| AwardYear: 1996-1997 EnterChapterNo: 3 EnterChapterTitle: Institutional Eligibility and Administrative Requirements SectionNumber: 2 SectionTitle: Administrative and Fiscal Standards PageNumbers: 33-52 [[Trusteeship of SFA funds]] [[Administrative requirements found in the law and regulations]] Administrative and fiscal standards are important because all SFA funds received by a participating school are held in trust by that school, solely for the intended student beneficiaries (except for allowed administrative expense reimbursement). A school may contract with a consultant for assistance in administering the SFA Programs. However, the school ultimately is responsible for the use of SFA funds and will be held accountable if the consultant mismanages the programs. (See the "Third-Party Servicers" discussion on page 3-46 for more details.) Administrative requirements to which a participating school is subject are found in the Higher Education Act of 1965, as amended (HEA), in the General Provisions regulations, and in the regulations for each SFA Program. The law requires that all individuals who make decisions about SFA Program administration or SFA student eligibility must report (when asked by the Department) on any financial interests held in other SFA schools. This requirement applies to all employees, consultants, lenders, guaranty agencies, servicers, accrediting agencies, state licensing boards, and secondary markets (including all officers, general partners, and directors of the above-mentioned entities). The law also states that a school is not considered eligible for SFA Program participation if the school filed for bankruptcy on or after July 23, 1992 or if the school (or its chief executive officer [CEO] or owner) was convicted or pled guilty or nolo contendre to a crime or was judicially determined to have committed fraud involving SFA funds. A schools eligibility and participation are considered terminated as of the date of the bankruptcy filing, or on the date of conviction or guilty plea (or the date of fraud determination). THE PROGRAM PARTICIPATION AGREEMENT An eligible school must enter into a Program Participation Agreement (PPA) with the Department to participate in any SFA Program other than the State Student Incentive Grant (SSIG) Program or the National Early Intervention Scholarship Program (NEISP). The PPA covers the schools participation in the following programs: Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study (FWS), Federal Perkins (Perkins), and the Federal Family Education Loan (FFEL) Program. Currently, a school that participates in the Direct Loan program does so through an addendum to the PPA. [[Purpose and scope of the PPA]] Under the PPA, the school agrees to comply with the laws and regulations governing the SFA Programs. The PPA automatically terminates when the school is recertified, loses eligibility, undergoes a change in ownership that results in a change of control, loses its provisional certification, stops providing education, or voluntarily terminates SFA participation. The PPA may also be terminated if the Department finds the school to be in violation of statutory or regulatory requirements. For more on the PPA and loss of approval to participate, see Section 10. When entering into a PPA, the school must demonstrate that it is financially responsible and administratively capable of providing the education it promises and of properly managing the SFA Programs. After being certified for SFA participation, the school must administer SFA funds in a prudent and responsible manner. [[PPA requirements]] The PPA lists some of the basic administrative requirements of SFA participation. Many of these are discussed in this or other chapters of this Handbook, as noted below: 1. The school will provide timely information on its administrative capability and financial responsibility to the Department, and to the appropriate state, guaranty, and accrediting agencies. (Section 2) 2. If the school advertises job placement rates to attract students, it must provide a prospective student with any relevant information on state licensing requirements for the jobs for which the offered training will prepare them. (Section 8) 3. The school cannot deny SFA funds on the grounds that a student is studying abroad in an approved-for-credit program. (Section 1) 4. To begin participation in the FFEL programs (or if a school changes ownership or changes its status as a parent or subordinate institution), the school must develop a default management plan for approval by the Department and must implement the plan for at least two years. (Chapter 10) 5. The school must acknowledge the authority of the Department and other entities to share information regarding fraud, abuse, or the schools approval to participate in the SFA Programs. (Section 10) 6. The school may not knowingly employ or contract with (in the administration of or receipt of SFA funds) any individual, agency, or organization that has been convicted of or pled guilty or nolo contendre to a crime or was judicially determined to have committed fraud involving the misuse of SFA funds. (Section 2) 7. The school must, in a timely manner, complete surveys under the Integrated Postsecondary Education Data System (IPEDS) or any other data collection effort of the Department. (Section 8) 8. If the school offers athletically related student aid, it must annually compile data relating to its revenues and expenses related to athletics; this data must be audited every three years and made available to the Department and to the public. (Section 9) 9. The school cannot penalize in any way a student who is unable to pay institutional costs due to compliance with the SFA Program requirements, or due to a delay in federal aid disbursement caused by the school. (Section 2) 10. The school cannot pay commissions or other incentives based directly or indirectly on securing enrollment or financial aid (except when recruiting foreign students ineligible for SFA funds) to persons engaged in recruiting, admission, or financial aid administration. (Section 2) 11. The school must comply with the requirements of the Department, as well as those of accrediting agencies. (Section 2) 12. The school must have a fair and equitable refund policy in accordance with regulations. (Section 5) [[Processing fee for SFA funds prohibited]] 13. Schools cannot charge for processing or handling any application or data used to determine a students SFA eligibility. For instance, the school may not charge (or include in the students cost of attendance) a fee to certify a loan application, complete a deferment form, process a Pell Grant payment, verify an application, or send or request a financial aid transcript. [[Use of free federal form]] 14. A student may always use the Free Application for Federal Student Aid (FAFSA) to apply for SFA funds. However, a school may require additional data that is not provided on the federal form to award institutional or state aid. Beginning with the 1993-94 award year, institutional charges for collecting such data must be reasonable and within marginal costs. The above list is not exhaustive; schools must carefully review ALL of the requirements listed on their PPA and those specified in 34 CFR 668.14. In addition, a school must meet any requirements for participation specific to an individual SFA Program. When a school signs the PPA, it also agrees to comply with the civil rights and privacy requirements contained in the Code of Federal Regulations (CFR), which apply to all students in the educational program, not just to SFA recipients. FINANCIAL RESPONSIBILITY [[Standards of financial responsibility]] In order to participate in the SFA Programs, a school must demonstrate that it is financially responsible. To provide the Department with the information necessary to evaluate a schools financial responsibility, schools are required to submit an audited financial statement to the Department every year, within four months of the end of the schools fiscal year. A school is also required to submit a compliance audit within six months of the end of the schools fiscal year. The compliance audit is used to evaluate the schools administration of the SFA Programs. See Section 7 for more information on the submission of a compliance audit. [[Regulations published]] Final regulations published on April 29, 1994 greatly modified the standards that a school must meet in order to demonstrate financial responsibility. In addition, the November 29, 1994 final regulations made a couple of changes to the financial responsibility standards. What follows is a general overview of those standards; however, schools should refer to 34 CFR 668.15 for complete information. [[Three categories]] The financial responsibility standards may be divided into three categories: (1) GENERAL STANDARDS (basic financial standards that all schools are required to meet), (2) TYPE-SPECIFIC STANDARDS (standards that apply specifically to each type of school--for-profit, nonprofit, and public), and (3) PERFORMANCE AND AFFILIATION STANDARDS (standards to evaluate a schools past performance and persons affiliated with the school). [[General standards for all schools]] To prove financial responsibility, a school must demonstrate that it is - providing the services described in its official publications and statements, - providing the administrative resources necessary to comply with the requirements for SFA participation, - meeting all of its financial obligations, which includes but is not limited to making required refunds and making repayment to cover SFA Program liabilities, and - current in its debt payments. A school must also demonstrate that it has not had a statement by the accountant in its audit report for the schools most recently completed fiscal year expressing substantial doubt about the schools ability to continue as a "going concern," or a disclaimed or adverse opinion. Beginning with the 1995-96 award year, most schools are not required to maintain a cash reserve fund for the payment of refunds as was required for the 1994-95 award year. Instead a school is considered to have sufficient cash reserves to make refunds if, for the past two years, the school has been financially responsible and has paid all required refunds on time. If a school has not demonstrated financial responsibility, the school is required to post a letter of credit in accordance with the letter of credit exemption to the general financial responsibility standards discussed below. If a school has not paid refunds on time, the school must post a letter of credit equal to 25% of the SFA refunds that the school was required to make for the past year. [[Type-specific standards]] In addition to the general standards of financial responsibility, a school must meet the requirements specific to the school type (for- profit, nonprofit, or public), as explained below. In lieu of meeting these specific standards, a school may demonstrate that it has a superior bond rating, as defined in regulations. A for-profit school is financially responsible if it demonstrates - an "acid test" ratio of at least 1:1, - a positive tangible net worth*1*, AND - no operating losses over either or both of its two latest fiscal years that, in sum, decrease the schools tangible net worth by more than 10%. A nonprofit*2* school is financially responsible if it demonstrates - an "acid test" ratio of at least 1:1, AND - a positive unrestricted current fund balance or positive unrestricted net assets, OR not had an excess of current fund expenditures over current fund revenues over both of its two latest fiscal years that total more than 10% of either the unrestricted current fund balance or the unrestricted net assets A public school is financially responsible if it demonstrates - liabilities backed by the full faith and credit of a state, or by an equivalent governmental entity, - a positive current unrestricted fund balance if reporting under the Single Audit Act, OR - a positive unrestricted current fund in the states Higher Education Fund OR, IF IT SUBMITS TO THE DEPARTMENT A STATEMENT FROM THE STATE AUDITOR GENERAL THAT THE SCHOOL HAS MET ALL OF ITS FINANCIAL OBLIGATIONS DURING THE PAST YEAR, AND THAT IT CONTINUES TO HAVE SUFFICIENT RESOURCES TO MEET ALL OF ITS FINANCIAL OBLIGATIONS. [[Performance and affiliation standards]] A schools financial responsibility is also evaluated based on the past performance of the school and persons affiliated with the school. A school is not financially responsible if a person who exercises substantial control over the school (or any members of the persons family alone or together) owes a liability for an SFA Program violation, or has ever exercised substantial control over another school (or a third-party servicer) that owes a liability for an SFA Program violation, unless that person, family member, institution, or servicer demonstrates that the liability is being repaid in accordance with an agreement with the Department.*3* SUBSTANTIAL CONTROL -- Direct or indirect control over at least 25% ownership interest (either alone or with family members); representation (under voting trust, power of attorney, or proxy) of a person who individually or with a group has at least 25% ownership interest; status as CEO or other executive member of a board of directors of an entity holding at least 25% interest. OWNERSHIP INTEREST -- A share of the legal or beneficial ownership or control of, or a right to share in the proceeds of the operation of, a school or a schools parent corporation; including (but not limited to) sole proprietorship, interest as tenant, partnership, or interest in a trust. [[Substantial control/financial guarantees]] The Secretary can require financial guarantees from the owners of a school or from other persons with substantial control over the school. The same persons may be required to assume personal liability for financial losses to the federal government and students, and for civil/criminal monetary penalties authorized under the HEA. Such financial guarantees will not be required for a school that - has not been subject to a limitation, suspension, or termination action by the Department or a guaranty agency in the last five years, - has not had, in the last two SFA Program reviews or audits, findings that required a repayment of more than 5% of its SFA funds for any year, - has not failed to resolve any compliance problems identified in program reviews or audit reports, - meets, and has met for the last five years, the financial responsibility requirements given above, and - has not been cited during the last five years for failing to submit audits as required under the HEA of 1965, as amended. EXCEPTIONS TO FINANCIAL RESPONSIBILITY STANDARDS. If a school does not meet the general, type-specific, or performance and affiliation standards of financial responsibility (as discussed prior), it may still be financially responsible if it meets one of the following exceptions. [[Exception to cash reserve requirement]] CASH RESERVE REQUIREMENT (25% LETTER OF CREDIT): A school that has not paid refunds on time does not have to post a letter of credit equal to 25% of the SFA refunds it was required to make for the past year, if the Department determines that the state in which the school is located (and is legally authorized to operate) has a tuition recovery fund that ensures that the school is able to pay all required refunds, the fund is acceptable to the Department, and the school contributes to the fund. A school is also exempt from the 25% letter of credit requirement if the school has its liabilities backed by the full faith and credit of the state, or an equivalent government entity. When a state submits a tuition recovery fund for evaluation by the Department, the Department will consider the extent to which the recovery fund - provides refunds to both in-state and out-of-state students, - complies with SFA requirements for the order of return of refunds to sources of assistance, and - will be replenished if any claims arise that deplete the fund. [[Exception to general and type-specific standards]] GENERAL AND TYPE-SPECIFIC STANDARDS: A currently participating school that does not meet one or more of the general or the specific standards (excluding the cash reserve requirement) is still financially responsible if the school submits to the Department an acceptable irrevocable letter of credit equal to at least one-half of the SFA Program funds received by the school during the last complete award year, or demonstrates (in accordance with the regulations) that the school has sufficient resources to ensure that it will not close precipitously. [[Exception to acid-test ratio]] ACID TEST RATIO: A school that does not meet the acid test requirement is still financially responsible if it provides a two-year or four-year associate or baccalaureate degree program and the school can demonstrate to the satisfaction of the Department that - there is no reasonable doubt as to its continued solvency and ability to deliver quality educational services, - it is current in its payment of all current liabilities, including student refunds, repayments to the Department, payroll, and payment of trade creditors and withholding taxes, and - it has substantial equity in school-occupied facilities, the acquisition of which was the direct cause of its failure to meet the acid test ratio requirement. [[Exception to substantial control standard]] SUBSTANTIAL CONTROL: A school that does not meet the requirement that persons who exercise substantial control over the school may not owe a liability for an SFA Program violation is still financially responsible if the school - notifies the Department that the person repaid to the Department an acceptable portion of the liability, in accordance with the regulations, - notifies the Department that the liability is currently being repaid in accordance with a written agreement with the Department, or - demonstrates why the person(s) who exercise substantial control should nevertheless be considered to lack that control. [[Audited financial statement required]] A schools audited financial statement must cover the schools two most recently completed fiscal years. In addition to a schools financial statements, the Department may request that the school submit additional information, such as submission of or access to the accountants work papers. Also, if the Department finds it necessary to evaluate a particular schools financial condition, the Department can require a school to submit an audited financial statement more frequently than once a year. A school that has an audit performed under the Single Audit Act (an A-133 audit or an A-128 audit*4*) may submit its financial statement to the Department in accordance with the requirements for that particular audit. (For details on these audits and related requirements, see Section 7.) [[Fidelity bond coverage]] In the past, schools were required to maintain fidelity bond coverage for its employees. This is no longer a federal requirement for schools that participate in the SFA Programs. However, some schools are still required to maintain fidelity bond coverage because state laws require it. Even if it is not required to do so, a school may choose to maintain fidelity bond coverage to protect itself when losses occur resulting from a lack of integrity, honestly, or fidelity on the part of the schools employees or officers. [[Changes in control]] A school must report any changes of control under which a person acquires the ability to affect substantially the actions of the school. Such changes in control could call into question the schools financial responsibility. For more information, see Section 10. STANDARDS OF ADMINISTRATIVE CAPABILITY As directed in the law, the Secretary has developed procedures and requirements concerning the assessment of a schools administrative capability, taking into consideration the schools past SFA-related performance and recordkeeping. [[Coordination of aid]] An eligible school must designate a capable individual*5* to administer the SFA Programs and to coordinate aid from these programs with the schools other federal and nonfederal student aid programs. The schools administration must be coordinated in such a way that all the information it receives concerning a students SFA eligibility--from any school office-- is communicated to the financial aid administrator. To properly package and most effectively use the various types of student assistance (federal, school, state, private, etc.), a financial aid administrator must be aware of all sources of aid at the school and must be able to coordinate with all financial aid programs a school offers to ensure that a students aid does not exceed his or her need. [[Consistency of student information]] The school must have a system of identifying and resolving discrepancies in the SFA-related information received by various school offices. Such a system would include a review of all financial aid and need analysis documents, federal and state income tax forms, and documents relating to admissions, citizenship, and previous educational experience. For instance, if a student receives veterans benefits through one school office, that office must notify the aid administrator of these benefits to ensure that the amounts are correctly reported on the students aid application and are counted as a resource for the campus-based programs and estimated financial assistance for the Direct Loan and FFEL programs. As another example, the schools admissions or registrars office must provide the financial aid office with any information that it has affecting a students eligibility--the students enrollment in an ineligible program, for instance, or past educational experience. [[OIG referrals]] If the school finds that a student may have engaged in fraud or other criminal misconduct in applying for SFA funds, it must refer this information to the Departments Office of Inspector General (OIG), which will in turn notify other officials as appropriate. (Please note that this requirement does not preclude the school from notifying other law enforcement agencies as necessary.) Some examples of fraudulent information include the use of false identities, forgery of signatures or certifications, and false claims of income, citizenship, or independent student status. [[Counseling]] The school must provide adequate financial aid counseling to all enrolled and prospective students and their families. Counseling must include, at a minimum, information about the source and amount of each type of aid offered, the method by which aid is determined and disbursed or applied to a students account, and the rights and responsibilities of the student associated with the students enrollment and receipt of financial aid. This information should include a description of the schools refund policy, satisfactory progress standards, and any other conditions or factors that may affect the students aid package. The school must also provide entrance and exit counseling for student borrowers in the Perkins, Stafford, and Direct Loan programs. (See Section 9 of this chapter and Chapters 6 and 10 for further information on exit counseling.) [[Adequate staffing]] To manage a schools aid programs effectively, the aid administrator must be supported by an adequate number of professional, paraprofessional, and clerical personnel. An "adequate" staff depends on the number of students aided, the number and types of programs in which the school participates, the number of applicants evaluated and processed, the amount of funds administered, and the type of financial aid delivery system the school uses. What may be adequate at one school may be completely insufficient at another. The Department will determine, on a case-by-case basis, whether a school has an adequate number of qualified persons, based on program reviews, audits, and information provided on the schools application for approval to participate. [[Separation of function]] In addition to having a well-organized financial aid office staffed by qualified personnel, a school must ensure that its administrative procedures for the SFA Programs include an adequate system of internal checks and balances. This system, at a minimum, must separate the functions OF AUTHORIZING PAYMENT AND DISBURSING OR DELIVERING FUNDS so that no one person or office exercises both functions for any student receiving SFA funds. Small schools are not exempt from this requirement even though they may have limited staff. Individuals working in either authorization or disbursement may perform other functions as well, but not both authorization AND disbursement. If a school performs any aspect of these functions via computer, no one person may have the ability to change data that affects both authorization and disbursement. An eligible school must also have a policy to measure the academic progress of its students, according to the elements of a reasonable standard of satisfactory progress as provided in the regulations. See Chapter 2 for an overview of satisfactory progress. [[High default rates]] A school is not administratively capable when - the cohort default rate for Perkins loans made to students for attendance at the school exceeds 15%,*6* or - the cohort default rate for Stafford/SLS loans or for Direct Loans made to students for attendance at the school equals or exceeds 25% for one or more of the three most recent fiscal years. (See Chapter 10 for details.) If a school is not administratively capable SOLELY because of a high default rate, the Department will provisionally certify the school. [[NEW]] In addition to affecting a schools administrative capability and limiting the schools participation in the SFA programs, a high default rate may make a school ineligible to participate in the FFEL or Direct Loan programs or cause the Department to limit, suspend, or terminate a schools participation in the SFA programs. Also, under Public Law 104-134, a school with a high default rate may no longer be eligible to participate in the Pell Grant Program. See Chapters 10 and 11 for detailed information on default requirements. [[NEW]] [[Default management plan required]] Previously, a school with an Stafford/SLS default rate of specified percentages was required to implement some or all of the default reduction measures of 34 CFR part 668, Appendix D of the General Provision regulations. Final regulations published December 1, 1995 that revised several aspects of the Departments default prevention and reduction measures removed these requirements beginning with the 1996-97 award year. However, new schools are still required to develop a default management plan prior to certification. Also, a school that undergoes a change in ownership that results in a change in control, or a school that changes its status as a main campus, branch campus, or additional location must also develop a default management plan. Note that the inclusion of a Direct Loan default rate is new. Final regulations published December 1, 1995 revised several aspects of the Departments default prevention and reduction measures. See Chapters 10 and 11 for more information. [[Calculating the withdrawal rate]] For the 1994-95 award year, all schools had to have an undergraduate withdrawal rate for regular students of no more than 33% in order to be considered administratively capable. (Prior to the 1994-95 award year, the withdrawal rate was used as an INDICATOR of administrative capability, not as an absolute standard). Beginning with the 1995-96 award year, the 33% withdrawal rate applies only to new schools (schools that seek to participate in an SFA Program for the first time). In addition, the withdrawal rate requirement has been changed to require all new schools to report their withdrawal rates for an award year period, rather than for an academic year period. As in the past, when calculating the withdrawal rate, all regular, enrolled students must be included. The definition of "enrolled" does not require either payment of tuition or class attendance; therefore, the withdrawal rate calculation must include enrolled students who have not yet paid tuition or who did not actually begin attending classes. A student is considered to have withdrawn if he or she officially withdraws, unofficially drops out, or is expelled from the school or receives a refund of 100% of his or her tuition and fees (less any permitted administrative fee). A student who withdraws from one or more courses or programs, but does not withdraw entirely from the school, does not meet the definition of "withdrawn." Note that the 33% withdrawal rate applies to all enrolled, regular students--not just to SFA recipients. ENROLLED -- a student enrolls when he or she completes the registration requirements (except payment of tuition and fees) at the school. Correspondence students are enrolled if they have been admitted to the program and have submitted one lesson (that was completed without the assistance of a school representative). [[Debarment of school or its principal]] DEBARMENT AND SUSPENSION CERTIFICATION. Debarment and suspension requirements are also a part of the administrative capability standards. Before a school may receive Pell Grant or Campus-Based funding, a school must certify that neither the school nor its employees have been debarred or suspended by a federal agency. This certification is on the PPA and, for schools participating in the Campus-Based programs, is included on ED Form 80-0013, which is a part of the FISAP package mailed to schools each summer. If the school or its principals have been suspended, debarred, or proposed for debarment by one federal agency, the school is no longer eligible to participate in ANY SFA Program. The PRINCIPALS of the school include the owners, the directors, officers, partners, employees, or any other person with primary management or supervisory responsibilities. A principal may also be someone who is not employed by the school, but who has critical influence on or substantive influence over a covered transaction (such as the receipt of Pell Grant or campus-based funds). If a school discovers that a person employed in a primary management or supervisory capacity has been suspended or debarred by a federal agency, the school must remove that person from such a position or risk losing its SFA eligibility. [[Checking prospective employees or contractors]] To protect itself, a school might ask prospective employees and contractors about previous debarment or suspension, either in person or on a written application. A school may also call the Institutional Participation Division (IPD) to find out if an individual or organization is on the Nonprocurement List. (The debarment or suspension of a person who is not a principal of the school and who does not work in the financial aid office will not affect the schools SFA eligibility, so long as that person is not involved in any covered transactions.) [["Lower-tier covered transactions"]] A school must not enter into LOWER-TIER COVERED TRANSACTIONS with a debarred or suspended individual or organization. A lower-tier covered transaction is any transaction between a participant in a covered transaction (such as the school) and another individual or organization, if that transaction stems from a covered transaction. Examples of common lower-tier covered transactions are a schools contracts with a financial aid consultant service or with a loan collection or billing agency. A school must obtain a certification from any lower-tier organizations if the amount of the lower-tier transaction is $25,000 or more. (The required certification clause is given on page 25 of "Dear Colleague" letter GEN-89-21.) The lower-tier organization must inform the school in writing if the organization or its principals are debarred or suspended. Therefore, the certification does not need to be renewed from year to year. [[NEW]] Final regulations published June 26, 1995 made changes to the debarment and suspension procedures as follows: [[Changes to debarment and suspension provisions]] - The regulations apply similar debarment and suspension procedures to debarments and suspensions of lenders or loan servicers under the FFEL Programs. - The Department will give effect to debarment and suspension actions by other agencies that have been imposed under procedures that provide due process protections equivalent to those afforded under Subpart G of the General Provisions and the FFEL Program. The regulations list the standards that another agencys due process procedures must meet to be considered comparable to Subpart G proceedings. - When the Department gives effect to the debarment or suspension of another agency, notice of that determination will state the effective date (20 days after the notice is mailed) and duration of those actions. - The regulations list the particular transactions from which a debarred or suspended entity is excluded under the SFA Programs. - The Department gives effect to the debarment and suspension action of another agency against a lender, servicer, or institution, only after the Department determines that the entity has objected and received a decision from the agency upholding the action, or the entity had not timely objected to the action. CONTRACTS WITH THIRD-PARTY SERVICERS Section 668.25 of the General Provisions regulations published April 29, 1994, added requirements for all participating institutions that contract with third-party servicers. These requirements were effective July 1, 1994. As defined by regulation, a third-party servicer is a individual or organization that enters into a contract (written or otherwise) with a school to administer any aspect of the institutions SFA participation. [[Activities included in "servicer" definition]] Examples of functions that are covered by this definition include - processing student financial aid applications, performing need analysis, and determining student eligibility or related activities; - certifying loan applications, servicing loans, or collecting loans; - processing output documents for payment to students, and receiving, disbursing, or delivering SFA funds; - conducting required student consumer information services; - preparing and certifying requests for advance or reimbursement funding, preparing and submitting notices and applications required of eligible and participating schools, or preparing the Fiscal Operations Report and Application to Participate (FISAP); and - processing enrollment verification for deferment forms or Student Status Confirmation Reports. [[Excluded activities]] Examples of functions that are not covered by this definition include - performing lock-box processing of loan payments, - performing normal electronic fund transfers (EFTs), - publishing ability-to-benefit tests, - performing functions as a Multiple Data Entry Processor (MDE), - financial and compliance auditing, - mailing documents prepared by the institution, or warehousing institutional records, and - providing computer services or software. [[Definition of "employee"]] The November 29, 1994 final regulations clarified that an employee of a school is NOT a third-party servicer. For this purpose, an EMPLOYEE is one who - works on a full-time, part-time, or temporary basis, - performs all duties on site at the school under the supervision of the school, - is paid directly by the school, - is not employed by or associated with a third-party servicer, and - is not a third-party servicer for any other school. [[Eligible servicer; applicable requirements]] A school may only contract with an eligible third-party servicer, as defined by specific regulatory criteria. Under such a contract, the servicer agrees to comply with all applicable requirements, to refer any suspicion of fraudulent or criminal conduct in relation to SFA Program administration to the Departments Inspector General, and, if the servicer disburses funds, to confirm student eligibility and make required refunds. If the contract is terminated, or the servicer ceases to perform any functions prescribed under the contract, the servicer must return all applicable SFA funds and related records to the school. [[School is liable]] Although an eligible servicer must meet all these and other requirements, the school remains liable for any and all SFA-related actions taken by the servicer on its behalf, under the terms of the contract. In the January 1995 "Dear Colleague" letter (GEN-95-13), the Department requested that all schools provide the Department with the following information for each third-party servicer with which the school contracts: name, address, employer identification number, telephone number, fax number, and Internet address. The requested information was to be submitted to the Department by March 31, 1995. [[Must report contracts]] If a school had submitted information regarding its third-party servicers as part of an application for certification or recertification, no additional submission was required. Also, a school was not required to notify the Department if it did not contract with any third-party servicers. Schools are also required to notify the Department if the school enters into a new contract with a third-party servicer; significantly modifies a contract with an existing third-party servicer; the school or one of its third-party servicers terminates a contract, or a third- party servicer ceases to provide contracted services, goes out of business, or files for bankruptcy. Notification to the Department (which must include the name and address of the servicer and the nature of the change or action) must be made within ten days of the date of the change or action. Schools are not required to provide copies of the actual contracts with third-party servicers until the school applies for recertification, or the Department specifically requests the school to submit the contracts. When submitting information on third-party servicers to the Department, a school must display its OPEID (the institutional identifier found on the eligibility or approval letter establishing its HEA eligibility) on the upper right side of the transmittal. The information should be sent to one of the following addresses: If by mail... U.S. Department of Education Institutional Participation Division ATTN: Third-Party Servicer Team 600 Independence Avenue S.W. Washington, DC 20202-5323 If by overnight mail or courier delivery... U.S. Department of Education Institutional Participation Division ATTN: Third-Party Servicer Team 7th and D Streets SW GSA Building Room 3030 Washington, DC 20024 If by fax... (202) 260-6107 ATTN: 3rd PSTeam If by Internet... serve@sfa.ope.ed.gov ANTI-DRUG ABUSE REQUIREMENTS The HEA requires a school to certify to the Department that it operates a drug abuse prevention program that is accessible to its students, employees, and officers. Two other laws have added related requirements for postsecondary schools that receive SFA funds. The Drug-Free Workplace Act of 1988 (Public Law 101-690) requires a FEDERAL GRANT RECIPIENT to certify that it provides a drug-free workplace. Because a school applies for and receives its Campus-Based allocation directly from the Department, the school is considered to be a grantee for purposes of the Act. Therefore, to receive Campus-Based funds, a school must complete the certification on ED Form 80-0013, which is part of the FISAP package (the application for Campus-Based funds). This certification must be signed by the schools CEO or other official with authority to sign the certification on behalf of the entire institution. [[Requirements for a drug-free workplace]] The certification lists a number of steps that the school must take to provide a drug-free workplace, including - establishing a drug-free awareness program to provide information to employees, - distributing a notice to its employees of prohibited unlawful activities and the schools planned actions against an employee who violates these prohibitions, and - notifying the Department and taking appropriate action when it learns of an employees conviction under any criminal drug statute. A schools Administrative Cost Allowance (ACA) may be used to help defray related expenses, such as the cost of printing informational materials given to employees. For more information on ACAs, see Section 3. [[Scope of drug-free workplace]] The drug-free workplace requirements apply to all offices and departments of a school that receives Campus-Based funds. Organizations that contract with the school are considered subgrantees, however, only grantees are subject to the requirements of the Drug-Free Workplace Act. The Drug-Free Schools and Communities Act (P.L. 101-226) requires a school to certify that it has adopted and implemented a program to prevent drug and alcohol abuse by its students. Unlike the annual drug-free workplace certification, a school usually will only submit this new certification to the Department once. (An exception would be a school that changes ownership.) [[Information to be distributed to students]] The drug prevention program adopted by the school must include annual distribution to all students and employees of information concerning drug and alcohol abuse as described above, except that these steps must be taken by schools that receive ANY FEDERAL FUNDING and must include the schools STUDENTS as well as its employees. The information that must be distributed is more specifically described in Section 9. [[Developing a drug prevention program]] A school must review its drug prevention program once every two years to determine its effectiveness and to ensure that its sanctions are being enforced. The development of a drug prevention program, although it is a condition for SFA funds, is usually an enterprise that is undertaken by the school administration at large, not by the financial aid office. The regulations originally published on this topic (August 16, 1990) were mailed to participating schools at the time; they offer a number of suggestions for developing a drug prevention program. Also, several organizations that can serve as resources are listed on the facing page. [[Measuring the effectiveness of the program]] The effectiveness of a schools drug prevention program may be measured by tracking - The number of drug- and alcohol-related disciplinary actions, - The number of drug- and alcohol-related treatment referrals, - The number of drug- and alcohol-related incidents recorded by campus police or other law enforcement officials, - The number of drug- and alcohol-related incidents of vandalism, - The number of students or employees attending self-help or other counseling groups related to alcohol or drug abuse, and - Student, faculty, and employee attitudes and perceptions about the drug and alcohol problem on campus. A school that does not certify that it has a drug prevention program, or that fails to carry out a drug prevention program, may lose its approval to participate in the SFA Programs. (See the regulations for details on Department sanctions and appeals procedures available to the school.) [[Page 3-51, entitled "Additional Sources of Information," is currently unavailable for viewing. Please reference your paper handbook for additional information.]] ANTI-LOBBYING CERTIFICATION AND DISCLOSURE In accordance with P.L. 101-121 (and regulations published December 20, 1989), any school receiving more than $100,000 for Campus-Based Programs must provide the following to the Department for each award year: [[Forms required for schools with campus-based allocation over $100,000]] - CERTIFICATION FORM (Combined with Debarment and Drug- Free Workplace certifications, ED-80-0013) The school will not use federal funds to pay a person for lobbying activities in connection with federal grants or cooperative agreements. This certification must be renewed each year for your school to be able to draw down Campus-Based funds. - DISCLOSURE FORM (Standard Form LLL) If the school has used NONFEDERAL funds to pay a noninstitutional employee for lobbying activities, the school must disclose these lobbying activities to the Department. The school must update this disclosure at least quarterly, when changes occur. Both of these forms are sent to schools with the Campus-Based fiscal report/application (FISAP) each summer. The certification form and the disclosure form must be signed by the CEO or other individual who has the authority to sign on behalf of the entire institution. A school is advised to retain a copy in its files. This certification primarily covers the use of the Campus-Based Administrative Cost Allowance (ACA). Schools may not use the ACA to pay for their membership in professional associations (such as NASFAA, NATTS, AICS, or NACUBO), regardless of whether the association engages in lobbying activities. Association membership is not a legitimate administrative cost of the SFA Programs. [[ACA may not be used for membership fees]] The school is also responsible for payments made ON ITS BEHALF, and must include the certification in award documents for any subgrantees or contractors (such as need analysis servicers, financial aid consultants, or other third parties paid from the ACA). See Section 3 for more information on the ACA. *1* Clarification provided in the June 30, 1995 technical corrections final regulations. *2* To demonstrate its compliance with the financial responsibility standards, a nonprofit school must prepare a classified statement of financial position in accordance with generally accepted accounting principles or provide the required information in notes to the audited financial statement. *3* Clarification provided in the June 30, 1995 technical corrections final regulations. *4* Clarification provided in the June 30, 1995 technical corrections final regulations. *5* An individual is "capable" if he or she is certified by the state (in which the school is located), if state certification is required. Other factors include the individual's successful completion of SFA Program Training provided by the Department, and previous experience and documented success in SFA Program administration. *6* A school with a Perkins cohort default rate that equals or exceeds 15% must develop and implement a default reduction plan. See Chapter 6, Section 8. |