Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Institutional Eligibility and Administrative Requirements - Applying for and Maintaining Participation in the SFA Programs

AwardYear: 1997-1998
EnterChapterNo: 3
EnterChapterTitle: Institutional Eligibility and Administrative Requirements
SectionNumber: 9
SectionTitle: Applying for and Maintaining Participation in the SFA Programs
PageNumbers: 203-232


In this section, we will discuss how and when a school applies for
approval to participate in any Student Financial Assistance (SFA)
Program. We also will discuss changes that can affect a school's
participation, how and when to report these changes, responsibilities
that a school must fulfill when leaving the SFA Programs, changes to
the Department's approach to oversight, and reasons the Department
may take corrective actions and institute sanctions against a school.

APPLYING TO PARTICIPATE

To participate in any of the SFA Programs--the Pell Grant Program,
the Federal Direct Loan Program, the Federal Family Education
Loan (FFEL) Program, and the campus-based programs (Federal
Supplemental Educational Opportunity Grant [FSEOG], Federal
Work-Study [FWS], and Federal Perkins Loan)--a school must be
approved and certified by the Department.

To apply for institutional participation, a school must request an
Application for Approval to Participate in Federal Student Financial
Aid Programs (Application) from the Department's Institutional
Participation and Oversight Service (IPOS):

U.S. Department of Education
Institutional Participation and Oversight Service
P.O. Box 44805
L'Enfant Plaza Station
Washington, DC 20026-4805
Telephone: 202-260-3270

The school must then complete and return the Application to the
Institutional Participation and Oversight Service, along with
photocopies of requested documents.

In evaluating the school and deciding whether to approve or deny the
request to participate in any SFA Program, the Department examines
the Application and accompanying submissions. In addition, for
schools that are participating or have participated in the SFA
Programs, the Department will examine a school's audits and
program reviews. The Department also will check to see if a school
has submitted all the required financial statements and compliance
audits. The Department may request additional materials (such as
school catalogs or copies of contracts with third-party servicers) and
ask additional questions.

The Department uses this input to examine three major factors about
the school: institutional eligibility, administrative capability, and
financial responsibility. Each of these subjects is discussed in detail
in Section 1 and Section 2.

[[When to complete an Application]]
A school submits a FULLY COMPLETED application to the
Department when it

- wishes to be approved for the first time (INITIAL
CERTIFICATION) to participate in the SFA Programs;

- undergoes a change in ownership, a conversion to a nonprofit
institution, or a merger of two or more institutions (referred to
collectively as a "change in ownership or structure" for the
remainder of the section) and wishes to participate in the SFA
Programs;

- wishes to be reapproved (RECERTIFICATION) to participate in
the SFA Programs;

- wishes to be designated as an "eligible institution" under the
Higher Education Act of 1965, as amended (HEA), so that its
students may receive deferments under the SFA Programs, or so
that the school may apply to participate in federal HEA programs
other than the SFA Programs; or

- wishes to be reinstated to participate in the SFA Programs.

Each of these five circumstances will be discussed later in this
section.

Revisions to the Application in 1996 clarified and streamlined school
application procedures and simplified the form's appearance. The
Department also added a way to complete the application data
electronically, if a school wishes to do so.

[[New aspects of Application]]
Other new aspects of the revised application follow:

- To fully complete an Application, a school does not need to fill
out every section--only sections of the application that apply to the
school.

- A school is asked for the name of the accrediting agency that
provides its institution-wide accreditation. If more than one
accrediting agency provides institution-wide accreditation, the
school must designate the one it wishes the Department to use in
determining the school's eligibility and continued eligibility. A
school must list accrediting agencies for individual educational
programs ONLY if it does not have an institution-wide accrediting
agency.

- A school is asked about general percentage levels for
telecommunications and/or correspondence courses, students
enrolled under ability-to-benefit provisions, and incarcerated
students. If the answers are higher than mandated thresholds, the
Department will be in touch with the school's contact person to ask
if the school wants to apply for a waiver. (The waiver is not
requested when filling out the Application.)

- Only one authorized signature, from a top school official, is
required.

- A glossary provides specific definitions for many of the words and
phrases used in the application, such as "regular student" and
"award year."

The Application is divided into 13 sections, plus a glossary at the
end.

This Section... Is for...

A through D... General questions about the school.

E and F... Questions about educational programs and locations
that the school wishes to be eligible for SFA Programs.

G... Questions about telecommunications and/or correspondence
(tele/corr) courses, students enrolled under ability-to-benefit
provisions, and incarcerated students.

H... Schools that are initial applicants, schools with a change in
ownership or structure, and schools seeking reinstatement.

I... Foreign institutions, including foreign graduate medical
schools.

J... Questions about third-party servicers that perform any
function relating to the school's SFA Programs.

K... Questions about the school's administrative capability and
financial responsibility.

L... The school's President/CEO/Chancellor to sign.

M... A checklist of copies of documents that must be included, as
applicable.*1*

Glossary... Specific definitions of terms used in the application.

If a school has questions, it is encouraged to contact the Institutional
Participation and Oversight Service.

[[Submission time frames]]
An application with missing information or materials that are still to
come is considered incomplete. The time frames for submitting a
fully completed application depend on a school's current status:

- A school seeking initial certification to participate in the SFA
Programs may submit an Application to the Department at any
time.*2*

- A school that undergoes a change in ownership or structure and
wishes to participate in the SFA Programs must notify the
Department no later than 10 calendar days after the change occurs.
If this date falls on a weekend or a federal holiday, the notification
may be no later than the next business day. After the school
receives its state and accrediting agency approvals, it submits the
Application together with photocopies of the approvals. See
page 3-213 for more information on changes in ownership or
structure.

- A school seeking to be recertified to continue to participate in the
SFA Programs should submit an Application before the expiration
date listed in its Program Participation Agreement (PPA). If the
school submits its fully completed application to the Department
NO LATER THAN 90 CALENDAR DAYS BEFORE its PPA
expires, its eligibility to participate in the SFA Programs continues
until its application is either approved or not approved. This is true
even if the Department does not complete its evaluation of the
application before the PPA's expiration date. (For example, if a
school's PPA expires on June 30 and it submits its Application by
April 1, the school remains certified during the Department's
review period--even if the review period extends beyond June 30.)
If the 90th day before the PPA's expiration falls on a weekend or a
federal holiday and the school submits its application no later than
the next business day, the Department considers the application to
be submitted 90 days before the PPA expires. If the school's
application is not received at least 90 days before the PPA expires
or is not materially complete, the school's PPA will expire and the
SFA Program funding will cease.

- A school that wishes to apply to become an eligible institution so
that its students may receive deferments under federal student loan
programs, or so that it may participate in federal HEA programs
other than the SFA Programs, may submit an Application to the
Department at any time.

- A school that voluntarily left the SFA Programs may seek to be
reinstated at any time. A school that was terminated from the SFA
Programs or that left because it was about to be terminated or
otherwise sanctioned generally must wait two years (24 months)
before applying for reinstatement.

The Department considers the date of submission to be the postmark
date or a delivery service's or courier's written verification or printout
of the shipping date.

An Application sent by mail should be sent to the Department
address listed earlier in this section. An Application sent by
overnight mail/courier delivery service should be sent to

U.S. Department of Education
Institutional Participation and Oversight Service
7th and D Streets, SW
GSA Building, Room 3522
Washington, DC 20407

[[Paper electronic, or smart disk submission]]
The Department provides the Application to a school in both paper
and electronic (disk) versions. To complete the Application
electronically, the school uses the electronic database disk and
returns the disk to the Department. Disk features include pop-up
windows, a help function, a searchable glossary, edit checks, and
printing capability.

[[NEW]]
In 1997, the Department will introduce a "smart disk" version of the
Application, which can be operated in DOS or Windows. The smart
disk has links that help the school move through the Application to
those sections and items they need to complete, and allows schools to
answer questions in any order. The smart disk also includes help
screens, a list of accrediting agencies, and validation routines that
check for accuracy and complete data. In addition, the Department
plans to make the Application available on the Department's home
page on the World Wide Web. More information will be provided to
schools in the coming months.

For all versions of the Application, the Department recommends that
the school keep a copy of its application (and supporting documents)
and retain proof of the date when it submitted the Application. The
completed version of the Application--paper, electronic, or smart
disk--is sent to the Department. With all versions, the school must
submit the PAPER page containing the original authorizing signature
of the school's President/Chief Executive Officer (CEO)/Chancellor.

[[Status following submission]]
Following submission of an Application, the Department will contact
the school if it has additional questions about the application.
Generally, this will be within 90 days of the Department receiving an
application. Depending on the outcome of its review, the Department
either will send a school copies of the PPA to sign (and further
instructions) OR notify it that its application is not approved.

[[School's status during Department review]]
During the Department's application review period, a school's status
is as follows:

- If a school has never been certified (and it is seeking initial
certification), it will not be considered certified during the
Department's review period.

- If a school has a change in ownership or structure, its participation
in the SFA Programs stops. The institution may not award SFA
Program funds beginning on the date that the change becomes
effective until it receives a new PPA signed on behalf of the
Secretary of Education. (Exceptions for unpaid commitments of
SFA Program funds are discussed on page 3-215).

- If a school is certified (and it is seeking recertification), it will
remain certified during the Department's review period if it
submitted its application during the correct time frame described
earlier in this section.

- If a school has never been an eligible institution under the HEA, it
will not be considered eligible during the Department's review
period.

- If a school once participated in the SFA Programs but no longer
does so, it will not be considered certified during the Department's
review period.

[[PPA & ECAR]]
If the Department approves a school's application, the Department
sends the school two copies of a PPA (see Section 2). The PPA
includes the date on which the school's eligibility to participate
expires. The school must sign and return both copies of the PPA to
the Department. The Department then sends the school an Eligibility
and Certification Approval Report (ECAR) and the school's copy of
the PPA, signed and dated on behalf of the Secretary. The ECAR
contains the most critical of the data elements that form the basis of
the school's approval and also a list of the highest level of offering,
any nondegree program or short-term programs, and any additional
locations that have been approved for the SFA Programs. Both of
these forms must be kept available to be reviewed by auditors and
Department officials, including the SFA Program reviewers.

[[Effective date for participation]]
The date the PPA is signed on behalf of the Secretary is the date the
school may begin SFA Program participation. (Currently, there are
additional steps that must be taken for participation in the Direct
Loan Program. For more information, see Chapter 11.) Pell Grant
and campus-based program disbursements to students may begin in
the PAYMENT PERIOD that the PPA is signed on behalf of the
Secretary. FFEL and Direct Loan program disbursements may begin
in the LOAN PERIOD that the PPA is signed on behalf of the
Secretary. The Department's Program Systems Service and regional
offices are notified, as well as state guaranty agencies, that the school
is approved to participate in the SFA Programs.

PRECERTIFICATION TRAINING REQUIREMENT

Before a school may participate in any SFA Program for the first
time, it must send two representatives (an administrative official
and a financial aid representative) to a basic precertification
training workshop offered by the Department. The Department
also requires a school that has undergone a change in ownership or
structure to attend the training.

Note: The Application now allows a school to select the SFA
Program(s) it wishes to participate in and opt not to participate in
others. If the school later decides that it would like approval to
participate in SFA Programs in addition to the ones indicated on
its submitted Application, it is required to send representatives to
precertification training again. This is because the law requires
that training must take place before each first-time approval to
participate in an SFA Program is granted. However, if the school's
designated representatives attended the Department's required
precertification training within the last year, rather than attend
training again the school may request that the Department conduct
an on-site review. An on-site review may be granted at the
Department's discretion.

The five-day precertification workshop provides a general
overview of the SFA Programs and their administration. It does
not cover fiscal and accounting procedures in detail; the
Department offers fiscal officer training separately.

- The attending administrative official must be the school's CEO
for a for-profit school; nonprofit schools may send another
official designated by the CEO. The administrative official must
attend at least the first two days of the workshop.

- The attending financial aid representative must be the person
designated by the school to be responsible for administering the
SFA Programs. The financial aid representative must attend all
five days of the workshop.

- If the school uses a consultant to administer its financial aid, the
consultant must attend the training as the school's financial aid
representative. Because the school ultimately is responsible for
proper SFA Program administration, the Department strongly
recommends that a financial aid employee from the school
attend the training as well.

A school affected by this precertification training requirement will
receive notification of the requirement, a schedule of workshops,
and registration instructions along with an Application. The school
will not be approved to participate in the SFA Programs until the
training requirement is met.

The regulations allow schools to meet the precertification
requirement by sending the specified individuals to other training
programs that are approved by the Department. However, at this
time no precertification training programs other than the
Department's have been approved.

[[Provisional certification]]
In certain cases, rather than granting full approval to participate, the
Department may grant a school conditional approval to participate in
the SFA Programs (for up to three complete award years). Referred
to as "provisional certification" in the law, this approval is granted at
the Department's discretion.

[[Expired PPA]]
The Department will, if it approves the school, offer provisional
certification to a school that allowed its PPA to expire and reapplied
to participate in the SFA Programs after its approval to participate
ended. (Note: If a school applying for recertification meets the
submission deadlines detailed in the introduction to the Application,
its PPA remains in effect until the Department either approves or
does not approve the application.) If the Department grants a
provisional certification, the PPA details the provisions of the
certification.

Other times provisional certification may be granted are when

- a school is applying to participate for the first time (if approved, it
will be provisionally certified for up to one complete award year),

- a participating school is reapplying because it has undergone a
change in ownership or structure (see the discussion that follows),

- a participating school whose participation has been limited or
suspended (or that voluntarily agrees to this provisional status) is
judged by the Department to be in an administrative or financial
condition that might jeopardize its ability to perform its
responsibilities under its PPA,

- a participating school's accrediting agency loses its Departmental
approval (it may be provisionally certified for no more than 18
months after the agency's loss of approval),

- a school is determined not to be financially responsible but has
met other requirements and has accepted provisional certification,
or

- a school that is reapplying for certification has a high default rate.

[[Revoking provisional certification]]
If the Department determines that a school with provisional
certification cannot meet its responsibilities under its PPA, the
Department may revoke the school's participation in the SFA
Programs. The Department will notify the school of such a
determination in a notice that states the basis and consequences of
the determination. The notice is sent by certified mail (or other
expeditious means); the revocation takes effect on the date the
Department mails the notice.

The school may request a redetermination of the revocation by
submitting, within 20 days of receiving the notice, written evidence
(filed by hand delivery, mail, or fax) that the finding is unwarranted.
A Department official will review the request and notify the school
by certified mail of his or her decision. If the Department official
determines that the revocation is warranted, the school may not apply
for reinstatement for 18 months after the revocation or after the
expiration of any debarment/suspension action, whichever is later.

[[Recertification]]
A participating school that wishes to continue to participate in the
SFA Programs is required to apply to renew its certification approval
(recertification) before the expiration date in its current PPA. All
schools participating in the SFA Programs at the time the 1992
reauthorization of the HEA were required to apply for recertification
by July 23, 1997. A school is responsible for monitoring the
expiration date on its PPA and submitting an application for
recertification at least 90 days before the PPA expires. See page 3-
207 for information on time frames for submitting a recertification
application.

WHEN TO SUBMIT A FULLY COMPLETED APPLICATION

There are five circumstances when a school that wishes to participate
in SFA Programs must submit a fully completed Application to the
Department:

- initial certification,

- change in ownership or structure,

- recertification,

- designation as an "eligible institution," and

- reinstatement

Other types of changes require a school to NOTIFY the Department
(see page 3-219).

Initial Certification

A school must submit a fully completed Application the first time it
wishes to participate in one or more SFA Programs.

Change in Ownership or Structure

A school must submit a fully completed Application following a
change in ownership, a conversion to a nonprofit institution, or a
merger of two or more schools (referred to collectively as a "change
in ownership and structure"). In these cases, the law states that the
PPA signed by the former owner automatically expires on the date
when the change takes place, and the school's SFA participation
ends. The school retains its default rates and other administrative
capability factors; if it is a proprietary institution or postsecondary
vocational institution, it does not, however, need to meet the Two-
Year Rule.

The Department must be notified of the change within 10 days and,
if the school wishes to reestablish its eligibility to participate in one
or more SFA Programs, an Application must be submitted and
approved.*3* Notification of changes in ownership or structure must
be made to

U.S. Department of Education
Institutional Participation and Oversight Service
Accreditation and Eligibility Determination Division
Initial Participation Branch
600 Independence Avenue, SW
Washington, DC 20202-5244
FAX: (202) 260-3605

[[Change in controlling interest]]
A change in ownership and control occurs when a person or
corporation obtains new authority to control a school's actions,
whether the school is a proprietorship, partnership, or corporation.
The most common example of this change in controlling interest is
when the school is sold to a new owner.

Control of a school can change in other ways, too. For instance, a
school can convert from a for-profit to a nonprofit institution (or vice
versa). This is a change in tax status. A school's control may change
when two or more schools merge or one school divides into several
schools. A school's control also changes in situations where a school
transfers a significant amount of stock to another person or
corporation or when a school transfers its assets or liabilities to
another corporation (including related corporations under the same
ownership).

A change in ownership and control of a corporation that is neither
closely held nor required to be registered with the Securities
Exchange Commission (SEC) occurs when a person who has or
acquires an ownership interest acquires both control of at least 25%
of the total outstanding voting stock of the corporation AND
managing control of the corporation.

(For a more detailed list of the types of circumstances that signify a
change in ownership or structure, see 34 CFR 600.31.)

[[Owner's death or retirement]]
However, a school does not automatically have to submit a fully
completed Application to the Department when a change in
ownership and control is caused by the owner's death or retirement
and ownership transfers to a family member*4* or to a person with
ownership interest who has been involved in the management of the
school for at least two years preceding the transfer. In these
situations, the school must notify the Department of the change and
provide any supporting information requested by the Department.

The law requires that a school must report to the Department the
identity of every owner or person directly or indirectly holding 25%
or greater interest in the school.

[[Change in ownership interest must be reported to the Department;
25% threshold]]
The school must report any change in ownership interests whenever

- an owner acquires a total interest of 25% or greater,

- an owner who held 25% or greater interest reduces his or her
interest to less than 25%, or

- an owner of 25% or greater interest increases or reduces his or her
interest but remains the holder of at least 25% ownership interest.

Because of these reporting requirements, even though transferring
ownership interest through death or retirement may be excluded from
being considered a change in ownership resulting in a change of
control, the resulting change in percentage(s) of ownership interests
must be reported to the Department.

[[Reporting]]
A school must report any changes that result in an individual or
owner (including a corporation or unincorporated business entity)
acquiring the ability to substantially affect the actions of the school.
Such a change must be reported within 10 days of the change; a
school owned by a publicly traded corporation must report the
change within 10 days after the corporation learns of the change. All
schools are subject to these requirements, which are enforced during
the institutional participation approval process, program reviews, and
audit process.

An individual or corporation has the ability to substantially affect the
school's actions when he or she or it

- personally holds, or holds in partnership with one or more family
members, at least a 25% ownership interest in the school,

- personally represents (with voting trust, power of attorney, or
proxy authority), or represents in partnership with one or more
family members, any individual or group holding at least a 25%
ownership interest in the school,

- is the school's chief executive officer (or other executive officer)
or a member of the school's board of directors, or

- is the chief executive officer (or other officer) for any entity that
holds at least 25% ownership interest in the school, or is a member
of the board of directors for such an entity.

OWNERSHIP INTEREST--A share of the legal or beneficial
ownership or control of the school or parent corporation, or a right
to share in the proceeds of the operation of the school or parent
corporation.

The regulations [34 CFR Part 600.30(e) and 668.15(f)] include
examples of ownership interest as an interest as tenant, joint tenant,
or tenant by the entirety, a partnership, and an interest in a trust. The
regulations specifically exclude from the term the proceeds of the
operation of a mutual fund that is regularly and publicly traded, an
institutional investor, or a profit-sharing plan that covers all
employees (except that voting rights of employee stock plans may be
attributed to anyone having authority to vote those shares).

To ensure that its SFA Program participation isn't jeopardized, a
school must report an ownership change (including the name[s] of
the person[s] involved) to the Department. On receiving the
notification, the Department will investigate and notify the school
whether a change in ownership resulting in a change of control has
occurred that will require the school to submit a fully completed
Application if it wishes to participate in the SFA Programs.

[[Steps to be taken by former owners]]
If a school is changing control, the former owner(s) must notify the
Department about the change and the date it occurs. This must be at
the same time that the owner notifies the school's accrediting agency,
but no later than 10 days after the change occurs. (If the former
owner fails to notify the Department, the new owner is responsible
for doing so.) The current owner also should notify the appropriate
state agency that licensed or approved the school.

[[Payments to eligible students]]
Before the change in ownership or structure takes place, the former
owner should make sure that all students receive any SFA payments
already due them for the current payment period and that all records
are current and comply with federal regulations. If the school needs
additional funds for its students for the current payment period, it
should request them and disburse them to all eligible students before
the change takes place.

The school loses its approval to participate in the SFA Programs
when the change takes place. Generally, a school may

- use Pell Grant or campus-based funds that it has received or
request additional Pell Grant or campus-based funds from the
Department to satisfy any unpaid commitment made to a student
from the date the school's participation ended until the scheduled
completion date of the PAYMENT PERIOD, and

- credit a student's account with the proceeds of a second or
subsequent disbursement of a FFEL Stafford or a Direct Loan to
satisfy any unpaid commitment made to the student under the
FFEL Stafford or Direct Loan Program from the date participation
ends until the scheduled completion of that PERIOD OF
ENROLLMENT. (The proceeds of the first disbursement of the
loan must have been delivered to the student or credited to the
student's account prior to the end of the participation.)

The school should notify all new students that no federal aid funds
can be disbursed until the school's eligibility is established and a new
PPA signed by the Department is received.

The school may not award the SFA Program funds beginning on the
date that the change becomes effective. If the school's new owner(s)
wish the school to participate in one or more of the SFA Programs,
the school must submit a fully completed Application to the
Department. A school may not submit an Application until the
transfer is complete, but many transfers involving schools eligible for
SFA participation are complete except that they are contingent upon
the school retaining its eligibility for the SFA Programs. Provided
such a transfer is final in all other aspects and the transfer in
ownership and control has taken place, it is considered complete and
the new owner can proceed with the application process.

[[Steps to be taken by new owners]]
The new owner should request that the former owner provide copies
of the school's existing ECAR, refund policy, default management
plan, program reviews, audited financial statements (for at least the
two most recently completed fiscal years), compliance audits, and an
audited balance sheet showing the financial condition of the
institution at the time of the change. The new owner will need this
information to receive approval to participate.

Accompanying the application must be audited financial statements
for the school's two most recently completed fiscal years, an audited
balance sheet showing the financial condition of the school at the
time of the change, and a default management plan. Each
participating school must demonstrate financial responsibility
independently. If the entity that has acquired the school is an
ongoing entity (partnership or corporation), the school must also
submit completed audited financial statements of the acquiring entity
for the last two consecutive fiscal years. (For information on
financial responsibility and submitting audited financial statements,
see Section 2.)

The school also must submit proof that its accreditation is continued
under the new ownership or control, along with a photocopy of its
state legal authorization under the new ownership.

The school may not award SFA Program funds until it receives a
PPA signed on behalf of the Secretary. (As discussed earlier in this
section, the school may, at the Department's discretion, be eligible
for provisional certification.)

[[Accepting liabilities & refund policy]]
If the new owner(s) acquired the school or if the school is the result
of a merger of two or more former schools, the new owner is liable
for any debts from the former owner's SFA Program administration.
The new owner accepts liability for any federal funds that were given
to the school but that were improperly spent before the date the
change in ownership or structure became effective. The new owner
must also abide by the refund policy for students enrolled before the
date the change became effective and must honor all student
enrollment contracts signed before the date of the change.

[[Effect of cohort default requirements]]
As mentioned earlier, the school retains its current and past cohort
default rates and must implement any requirements associated with
those rates. In fact, cohort default rates calculated for fiscal years
prior to the change in ownership may affect the school's SFA
participation. A school with a change in ownership or structure may
be denied approval to participate in the SFA Programs on the basis of
current default rates. Regardless of the level of the school's cohort
default rate, the new owner must submit a new default management
plan with the Application.

[[Audits & close-out procedures]]
Although a separate financial aid compliance audit is not required
when there is a change in ownership or structure, the new owner may
choose to have the accounts audited before they are closed out. Any
questions about SFA accounts or close-out procedures can be
answered by the Department's Financial Management Specialists for
the Pell Grant, campus-based, Direct Loan, or FFEL program. The
new owner also should check with the Department's appropriate case
management team for information on whether the school owes any
Department liabilities resulting from program reviews or audits. See
Chapter 1 for phone numbers.

Before the date of purchase, the new owner should make sure that all
students have received their SFA Program award payments for
payment periods and periods of enrollment that began before the date
of purchase, that all SFA Program accounts have been closed out,
and that all related reports have been filed properly.

Once the Department determines that a school that has undergone a
change in ownership or structure is eligible to participate in the SFA
Programs, a new ECAR and signed PPA will be sent and appropriate
offices will be notified that the school is certified to participate under
the new ownership. The school may begin disbursing the SFA
Program funds in the payment period or loan period (as applicable)
in which the new PPA is signed on behalf of the Secretary.

Recertification

A school that wishes to continue participating in the SFA Programs
must submit a fully completed Application requesting recertification
90 days prior to the expiration date on its current PPA or the
Department otherswise notifies it that recertification is necessary.
See page 3-207 for more information on time frames for submitting a
recertification application.

Although in the past most PPAs did not have expiration dates, this
changed with the 1992 reauthorization of the HEA. It is now a
statutory requirement that every four years a school must be
reapproved (recertified) to participate in the SFA Programs.

Designation as an Eligible Institution

A school must submit a fully completed Application requesting this
certification category when it wishes to be designated as an eligible
institution under the HEA but does not wish to participate to the
point of awarding federal financial aid funds.

A school may request this type of limited designation so the school's
students may receive deferments under federal student loan programs
or so the school may apply to participate in HEA programs other
than the SFA Programs.

To meet the requirements for its students to defer student loan
payments and to take part in other HEA programs, the school is
required to be approved as an eligible institution--it is not actually
required to award SFA funds. (See Section 1 for information on what
constitutes an eligible institution.)

Reinstatement

A school must submit a fully completed Application requesting
reinstatement when it wishes to participate again in one or more SFA
Programs after voluntarily or involuntarily leaving the SFA
Programs.

A school that voluntarily left one or more SFA Programs (and did
not leave because of action about to be taken by the Department)
may apply for reinstatement at any time.

[[Required reporting]]
[[CLARIFICATION]]
A school that the Department terminated from participating in one or
more SFA Programs (or that left one or more SFA Programs because
it was about to be terminated or sanctioned) has a waiting period
before it may apply to be reinstated.


*1* These include the school's current letter of accreditation; valid
state license or other state authorization; and, in some cases, audited
financial statements, a default management plan and, for a school
undergoing a change in ownership, an audited balance sheet showing
the financial condition of the school at the time of the change in
ownership.

*2* In the case of a proprietary institution and a postsecondary
vocational institution, there is an eligibility requirement that the
school must have been providing continuous postsecondary
instruction for at least two consecutive years before it can participate
in the SFA Programs. This is known as the Two-Year Rule. (See
Section One.)

*3* As discussed previously in this section, a school undergoing a
change in ownership or structure if approved will be provisionally
certified by the Department for up to three years.

*4* A family member is defined as a parent, sibling, spouse, child,
spouse's parent, spouse's sibling, or child's spouse.

Section 9: Applying for and Maintaining Participation in the
SFA Programs
pages 3-219 to 3-232


SUBSTANTIVE CHANGES AND HOW TO REPORT THEM

A school is required to report changes to certain information on its
approved Application. Some of these changes require the
Department's written approval before the school may disburse the
SFA Program funds, others do not (see the chart below and on the
next page).

Changes That Require the Department's Written Approval

(The number in parentheses refers to the number of the question
on the Application.)

All Schools
- Change in accrediting agency (#15)
- Change in state authorizing agency (#17)
- Change in institutional structure (#18)
- Change in educational programs outside of the scope of current
approval (#26)
- Addition of nondegree programs outside of the scope of current
approval (#27)
- Change from or to clock hours or credit hours (#27)
- Addition of a location (#30)
- Change to the SFA Programs for which the school is approved
(accrediting agency and state authorizing agency approvals not
required) (#37)

For-profit Schools Only
- Change in the type of ownership (#22)
- Change in ownership (#24)

Changes That Do Not Require the Department's Written Approval

All Schools
- Change to name of school (school must send copies of
accrediting agency and state authorizing agency approvals)
(#2)
- Change to the name of a CEO, President, Chancellor (#10)
- Change to the name of the chief fiscal officer, financial
officer (#11)
- Address change for a principal location (#29)
- Address change for other locations (#30)
- Change to the school's third-party servicers that deal with the
SFA Program funds (#58)

Private nonprofit and for-profit schools only
- Change to the Board of Directors (but not trustees) (#20)

Foreign schools only (including foreign medical schools)
- Change to postsecondary authorization (#42)
- Change to degree authorization (#43)
- Change to program equivalence (#44)
- Change to program criteria (#45)
- Change to U.S. administrative and/or recruitment offices (#46)

Foreign medical schools only
- Change to facility at which school provides graduate medical
instruction (#47)
- Change to authorizing entity (#48)
- Change to approval of authorizing entity (#49)
- Change to length of program (#50)
- Change to programs located in the United States (#51)

[[Notification in 10 days]]
When one of these changes occurs, the school must report the change
and the date of the change to the Department, through a letter on
school letterhead, within 10 calendar days of the change. In addition,
a school must include

- the school's 8-digit Office of Postsecondary Education
Identification (OPE ID) number and 9-digit Employer
Identification Number in the letter,

- the portion of the Application containing changed information and
any required documentation, and

- Section L of the Application containing the original signature of
the appropriate person.

In addition, for a change requiring written approval from the
Department (unless otherwise noted) and for some changes that do
not require written approval from the Department (noted on chart), a
school must obtain approval from the appropriate accrediting agency
and state authorizing agency. The school must submit a copy of the
agency approval to the Department as part of its notification.

Notifications of changes in ownership or structure must be made to
the Institutional Participation and Oversight Service at the address on
page 3-213.

All other notifications must be sent by regular mail to

U.S. Department of Education
Institutional Participation and Oversight Service
P.O. Box 44805
L'Enfant Plaza Station
Washington, DC 20026-4805

or by courier or overnight mail to

U.S. Department of Education
Institutional Participation and Oversight Service
Room 3522
7th and D Streets, SW-GSA Building
Washington, DC 20407

[[Notification of school closure or bankruptcy]]
If a change occurs in an Application item not listed in one of the two
charts, the school must update the information when it applies for
recertification. However, if a school closes or files for bankruptcy,
the school must notify the Department within 10 calendar days of
either event by sending a letter on the school's letterhead that
indicates the date the school closed or plans to close, or the date the
school filed for bankruptcy, as appropriate.

When the Department is notified of a change, if further action is
needed, it will tell the school how to proceed, including what
materials and what additional completed sections of the Application
need to be submitted. If a school has questions about changes and
procedures, it should contact the Institutional Participation and
Oversight Service.

After receiving the required materials (and depending on the
circumstances), the Department will evaluate the change(s) and
either approve or deny the change and notify the school.

Adding Locations or Programs

The ECAR that the Department sends to the school lists the
educational programs and locations that are eligible. (The eligibility
of a school and its programs does not automatically include separate
locations and extensions.) If, after receipt of the ECAR, a school
wishes to add a location at which at least 50% of an educational
program is offered, it must notify the Department. Upon receipt of
this notice, the Department will either confirm the program's
eligibility without requiring an application or will instruct the school
to apply for an eligibility and certification determination. (A school
that is adding a location must be able to show the Department that
the location is properly accredited and licensed by the state.)

For a location to be added, it must meet all institutional eligibility
requirements as described in Sections 1 and 2 , EXCEPT the Two-
Year Rule. Each site must be legally authorized. To apply for a
determination of eligibility for an added location, the school must
send the Department the required application sections, a copy of the
accrediting agency's notice certifying that the new location is
included in the school's accredited status, and a copy of the state
legal authorization from each state in which the school is physically
located.

The Department will review the information, and will evaluate the
school's financial responsibility, administrative capability, and
eligibility. Depending upon the circumstances, the Department may
conduct an on-site review. If it approves the additional location, a
revised ECAR or Acknowledgment Notice will be issued. The
location is eligible as of the date of the Department's determination.
The Department may require a recertification application and a new
PPA, in which case the school may disburse funds to students
enrolled at that location only after both the school and the Secretary
have signed the new PPA. The Department will send the school a
revised ECAR.

Note that if a proprietary institution or a postsecondary vocational
institution attempts to acquire a closed school (or any locations of a
closed school) as an additional location, and that closed school owes
SFA refunds or liabilities that are not being properly repaid, the
acquiring school must either assume responsibility for those
liabilities or wait two years for that additional location to become
eligible. (This applies to ANY acquisition of the closed school's
assets, even an indirect acquisition.) The acquiring school will also
receive a recalculated default rate because the acquiring school
assumes the default rate of the closed school (or any additional
locations of the closed school).

[[Two cases when a school may make its own program-eligibility
determinations]]
If a school adds an educational PROGRAM after receiving its
ECAR, there are two cases in which the school itself may determine
the program's eligibility:

- the added program leads to an associate, bachelor's, professional,
or graduate degree (and the school has already been approved to
offer programs at that level); or

- the added program is at least 8 semester hours, 12 quarter hours,
or 600 clock hours in length and prepares students for gainful
employment in the same or related recognized occupation as an
educational program that the Secretary already has designated as
an eligible program at the school.

Before the school may determine these programs to be eligible and
disburse funds to enrolled students, the school must have received
both the required state and accrediting agency approvals.

Note, however, that if the school's self-determination of eligibility
for an educational program is found to be incorrect, the school is
liable for all SFA Program funds received for the program and all
SFA Program funds received by or for students enrolled in that
program.

[[The Department must approve all other added programs]]
IN ALL OTHER CASES, the eligibility of an added educational
program must be determined by the Department before the SFA
Program funds can be awarded. The school must submit the required
Application sections and a copy of approval of the new program
from its accrediting agency and state authorizing agency. The
Department will evaluate the new program and the school. If it
approves the additional program, a revised ECAR or Approval
Notice is issued for the school, and the school is eligible as of the
date of the Department's determination. The school may begin to
disburse the SFA Program funds to students enrolled in that program.
(For more on program eligibility, see Section 1.)

[[Waivers]]
The law mandates percentages of telecommunications and/or
correspondence courses, students enrolled under ability-to-benefit
provisions, and incarcerated students at a participating school. If
there is a change to any of a school's answers to the Yes/No
questions in Section G of a submitted Application (which deal with
enrollment thresholds in these areas), the school must notify the
Department. The Department will advise the school of its options,
including whether the school might be eligible for a waiver. (For
more information, see Section 1.)

[[Changes in accreditation]]
If a school decides to change accrediting agencies, it must notify the
Institutional Participation and Oversight Service when it begins the
process of obtaining accreditation from the second agency. As part of
this notice, the school must submit materials relating to its prior
accreditation, and materials demonstrating a reasonable cause for
changing its accrediting agency. If a school fails to properly notify
the Department, the Department will no longer recognize the school's
existing accreditation.

If a school decides to become accredited by more than one
institutional accrediting agency, it must submit to the Institutional
Participation and Oversight Service (and to its current and
prospective agency) the reasons for accreditation by more than one
agency. This submission must be made when the school begins the
process of obtaining the additional accreditation. If a school obtains
additional accreditation and fails to properly submit to the
Department its reasons for the additional accreditation, the
Department will not recognize the school's accredited status with
either agency.

If a school becomes accredited by more than one agency, it must
notify the Institutional Participation and Oversight Service of which
agency's accreditation the school will use for the purpose of
determining the school's institutional eligibility for the SFA
Programs.

REQUIREMENTS WHEN A SCHOOL CEASES TO BE AN
ELIGIBLE INSTITUTION

[[Situations triggering loss of eligibility]]
A school loses its eligibility to participate in the SFA Programs when
it no longer meets the requirements of 34 CFR Part 600, certain
requirements of Part 668 or when the Department terminates the
school under Subpart G of the General Provisions. Examples of
situations that trigger loss of eligibility to participate include

- excessive student-loan cohort default rates,

- loss of accreditation,

- loss of state licensure,

- the PPA expires or is terminated by the Department,

- provisional certification is revoked by the Department,

- the school closes or stops providing educational instruction (for a
reason other than a normal vacation period or as a result of a
natural disaster), and

- the school files a petition for bankruptcy.

In general, a school that ceases to be eligible must notify the
Institutional Participation and Oversight Service within 30 days of its
loss of eligibility to participate in the SFA Programs. Requirements
for notifying the Department are in 34 CFR 600.40.

[[Loss of accreditation]]
When a school loses its institution-wide accreditation, the
Department generally may not certify or recertify that school to
participate in any SFA Program for two years after the school has
had its accreditation withdrawn, revoked, or otherwise terminated for
cause or a school has voluntarily withdrawn under a show cause or
suspension order. If a school wishes to be reinstated, it must submit a
fully completed Application to the Department.

[[Exceptions]]
The Department will not recertify a school that has lost its
institution-wide accreditation in the previous two years unless the
original accrediting agency rescinds its decision to terminate the
school's accreditation. (The school may not be recertified on the
basis of accreditation granted by a different accrediting agency
during the two-year period.) Similarly, if a school voluntarily
withdrew from accreditation during the last two years under a "show
cause" or suspension order, the Department will not recertify unless
the original order is rescinded by the accrediting agency.

Other exceptions:

- If the Department determines that loss of institution-wide
accreditation was due to the school's religious mission or
affiliation, the school can remain certified for up to 18 months
while it obtains alternative accreditation; and

- If a school's institution-wide accrediting agency loses its
Department recognition, the school has up to 18 months to obtain
new accreditation.

Note that it is possible for accreditation to be withdrawn from one of
the programs at a school without affecting the accreditation (and
eligibility) of other programs at the school.

REQUIREMENTS WHEN A SCHOOL'S SFA PARTICIPATION
ENDS

A school may stop participating in the SFA Programs voluntarily or
it may be required to leave involuntarily. In either situation, there are
required close-out procedures to follow.

Voluntary Withdrawal from SFA Participation

A school may voluntarily withdraw from participating in one or all
of the SFA Programs. This might be for any number of reasons. For
instance, a school might wish to withdraw from the Perkins Loan
Program to work on lowering high student-loan cohort default rates.
To withdraw from one or all of the SFA Programs, the school must
notify the Department in writing at the general address for the
Institutional Participation and Oversight Service (see page 3-203).
For more information on these requirements and procedures, contact
the appropriate case management team. Note: A school that
withdrew voluntarily (for instance, to lower its default rate) can
request to participate again without the waiting period required for a
school that was terminated from the program involuntarily OR
withdrew voluntarily while under a show cause or suspension order.

Withdrawing from the SFA Programs while under a termination
order or other sanction--or to avoid being placed under them--is not
considered voluntary withdrawal.

Involuntary Withdrawal from SFA Participation

[[Situations triggering loss of participation]]
A school's participation ends in the following circumstances:

- The school closes or stops providing instruction (for a reason
other than normal vacation periods or as a result of a natural
disaster that directly affects the school or its students). Note: If the
school closes its main campus or stops providing instruction on its
main campus, its loss of eligibility includes all its locations and
programs.

- The school loses its eligibility.

- The school's participation is terminated under Subpart G.

- The school's period of participation expires or the school's
provisional certification is revoked.

- The school's PPA is terminated or expired.

- The school's cohort default rate exceeds the limit.

If a school ceases to provide educational instruction in all programs,
the school should make arrangements for its students to complete
their programs. If the school chooses to enter into a formal teachout
arrangement, the school should contact the appropriate case
management team for guidance.

[[When participation ends]]
When a school's participation in an SFA Program ends--for whatever
reason--the school must immediately notify the Department and
comply with the following minimum requirements:

- WITHIN 45 DAYS of the effective ending date of participation,
submit to the Department all financial reports, performance reports
and other reports required by each appropriate SFA Program
regulation, as well as a dated letter of engagement for an audit by
an independent public accountant (IPA) of all SFA funds received
under the program(s). The completed audit report must be
submitted to the Department within 45 days after the date of the
letter of engagement.

- Report to the Department on the arrangements for retaining and
storing (for the remainder of the appropriate retention period
described in 34 CFR 668.24) all records concerning the school's
management of the appropriate SFA Programs. (See Section 7.)

- Tell the Department how the school will provide for collecting
any outstanding SFA Program student loans held by the school.

- Refund students' unearned tuition and fees. (See Section 4.)

[[Additional close-out procedures]]
In addition, a school that closes must refund to the federal
government or, following written instructions from the Department,
otherwise distribute any unexpended SFA funds it has received
(minus its administrative cost allowance, if applicable). The school
must also return to the appropriate lender(s) any loan proceeds the
school received but has not disbursed to students. If the school's
participation in the State Student Incentive Grant (SSIG) Program
ends, the school must inform the state and follow the state's
instructions.

If a school's participation ends during a payment period (or
enrollment period for FFEL Programs), but the school continues to
provide education in the formerly eligible program until the end of
the payment or enrollment period, the school may

- use the SFA Program funds in its possession to satisfy unpaid Pell
Grant or campus-based program commitments made to students
for that payment period or for previously completed payment
periods before the school's participation ended. (The school may
request additional funds from the Department to meet these
commitments.)

- satisfy any unpaid FFEL commitments made to students for that
period of enrollment by delivering subsequent FFEL
disbursements to the students or by crediting them to the students'
accounts (if the first disbursement already was delivered or
credited before the school's participation ended).

- use the SFA Program funds in its possession to satisfy unpaid
Direct Loan commitments made to students for that period of
enrollment before participation ended by delivering subsequent
Direct Loan disbursements to the students or by crediting them to
their accounts (if the first disbursement already was delivered or
credited to the students' accounts before the school's participation
ended). The school may request additional funds from the
Department to fulfill this commitment.

Contact the Department's appropriate regional office staff for
guidance in fulfilling these requirements and responsibilities.

CASE MANAGEMENT

[[NEW]]
Case management is the Department's new approach to oversight of
schools that participate in the SFA Programs. Case management is
designed to provide the Department with a thorough picture of a
school's overall compliance through the use of Case Teams.

Case Teams are composed of both regional and Washington, DC
staff from the Department. Each team is assigned a portfolio of
schools. The team is responsible for all oversight functions for the
schools in its portfolio. These functions include audit resolution,
program reviews, financial statement analysis, and recertification.
Each school is assigned a Case Manager who leads the team in its
evaluation of that school. The entire team will evaluate information
on the school from a variety of sources to identify any compliance
problems at the school. The team can then assess potential risk to the
SFA Programs and determine appropriate action. Once appropriate
actions are decided upon, the Case Manager assigned to the school
ensures that the recommended actions are taken.

[[Utilizes information from many sources]]
Case Teams will collect and review information on a school from
many sources including, but not limited to

- applications for recertification,

- financial and compliance audits,

- state agencies,

- accrediting agencies and licensing boards,

- student complaints, and

- Department databases.

[[Possible actions taken by the Department]]
Actions that a case team may decide to take include, but are not
limited to

- initiating recertification or provisional certification,

- initiating a program review,

- establishing liabilities,

- developing a strategy for providing technical assistance,

- transferring the school to the reimbursement payment method (see
Section 3),

- requiring a letter of credit, and

- referring the school for a enforcement action.

Actions do not always have to be negative. For example, the case
team can recommend a school for participation in the Quality
Assurance Program (see Section 6.)

The Department will use a system of risk analysis to identify schools
with the greatest need for oversight. The Department will use the
analysis of various Department data systems to generate a risk score
for a school. This will enable the Department to target resources to
those schools that present the highest risk to the government.

Case management is beneficial to schools also because a school can
contact one team that will have all information on the school
available in one place. (For a list of contact phone numbers for the
regional case management teams, see Chapter 1.)

CORRECTIVE ACTIONS AND SANCTIONS

[[Sanctions]]
Sanctions include emergency actions, fines, limitations, suspensions,
and terminations. The Department will sanction any school that

- violates the law or regulations governing the SFA Programs, its
PPA, or any agreement made under the law or regulations; and/or

- substantially misrepresents the nature of its educational programs,
its financial charges, or its graduates' employability. (For details
on misrepresentation, see Section 8.)

Similarly, the Department may also sanction a third-party servicer
that performs functions related to the SFA Programs. Further, the
Department has the authority to sanction a group of schools or
servicers if it finds that a person or entity with substantial control
over all schools or servicers has violated any of the SFA Program
requirements or has been suspended or debarred from program
participation. (See Section 2.)

[[Actions due to program violations or misrepresentation]]
If it appears that a school has violated the SFA Program
requirements, the Department may allow the school to respond to the
problem and indicate how it will correct it. If this informal approach
fails to correct the situation, or if the school has repeatedly violated
the law or regulations, the Department may take emergency action,
fine the school, or initiate a limitation, suspension or termination of
SFA Program participation.

In addition, the Department has the authority to terminate a school
or program that no longer meets the eligibility criteria given in
Section 1. For details on steps that a school should follow in any of
these situations, see Subpart G of the General Provisions regulations
and Section 600.41 of the Institutional Eligibility regulations.

[[Emergency action]]
The Department may take emergency action to withhold SFA funds
from a school or its students if the Department receives information,
determined by a Department official to be reliable, that the school is
violating applicable laws, regulations, special arrangements,
agreements, or limitations. To take an emergency action, the
Department official must determine that

- the school is misusing federal funds,

- immediate action is necessary to stop this misuse, and

- the potential loss outweighs the importance of using established
procedures for limitation, suspension, and termination.

The school is notified by registered mail (or other expeditious
means) of the emergency action and the reasons for it. The action
becomes effective on the date the notice is mailed.

An emergency action suspends the school's participation in all SFA
Programs and prohibits the school from disbursing SFA funds or
certifying FFEL applications. The action may not last more than 30
days unless a limitation, suspension, or termination proceeding is
initiated during that period. In that case, the emergency action is
extended until the proceeding, including any appeal, is concluded.
The school is given an opportunity to "show cause" that the action is
unwarranted.

[[Fine]]
The Department may fine a school up $25,000 for each statutory or
regulatory violation. (The Department first notifies the school of its
intent to fine so the school can, if it chooses, request a hearing.) If
the school is proven guilty of the violation(s), it may appeal to the
Department for a compromise on the amount of the fine(s) imposed
at the hearing. In determining the amount owed by the school, the
Department will consider the school's size and the seriousness of its
violation or misrepresentation. A school that substantially
misrepresented the nature of its educational programs, its financial
charges, or the employability of its graduates, may not be reinstated
for at least three months, even if it changes ownership.

[[Limitation]]
Under a limitation, a school agrees to abide by certain specific
conditions or restrictions as it administers SFA funds; by doing so, it
is allowed to continue participating in the SFA Programs. A
limitation lasts for at least 12 months. If the school fails to abide by
the limitation's conditions, a termination proceeding may be initiated.

[[Suspension]]
A suspension removes a school from participation in the SFA
Programs for a period not to exceed 60 days (unless a limitation or
termination or proceeding has begun). A suspension action is used
when a school can be expected to correct an SFA Program violation
in a short time.

[[Termination]]
A termination ends a school's participation in the SFA Programs. A
school that has violated the law or regulations governing the SFA
Programs, its PPA, or any other agreement made under SFA
regulations and was terminated from participating in the SFA
Programs generally may not apply to be reinstated for two years (24
months). In some circumstances (such as termination of provisional
certification), a school may apply after 18 months. This waiting
period is required even if the school changes ownership during that
period. A school that substantially misrepresented the nature of its
educational programs, its financial charges, or the employability of
its graduates, may not be reinstated for at least three months, even if
it changes ownership.

[[Corrective action; repaying funds]]
As part of any fine, limitation, suspension, or termination
proceeding, the Department may require a school to take corrective
action. This may include making payments to eligible students or
repaying illegally used funds to the Department. In addition, the
Department may offset any funds to be repaid against any benefits or
claims due the school.

[[Possibility of reinstatement]]
As mentioned previously, a school requesting reinstatement in the
SFA Programs must submit a fully completed Application to the
Department and demonstrate that it meets the standards in Subpart B
of the General Provisions (discussed in Section 1). As part of the
reinstatement process, the school must show that the school has
corrected the violation(s) on which its termination was based,
including repaying all funds (to the Department or to the eligible
recipients) that were improperly received, disbursed, caused to be
disbursed, or withheld. The Department may approve the request,
deny the request, OR approve the request subject to limitations (such
as granting the school provisional certification). If the Department
approves the reinstatement request, the school will receive a new
ECAR and enter into a new PPA.

Last Modified: 07/28/1998