|
 |
|
On November 1, 2000, the Secretary of Education published a series of final regulations in the Federal Register as a result of the efforts of the two negotiated rulemaking teams which met during the spring of 2000. CCA participated on both negotiating teams. We would like to thank Mary Lyn Hammer of Hands On, Inc., Debra Bouabidi of Technical Career Institute, and Jonathan Glass of Dow, Lohnes & Albertson for their hard work as members of CCAs negotiating teams. This Connectorprovides a summary of those regulations. You may access the actual final regulations on the Internet at one of the following sites: Please note that this summary provides information on the issues that we believe are most important to the entire CCA membership. It is not a comprehensive summary of the entire set of regulations, and it does not take the place of careful reading of the regulations. In general, the effective date of these regulations is July 1, 2001. However, specific information relating to the effective dates of particular packages is included with each summary. If you have questions on these final regulations, you may contact Nancy Broff at nancyb@career.org or (202) 336-6755. Final Regulations
General Provisions In a major victory for CCA, the Department made a substantial change from the NPRM relating to the issue on which the negotiating team did not reach consensus. Rather than allow only public institutions to add a location without obtaining advance approval from the Secretary, the final regulations allow all institutions, except those which meet certain performance screens, to add locations simply by notifying the Secretary. The other major changes made by this final regulation are:
Effective Date: The following three regulations have been designated for early implementation at the option of institutions: §600.31, dealing with changes of ownership; §668.5 relating to written arrangements between institutions, and §675.19 allowing electronic certification of Federal Work Study timesheets. Section 600.10 Date, Extent, Duration, and Consequence of Eligibility This section has been rewritten to conform to the changes in §600.20 and §600.21 and now states that eligibility does not extend to an additional location that provides at least 50% of an eligible program unless (1) the Secretary approves the program, or (2) the location is licensed and accredited, the institution has notified the Secretary under §600.21, and the institution does not have to apply for approval under §600.20(c). Section 600.20 Application Procedures for Establishing, Reestablishing, Maintaining, or Expanding Institutional Eligibility and Certification This section was rewritten to add clarity. It includes a number of substantive changes. The new language clearly indicates that eligibility and certification are separate processes, and consolidates the requirements for eligibility and certification in this one section. It also provides that all institutions, whether they participate in Title IV programs or not, must apply to continue eligibility and certification under certain circumstances enumerated in the regulation. The regulations set out procedures for two types of situations: reapplication and application to expand eligibility. As provided in §600.20(b), reapplication is required to continue to participate past the scheduled expiration of the current eligibility and certification, after a change in ownership that results in a change in control, or after a change in status as a proprietary, non-profit, or public institution. Application to expand eligibility is covered in §600.20(c). The new regulations make a number of changes to the current regulations. The first change is both a major change in the regulation, and a major change from the NPRM. Instead of public sector institutions being permitted to add locations without obtaining advance approval from the Secretary, this regulatory relief was granted to all institutions except those which come within listed criteria. An institution must apply for approval and wait to disburse federal funds for an additional location only if:
The preamble notes that the Secretary may use the final criterion when there are financial, administrative, or compliance concerns about an institution. The institution will receive a written notice from the Secretary, and may request reconsideration of that decision if it shows that there are material errors in the facts on which the decision was based. Institutions which do not come within these criteria simply must notify the Secretary prior to disbursing funds at the new site. The new regulations also make clear that an institution is required to apply for approval of any increase in the level of its program offerings. Finally, the new language clarifies that an institution must apply for approval if it wishes to convert an existing eligible location to a branch campus. Section 600.21 Updating Applicant Information The regulations move most of what is currently in §600.30 into a revised §600.21. An additional element is added requiring an institution to notify the Secretary if there is a decrease in the level of program offerings. As noted above, most institutions must notify the Secretary before disbursing federal funds at a new location that teaches at least 50% of an eligible program. The regulation also amends the list of persons who are deemed to substantially affect the actions of an institution. The members of the Board of Directors or Trustees are no longer included. The new regulation more clearly identifies the chief executive officer, chief financial officer, and the individual designated as the lead program administrator for Title IV programs as persons deemed to substantially affect the institution. Publicly-traded institutions must notify the Secretary of material changes at the same time that they notify the accrediting agency, but not more than 10 days after the institution becomes aware of the change. Section 600.31 Change in Ownership Resulting in a Change in Control for Private Nonprofit and Private For-profit Institutions The new regulations make several substantial modifications to the provisions relating to change in ownership resulting in a change in control. Publicly-traded Corporations The current regulation considers a publicly-traded corporation to have a change of ownership when a transaction takes place which requires the corporation to file a Form 8-K with the SEC. However, the Department was concerned that this standard did not capture events where a reduction occurs in the ownership interest of a controlling shareholder. The new regulation includes a provision which treats as a change of ownership a circumstance where a "controlling shareholder" ceases to be controlling. A controlling shareholder is defined as a person who holds or controls 25% or more of the total outstanding voting stock of the corporation and more than any other shareholder. The definition does not apply to institutional investors (as defined in SEC regulations), mutual funds, profit-sharing plans, or ESOPs. A controlling shareholder ceases to be controlling when any transaction causes it to reduce its interest to less than 25%, or less than the interest of any other non-excluded shareholder. In addition, several concessions were made to make the process of change of ownership in these circumstances less burdensome. First, a publicly-traded institution which has a change in ownership as a result of a diminution in ownership may submit its most recent quarterly financial statement filed with the SEC, together with copies of all other SEC filings made since the close of the last fiscal year for which an audit was filed with the Department, instead of a "same day" balance sheet. Second, if there is more than one transaction which triggers this provision during the period of the provisional certification from the first transaction, the provisional certification period will not be extended, so long as the person who becomes the controlling shareholder was identified on the previous application as a shareholder with substantial interests in the institution. Public Institutions The regulation creates an exemption for public institutions if the controlling body is in the same state as the former controlling body and the new governing body has acknowledged the institutions continuing responsibilities under its program participation agreement. Public institutions are required to inform the Department under §600.21 within ten days of a change in governance. Section 668.2 General Definitions (Academic Year) Section 668.8 Eligible Program The regulations clarify the 12-hour rule to state that homework does not count as instructional time and that preparation for examinations counts only if it occurs after the last scheduled day of instruction for a payment period. Section 668.5 Written Arrangements to Provide Educational Programs This section includes most of the provisions that are currently in 600.9 and 690.9. The new language permits any of the institutions participating in the written agreement to make Title IV calculations and disbursements without that institution being considered a third-party servicer for the students home institution. Section 668.13 Certification Procedures (Training Requirements) The new regulations modify and simplify the certification training requirements. First, the proposal limits the conditions under which the training is required to only two circumstances: when an institution begins initial participation, and when there is a change of ownership. Second, the chief executive may elect to send another executive as his or her designee. Third, the institution may request a waiver for either the chief financial aid officer or the chief administrator. So, for example, if one of these officials has recently completed the required certification training, a waiver may be granted. Section 668.19 Financial Aid History The proposed regulation eliminates the paper FAT requirement for all students and mandates the use of the NSLDS data for purposes of obtaining financial aid history information. For a prior year transfer student, the institution will continue to rely on the information in the ISIR. For a current year transfer student, an institution will request updated student eligibility information from NSLDS. The institution will not be able to make a disbursement of Title IV funds to a current year transfer student until seven days after it requests updated information from NSLDS, unless it gets the updated information from NSLDS sooner. Section 668.165 Notice and Authorizations The current regulations require that an institution must notify a student or parent borrower when federal loan funds are credited to a students account. The notice may be sent electronically, but the institution must then require the student or parent to confirm receipt and must keep a copy of that receipt. In an attempt to make the process more adaptable to electronic processes, the new regulations make a minor change and require that an institution must confirm receipt of the notice and must maintain documentation of that confirmation. Section 675.19 Fiscal Procedures and Records (FWS) The new regulations remove the requirement that FWS time record certifications contain a handwritten signature by the students supervisor. This is intended to allow institutions to use electronic certification. If an institution chooses to use electronic certification, it should provide for secure systems including, for example, password protection, password changes at set time intervals, user identification and entry point tracking, random audit surveys, etc. Cohort Default Rate Appeals All of the provisions in this package reflect the consensus of the entire group of negotiators with the exception of a single provision, which provides that certain loans being repaid under the Direct Loan Programs income contingent repayment plan are considered to be in default when calculating a proprietary, non-degree granting institutions cohort default rate. The final regulation moved requirements dealing with cohort default rate appeals from §668.17 to a new subpart M of part 668 and revised their text. There are also a number of substantive changes. The regulation makes deadlines for submitting challenges, requests for adjustments, and appeals as consistent as possible. All deadlines in these regulations will now be in calendar days. In general, an institution will be allowed 15 calendar days to request records or pay a fee and is allowed 30 calendar days to submit a completed request for adjustment or appeal. Exceptions to this approach will be made for challenges to draft cohort default rates (45 calendar days are allowed) and economically disadvantaged appeals. For the latter, institutions have 30 calendar days to submit its managements written assertion and 60 calendar days to submit a completed appeal. Effective Date: These regulations will become effective on July 1, 2001. However, to the extent that an institution has or had an obligation or a right under §668.17 before July 1, 2001, the institutions exercise or failure to exercise that right or meet that obligation is binding on the institution after the effective date. Section 668.16(m)(2)(i) Provisional Certification This section has been changed to provide discretion to the Secretary in placing an institution on provisional certification because it has a single cohort default rate of 25% or greater. The preamble to the final regulations states the Secretarys view that other current safeguards, such as the case management system, improved reporting practices, and the availability of technical assistance may make provisional certification in this circumstance unnecessary. Section 668.182 Definition of Terms A new term, "data manager," is used to refer to the guaranty agency for FFEL loans and the Direct Loan Servicer for Direct loans. The term "days" is defined to mean calendar days. Section 668.184 Determining Cohort Default Rates for Institutions That Have Undergone a Change in Status This section details requirements for determining an institutions cohort default rate following three types of institutional restructuring: (1) an institutions acquisition of or merger into a separate institution; (2) an institutions acquisition of a branch or location that was formerly part of a separate institution; and (3) a spin-off of an institutions branch or location to become a separate, new institution. The language has been clarified to remind institutions that the application of the provisions of this section do not preclude the application of §668.188; an institution may be subject to both provisions based on a single transaction. Acquisition or merger of institutions When an institution acquires or merges with another institution, the method of determining the institutions cohort default rate will depend on the date of the acquisition or merger and the date of publication of the cohort default rate. For cohort default rates published before the date of change of status, the regulation states the institutions cohort default rate is the rate that was calculated for the predecessor institution with the greatest total number of borrowers entering repayment in the two most recent cohorts that were used to calculate those cohort default rates. For cohort default rates published after the acquisition or merger, the data for both of the institutions involved in the merger would be combined. Acquisition of branches or locations As with the previous scenario, the date of acquisition will determine the method for determining cohort default rates. For cohort default rates that were published before the date of acquisition, the institutions cohort default rate remains unchanged. However, the institutions cohort default rate would apply to both the institution and to the newly acquired branch or location. For the first three cohort default rates published after the date of acquisition, the acquiring institutions cohort default rate is calculated as a merged rate based on the data for all of the borrowers at both of the institutions involved in the change of status. After the institutions third merged rate, subsequent default rates no longer include the data for the institution from which the branch or location was acquired. The institution from which the location was acquired continues to have its own cohort default rate, without including borrowers from the acquiring school. Branches or locations becoming institutions If a branch or location of an institution becomes a separate, new institution, the date of the change and the date of publication of the institutions cohort default rate determines the method of default rate calculation. For cohort default rates that were published before the date of its change in status, the institutions cohort default rate is the same as the cohort default rate for its former parent institution. For the first three cohort default rates published after the date of the change in status, the institutions cohort default rate is calculated as a merged rate based on the data for all of the borrowers at the institution and at its former parent institution. After the institutions third merged rate, subsequent default rates no longer include the data from the former parent institution. Section 668.185(c) and 668.195 Participation Rate Index Challenges and Appeals The regulations make three changes to the current regulatory requirements. First, it allows any institution subject to a loss of participation based on its cohort default rate to submit a participation rate index challenge or appeal. Second, the regulation uses a participation rate index of .06015, rather than .0375, for institutions that are subject to a loss of participation based on one cohort default rate over 40 percent. Finally, an institution with fewer than 30 borrowers in its cohort for a fiscal year may choose to calculate its participation rate index for that fiscal year using either the data for that fiscal year alone or the data for the 3 fiscal years considered in calculating an average rate for the institution, under proposed 668.183(d)(2). Section 668.186(c) Request for Loan Record Detail Report An institution whose cohort default rate is less than 10% may request any loan record detail report that lists loans listed in its cohort default rate calculation. Section 668.187 Consequences of Cohort Default Rate on Participation in Title IV This provision deals with the loss of participation in the Direct Loan and FFEL loan programs for institutions having a three consecutive rates of 25% or greater or one cohort default rate greater than 40 percent. Under the Departments modification, no proceeding under subpart G of part 668 would be needed to impose this loss of participation. Additionally, the Department has made clear that one cohort default rate over 40 percent would not affect an institutions ability to participate in the Federal Pell Grant program. This is a procedural change designed to provide consistency between the FFEL and Direct Loan programs. Section 668.188 Preventing Evasion of the Consequences of Cohort Default Rates Section 435(m)(3) of the Higher Education Act requires the Secretary to prescribe regulations that will prevent an institution from evading the consequences of cohort default rates by branching, consolidating, changing ownership or control, or by similar devices. In an effort to narrow somewhat the situations in which a loss of participation would occur for a school using former facilities of another school, the regulations establish a set of criteria, all of which must be met for the institution to lose eligibility: 1. Loss of Eligibility Before any change in institutional structure or identity occurs, one of the two institutions is subject to loss of eligibility due to one default rate greater than 40 percent or three consecutive rates greater than 25 percent. 2. Change of Structure or Identity Both parties are parties in a transaction that results in a change of ownership, change of control, merger, consolidation, a change of name, a change of address, a purchase or sale, a contract for services, or any other change on whole or in part in institutional structure or identity. 3. Offer Program at Substantially the Same Address After the change in structure or identity, the current eligible institution offers an educational program at substantially the same address as the ineligible institution. 4.Commonality of Ownership or Management There is a commonality of ownership or management between the two institutions. In general, a commonality of ownership exists if the same person or corporation, were or are managers at both institutions or were or are able to substantially affect both institutions actions. The regulations include a special exception to the criteria concerning commonality of management in the case of a teach-out. An institution conducting a teach-out would be allowed 60 days to find replacements for the previous management and to notify the Department that any commonality of management has ended. If the Department determines, based on that notice, that the commonality of management has not ended, the institution would be allowed an additional 30 days to make the management changes that the Department requests. As long as the institution conducting the teach-out complies with those requirements, the institution would not be subject to the previously ineligible institution's loss of eligibility. Institutions may contact the Department in writing in advance to get an initial determination from the Department of the possible consequences of a transaction with a school which has lost eligibility because of cohort default rates. The Department will respond in writing. Section 668.192 Erroneous Data Appeals This provision permits an institution that is provisionally certified because it has a single cohort default rate of 25% or greater to submit an erroneous data appeal. Section 668.193 Loan Servicing Appeals In this section, the Department removes the 20% threshold and allows all institutions to appeal their most recent default rate on the basis of improper loan servicing and collection. Section 668.194(b)(1) Eligibility for Economically Disadvantaged Appeals The new regulation addresses an inadvertent omission in the criteria pertaining to an economically disadvantaged appeal. In addition to the current criteria, the regulation adds the spouses adjusted gross income to the students adjusted gross income when determining whether the students income is less than the poverty level. Section 668.194(f) Submitting Economically Disadvantaged Appeals This regulation slightly modifies the notification requirements for institutions subject to loss of eligibility wishing to submit an economically disadvantaged appeal. If an institution intends to submit an economically disadvantaged appeal, its management must submit its written assertions to the Department within 30 days of receiving the loss of eligibility notice. The institution must submit the independent auditors report within 60 days of receiving the Departments loss of eligibility notice. Section 668.196 Average Rate Appeals In order to make cohort default rate appeals more consistent, the Department will allow institutions subject to loss of participation based on a cohort default rate in excess of 40 percent to submit an average rate appeal if the institutions cohort for the fiscal year included fewer than 30 borrowers. Section 668.197 Thirty-or-Fewer Borrowers The regulations allow any institution subject to loss of participation to submit a thirty or fewer borrowers appeal. Death and Disability Discharges This final regulation amends the FFEL, Direct Loan, and Perkins Loan program regulations relating to loan discharges based on the borrowers death or total and permanent disability. Effective Date: The provisions that govern death discharges and some of the provisions related to disability discharges will become effective on July 1, 2001. Because of operational changes needed to implement many of the changes in the disability discharges, some of those provisions will not become effective until July 1, 2002. Specifically, all sections of the new regulation are effective July 1, 2002, except the following provisions which are effective July 1, 2001: §674.9(h)(3), 674.51(s), 674.61(a), 682.200(b), the redesignations of §682.201(a)(5)(a)(7), 682.201(a)(6)(iii), 682.402(b)(2) and (3), 682.402(g)(1)(iii), 685.200(a)(1)(iv)(A) and (B), and 685.212(a). Sections 674.61, 682.402, and 685.212 Death Discharge The new regulations require that an original or certified copy of the death certificate must be provided to support a request for a death discharge. The only exception is that the CEO of the guaranty agency, the CFO of an institution, or the Secretary may approve a death discharge based on other documentation in exceptional circumstances. Sections 674.51, 682.200 and 685.102 Definition The definition of totally and permanently disabled has been revised to remove the criterion "or attend school" from the definition. Sections 674.61, 682.402, and 685.213 Total and Permanent Disability Discharge The new regulations provide a new mechanism for obtaining total and permanent disability discharges, creating a three-year conditional discharge period prior to the granting of a final discharge. No collection activity or adverse credit reporting occurs during the conditional discharge period, and no payments are due. If at the end of the conditional period the borrower continues to satisfy the criteria for a total and permanent disability discharge, the balance of the loan is discharged. In order to meet the criteria, the borrowers annual income from employment during and at the end of the conditional discharge period must be no more than 100% of the poverty line for a family of two, and the borrower must not receive any new Perkins, FFEL, or Direct Loans, except for consolidation loans that do not contain any of the loans that are in a conditional discharge status. The borrower must notify the Secretary if annual earnings from employment exceed the ceiling at any time during the conditional discharge period. If at any time during the conditional discharge period the borrower no longer meets the eligibility criteria, collection activity resumes. The borrower is not required to pay any interest that accrued during the conditional discharge period. FFEL and Direct Loan Program This package includes several changes to the FFEL and Direct Loan program regulations. Guaranty agencies may implement the provisions in §682.410(b)(6), relating to collection efforts on defaulted loans, prior to July 1, 2001 at their discretion. Section 682.207 Due Diligence in Disbursing a Loan The language of the final regulation clarifies that a lender may disburse loan proceeds to a school in accordance with a request from the school that modifies the disbursement schedule previously provided by the school. The preamble notes that the intent is to allow schools and lenders flexibility to use systems such as the "hold and release" process. Sections 682.210 and 685.204 Deferment The new regulation removes the prior prohibition on granting an economic hardship deferment for a period beginning more than six months before the date the lender receives the request and the supporting documentation. The retroactive deferment may date back only to the date the borrower can document that he or she met the conditions for the deferment. The new rule will apply after July 1, 2001 to any period of authorized deferment that includes July 1, 2001 or a later date. Sections 682.604 and 685.301 Processing the Borrowers Loan The new regulations allow a school with non-standard term programs to deliver loan proceeds in each term of those programs as long as the non-standard terms are of substantially equal length throughout the loan period. Substantially equal length means that no term is more than two weeks shorter than any other term in the loan period. Section 682.604 Releasing Loan Proceeds The school no longer needs to make a specific determination of a students eligibility after it receives the loan proceeds from a lender. Rather, as in the other program regulations, a school has the flexibility to implement policies and procedures to ensure that a student meets all of the eligibility requirements before it disburses funds. Perkins Loan Program The Perkins package makes only minor changes to the program regulations. Section 674.39 Loan Rehabilitation If a borrower defaults again on a rehabilitated loan, the 24 percent cap on collection costs o longer applies. Section 674.13 and 674.50 Assignment to the Secretary The new regulation is intended to provide greater flexibility in the assignment of defaulted loans to the Secretary for collection. |
|
 |
|
 |
