Archived Information

STUDENT FINANCIAL ASSISTANCE AND NONTRADITIONAL EDUCATIONAL PROGRAMS
(INCLUDING THE "12-HOUR RULE")

A REPORT TO CONGRESS

U.S. Department of Education

Office of Postsecondary Education

July 2001

Contents

[Section]{.underline} [Page]{.underline}

[Executive Summary]{.underline} 5

[Background and History]{.underline}

Growth of Nontraditional Educational Program Formats 7

Legislative and Regulatory Background 7

Standard Term-Based Programs 8

Nonterm and Nonstandard Term-Based Programs 9

2000 Negotiated Rulemaking 10

[Meetings with Members of the Higher Education Community]{.underline}

Meetings of Interested Parties---October 12, 2000 11

Focus Groups---November 28, 2000, December 1, 2000

and December 8, 2000 13

Focus Group Discussion

General 14

Accrediting Agencies 14

Comparability of Coursework 15

Term Structure 15

12-Hour Rule 16

Disbursement 16

Acceleration 17

Direct vs. Indirect Costs 17

Complexities in Various Financial Aid Programs 18

Models 18

Meetings of Interested Parties---January 8, 200l 19

Consistency Between Title IV Programs 20

The 12-Hour Rule 21

Student-Based Delivery Model 21

Wrap-up 22\
[Conclusion]{.underline} 23

CONGRESSIONALLY REQUESTED REPORT

ON THE "12-HOUR RULE"

# Executive Summary

The conference report on the Department of Education Appropriations Act,
2001,

P.L. 106-554 requested that the Department report to Congress on the
results of its discussions with the higher education community and on
what action, if any, the Department anticipates taking on the 12-hour
rule. The conference report also requested that the Department make
recommendations to Congress by October 1, 2001, regarding the most
appropriate means to maintain the integrity of the Federal student
financial assistance programs without creating unnecessary paperwork for
institutions of higher education.

In accordance with this Congressional request, this report contains
details on the background and history of the 12-hour rule, information
from two meetings with the higher education community that were held in
October 2000 and January 2001, and information from three focus groups
that were held in November and December 2000. This report also
summarizes the many interesting ideas that were generated by the
meetings and focus groups but contains no recommendations for next
steps. It is the Department's intention to continue working with the
higher education community on issues surrounding nontraditional
education and, in particular, providing Federal student financial
assistance to students enrolled in those programs.

In 1992, the Congress amended the Higher Education Act of 1965 (HEA), to
define an academic year as a minimum of 30 weeks of instructional time.
By defining the term academic year, the Congress hoped to address fraud
and other abuses related to the length of higher educational programs,
in particular the practice by certain institutions of stretching the
length of their educational programs without providing additional
instruction in order to maximize the amount of Federal student financial
aid received by their students.

Because the statute did not define what constitutes a week of
instructional time, the Department of Education (the Department)
regulated the following definitions:

-   For educational programs using standard terms (semesters,
    trimesters, or quarters) or clock hours, the Department defined a
    week of instructional time as any week in which one day of regularly
    scheduled instruction, examination, or preparation for examination
    is offered.

-   For educational programs using nonstandard terms or nonterms, the
    Department defined a week of instructional time as any week in which
    at least 12 hours of instruction, examination, or preparation for
    examination is offered. This requirement became known as the
    "12-hour rule."

In 1992, most programs were offered in the traditional semester or
quarter format. Over the past ten years, however, as a result of
technological advances and adult student demand, nonstandard term or
nonterm programs have proliferated. Institutions began offering programs
in shorter time periods, in overlapping terms with multiple start dates,
and other nontraditional formats. Distance learning revolutionized the
delivery of higher education programs but also created new challenges
related to program length. For these nonstandard or nonterm educational
programs, compliance with the 12-hour rule became increasingly
difficult. However, nonstandard and nonterm educational programs are not
excused from compliance with the 12-hour rule. Although there have been
many developments in the mode of delivery for education, the predominant
mode remains the traditional semester or quarter format.

By 2000, many groups, including ones in the higher education community,
Congress and the Department, had grown concerned that a number of
statutory and regulatory provisions, including the 12-hour rule, might
be stifling innovation and keeping Federal student financial assistance
from the growing number of students enrolled in nontraditional programs.
*The key issue is how to make changes that allow the continued
development of innovative educational programs while ensuring that the
amount of educational instruction is adequate and comparable to that
offered in traditional term-based programs.*

Two proposed items related to nontraditional educational programs were
added to the Department's 2000 negotiated rulemaking agenda for
discussion. However, the Department decided not to develop new rules
during negotiated rulemaking because of the complexity of the issues
involved and the limited time that could be devoted to their
consideration. The Department committed to further meetings with the
higher education community in order to more fully explore the issues.

Congress acknowledged the community's concerns in its conference report
on the Department of Education Appropriations Act, 2001, P. L. 106-554,
and noted that the Department of Education had agreed to meet with the
community about this issue.

# Background and History

## Over the years, concerns were expressed about fraud and abuse in the Federal student financial assistance programs, especially the Federal Family Education Loan Program and the Federal Pell Grant Program. In response to these concerns, in 1990, the Senate's Permanent Subcommittee on Investigations (PSI) held hearings and, in 1991, issued a report that included 29 recommendations to the Department. A number of the recommendations made by PSI were adopted during the reauthorization of the HEA in 1992. In 1993 and 1995, PSI held related hearings concerning proprietary schools' fraud and abuse under the Federal Pell Grant Program. 

##  

## Growth of Nontraditional Educational Program Formats

The postsecondary education landscape has changed since the HEA was
reauthorized in 1992. Default rates have decreased significantly as have
the number of postsecondary institutions that participate in the Federal
student financial aid programs. Congress included a number of provisions
in the 1992 HEA reauthorization that were designed to guard against
fraud and abuse. One such provision was the minimum 30-week academic
year requirement that addressed issues of program length, such as
artificially extending the length of a program without increasing the
amount of instruction in order to qualify for additional Title IV funds.

Since then, as a result of growing demand from adult students and
changes in technology, there has been significant growth in the number
and type of programs that institutions are offering in a nontraditional
educational format. Institutions that historically offered programs only
in a traditional format have begun to offer their programs in different
formats. For example, some institutions are offering courses in shorter
time periods of six or eight weeks, as compared to the traditional
15-week course lengths. Other institutions are offering instruction in
overlapping terms and with multiple start dates. The growth of distance
education also presents new and different challenges for institutions.

The structure of the Federal student financial assistance programs
reflects a time when most institutions offered instruction in classrooms
on a semester or quarter calendar, which is still the predominant method
of delivery. The statutory and regulatory requirements governing the
Federal student financial assistance programs may no longer fit these
new nontraditional educational program formats.

## Legislative and Regulatory Background

Prior to the Higher Education Amendments of 1992, the HEA contained a
definition of academic year in section 481(d). That provision stated
that the Secretary shall define the term academic year in regulations.
The Higher Education Amendments of 1992 amended the definition of an
academic year in section 481(d) of the HEA to include both a minimum
number of credit hours for undergraduate students and a minimum length
of instructional time for all students. The Higher Education Amendments
of 1998 moved that definition to section 481(a)(2).

Section 481(a)(2) of the HEA provides that an academic year for Title
IV, HEA student financial assistance purposes must contain at least 30
weeks of instructional time. For undergraduate programs, the law
requires that over the 30 weeks of instructional time a full-time
undergraduate student must be expected to complete at least 24 semester
or trimester hours, 36 quarter hours, or 900 clock hours. This
definition of an academic year was published in the Student Assistance
General Provisions regulations (34 CFR Part 668) on April 29, 1994 and
subsequently modified on November 29, 1994 in response to public
comment.

## In the preamble to the February 28, 1994 Notice of Proposed Rulemaking for implementation of the new law, the Department suggested establishing a minimum full-time workload for students enrolled in programs that are measured in credit hours without standard terms. In the April 29, 1994 interim final regulations, the Department decided to instead add a provision to the academic year and eligible program definitions that defined a "week of instructional time" for these programs as any week in which at least 5 days of regularly scheduled instruction, examination, or preparation for examination occurs. For all other programs, a week of instructional time was defined as any week in which at least one day of regularly scheduled instruction, examination, or preparation for examination occurs. 

## 

## In an effort to provide greater flexibility to institutions that serve nontraditional students, the November 29, 1994 final regulations changed this provision to require that 12 hours, rather than 5 days, of regularly scheduled instruction, examination, or preparation for examination occur in a week to be counted as a week of instructional time. Instructional time includes internships, cooperative education programs, independent study and other forms of regularly scheduled instruction. Instructional time does not include periods of orientation, counseling, or vacation. Final regulations published November 1, 2000 clarified that homework does not count as instructional time and that, in terms of "preparation for examinations," only study for final examinations that occurs after the last scheduled day of classes for a payment period would count as instructional time. 

## 

## Standard Term-based Programs

In accordance with the Student Assistance General Provisions
regulations, an institution that offers a program in standard terms
(semesters, trimesters, or quarters) is considered to have provided a
week of instruction for that program if it offers at least one day of
instruction, examinations, or preparation for examinations in a week.
The Department did not establish a minimum number of instructional hours
that must occur during that one day because, as stated in the preamble
to the November 29, 1994 regulations, full-time students attending
standard term programs were generally presumed to be in class attendance
for at least 12 hours each week. This measure was derived from standards
used in traditional education, where a certain amount of outside
preparation was estimated to take place for every hour of classroom
instruction.

## Nonterm and Nonstandard Term-based Programs

Different rules for nonterm and nonstandard term-based programs were
adopted when the Student Assistance General Provisions regulations were
promulgated in 1994. The Department believed that nonterm and
nonstandard term programs might be set up with elongated instructional
schedules that did not provide the appropriate amount of instruction for
a full-time student. As a result, a student could receive more Title IV
funds than was appropriate for the amount of instruction received. In
addition, the Department was concerned that the workload offered in
these programs was not properly distributed throughout the period.
Therefore, the regulations defined a week of instruction as occurring
when these programs offered at least 12 hours of instruction,
examination, or preparation for examination during a period of at least
a week.

The regulations specified that instructional time does not include
periods of orientation, counseling, vacation, or other activity not
related to class preparation or examinations. In the preamble to the
final regulations, the Department stated that instructional time does
include internships, cooperative education programs, independent study
and other forms of regularly scheduled instruction.

The regulations do not require an institution to offer 12 hours of
instruction, examination, or preparation for examination each week.
However, a school that sets its academic year at the statutory minimum
of 30 calendar weeks would have to meet an average of 12 hours per week
for the 30 calendar-week period. A school with a program that meets less
frequently than 12 hours a week would have to meet enough calendar weeks
to provide 360 hours (30 calendar weeks x 12 hours per week) of
instruction, examinations, or preparation for examinations in order to
have a program offered over a full academic year (equivalent to 30 weeks
of instructional time). For example, if a school wants to establish an
academic year of 30 weeks for a credit-hour, nonterm program that meets
10 hours a week, the school would need to have approximately 36 calendar
weeks (36 calendar weeks x 10 hours per week = 360 hours of instruction,
examination, or preparation for examination) in order to have the
equivalent of 30 weeks of instructional time for a full academic year.

Although the "clock hour/credit hour conversion" regulations[^1] prevent
some of the potential for fraud and abuse, they do not prevent all of
it. They do not apply to all of the programs that the Department has
concerns about, and they do not prevent an institution from stretching
the length of an educational program to conform to the minimum number of
weeks of instructional time required for an academic year without
offering an appropriate quantity of instruction during each of those
weeks.

## 2000 Negotiated Rulemaking

Two items related to nontraditional programs were included in the
Department of Education's proposed agenda for negotiated rulemaking in
the spring of 2000: (1) the definitions of standard term, nonstandard
term, and nonterm and (2) the application of the 12-hour rule as found
in the academic year and eligible program definitions. In placing these
two items on the agenda, the Department intended to begin the process of
discussing the numerous issues involved in providing student financial
assistance to students enrolled in nontraditional educational programs.
As the negotiations progressed and the Department held internal
discussions, it became obvious that taking a piecemeal approach to these
issues was not appropriate given the timeframe allotted for the
negotiations and the other topics that needed to be discussed. Changes
to the 12-hour rule have such broad implications and are so intertwined
with other areas of Federal student financial assistance administration
that the Department believed that it was necessary to have a more
comprehensive examination and discussion of these issues before
proposing any changes. Therefore, the Department committed to a process
outside of negotiated rulemaking in which interested parties would meet
and discuss these issues.

## 

**[Meetings with Members of the Higher Education
Community]{.underline}**

In September 2000, the Department invited all interested parties to
attend a meeting on October 12, 2000 to discuss issues surrounding
nontraditional education and providing Federal student financial
assistance to students enrolled in those programs. The Department
decided to expand the discussion for a more comprehensive examination of
the various issues surrounding nontraditional education rather than
focusing solely on the 12-hour rule. At the end of that meeting, the
Department indicated it would convene several focus groups to explore
some of the issues raised at the meeting in greater detail and to
include financial aid administrators in those discussions. The goal was
to fully identify the barriers that may exist in providing Federal
student financial assistance to students enrolled in nontraditional
educational programs.

The Department convened three focus groups:

-   The first focus group met on November 28, 2000, and looked at issues
    relating to the "quality" of education in nontraditional programs,
    including the 12-hour rule as a measure of the amount of instruction
    being provided, what information institutional accreditation
    provides as a measure of quality, inputs, outcomes, and other
    possible measures of quality.

-   The second focus group met on December 1, 2000, and discussed time
    and the use of time in the calculation and disbursement of Federal
    student financial assistance and alternatives to time as a program
    measure (including the 12-hour rule).

-   The third focus group met on December 8, 2000, and examined the
    organizational principles used in the student financial assistance
    programs (standard terms, nonstandard terms, nonterms) to examine
    whether they work for nontraditional educational programs or whether
    new approaches are necessary or desirable, as well as the capacity
    of institutional and Departmental systems to handle nontraditional
    term structures.

On January 8, 2001, the Department again invited all interested parties
to a meeting to review and discuss the results of the focus groups and
to identify and explore possible next steps.

## Meeting of Interested Parties\--October 12, 2000

On October 12, 2000, the Department held its first meeting with
interested parties to discuss issues related to providing student
financial assistance to students enrolled in programs offered in
nontraditional educational formats. Over sixty people representing
higher education associations, institutions, accrediting agencies,
students, law firms, and other interests attended this meeting.

Former Assistant Secretary for Postsecondary Education A. Lee Fritschler
opened the meeting noting that some of the barriers that may exist in
providing student financial assistance to students enrolled in programs
offered in nontraditional educational formats were put in place to
prevent abuse. He challenged the participants to find alternative
approaches to replace any barriers yet preserve the integrity of the
student financial assistance programs.

Office of Postsecondary Education (OPE) staff then gave a presentation
providing some general information on the current requirements for
providing student financial assistance to students enrolled in
nontraditional educational programs. The presentation was a repeat of a
session they had provided at the National Association of Student
Financial Aid Administrators Annual Conference during the summer of
2000, which several representatives of the higher education community
had indicated assisted them in better understanding the variety of
issues surrounding student financial assistance and nontraditional
educational program formats.

The presentation used several examples of nontraditional program
formats---one that consisted of miniterms that were combined into
standard semesters and that were offered concurrently with standard
semester courses with cross-registration; another example portrayed
terms of unequal length (nonstandard terms) with experiential coursework
alternating with traditional on-campus coursework; and the final example
was a self-paced program. For purposes of the discussion, all of the
programs were either not subject to the 12-hour rule or met the 12-hour
rule requirement. However, the presentation illustrated the complexities
that currently exist in providing student financial assistance to
students enrolled in programs offered in nontraditional educational
formats.

After the presentation, there was a discussion of the various issues
related to providing student financial assistance to students enrolled
in programs offered in nontraditional educational formats. Several
themes emerged from the discussion.

One theme was that nontraditional education is going on in traditional
settings and there is a need for schools to understand what they can and
cannot do under the current statute and regulations if they wish to
provide Title IV aid to their students. Others felt that whatever
changes are made need to be understandable to a knowledgeable amateur,
to work for all of the various ways that higher education is currently
provided, and to be flexible enough to fit circumstances that have not
currently been envisioned. There were comments that the 12-hour rule
inhibits academic flexibility and is almost impossible to measure in a
distance learning environment.

Another theme that emerged was the role of accrediting agencies and how
much confidence can be placed in accrediting agencies in determining the
quality of education.

The final theme that emerged revolved around the next steps that the
Department planned to take. In particular, participants wanted to know
if there would be additional guidance or safe harbors provided
concerning the current statutory and regulatory requirements and whether
this issue would be addressed during the next round of negotiated
rulemaking or wait for reauthorization. Several participants encouraged
the Department to look for both short-term and long-term solutions to
these issues.

At the conclusion of the meeting, the Departmental representatives
stated that the Department planned to hold several focus groups over the
next several months to discuss in detail the various issues raised
during the meeting and would follow those focus groups with another
meeting with the broader community to share what was learned and to
discuss possible next steps.

# *Focus Groups---November 28, 2000, December 1, 2000 and December 8, 2000*

Three focus groups were held to explore some of the issues in greater
detail with financial aid professionals. Staff from OPE led the focus
groups, and there were approximately 30 participants representing
institutions, accrediting agencies, higher education organizations, and
law firms attending each of the three focus groups.

The first focus group (November 28, 2000) looked at issues relating to
the "quality" of education in nontraditional programs, including the
12-hour rule as a measure of the amount of instruction being provided;
what information institutional accreditation provides as a measure of
quality; inputs; outcomes; and other possible measures of quality. In
framing the issues for discussion, the Department provided an overview
of the history of the role of accrediting agencies and the history of
the 30-week academic year requirement, of which the 12-hour rule is an
outgrowth. The Department asked the participants to consider whether
accreditation alone is sufficient for assuring all aspects of the
quality of education provided by eligible institutions.

The second focus group (December 1, 2000) discussed "time" and the use
of time in the calculation and disbursement of student financial
assistance and alternatives to time as a program measurement (including
the 12-hour rule). The Department began the meeting by reviewing the
various uses of "time" in the student financial assistance programs. The
30-week academic year and the 12-hour rule, derived from it, serve as
proxies for guaranteeing that postsecondary institutions are providing
an adequate amount of instruction to warrant the taxpayers' investment.
The 30-week academic year requirement also serves as the baseline for
calculating the amount of aid a student in less than a 30-week program
is eligible to receive. Time is also used to establish a framework for
the disbursement of aid.

The third focus group (December 8, 2000) examined the organizational
principles used in the student financial assistance programs (standard
terms, nonstandard terms, nonterms) to examine whether they work for
nontraditional educational programs or whether new approaches are
necessary or desirable, as well as the capacity of institutional and
Departmental systems to handle nontraditional term structures. The
Department began the discussion by noting that the awarding and
disbursing of Federal student financial assistance is organized around
three program formats: programs offered in standard terms, nonstandard
terms, and nonterms. The Department further explained each format in
some detail and how and why requirements for nonstandard term and
nonterm programs were developed. Then, the Department discussed how the
format of the educational program impacts the awarding and disbursing of
Title IV student financial assistance. The Department also noted that
some institutional systems that support administration of Federal
student financial assistance organize processes around standard terms
and may not be flexible enough to accommodate other configurations. The
Department presented issues related to a possible new model based upon a
student-based approach[^2] rather than an institutional or program-based
approach to providing student financial assistance.

## **Focus Group Discussion**

The participants approached the focus groups as problem-solving sessions
to fully identify and discuss the issues surrounding providing student
financial assistance to students enrolled in programs offered in
nontraditional educational formats. The discussions were constructive
and collaborative; however, the questions and issues are difficult ones
and there was no real consensus reached in any of the focus groups,
except that change of some kind is needed. In addition, because the
issues are so intertwined, there was considerable overlap in the
discussions in the focus groups.

# General

Thirty-week academic years consisting of two semesters or three quarters
continue to be the predominant pattern for organizing instruction.
However, many institutions would provide, and some are beginning to
provide, alternative models for at least some of their programs or
coursework, if it were feasible to offer Federal student financial
assistance in constructs of time other than the standard semester or
quarters. It was clear that the current statutory and regulatory
requirements tend to limit the options institutions have to configure
academic programs if they wish to make Federal student financial
assistance available to their students. It was also clear that, while
neither the statute nor the regulations preclude providing aid to
students in many of these "nontraditional" models, institutions are not
sure how to apply the requirements to many of these program formats and
need additional guidance. Anecdotal information suggests that, as a
result, where institutions offer programs in other configurations, they
often do not provide Federal student financial assistance to the
students enrolled in those programs. This practice limits access to
those who can afford to pay or who receive support from other sources,
such as employers.

# Accrediting Agencies

Many participants felt that the Department should accept that
accrediting agencies do provide sufficient assurance of the quality of
education since the Department cannot take on the task because it has
neither the authority nor the capability.

However, some participants were willing to concede that if the
Department did have questions, particularly relating to the 12-hour rule
as a proxy for quality, the requirements governing accrediting agencies
could be expanded to require more oversight of programs, particularly
program length. In fact, a few participants felt that the Department
should be the entity that identifies what accrediting agencies need to
address in this area. Other participants took exception to this position
on the basis that the statute already requires accrediting agencies to
look at program length and that there really is no evidence that
removing the 12-hour rule would result in an increase in fraud and
abuse. One participant noted that most accrediting agencies are not
monitoring at the individual course level and it is not realistic to
expect them to be "hall monitors."

One participant made the suggestion that accrediting agencies should
take on more responsibility for the quality of on-line courses that are
not based on courses already being offered in the traditional classroom
format. Other participants pointed out that all accrediting agencies
have developed either standards or guidelines governing distance
education, and thus are already addressing the quality of distance
education specifically. It was noted that accrediting agencies are
developing best practices for distance education and that the regional
accrediting agencies have draft guidelines for distance education. [^3]

Several participants suggested that student outcomes should be more
important in evaluating the quality of education than time spent on
task. However, no one presented any suggestions as to how the Department
might actually accomplish this.

# Comparability of Coursework

Examining comparability of instruction between on-site and distance
courses was also mentioned. Some participants pointed out that how the
coursework is presented and how the student interacts with the material
is so different that comparisons are very difficult except perhaps on
the basis of learning outcomes or the competencies that students
acquire. A number of participants stated the opinion that coursework
should be treated the same regardless of the format in which it is
offered; that is, a three-credit course should be treated the same
regardless of the mode of instruction and the method of delivery should
not impact how the coursework is treated for student financial
assistance purposes.

# Term Structure

Since 30-week academic years consisting of two semesters or three
quarters continue to be the predominant pattern for organizing
instruction at institutions, there seemed to be agreement that the
requirements for standard terms are sufficient and work for
institutions. However, since there are no clear definitions as to what
constitutes a nonstandard term or nonterm program in either the statute
or the regulations, participants indicated that confusion exists as to
what requirements apply. Some participants believed that there is a
"comfort level" within the community, the Department, and Congress with
standard term programs that does not extend to nonstandard term or
nonterm programs. Some participants believed that the Federal government
views nontraditional programs with a perception of fraud and abuse and
questioned the validity of this perception. Participants pointed out
that if we continue to use terms to maintain a structure for disbursing
student financial assistance, where there is a period with a beginning
and an end and awards can be prorated, then nonstandard terms could be
derived from and compared to standard terms.

# 12-Hour Rule

# 

Several participants expressed the opinion that there are some inherent
differences between nonterm and standard term programs but suggested
that there are more commonalties between nonstandard term and standard
term programs and that those types of programs should be treated the
same. Some participants suggested that the

12-hour rule should not be applied to nonstandard term programs and that
the "one day a week of instructional activity" should be applied to
nonstandard term programs instead. Other participants suggested that all
programs (standard term, nonstandard term and nonterm) should be treated
the same and that the one-day-per-week rule should apply to all
programs. Those participants indicated that if the one-day-per-week rule
is sufficient for standard term programs, it is equally sufficient for
nonstandard term and nonterm programs.

Another idea that was presented was to expand what is considered
instructional time to include other activities that the learner engages
in that could be monitored and tracked. One participant felt that there
is a movement away from measuring instruction and that the measurement
of interaction may be more appropriate.

# Disbursement

The question of disbursement of student financial assistance was another
issue discussed in the focus groups. Participants suggested that the
issue the Department is trying to address with the 12-hour rule is
really to assure that there is a sufficient quantity of instruction
offered rather than the quality of the instruction, per se. The higher
education community has tended to use traditional standards to measure
quantity, such as the Carnegie unit (which in a traditional setting,
assumes 12 hours of seat time per week for full-time enrollment) that do
not translate to nontraditional programs. Some participants felt the
issue of quantity of education could be addressed by revising the
requirements for disbursing student financial assistance funds. One
participant suggested that funds be disbursed after the student has
completed the work, but most participants agreed this would be a
significant barrier to access. No other concrete suggestions were made
as to how a new disbursement system might be structured to address
concerns about the quality or quantity of education, although many
participants seemed to agree that this might be a fruitful avenue of
exploration.

# Participants discussed the view that, historically, seat time has ruled delivery of student financial assistance and has been equated with the quantity of education being provided. One participant suggested that we should consider a payment concept that delivers financial aid when a student achieves credits and that we should not be concerned with time. The participant further questioned whether we should replace time with credit hours. In a traditional setting, the Carnegie unit assumes 12 hours of seat time per week for full-time enrollment. 

One participant suggested that the Department look at the academic
effort and the learning opportunity over time in developing a model that
accounts for the smallest unit rather than for the program and
incorporates a structure that would roll those individual smaller units
into a whole. Another participant asked if there is a way to define what
quantity of education needs to occur in an academic year and then let
schools decide how to measure the amount of education.

# Acceleration

Accommodating acceleration (moving through an academic program more
quickly) was a topic of discussion. One participant suggested that the
Department should be looking at credit hours achieved regardless of how
quickly or slowly the credits are achieved. The group discussed that it
would be necessary to determine how quickly credits could be earned and
still represent an adequate amount of instruction that taxpayers would
be willing to fund. A participant pointed out that keeping in mind that
nontraditional programs tend to be for nontraditional learners, moving
to awarding student financial assistance on credit hours achieved may
penalize students who need more time to achieve credit hours.

Department staff and others were concerned that there needs to be some
equity in the amount of student financial assistance awarded for the
time expended and for the credits attempted or earned. A student who is
accelerating his or her program of study might receive more student
financial assistance than a student who is not accelerating. It was
suggested that one way to assure equity and provide for acceleration
might be to decouple direct or academic expenses from indirect or living
expenses. Another issue discussed was how to determine the amount of aid
for living expenses for students who accelerate their program of study
and for those who take longer than anticipated in their program of
study.

# Direct vs. Indirect Costs

Issues surrounding how to pay for direct costs (tuition, fees, room and
board, if

on-campus, and required books and supplies) and indirect costs (room,
board, transportation, dependent care, personal expenses) were discussed
throughout the focus groups. Looking solely at credits achieved raises
issues about how to pay for living expenses and other indirect costs
such as transportation. Students may be taking fewer credits, but they
still have the same living expenses as students who are taking a
full-time course load. Awarding for direct and indirect costs shows the
differences between the Pell Grant and loan programs. The group spent
some time discussing how indirect costs are addressed in cost of
attendance and need analysis, how real expenses can be much higher than
loan limits and the amount of student financial assistance available,
and how these factors might affect a self-paced student. There was also
some discussion about whether student financial assistance should cover
indirect costs. Some participants felt that covering only direct costs
for certain programs is sufficient while other participants believe that
covering indirect costs for students is critical to access for certain
populations of students.

# Complexities in the Various Financial Aid Programs

Another theme that emerged from the discussions was the complexities
caused by differing requirements of the various student financial aid
programs. There was some agreement among the participants that a great
deal of progress would be made if many of the provisions in the various
student financial aid programs were made consistent. However, there was
not agreement about what those provisions would contain.

# Models

The group discussed a couple of models that participants in the Distance
Education Demonstration Program have developed. Western Governor's
University (WGU) has developed a system that entails WGU drawing down
and disbursing aid only as charges are incurred, which in their case may
be at varying times throughout a payment period. The Colorado Community
Colleges have developed a model that decouples disbursement of aid for
direct expenses from disbursement of aid for indirect expenses to allow
for acceleration. Developing institutional systems that can handle
flexibility would be required to manage new student financial assistance
delivery models. The Colorado Community Colleges are in the process of
actually changing their systems to accommodate their plan.

Department staff suggested that a student-based delivery model which
provides for smaller disbursements as charges are incurred and which
includes examination of student progress as the student moves from one
learning segment to another might work well for nonstandard and nonterm
programs. Several participants felt that the idea deserves further
study.

Department staff presented some issues related to the development of a
new model based upon a student-based approach rather than an
institutional or program-based approach to providing student financial
assistance. Under this new model, instead of basing award calculations
on an institutional calendar, the calculations would be based on an
individual student's academic plan. This approach would allow a student
more flexibility in determining his or her schedule. The Department
suggested that smaller amounts of aid might be disbursed as needed and
as the academic work is completed.

Participants raised a number of issues that need to be considered in
developing a student-based delivery model, including financial aid for
students who are taking coursework at more than one school; systems
implications; treatment of financial aid when a student "skips" a
segment of his educational program; compliance; administrative burden;
and the frequency, amounts and timing of financial aid disbursements.

The issue of how to handle direct and indirect costs under this model
received a lot of discussion. One option would be to disburse aid for
direct costs as they are incurred and to disburse aid for indirect costs
as the student goes through the program, based on a front-end
calculation. One participant suggested that this model might require
tracking direct and indirect costs separately and questioned how to
handle self-paced programs. Schools might find it difficult to handle
direct and indirect costs on a per student basis, but perhaps software
could be developed that would assist schools.

Another participant suggested an alternative approach that would result
in the disbursement of the aid for direct and indirect costs at the same
time but the disbursement would be made per module. The Department
pointed out that this suggestion is similar to the model that WGU used
in which students develop an academic plan, enroll in courses, and incur
expenses and the disbursements of aid occur over time and are not made
until needed.

Participants asked if using such a model would be an option for
institutions or would be required. Another participant suggested that
the new model be explored for the loan programs first because many
nontraditional programs are graduate programs.

Participants suggested that more frequent disbursements of financial aid
may be desirable for cash management but there are administrative
difficulties with that approach. Systems currently in place may not be
able to accommodate such a model; however, participants noted that
systems should not drive policy decisions.

Another issue that was discussed is whether subsequent disbursements
would be made based on attempted credits or credits earned. This issue
historically has been treated differently for nonterm programs than for
standard term or nonstandard term programs. For nonterm programs, a
student must successfully complete the credit hours or clock hours for
which he or she has been paid before receiving a subsequent
disbursement. For standard term and nonstandard term programs,
disbursements are made at least once for each term regardless of whether
the student successfully completed all of the coursework he or she began
in the previous term.

One participant felt that there are a lot of issues and problems to
resolve in developing student-based delivery system and wondered if the
need for a dramatic solution is that great. The participant suggested
that perhaps we can only go so far. In this participant's view, a
student-based system seems open for abuse.

## Meeting of Interested Parties---January 8, 2001

On January 8, 2001, the Department held another meeting with interested
parties to review and discuss the results of the focus groups and to
identify and explore possible next steps. Approximately 50 people
representing higher education associations, institutions, accrediting
agencies, students, law firms, and other interests attended this
meeting.

Following Department staff summaries of the three focus groups, the
participants were asked to consider three recurring issues that had
emerged from focus group discussions:

> • Consistency between Title IV programs
>
> • Modification or elimination of the 12-hour rule
>
> • Exploration of a student-based delivery model for nonstandard term
> and nonterm programs

# Consistency Between Title IV Programs

The focus groups discussions often centered on lack of program
consistency in the following areas: student eligibility requirements for
the Pell Grant, campus-based, and loan programs; the requirement that a
student be enrolled at least half time to receive an FFEL or Direct
Loan, while no such requirement exists for the other Title IV programs;
different disbursement requirements for the Pell Grant Program than for
the FFEL and Direct Loan programs; the 30-day delayed disbursement
requirement for first-time FFEL and Direct Loan borrowers; the
requirement for equal payment in the FFEL and Direct Loan programs while
Pell Grant payments are prorated; differences in the amount of aid a
student receives depending on enrollment status and the type of aid; and
the adjustment of aid depending on a student's level of attendance.

The participants discussed which of the program inconsistencies are
based in statute and which are regulatory.

One participant suggested that rather than looking at the problem only
from the program consistency standpoint, the Department may need to
consider solutions such as short-term loans that employers can reimburse
since nontraditional programs serve adult students with different needs
than traditional college-aged students. The participant pointed out that
lenders frequently do not want to make small loans, which is a practice
that disadvantages adult nontraditional students. The Department
suggested that a discussion of the requirement that a student be
enrolled at least half-time to receive FFEL and Direct loans and whether
loans should be prorated based on enrollment status might be appropriate
to address these concerns. One participant thought that in considering
these issues, the Department should distinguish between eligibility for
subsidized and unsubsidized loans and consider giving students more
freedom to borrow unsubsidized loans.

One participant noted that students depend on student loans to cover
their indirect costs and that students use their Pell Grants for their
direct costs. Another participant stated that the Pell Grant is
insufficient to cover the direct costs at most institutions except for
some community colleges.

A participant suggested that the recalculation requirements in the Pell
Grant Program for changes in enrollment status should be modified
because the participant believes that the new return of Title IV aid
requirements adequately address the concerns that the recalculation
provisions were trying to address.

Another participant expressed an opinion that all of the Title IV
programs' payment requirements should be on the basis of credit hours
attempted rather than credit hours completed. The participant noted that
student financial assistance is available to allow students to pursue
their educational objectives and that paying for credits completed takes
the risk away from the government but does not motivate students.
However, it was also mentioned that encouraging students to complete
their coursework is a positive concept, not a negative concept.

One participant suggested that the Department should approach the
regulatory issues in the short-term and approach statutory issues in the
long-term, because in the participant's view, many of the real problems
are regulatory. Another participant asked whether there is a possibility
of a fast track negotiated rulemaking session in 2001 if this group
comes up with regulatory proposals. Departmental representatives
indicated that there is no negotiated rulemaking currently scheduled for
this year. Another participant suggested that subregulatory guidance be
used as an alternative to negotiated rulemaking. It was stated that
although there is a big difference between achieving statutory change as
opposed to regulatory change, a blue print for statutory change is
needed because the statute contains too many barriers to nontraditional
education to ignore.

# The 12-Hour Rule

Department staff reported that most participants in the focus groups had
suggested eliminating the 12-hour rule and applying the one-day-per-week
rule for all types of programs.

Participants discussed whether nonstandard terms should be treated more
like standard terms or nonterms. Participants had no preference.

Participants offered no alternatives to the 12-hour rule.

### Student-Based Delivery Model

Department staff presented some information and ideas about the
development of a student-based delivery model in which student financial
assistance would be disbursed as the student needs it or as the student
completes credits. They stated that this approach may reduce the risk to
Federal funds because all of a student's aid would not be disbursed "up
front." Tying student financial assistance to the number of credits that
the student completed or the student's progress towards the educational
credential accommodates individual start dates and allows nonstandard
and nonterms to be treated similarly. However, such an approach also
requires the additional administrative burden of ongoing monitoring of a
student's progress and could further complicate the process by requiring
aid for direct and indirect costs to be disbursed separately.

It was noted that the adoption of a student-based model might increase
the Department's comfort level regarding the amount of funds out there
at any one time.

Several participants raised a number of concerns such as whether student
financial assistance would be calculated based on enrollment status or
time, how direct and indirect costs would be handled, how eligibility
for subsequent disbursements after the first disbursement would be
determined, how the return of Title IV aid requirements interact with a
student-based model, and who would use the student-based model.

One participant noted that one of the strengths of this model is that it
accommodates students incurring different costs for different types of
learning experiences.

The participant also felt it accommodates students taking courses at two
separate institutions and stated that a student-based model builds in
accountability and reduces the amount of funds a school can draw down
and pay itself.

A participant noted that the proposed model sounded less flexible in
some ways than the current statutory and regulatory requirements.

Participants discussed that additional monitoring of students' progress
towards their educational credential would be required.

Another participant questioned the capability of lenders and the
Department to handle a student-based delivery system. There are systems
implications in developing a new model.

A participant asked whether the student-based model deals with the
12-hour rule, and the Department responded that the student-based model
does address some issues of accountability and other areas associated
with the 12-hour rule.

Department staff pointed out that a number of details on a student-based
disbursement model need to be discussed further and invited participants
to assist this effort.

### Wrap-up 

The participants discussed the extent to which the Department could move
more quickly to address short-term problems as well as to develop a
long-term strategy. Guidance on the current statutory and regulatory
provisions governing nontraditional educational programs for
institutions was mentioned as a short-term issue to ensure compliance.
Participants noted that if the Department operates with the current
statutory language it will not make much progress in addressing the
issues surrounding student financial assistance for students enrolled in
nontraditional program formats.

**[Conclusion]{.underline}**

The Department recognizes the need for significant policy changes in
this area in order to increase access to innovative education programs
that increase students' likelihood for success. In its report to
Congress on the Distance Education Demonstration Program in January
2001[^4], the Department raised several questions for consideration
based on the emerging trends in postsecondary education, its discussions
with the community and its experience with the Demonstration Program.
Chief among these issues is "Is there an alternative to the '12-hour
rule' that would ensure that the amount of instruction is adequate in
the variety of ways that academic activity is organized in distance
education?" However, the problem extends beyond distance education and
includes traditional programs as well as innovative programs geared to
meet the needs of working adults.

Over the coming months, the new Administration will work with Congress
to carefully consider the options for addressing this important problem,
including the community's suggestion to eliminate the 12-hour rule and
applying the one-day-per-week rule for all types of programs. At the
same time, it will review the existing safeguards and controls for
ensuring that the amount of educational instruction is adequate and
comparable to that offered in traditional term-based programs.

[^1]: The clock hour/credit hour conversion regulations were published
    in the [Federal Register]{.underline} on July 23, 1993 (58 FR
    39618-39623). These regulations established a regulatory formula to
    determine whether certain educational programs qualify in credit
    hours as eligible programs and the amount of Title IV student
    financial assistance that students enrolled in those programs may
    receive. For these purposes, the formula requires that a semester,
    trimester or quarter hour contain a specific minimum number of clock
    hours of instruction. The programs that are subject to this formula
    are basically certificate programs of one-year or less.

[^2]: The student-based delivery model is discussed in more detail later
    in this report.

[^3]: Representatives of the six regional accrediting bodies have
    finalized a set of recommendations for building and evaluating
    online-education programs, but the recommendations will not become
    accreditation standards. (Chronicle of Higher Education, April 6,
    2001)

[^4]: The report to Congress was submitted on January 19, 2001. A copy
    of this report can be obtained on the Department's Web site at
    http://www.ed.gov/programs/disted/performance.html