ISIR
for determining if a parent is eligible for a late disbursement of a
PLUS loan. However, we wish to make clear that in cases in which an
institution does not have a SAR/ISIR, it may not certify or originate a
PLUS loan until it documents that the student for whom the loan is
intended meets all the applicable eligibility requirements described in
Sec. 668.32 (the student is not in default, does not owe an
overpayment, is a citizen or eligible non-citizen, etc.).
Finally, while these proposed regulations would eliminate the
requirement that for purposes of a Pell Grant an institution must have
received a valid SAR or ISIR before the student withdrew, a valid SAR
or ISIR would still be required before an institution could actually
make the late disbursement of a Pell Grant.

[[Page 51730]]

Notices and Authorizations (Section 668.165)

Current Regulations: Whenever an institution credits a student's
account with Title IV, HEA loan funds, it must notify the student (or
the student's parent in case of a PLUS loan) of his or her right to
cancel all or part of the loan. The notice may be provided in writing
or sent electronically. If it is sent electronically, the institution
must confirm that the notice was received by the student or parent.
Suggested Change: Institutions suggested that the requirement that
an institution confirm the receipt of a notice sent electronically be
eliminated.
Proposed Regulations: The proposed regulations would adopt the
suggested change.
Reason: We no longer believe this requirement is necessary in view
of continuing advances in, and more widespread use of, technologies for
conducting electronic transactions. Nevertheless, we expect
institutions to take seriously the student's right to reconsider his or
her loan obligation (the notice may be the student's last chance to
cancel the loan) by taking steps that reasonably ensure that the
student receives the notice.
Also, the proposed rule would eliminate the apparent distinction
between providing the notice in writing or electronically. In keeping
with prior guidance on this matter, we wish to emphasize there is
generally no difference in the regulations between the terms ``in
writing'' and ``electronically.'' Unless a particular regulation
requires otherwise, an institution may comply with a requirement that
an activity be conducted ``in writing'' by conducting that activity
electronically.

Timely Return of Funds (Sections 668.171 and 668.173)

Current Regulations: Under the provisions of Subpart L of the
General Provisions regulations, one of the standards that an
institution must satisfy to be financially responsible, as provided in
Section 498(c)(6)(A) of the HEA, is that it must have sufficient cash
reserves to make required refunds. An institution is considered to have
sufficient cash reserves if it is a public institution or it is covered
by a State's tuition recovery fund. Otherwise, we consider that an
institution has sufficient cash reserves if, for its two most recently
completed fiscal years, it makes required refunds in a timely manner,
as required in Sec. 668.22(j). On the other hand, an institution is not
considered to have sufficient cash reserves if an audit or review
finding shows that the institution did not make required refunds in a
timely manner for 5 percent or more of the students sampled during the
audit or review. In this case, an institution must demonstrate that it
has sufficient cash reserves by submitting a letter of credit payable
to the Secretary. [Note to readers: The financial responsibility
regulations in Subpart L were not fully revised when the Department
published the regulations under Sec. 668.22 for returning Title IV, HEA
program funds. The regulations for returning funds replaced the
previous ``refund'' requirements. To avoid confusion over the terms
used in the current regulations, from this point forward we will use
the phrase ``returning funds.'']
Suggested Change: The non-Federal negotiators suggested that we
clarify the timeframe that an institution has to return unearned Title
IV funds that it is responsible for returning. The non-Federal
negotiators pointed to Sec. 668.22(j), which provides that an
institution must return unearned Title IV, HEA program funds no later
than 30 days after the date of the institution's determination that a
student withdrew. However, the Department's audit guide is more
specific, stating that if the funds are returned by check, the check
used must clear the institution's bank within the 30-day period. The
non-Federal negotiators believed it was unfair to hold an institution
responsible for a check clearance process that is beyond its control.
They suggested that we clarify that an institution has 30 days to issue
a check. They felt this was important since, in the context of the
financial responsibility regulations, any ambiguity in the rules could
inadvertently result in an institution having to submit a letter of
credit.
During the negotiated rulemaking sessions the non-Federal
negotiators made several suggestions regarding the letter of credit
requirement. They suggested that the regulations provide that an
institution that would otherwise be required to submit a letter of
credit not have to do so if the reason that funds were not returned in
a timely manner was not the institution's fault or was beyond the
institution's control.
They also noted that there may be cases where the initial
determination that an institution exceeded the 5 percent threshold was
in error. Therefore, they wanted the letter of credit to be required
only after a preliminary finding, made during a Department or guaranty
agency review, is verified or resolved, as noted in the final review
report, rather than at an earlier point in the process such as when the
draft report was issued. They pointed out that, as a practical matter,
it is not worthwhile to require a letter of credit for a small amount
of money. The non-Federal negotiators also suggested changes to the 5
percent threshold and the timeframes for submitting the letter of
credit.
Finally, they asserted that an audit or review finding citing an
institution for not returning funds in a timely manner may prompt an
administrative or compliance arm of the institution to require a
comprehensive review of, and changes to, its practices and procedures.
The non-Federal negotiators believed that the comprehensive review
should not be prompted unnecessarily in cases where the finding is for
a de minimis number of untimely returns.
Proposed Regulations: Under the proposal, unearned funds must be
returned no later than 30 days after the date of the institution's
determination that the student withdrew. The proposed regulations would
define specifically when we consider the institution to have returned
funds depending upon the method it uses to return the funds.
Specifically, the regulations would provide that an institution returns
funds when it: (1) Deposits or transfers the funds into the bank
account it maintains for Federal funds, (2) initiates an EFT to
transfer the funds, (3) initiates an electronic transaction that
instructs an FFEL lender to adjust a borrower's loan for the amount of
the ``returned funds'', or (4) issues a check. However, if a check is
used to return unearned funds, the proposed regulations would also
require that the check must be received by an FFEL Program lender or
the Secretary no later than 45 days after the institution determined
the student withdrew.
In response to suggestions made during the negotiating sessions,
these proposed regulations would make several other changes. First, in
cases in which there are exceptional circumstances beyond an
institution's control or when the institution believes that an auditor
or reviewer made an error, the regulations would provide that the
institution may request the Secretary to reconsider a finding that it
failed to return unearned funds in a timely manner. In its request, the
institution would need to submit documents showing that it would not
have exceeded the 5 percent threshold had it not been for the
exceptional circumstance or error. An institution that submits the
request would not be required to submit a letter of credit unless the
Secretary notifies the institution that its request is denied.

[[Page 51731]]

Second, the proposed regulations would establish timeframes for
submitting a letter of credit depending on whether the finding
triggering the letter of credit was made in a compliance audit, in a
program review conducted by the Department or guaranty agency, or an
audit conducted by the Department's Office of the Inspector General
(OIG).
Third, the proposed regulations would provide that an institution
would not be required to submit a letter of credit of less than $5,000.
However, to meet the statutory reserve requirement, such an institution
would need to demonstrate that it has available at all times cash
reserves of at least $5,000 to make required returns.
Finally, in response to general concerns over the threshold
requirement and the consequences of a finding that an institution did
not return funds in a timely manner, we propose that the Secretary will
consider an institution that makes one or two untimely returns to be in
compliance with the reserve standard.
Reason: We agree that the regulations should clearly establish the
date by which an institution is required to return unearned funds for
which it is responsible. We also would like to stress that one of the
reasons for the requirement that funds be returned promptly is so that
the student's Title IV loan debt can be promptly and properly reduced.
The proposed provision that an institution initiates an electronic
transaction for returning unearned funds (as opposed to initiating an
electronic transfer of funds) is intended to accommodate the ``hold and
release'' process used by some FFEL Program participants. Under this
process, an institution and a lender agree that adjustments to FFEL
Program loans, including the return of unearned funds, are made when
the institution initiates an electronic transaction notifying the
lender of the adjustment or return. The lender then makes the
adjustment by crediting or otherwise adjusting the borrower's loan
account for the amount returned.
Although we adopted most of the approach suggested by the non-
Federal negotiators for returning unearned funds by check, we could not
incorporate in the regulations their suggestion to separate the
requirement that the check must be issued within 30 days from the
requirement that it must be received by an FFEL Program lender or the
Secretary within 45 days. Doing so would create a conflict in the
regulations. For example, under one section of the regulations an
institution would comply with the reserve standard by issuing the check
within 30 days. However, in another section of the regulations the
institution would not comply with the same reserve standard if the
check was not received within 45 days. Consequently, the two-part
criteria for determining whether an institution satisfies the reserve
standard when it uses a check to return unearned funds are contained in
one section of the regulations.
We also agreed that changes should be made to the current
regulations to account for errors, or unusual circumstances beyond an
institution's control, and to otherwise make more certain that an
institution has exceeded the 5 percent threshold before it would be
required to submit a letter of credit. In this regard, an institution
would be required to submit a letter of credit no later than 30 days
after the Department, OIG, or guaranty agency issues a preliminary
report that the institution did not return unearned funds in a timely
manner for 10 percent or more of the sampled students.
If the finding in the preliminary report is less than 10 percent,
an institution would not generally be required to submit the letter of
credit unless the final report shows that the institution did not
return unearned funds in a timely manner for 5 percent or more of its
students. If the letter of credit is required, the institution would
have to submit it no later than 30 days after the final report is
issued
Finally, if the Secretary believes it is necessary, the Secretary
could at any time send a notice to the institution requesting the
letter of credit.

Federal Work Study at For-Profit Institutions (Sections 675.2 and
675.21)

Current Regulations: The current FWS Program regulations reflect
the limitations placed by the HEA on proprietary institutions with
regard to the types of non-community service jobs that FWS students may
hold when they are employed by the institution itself. The specific
statutory restrictions are provided in section 443(b)(8)(A) of the HEA.
The HEA requires, among other things, that FWS jobs for students
who are employed in non-community service jobs by a proprietary
institution itself must furnish student services that are directly
related to the FWS student's education. The HEA specifies that the
definition of ``student services'' is to be determined by the Secretary
according to regulations. ``Student services'' are defined in
Sec. 675.2(b) of the FWS Program regulations as ``Services that are
offered to students that are directly related to the work-study
student's training or education and that may include, but are not
limited to, financial aid, library, peer guidance counseling, and
social, health, and tutorial services.''
The statutory requirements for FWS jobs at a proprietary
institution are reflected in Sec. 675.21(b) of the regulations.
Specifically Sec. 675.21(b)(2) states that if the FWS jobs are not
community service jobs they must be on campus, provide student
services, complement the student's educational program or vocational
goals to the maximum extent possible, and not involve soliciting
potential students to enroll at the institution. Section 675.21(b)(2)
provides a reference to the definition of ``student services'' in
Sec. 675.2 for the previously discussed requirement that the services
must be directly related to the FWS student's education.
Suggested Change: Proprietary institutions have suggested at
conferences, meetings, and in letters that the current FWS Program
regulations in Sec. 675.2(b) that define ``student services'' and our
guidance on employment at these institutions be changed to expand
employment opportunities for FWS students employed in non-community
service jobs by the proprietary institution itself. The proprietary
institutions especially urged us to allow FWS students to assist
instructors in curriculum-related activities that are prohibited under
current policies.
These institutions also suggested that we modify past guidance and
state in the regulations that, in furnishing student services, FWS
students are not required to provide direct or personal services. The
proprietary institutions further suggested that we provide in the
regulations examples of FWS jobs that would never be considered student
services. In addition, these institutions suggested that the statutory
requirement that the non-community service FWS jobs must furnish
student services that are directly related to the student's training or
education be removed from the definition of ``student services'' and be
placed in the same section of the FWS Program regulations
(Sec. 675.21(b)) in which the other requirements for employment at a
proprietary institution are located.
Proposed Regulations: The proposed regulations would amend the
definition of ``student services'' in Sec. 675.2(b) first by, adding
more examples of jobs in which a proprietary institution may employ
students on campus to work for the institution itself. The examples
that would be added to the definition of

[[Page 51732]]

student services are job placement, assisting instructors in
curriculum-related activities, and security. Second, the proposed
changes to the definition of ``student services'' would modify past
guidance and indicate that there is no expectation that the FWS job
involve direct or personal services. Third, the proposed changes to the
definition of ``student services'' would specify that some jobs, such
as facility maintenance, cleaning, purchasing, and public relations,
are never considered student services. Finally, the statutory
requirement that the non-community service job must provide student
services that are directly related to the FWS student's training or
education would be removed from the definition of ``student services''
in Sec. 675.2 and placed in Sec. 675.21(b)(2) of the FWS regulations.
Reason: Many proprietary institutions informed us that the current
definition of ``student services'' in the FWS Program regulations and
our current guidance on that definition do not support or address the
needs of the student population at most proprietary institutions that
offer short-term training in a specific skill. A number of proprietary
institutions have also expressed the concern that our current
definition and guidance result in students being denied valuable on-
the-job experience in their chosen fields of study. The proprietary
institutions have asked for more flexibility in establishing FWS jobs
on campus to enable students to find FWS work that fits into their
academic schedules and to earn money to pay their educational costs.
These institutions further stated that some of the types of jobs
currently excluded actually do provide a service to students at
proprietary institutions, although some jobs provide this more directly
than others. The negotiators agreed with the reasons provided by the
proprietary institutions.
We agree that many proprietary institutions can offer FWS jobs that
provide essential services to students and that the regulations can
provide greater flexibility in this area. Therefore, these proposed
regulations would expand the definition of ``student services'' in
Sec. 675.2(b) of the FWS regulations to broaden the scope of FWS job
opportunities for students who attend proprietary institutions. The
negotiators welcomed the proposed expansion of the definition of
student services and the proposed increase of FWS job opportunities for
students attending proprietary institutions.
The proposed change would expand the definition of ``student
services'' by adding further examples of acceptable work areas. The new
examples are job placement, assisting instructors in curriculum-related
activities, and security. For example, an FWS student would be able to
work in a proprietary institution's placement office helping students
find jobs. Under the proposed regulations, an FWS student would be able
to assist an instructor in the lab or in other work related to the
instructor's official academic duties at the institution and have such
work considered a student service. Also, an FWS student would be able
to perform security functions such as being a night watchman or being
an institution security officer. These security roles have taken on
increased importance and are now considered an essential student
service for the protection of students and their property. The list of
areas in which FWS employment is authorized is not meant to be
exhaustive. However, we believe that they are excellent examples of
employment that provide student services.
The proposed regulations would modify guidance issued in the past
that stated that the FWS student had to provide direct and personal
services to other students. A service would be considered a ``student
service'' if the service provides a benefit either directly or
indirectly to students. Proprietary institutions would be given more
flexibility in establishing what types of jobs performed by FWS
students at their institutions provide a direct or indirect benefit to
other students. Further, the fact that a job has some operational
functions does not preclude it from being an acceptable FWS job as long
as it furnishes student services.
Work that does not serve students will still not be permissible.
Thus, because facility maintenance, cleaning, purchasing, and public
relations jobs primarily benefit the institution, the proposed changes
would specify that such jobs are not considered student services under
the FWS Program. There are, of course, other jobs that also would not
be considered student services.
The proposed regulations would remove from the definition of
``student services'' in Sec. 675.2(b) the requirement that the non-
community service job provide student services that are directly
related to the FWS student's training or education. This requirement
would be made clearer by being moved to Sec. 675.21(b), where the other
requirements for employment at a proprietary institution are located.
The negotiators agreed with this proposed regulation change for clarity
of this requirement.
Even with the expanded opportunities for student services,
proprietary institutions should note that the statute and the proposed
regulations in Sec. 675.21(b)(2) still require that student services
must be directly related to the FWS student's education when the FWS
student is employed in a non-community service job by the institution
itself. For example, a job that involves working in job placement would
be considered directly related to an FWS student's education or
training for a student enrolled in the area of human resources,
management, or business. In a second example, a job that involves
assisting an instructor in academic-related activities of the program
in which the student was enrolled would be considered as being directly
related to an FWS student's education or training. In a final example,
work in security, for an FWS student enrolled in the field of law
enforcement or a related field, would also be considered directly
related to the student's education.
Institutions are also reminded that the proposed regulations would
not change other requirements of the regulations. Students who are
employed by the proprietary institution itself may be employed in FWS
non-community service jobs only when those jobs are on campus and when
they complement and reinforce the education programs and vocational
goals of the FWS student to the maximum extent practicable. Finally,
work in the admissions or recruitment area of an institution would
continue to be prohibited, as this employment is considered to involve
soliciting potential students to enroll at the institution.

GEAR UP Program (Section 694.10)

Current Regulations: Section 694.10(e) of the regulations
interprets sections 404E(c) and 404C(b)(1)(C) of the HEA to require
that GEAR UP scholarship funds not supplant other gift aid that the
student would otherwise have been eligible to receive. Specifically,
Sec. 694.10(e) requires that a student eligible for a GEAR UP
scholarship be awarded financial aid in the following order: Federal
Pell Grant; any other public or private grants, scholarships, or
tuition discounts; the GEAR UP scholarship; and other financial
assistance, such as loans or work-study. An exception to this required
awarding order is allowed if the institution documents that there are
exceptional circumstances related to the GEAR UP student's aid package
that are unique to that GEAR UP student.
Suggested Change: Members of the institutional community suggested
that the requirement that an institution award student financial
assistance in an

[[Page 51733]]

established order for GEAR UP scholarship recipients be eliminated.
Proposed Regulations: These proposed regulations would remove the
requirement that an institution award student financial assistance in
an established order for students who are eligible for a GEAR UP
scholarship. The proposed regulations would only specify the statutory
requirement in section 404E(c) of the HEA that GEAR UP scholarships not
be considered in awarding Title IV grant assistance. As a result, under
this proposal, an institution would treat GEAR UP scholarships as they
relate to other gift aid (e.g., grants and scholarships) as the
institution sees fit, except in the case of Title IV grant assistance,
which must be awarded without regard to a student's eligibility for a
GEAR UP scholarship.
The requirement of section 404(b)(1)(C) of the HEA, although no
longer applicable to individual student aid packages, would continue to
apply to States and Partnerships at the program level, meaning that
States and Partnerships must include as a part of their participation
plan an assurance that GEAR UP funds will supplement and not supplant
other funds expended by the States and Partnerships for existing
programs.
Section 694.10(c) of the regulations, which implements the portion
of section 404E(c) of the HEA that provides that a GEAR UP scholarship,
in combination with any Title IV assistance or other grant or
scholarship assistance, may not exceed the student's cost of
attendance, would remain unchanged.
Reason: Several negotiators expressed concern with the current
requirement that an institution award aid to a student eligible for a
GEAR UP scholarship in a particular order. These negotiators felt that
it was highly inappropriate for the regulations to dictate a packaging
policy for institutions. They maintained that institutions are in the
best position to determine the financial aid package that will best
meet the student's needs.
One negotiator expressed support for the current packaging
requirement, noting that the intent in implementing it was to insure
that a student who is eligible to receive a GEAR UP scholarship would
benefit from as significant a reduction in his or her postsecondary
expenses as intended by the statute. The negotiator was concerned that
in the absence of the institutional packaging requirement, GEAR UP
students might not get the full benefit of their GEAR UP grant. Several
of the negotiators opposed to the current requirement argued that the
opposite is true. They contended that because institutions are not in a
position of ensuring a reduction in gift aid provided by outside
entities, GEAR UP scholarship students would have to forego benefiting
from additional sources of aid that are required to be used as ``last
dollar'' assistance. In addition, those opposed to the current
provision believed that because of the concerns that they cited, some
institutions would choose not to participate in the GEAR UP scholarship
program.
The committee reached tentative agreement to remove the
institutional packaging requirements from the regulations. The
committee believed that the goal of assuring a significant level of
assistance to GEAR UP scholarship recipients could be achieved without
mandating a Federal financial aid packaging order. The negotiator who
had expressed concern with the removal of the packaging requirements
stated a hope that if this change to the regulation is made,
institutions would be eager to participate in the GEAR UP program.
Executive Order 12866

1. Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those we have
determined to be necessary for administering these programs effectively
and efficiently.
Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and
explain burdens specifically associated with information collection
requirements. See the heading Paperwork Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of this regulatory action, we have determined that the
benefits would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.

Summary of Potential Costs and Benefits

The Secretary is amending these regulations to reduce
administrative burden for program participants, provide benefits to
students and borrowers, and to protect the taxpayers' interests. The
proposed regulations are fully described elsewhere in this preamble.
The Department of Education has estimated that the proposed regulations
would have no effect on Federal costs over FY 2002-2006.

2. Clarity of the Regulations

Executive Order 12866 and the Presidential Memorandum on ``Plain
Language in Government Writing'' require each agency to write
regulations that are easy to understand. The Secretary invites comments
on how to make these proposed regulations easier to understand,
including answers to questions such as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 668.35 Student Debts under the HEA and to the U.S.
Could the description of the proposed regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESSES section of the preamble.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education, lenders, and guaranty agencies that participate in
Title IV, HEA programs, and individual students and loan borrowers. The
U.S. Small Business Administration (SBA) Size Standards define for-
profit or nonprofit institutions with total annual revenue below
$5,000,000 or institutions controlled by governmental entities with
populations below 50,000, and lenders with total assets under $100
million, as ``small entities.'' Guaranty agencies are State and private
nonprofit entities that act as agents of the Federal government, and as
such are not considered ``small entities'' under the Regulatory
Flexibility Act. Individuals

[[Page 51734]]

are also not defined as ``small entities'' under the Regulatory
Flexibility Act.
A significant percentage of the over 4,000 lenders participating in
the FFEL Program meets the definition of ``small entities.'' While
these lenders and a number of institutions fall within the SBA size
guidelines, the proposed regulations do not impose significant new
costs on these entities.
The Secretary invites comments from small institutions and lenders
as to whether they believe the proposed changes would have a
significant economic impact on them and if so, requests evidence to
support that belief.

Paperwork Reduction Act of 1995

Proposed Secs. 600.31, 668.22, 668.165, 668.173, and 673.5 contain
information collection requirements. Under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted
a copy of these sections to the Office of Management and Budget (OMB)
for its review.
Collection of Information: Institutional Eligibility under the
Higher Education Act of 1965, as amended--

Section 600.31--Change in Ownership Resulting in a Change in Control
for Private Nonprofit, Private For-Profit and Public Institutions

The proposed regulations expand the conditions under which a change
in the ownership of an institution is not considered a change of
ownership for institutional eligibility purposes when the transfer is
to a family member. The proposed regulations also exclude a transfer of
ownership upon the death or retirement of an owner to a member of
management who has had an ownership interest during the preceding two
years. We expect the decrease in burden to be insignificant because of
the small number of institutions who annually report under this
regulation and of that number the few instances where a change in
ownership would meet the expanded exemption and therefore would not be
required to file.

Student Assistance General Provisions--Section 668.22--Treatment of
Title IV Funds When a Student Withdraws

The proposed regulations would clarify the definition of ``an
institution that is required to attendance''. Also, under the proposed
regulations, an institution would only be required to insure that the
sum of all leaves of absence that a Title IV aid recipient takes does
not exceed 180 days within a 12-month period (as opposed to the current
rule where an institution must determine whether subsequent leaves of
absence meet certain special terms). There would be no significant
impact upon burden associated with this requirement.

Section 668.165--Notices and Authorizations

The proposed regulation would reduce burden under this section by
eliminating the ``confirm receipt'' requirement for a notice sent
electronically to a student or parent (the notice informs the student
or parent of his or her right to cancel a loan or loan disbursement).
The proposed changes do not change the burden hours associated with
this section of the regulations because there is no burden currently
associated with this provision.

Section 668.173--Refund Reserve Standard

The proposed regulations would provide greater flexibility to an
institution that is cited in an audit or review report for failing to
return unearned Title IV program funds in a timely manner. Under the
current regulations, an institution that is cited for this reason must
automatically submit a letter of credit to the Secretary. Under this
proposal, the institution would be able to demonstrate that
circumstances beyond its control inappropriately triggered the audit or
review finding or that the finding was erroneously made. If the
Secretary determines that the finding was inappropriately or
erroneously made, the institution would not have to submit a letter of
credit. The proposed regulations would also provide that the Secretary
or guaranty agency may delay requiring a letter of credit from the
institution until the final audit or review report is issued. In
addition, the proposed regulations would not require the institution to
submit the letter of credit if the amount of the letter of credit is
less than $5,000.
The proposed regulations could marginally increase the burden on
some institutions because while institutions that are cited may submit
documentation showing that the finding was inappropriately or
erroneously made, they would not be required to submit a letter of
credit.

General Provisions for the Federal Perkins Loan, FWS, and FSEOG
Programs--Section 673.5--Overaward

The proposed regulations would modify the process for referring
overpayments by specifying that a student is not liable for certain
overpayments less than $25. The proposed regulations would clarify and
simplify the current process by providing that an institution only has
to refer the Federal portion of certain FSEOG overpayments, and by
making consistent the process for reporting overpayments for all the
relevant programs. There are no new information collection requirements
as a result of changing this section.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington,
DC, 20503; Attention: Desk Officer for U.S. Department of Education.
You may also send a copy of these comments to the Department
representative named in the ADDRESSES section of this preamble.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for U.S. Department of Education. You
may also send a copy of these comments to the Department representative
named in the ADDRESSES section of this preamble.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including

[[Page 51735]]

whether the information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.

Assessment of Educational Impact

The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.

Electronic Access to This Document

You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
www.ed.gov/legislation/FedRegister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
You may also view this document in PDF format at the following
site: ifap.ed.gov.

Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032 Federal
Family Education Loan Program; 84.033 Federal Work-Study Program;
84.038 Federal Perkins Loan Program; 84.063 Federal Pell Grant
Program; 84.268 William D. Ford Federal Direct Loan Program)

List of Subjects

34 CFR Parts 600 and 668

Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements, Student
aid, Vocational education.

34 CFR Parts 673 and 675

Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Employment, Grant programs--education,
Loan programs--education, Reporting and recordkeeping requirements,
Student aid, Vocational education.

34 CFR Parts 682 and 685

Administrative practice and procedure, College and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.

34 CFR Part 690

Grant programs--education, Reporting and recordkeeping
requirements, Student aid.

34 CFR Part 694

Colleges and universities, Elementary and secondary education,
Grant programs--education, Reporting and recordkeeping requirements,
Student aid.

Dated: August 5, 2002.
Rod Paige,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend parts 600, 668, 673, 675, 682, 685, 690, and 694 of title 34
of the Code of Federal Regulations as follows:

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED

1. The authority citation for part 600 is revised to read as
follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099c, unless otherwise noted.


Sec. 600.8 [Amended]

2. Section 600.8 is amended by adding ``proprietary institution of
higher education or a postsecondary vocational'' after ``eligible''.
3. Section 600.21 is amended by revising paragraph (f) to read as
follows:


Sec. 600.21 Updating application information.

* * * * *
(f) Definition. A family member includes a person's--
(1) Parent or stepparent, sibling or step-sibling, spouse, child or
stepchild, or grandchild or step-grandchild;
(2) Spouse's parent or stepparent, sibling or step-sibling, child
or stepchild, or grandchild or step-grandchild;
(3) Child's spouse; and
(4) Sibling's spouse.
4. Section 600.31 is amended by revising paragraph (e) to read as
follows:


Sec. 600.31 Change in ownership resulting in a change in control for
private nonprofit, private for-profit and public institutions.

* * * * *
(e) Excluded transactions. A change in ownership and control
reported under Sec. 600.21 and otherwise subject to this section does
not include a transfer of ownership and control of all or part of an
owner's equity or partnership interest in an institution, the
institution's parent corporation, or other legal entity that has signed
the institution's Program Participation Agreement--
(1) From an owner to a ``family member'' of that owner as defined
in Sec. 600.21(f); or
(2) Upon the retirement or death of the owner, to a person with an
ownership interest in the institution who has been involved in
management of the institution for at least two years preceding the
transfer and who established and retained the ownership interest for at
least two years prior to the transfer.

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

5. The authority citation for part 668 continues to read as
follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1091, 1091b, 1092,
1094, 1099c, and 1099c-1, unless otherwise noted.


Sec. 668.2 [Amended]

6. Section 668.2(b) is amended by removing the definition of
``Academic year''.
7. Section 668.3 is revised to read as follows:


Sec. 668.3 Academic year.

(a) General. Except as provided in paragraph (c) of this section,
an academic year is a period that begins on the first day of classes
and ends on the last day of classes or examinations during which--
(1) An institution provides a minimum of 30 weeks of instructional
time; and

[[Page 51736]]

(2) For an undergraduate educational program, a full-time student
is expected to complete at least--
(i) Twenty-four semester or trimester credit hours or 36 quarter
credit hours for a program measured in credit hours; or
(ii) 900 clock hours for a program measured in clock hours.
(b) Definitions. For purposes of paragraph (a) of this section--
(1) A week is a consecutive seven-day period;
(2) A week of instructional time is any week in which at least one
day of regularly scheduled instruction or examinations occurs or, after
the last scheduled day of classes for a term or payment period, at
least one day of study for final examinations occurs; and
(3) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.
(c) Reduction in the length of an academic year.
(1) Upon the written request of an institution, the Secretary may
approve, for good cause, an academic year of between 26 and 29 weeks of
instructional time for educational programs offered by the institution
if the institution offers a two-year program leading to an associate
degree or a four-year program leading to a baccalaureate degree.
(2) An institution's written request must--
(i) Identify each educational program for which the institution
requests a reduction, and the requested number of weeks of
instructional time for that program;
(ii) Demonstrate good cause for the requested reductions; and
(iii) Include any other information that the Secretary may require
to determine whether to grant the request.
(3)(i) The Secretary approves the request of an eligible
institution for a reduction in the length of its academic year if the
institution has demonstrated good cause for granting the request and
the institution's accrediting agency and State licensing agency have
approved the request.
(ii) If the Secretary approves the request, the approval terminates
when the institution's program participation agreement expires. The
institution may request an extension of that approval as part of the
recertification process.

(Approved by the Office of Management and Budget under control
number 1840-0537)

(Authority: 20 U.S.C. 1088)

8. Section 668.4 is revised to read as follows:


Sec. 668.4 Payment period.

(a) Payment periods for an eligible program that measures progress
in credit hours and has academic terms. For a student enrolled in an
eligible program that is offered in terms and measures progress in
credit hours, the payment period is the academic term.
(b) Payment periods for an eligible program that measures progress
in credit hours and does not have academic terms--(1) For a student
enrolled in an eligible program that is one academic year or less in
length--
(i) The first payment period is the period of time in which the
student completes half the number of credit hours in the program and
half the number of weeks in the program; and
(ii) The second payment period is the period of time in which the
student completes the program.
(2) For a student enrolled in an eligible program that is more than
one academic year in length--
(i) For the first academic year and any subsequent full academic
year--
(A) The first payment period is the period of time in which the
student completes half the number of credit hours in the academic year
and half the number of weeks in the academic year; and
(B) The second payment period is the period of time in which the
student completes the academic year.
(ii) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length--
(A) The first payment period is the period of time in which the
student completes half the number of credit hours in the remaining
portion of the program and half the number of weeks remaining in the
program; and
(B) The second payment period is the period of time in which the
student completes the remainder of the program.
(iii) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.
(3) For purposes of paragraphs (b)(1) and (b)(2) of this section,
if an institution is unable to determine when a student has completed
half of the credit hours in a program, academic year, or the remainder
of a program; the student is considered to begin the second payment
period of the program, academic year, or remainder of a program at the
later of--
(i) When, as determined by the institution, the student has
completed half of the academic coursework in the program, academic
year, or the remainder of the program; or
(ii) The calendar midpoint between the first and last scheduled
days of class of the program, academic year, or the remainder of the
program.
(c) Payment periods for an eligible program that measures progress
in clock hours. (1) For a student enrolled in an eligible program that
is one academic year or less in length--
(i) The first payment period is the period of time in which the
student completes half the number of clock hours in the program; and
(ii) The second payment period is the period of time in which the
student completes the program.
(2) For a student enrolled in an eligible program that is more than
one academic year in length--
(i) For the first academic year and any subsequent full academic
year--
(A) The first payment period is the period of time in which the
student completes half the number of clock hours in the academic year;
and
(B) The second payment period is the period of time in which the
student completes the remaining number of clock hours in the academic
year.
(ii) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length--
(A) The first payment period is the period of time in which the
student completes half the number of clock hours in the remaining
portion of the program; and
(B) The second payment period is the period of time in which the
student completes the remainder of the program.
(iii) For any remaining portion of an eligible program that is not
more than one half of an academic year, the payment period is the
remainder of the program.
(d) Number of payment periods. Notwithstanding paragraphs (b) and
(c) of this section, an institution may choose to have more than two
payment periods. If an institution so chooses, the regulations in
paragraphs (b) and (c) of this section are modified to reflect the
increased number of payment periods. For example, if an institution
chooses to have three payment periods in an academic year in a program
that measures progress in credit hours but does not have academic
terms, each payment period must correspond to one-third of the academic
year measured in both credit hours and weeks of instruction.
(e) Re-entry within 180 days. If a student withdraws from a program
described in paragraph (b) or (c) of this section during a payment
period and then reenters that program within 180 days, the student
remains in that same

[[Page 51737]]

payment period when he or she returns and, subject to conditions
established by the Secretary or by the FFEL lender or guaranty agency,
is eligible to receive any title IV student assistance funds for which
he or she was eligible prior to withdrawal, including funds that were
returned by the institution or student under the provisions of
Sec. 668.22.
(f) Re-entry after 180 days or transfer. (1) Subject to the
conditions of paragraph (f)(2) of this section, an institution
calculates new payment periods for the remainder of the student's
program based on paragraphs (b) through (d) of this section, for a
student who withdraws from a program described in paragraphs (b) or (c)
of this section, and--
(i) Reenters that program after 180 days,
(ii) Transfers into another program at the same institution within
any time period, or
(iii) Transfers into a program at another institution within any
time period.
(2) For a student described in paragraph (f)(1) of this section--
(i) For the purpose of calculating payment periods only, the length
of the program is the number of credit hours and the number of weeks,
or the number of clock hours, that the student has remaining in the
program he or she enters or reenters, and
(ii) If the remaining hours, and weeks, if applicable constitute
one-half of an academic year or less, the remaining hours constitute
one payment period.

(Authority: 20 U.S.C. et seq.)

9. Section 668.8 is amended by:
A. Revising paragraph (b)(3).
B. Removing paragraph (b)(4).
The revision reads as follows:


Sec. 668.8 Eligible program.

* * * * *
(b) * * *
(3)(i) The Secretary considers that an institution provides one
week of instructional time in an academic program during any week the
institution provides at least one day of regularly scheduled
instruction or examinations, or, after the last scheduled day of
classes for a term or a payment period, at least one day of study for
final examinations.
(ii) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.
* * * * *
10. Section 668.14(b)(22) is revised to read as follows:


Sec. 668.14 Program participation agreement.

* * * * *
(b) * * *
(22)(i) It will not provide any commission, bonus, or other
incentive payment based directly or indirectly upon success in securing
enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions
regarding the awarding of title IV, HEA program funds, except that this
limitation does not apply to the recruitment of foreign students
residing in foreign countries who are not eligible to receive title IV,
HEA program funds.
(ii) Activities and arrangements that an institution may carry out
without violating the provisions of paragraph (b)(22)(i) of this
section include, but are not limited to:
(A) The payment of fixed compensation, such as a fixed annual
salary or a fixed hourly wage, as long as that compensation is not
adjusted up or down more than twice during any twelve month period, and
any adjustment is not based solely on the number of students recruited,
admitted, enrolled, or awarded financial aid. For this purpose, an
increase in fixed compensation resulting from a cost of living increase
that is paid to all or substantially all employees is not considered an
adjustment.
(B) Compensation to recruiters based upon their recruitment of
students who enroll only in programs that are not eligible title IV,
HEA programs.
(C) Compensation to recruiters who arrange contracts between the
institution and an employer under which the employer's employees enroll
in the institution, and the employer pays, directly or by
reimbursement, 50 percent or more of the tuition and fees charged to
its employees; provided that the compensation is not based upon the
number of employees who enroll in the institution, or the revenue they
generate, and the recruiters have no contact with the employees.
(D) Compensation paid as part of a profit-sharing or bonus plan, as
long as those payments are made to all or substantially all of the
institution's full-time professional and administrative staff. Such
payments can be limited to all, or substantially all of the full-time
employees at one or more organizational level at the institution,
except that an organizational level may not consist predominantly of
recruiters, admissions staff, or financial aid staff.
(E) Compensation that is based upon students successfully
completing their educational programs, or one academic year of their
educational programs, whichever is shorter. For this purpose,
successful completion of an academic year means that the student has
earned at least 24 semester or trimester credit hours or 36 quarter
credit hours, or has successfully completed at least 900 clock hours of
instruction.
(F) Compensation paid to employees who perform ``pre-enrollment''
activities, such as answering telephone calls, referring inquiries, or
distributing institutional materials, as long as the compensation is
not based on the number of people actually enrolled.
(G) Compensation to managerial or supervisory employees who do not
directly manage or supervise employees who are directly involved in
recruiting or admissions activities, or the awarding of title IV, HEA
program funds.
(H) The awarding of token gifts to the institution's students or
alumni, provided that the gifts are not in the form of money, no more
than one gift is provided annually to an individual, and the cost of
the gift is not more than $100.
(I) Profit distributions proportionately based upon an individual's
ownership interest in the institution.
(J) Compensation paid for Internet-based recruitment and admission
activities that provide information about the institution to
prospective students, or permit them to apply for admission on-line.
(K) Payments to third parties, including tuition sharing
arrangements, that deliver various services to the institution provided
that none of the services involve recruiting or admission activities,
or the awarding of title IV, HEA program funds.
(L) Payments to third parties, including tuition sharing
arrangements, that deliver various services to the institution, even if
one of the services involve recruiting or admission activities or the
awarding of title IV, HEA program funds, provided that the individuals
performing the recruitment or admission activities, or the awarding of
title IV, HEA program funds, are not compensated in a manner that would
be impermissible under paragraph (b)(22) of this section.
* * * * *
11. Section 668.22 is amended by:
A. Revising paragraph (b)(3)(i).
B. Revising paragraph (d)(1)(vi).
C. Removing paragraph (d)(1)(vii).
D. Redesignating paragraphs (d)(1)(viii) and (d)(1)(ix) as
(d)(1)(vii) and (d)(1)(viii), respectively.
E. Removing paragraph (d)(2).
F. Redesignating paragraphs (d)(3) and (d)(4) as (d)(2) and (d)(3),
respectively.
G. Removing ``on'' and adding in its place ``at'' in newly
redesignated paragraph (d)(2).

[[Page 51738]]

H. Removing ``are'' and adding in its place ``is'' in newly
redesignated paragraph (d)(3)(i).
I. Adding ``, that includes the reason for the request,'' after
``request'' in newly redesignated paragraph (d)(3)(iii)(B).
J. Adding ``The timeframe for returning funds is further described
in Sec. 668.173(b) and (c)(3).'' at the end of paragraph (j)(1).
The revisions read as follows:


Sec. 668.22 Treatment of title IV funds when a student withdraws.

* * * * *
(b) * * *
(3)(i) An institution is required to take attendance if an outside
entity (such as the institution's accrediting agency or a State agency)
has a requirement, as determined by the entity, that the institution
take attendance.
* * * * *
(d) * * *
(1) * * *
(vi) The number of days in the approved leave of absence, when
added to the number of days in all other approved leaves of absence,
does not exceed 180 days in any 12-month period;
* * * * *


Sec. 668.32 [Amended]

12. Section 668.32(e)(2) is amended by removing ``within 12 months
before the date the student initially receives title IV, HEA program
assistance,''.
13. Section 668.35(c) is revised to read as follows:


Sec. 668.35 Student debts under the HEA and to the U.S.

* * * * *
(c) A student who receives an overpayment under the Federal Perkins
Loan Program, or under a title IV, HEA grant program may nevertheless
be eligible to receive title IV, HEA program assistance if--
(1) The student pays the overpayment in full;
(2) The student makes arrangements satisfactory to the holder of
the overpayment debt to pay the overpayment; or
(3) The overpayment amount is less than $25 and is neither a
remaining balance nor a result of the application of the overaward
threshold in 34 CFR 673.5(d).
* * * * *


Sec. 668.151 [Amended]

14. Section 668.151(a)(2) is amended by adding the words ``it
received from an approved test publisher or assessment center'' after
``an approved test'.
15. Section 668.164(g) is revised to read as follows:


Sec. 668.164 Disbursing funds.

* * * * *
(g) Late disbursements-- (1) Ineligible student. For purposes of
this paragraph, an otherwise eligible student becomes ineligible to
receive title IV, HEA program funds on the date that--
(i) For a loan under the FFEL and Direct Loan programs, the student
is no longer enrolled at the institution as at least a half-time
student for the loan period; or
(ii) For an award under the Federal Pell Grant, FSEOG, and Federal
Perkins Loan programs, the student is no longer enrolled at the
institution for the award year.
(2) Conditions for a late disbursement. Except as limited under
paragraph (g)(4) of this section, a student who becomes ineligible (or
the student's parent in the case of a PLUS loan) qualifies for a late
disbursement if, before the date the student became ineligible--
(i) Except in the case of a PLUS loan, the Secretary processed a
SAR or ISIR with an official expected family contribution; and
(ii)(A) For a loan under the FFEL or Direct Loan programs, the
institution certified or originated the loan; or
(B) For an award under the Federal Perkins Loan or FSEOG programs,
the institution made that award to the student.
(3) Making a late disbursement. Provided that the conditions
described in paragraph (g)(2) of this section are satisfied--
(i) If the student withdrew from the institution during a payment
period or period of enrollment, the institution must make any post-
withdrawal disbursement required under Sec. 668.22(a)(3) in accordance
with the provisions of Sec. 668.22(a)(4);
(ii) If the student successfully completed the payment period or
period of enrollment, the institution must provide the student (or
parent) the opportunity to receive the amount of title IV, HEA program
funds that the student (or parent) was eligible to receive while the
student was enrolled at the institution. For a late disbursement in
this circumstance, the institution may credit the student's account to
pay for current and allowable charges as described in paragraph (d) of
this section, but must pay or offer any remaining amount to the student
or parent; or
(iii) If the student did not withdraw but ceased to be enrolled as
at least a half-time student, the institution may make the late
disbursement of a loan under the FFEL or Direct Loan programs to pay
for educational costs that the institution determines the student
incurred for the period in which the student was eligible.
(4) Limitations. (i) Generally, an institution may not make a late
disbursement later than 120 days after the date of the institution's
determination that the student withdrew, as provided under Sec. 668.22,
or, for a student who did not withdraw, 120 days after the date the
student otherwise became ineligible. On an exception basis, and with
the approval of the Secretary, an institution may make a late
disbursement after the applicable 120-day period, if the reason the
late disbursement was not made was not the fault of the student.
(ii) An institution may not make a second or subsequent late
disbursement of a loan under the FFEL or Direct Loan programs unless
the student successfully completed the period of enrollment for which
the loan was intended.
(iii) An institution may not make a late disbursement of a loan
under the FFEL or Direct Loan programs if the student was a first-year,
first-time borrower unless the student completed the first 30 days of
his or her program of study. This limitation does not apply if the
institution is exempt from the 30-day delayed disbursement requirements
under Sec. 682.604(c)(5)(i), (ii), or (iii) or
Sec. 685.303(b)(4)(i)(A), (B), or (C).
16. Section 668.165(a)(3) is revised to read as follows:


Sec. 668.165 Notices and authorizations.

(a) * * *
(3) The institution must send the notice described in paragraph
(a)(2) of this section in writing no earlier than 30 days before, and
no later than 30 days after, crediting the student's account at the
institution.
* * * * *


Sec. 668.171 [Amended]

17. Section 668.171(b) is amended by:
A. Removing ``refunds'' and adding, in its place ``returns of
unearned title IV HEA program funds'' in paragraph (b)(2).
B. Removing ``and the payment of post-withdrawal disbursements
under Sec. 668.22'' in paragraph (b)(4)(i).
18. Section 668.173 is amended by:
A. Revising paragraphs (a) through (c).
B. Redesignating paragraph (d) as (f).
C. Adding new paragraphs (d) and (e).
The revisions and additions read as follows:


Sec. 668.173 Refund reserve standards.

(a) General. The Secretary considers that an institution has
sufficient cash

[[Page 51739]]

reserves, as required under Sec. 668.171(b)(2), if the institution--
(1) Satisfies the requirements for a public institution under
Sec. 668.171(c)(1);
(2) Is located in a State that has a tuition recovery fund approved
by the Secretary and the institution contributes to that fund; or
(3) Returns, in a timely manner as described in paragraph (b) of
this section, unearned title IV, HEA program funds that it is
responsible for returning under the provisions of Sec. 668.22 for a
student that withdrew from the institution.
(b) Timely return of title IV, HEA program funds. In accordance
with procedures established by the Secretary or FFEL Program lender, an
institution returns unearned title IV, HEA funds timely if--
(1) The institution deposits or transfers the funds into the bank
account it maintains under Sec. 668.163 no later than 30 days after the
date it determines that the student withdrew;
(2) The institution initiates an electronic funds transfer (EFT) no
later than 30 days after the date it determines that the student
withdrew;
(3) The institution initiates an electronic transaction, no later
than 30 days after the date it determines that the student withdrew,
that informs an FFEL lender to adjust the borrower's loan account for
the amount returned; or
(4) The institution issues a check no later than 30 days after the
date it determines that the student withdrew. However, the Secretary
considers that the institution did not satisfy this requirement if--
(i) The institution's records show that the check was issued more
than 30 days after the date the institution determined that the student
withdrew; or
(ii) The date on the cancelled check shows that the Secretary or
FFEL Program lender received that check more than 45 days after the
date the institution determined that the student withdrew.
(c) Compliance thresholds. (1) An institution does not comply with
the reserve standard under Sec. 668.173(a)(3) if, in a compliance audit
conducted under Sec. 668.23, an audit conducted by the Office of the
Inspector General, or a program review conducted by the Department or
guaranty agency, the auditor or reviewer finds--
(i) In the sample of student records audited or reviewed that the
institution did not return unearned title IV, HEA program funds within
the timeframes described in paragraph (b) of this section for 5% or
more of the students in the sample (For purposes of determining this
percentage, the sample includes only students for whom the institution
was required to return unearned funds during its most recently
completed fiscal year.); or
(ii) A material weakness or reportable condition in the
institution's report on internal controls relating to the return of
unearned title IV, HEA program funds.
(2) The Secretary does not consider an institution to be out of
compliance with the reserve standard under Sec. 668.173(a)(3) if the
institution is cited in any audit or review report because it did not
return unearned funds in timely manner for one or two students, or for
less the 5% of the students in the sample referred to in paragraph
(c)(1)(i) of this section.
(d) Letter of credit. (1) Except as provided under paragraph (e)(1)
of this section, an institution that can satisfy the reserve standard
only under paragraph (a)(3) of this section, must submit an irrevocable
letter of credit acceptable and payable to the Secretary if a finding
in an audit or review shows that the institution exceeded the
compliance thresholds in paragraph (c) of this section (i.e., the
institution did not return unearned funds for 5% or more of its
students) for either of its two most recently completed fiscal years.
(2) The amount of the letter of credit required under paragraph
(d)(1) of this section is 25 percent of the total amount of unearned
title IV, HEA program funds that the institution was required to return
under Sec. 668.22 during the institution's most recently completed
fiscal year.
(3) An institution that is subject to paragraph (d)(1) of this
section must submit to the Secretary a letter of credit no later than
30 days after the earlier of the date that--
(i) The institution is required to submit its compliance audit;
(ii) The Office of the Inspector General, issues a final audit
report;
(iii) The designated department official issues a final program
review determination;
(iv) The Department, through a program review report or draft audit
report, or a guaranty agency issues a preliminary report showing that
the institution did not return unearned funds for 10% or more of the
sampled students; or
(v) The Secretary sends a written notice to the institution
requesting the letter of credit that explains why the institution has
failed to return unearned funds in a timely manner.
(e) Exceptions. With regard to the letter of credit described in
paragraph (d) of this section--
(1) An institution does not have to submit the letter of credit if
the amount calculated under paragraph (d)(2) of this section is less
than $5,000 and the institution can demonstrate that it has cash
reserves of at least $5,000 available at all times.
(2) An institution may delay submitting the letter of credit and
request the Secretary to reconsider a finding made in its most recent
audit or review report that it failed to return unearned title IV, HEA
program funds in a timely manner if--
(i)(A) The institution submits documents showing that the unearned
title IV, HEA program funds were not returned in a timely manner solely
because of exceptional circumstances beyond the institution's control
and that the institution would not have exceeded the compliance
thresholds under paragraph (c)(1) of this section had it not been for
these exceptional circumstances; or
(B) The institution submits documents showing that it did not fail
to make timely refunds as provided under paragraphs (b) and (c) of this
section;
(ii) The institution's request, along with the documents described
in paragraph (e)(2)(i) of this section, are submitted to the Secretary
no later than the date it would otherwise be required to submit a
letter of credit under paragraph (d)(3).
(3) If the Secretary denies the institution's request under
paragraph (e)(2) of this section, the Secretary notifies the
institution of the date it must submit the letter of credit.
* * * * *
19. Section 668.174(c)(4) is revised to read as follows:


Sec. 668.174 Past performance.

(c) * * *
(4) ``Family member'' is defined in Sec. 600.21(f).

PART 673--GENERAL PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM,
FEDERAL WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCATIONAL
OPPORTUNITY GRANT PROGRAM

20. The authority citation for part 673 continues to read as
follows:

Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii;
42 U.S.C. 2751-2756b, unless otherwise noted.

21. Section 673.5(f) is revised to read as follows:


Sec. 673.5 Overaward.

* * * * *
(f) Liability for and recovery of Federal Perkins loans and FSEOG

[[Page 51740]]

overpayments. (1) Except as provided in paragraphs (f)(2) and (f)(3) of
this section, a student is liable for any Federal Perkins loan or FSEOG
overpayment made to him or her. An FSEOG overpayment for purposes of
this paragraph (f) does not include the non-Federal share of an FSEOG
award if an institution meets its FSEOG matching share by the
individual recipient method or the aggregate method.
(2) The institution is liable for a Federal Perkins loan or FSEOG
overpayment if the overpayment occurred because the institution failed
to follow the procedures in this part or 34 CFR parts 668, 674, or 676.
The institution shall restore an amount equal to the overpayment and
any administrative cost allowance claimed on that amount to its loan
fund for a Federal Perkins loan overpayment or to its FSEOG account for
an FSEOG overpayment.
(3) A student is not liable for, and the institution is not
required to attempt recovery of, a Federal Perkins loan or FSEOG
overpayment, nor is the institution required to refer an FSEOG
overpayment to the Secretary, if the overpayment--
(i) Is less than $25, and
(ii) Is neither a remaining balance nor a result of the application
of the overaward threshold in paragraph (d) of this section.
(4)(i) Except as provided in paragraph (f)(3) of this section, if
an institution makes a Federal Perkins loan or FSEOG overpayment for
which it is not liable, it shall promptly send a written notice to the
student requesting repayment of the overpayment amount. The notice must
state that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to pay the
overpayment, makes the student ineligible for further title IV aid
until final resolution of the overpayment.
(ii) If a student objects to the institution's Federal Perkins loan
or FSEOG overpayment determination on the grounds that it is erroneous,
the institution shall consider any information provided by the student
and determine whether the objection is warranted.
(5) Except as provided in paragraph (f)(3) of this section, if a
student fails to repay an FSEOG overpayment, or make arrangements
satisfactory to the holder of the overpayment debt to repay the FSEOG
overpayment, after the institution has taken the action required by
paragraph (f)(4) of this section, the institution must refer the FSEOG
overpayment to the Secretary for collection purposes, in accordance
with procedures required by the Secretary. After referring the FSEOG
overpayment to the Secretary under this section, the institution need
make no further effort to recover the overpayment.

PART 675--FEDERAL WORK-STUDY PROGRAMS

22. The authority citation for part 675 continues to read as
follows:

Authority: 42 U.S.C. 2751-2756b, unless otherwise noted.

23. Section 675.2(b) is amended by revising the definition of
``Student services'' to read as follows:


Sec. 675.2 Definitions.

(b) * * *
Student services: Services that are offered to students that may
include, but are not limited to, financial aid, library, peer guidance
counseling, job placement, assisting an instructor with curriculum-
related activities, security, and social, health, and tutorial
services. Student services do not have to be direct or involve personal
interaction with students. For purposes of this definition, facility
maintenance, cleaning, purchasing, and public relations are never
considered student services.
* * * * *
24. Section 675.21(b)(2)(i) is revised to read as follows:

Sec. 675.21 Institutional employment.

(b) * * *
(2) * * *
(i) Involve the provision of student services as defined in
Sec. 675.2(b) that are directly related to the work-study student's
training or education;
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

25. The authority citation for part 682 continues to read as
follows:

Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

Sec. 682.204 [Amended]

26. Section 682.204(l) is revised by changing ``34 CFR 668.2'' to
``34 CFR 668.3''.

Sec. 682.603 [Amended]

27. Sections 682.603(f)(1)(ii)(B) and (f)(2)(i) are amended by
removing ``34 CFR 668.2'' and adding, in its place ``34 CFR 668.3''.

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

28. The authority citation for part 685 continues to read as
follows:

Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.


Sec. 685.203 [Amended]

29. Section 685.203(h) is amended by adding ``, as defined in 34
CFR 668.3'' after ``year''.


Sec. 685.301 [Amended]

30. Sections 685.301(a)(9)(i)(B)(2) and (a)(9)(ii)(A) are amended
by removing ``34 CFR 668.2'' and adding, in its place ``34 CFR 668.3''.

PART 690--FEDERAL PELL GRANT PROGRAM

31. The authority citation for part 690 continues to read as
follows:

Authority: 20 U.S.C. 1070a, unless otherwise noted.

32. Section 690.75(a) is revised to read as follows:


Sec. 690.75 Determination of eligibility for payment.

(a) For each payment period, an institution may pay a Federal Pell
Grant to an eligible student only after it determines that the student-
-
(1) Qualifies as an eligible student under 34 CFR part 668, subpart
C;
(2) Is enrolled in an eligible program as an undergraduate student;
and
(3) If enrolled in a credit hour program without terms or a clock
hour program, has completed the payment period as defined in Sec. 668.4
for which he or she has been paid a Federal Pell Grant.
* * * * *
33. Section 690.79 is revised to read as follows:


Sec. 690.79 Liability for and recovery of Federal Pell Grant
overpayments.

(a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this
section, a student is liable for any Federal Pell Grant overpayment
made to him or her.
(2) The institution is liable for a Federal Pell Grant overpayment
if the overpayment occurred because the institution failed to follow
the procedures set forth in this part or 34 CFR Part 668. The
institution must restore an amount equal to the overpayment to its
Federal Pell Grant account.
(3) A student is not liable for, and the institution is not
required to attempt recovery of or refer to the Secretary, a Federal
Pell Grant overpayment if the

[[Page 51741]]

amount of the overpayment is less than $25 and is not a remaining
balance.
(b)(1) Except as provided in paragraph (a)(3) of this section, if
an institution makes a Federal Pell Grant overpayment for which it is
not liable, it must promptly send a written notice to the student
requesting repayment of the overpayment amount. The notice must state
that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to repay the
overpayment, makes the student ineligible for further title IV aid
until final resolution of the Federal Pell Grant overpayment.
(2) If a student objects to the institution's Federal Pell Grant
overpayment determination on the grounds that it is erroneous, the
institution must consider any information provided by the student and
determine whether the objection is warranted.
(c) Except as provided in paragraph (a)(3) of this section, if the
student fails to repay a Federal Pell Grant overpayment, or make
arrangements satisfactory to the holder of the overpayment debt to
repay the Federal Pell Grant overpayment, after the institution has
taken the action required by paragraph (b) of this section, the
institution must refer the overpayment to the Secretary for collection
purposes, in accordance with procedures required by the Secretary.
After referring the Federal Pell Grant overpayment to the Secretary
under this section, the institution need make no further efforts to
recover the overpayment.

(Authority: 20 U.S.C. 1070a)

PART 694--GAINING EARLY AWARENESS AND READINESS FOR UNDERGRADUATE
PROGRAMS (GEAR UP)

34. The authority citation for part 694 continues to read as
follows:

Authority: 20 U.S.C. 1070a-21 to 1070a-28.

35. Section 694.10(e) is revised to read as follows:


Sec. 694.10 What are the requirements for awards under the program's
scholarship component under section 404E of the HEA?

* * * * *
(e) Other grant assistance. A GEAR UP scholarship may not be
considered in the determination of a student's eligibility for other
grant assistance provided under title IV of the HEA.

[FR Doc. 02-20058 Filed 8-7-02; 8:45 am]
BILLING CODE 4000-01-P

 

Last Modified: 08/07/2002