No Tentative Agreement

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed UP \# 81

**Issue:** Change of Ownership

**Regulatory Cite:** §600.21 Updating application information; §600.31
Change in ownership resulting in a change in control for private
nonprofit, private for-profit and public institutions; §668.174 Past
performance

**Summary of Change:** This change will expand the current definition of
a family to include grandchildren, a spouse\'s children and
grandchildren, and family members as a result of remarriage.

**Updated Information Since 3/6-8 meetings:**

In §600.31(e), the draft language, \"of the legal entity covered by the
institution\'s Program Participation Agreement\" was replaced with \"of
all or part of an owner's undivided interest in an institution, the
institution's parent corporation, or other legal entity that has signed
the institution's Program Participation Agreement\" to:

(1) Clarify what entity is covered by the section (institution, parent
    corporation, or other entity that signed the PPA). The school that
    signs the PPA might be a separate corporation or it might be a sole
    proprietorship or partnership (therefore, it would be inaccurate to
    use just the term "corporation"). The exception could also be used
    if transfer involved a parent corporation that owned a subsidiary
    corporation of which the institution is a part.

(2) Clarify that an owner can transfer all or a part of his or her
    interest in the institution to trigger the change. What the owner
    cannot do is try to break up the institution by transferring
    different pieces of it to family members. An owner may transfer any
    or all of the stock in a corporation of which the institution is a
    part to the owner's other family members, but could not use the
    exemption to transfer pieces of the institution to other family
    members by taking the assets out of one corporation and putting them
    into another corporation.

**Tentative Agreement:** No

**Change:**

[**§** 600.21 Updating application information.]{.underline}

\* \* \* \* \*

\(f\) *Definition.* A family member includes a person\'s \--

\(1\) Parent or stepparent, sibling or step-sibling, spouse, child or
stepchild, or grandchild or step-grandchild;

\(2\) Spouse\'s parent or stepparent, sibling or step-sibling, child or
stepchild, or grandchild or step-grandchild;

\(3\) Child\'s spouse; and

\(4\) Sibling\'s spouse.

\* \* \* \* \*

[§ 600.31 Change in ownership resulting in a change in control for
private nonprofit, private for-profit and public
institutions.]{.underline}

\* \* \* \* \*

\(e\) *Excluded transactions.* A change in ownership and control
reported under §600.21 and otherwise subject to this section does not
include a transfer of ownership and control of all or part of an owner's
undivided interest in an institution, the institution's parent
corporation, or other legal entity that has signed the institution's
Program Participation Agreement\--

\(1\) From an owner to a "family member\" of that owner as defined in
§600.21 (f); or

\(2\) Upon the retirement or death of the owner, to a person with an
ownership interest in the institution who has been involved in
management of the institution for at least two years preceding the
transfer and who established and retained the ownership interest for at
least two years prior to the transfer.

\* \* \* \* \*

[§ 668.174 Past performance.]{.underline}

\* \* \* \* \*

\(c\) Ownership interest.

\* \* \*

\(4\) \"Family member\" is defined in §600.21(f) .

\* \* \* \* \*

**Regulatory Language for Notice of Proposed Rulemaking:**

# 

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

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

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

2\. Section 600.21 is amended by revising paragraph (f) to read as
follows:

[§600.21 Updating application information.]{.underline}

\* \* \* \* \*

\(f\) [Definition]{.underline}*.* A family member includes a
person\'s\--

\(1\) Parent or stepparent, sibling or step-sibling, spouse, child or
stepchild, or grandchild or step-grandchild;

\(2\) Spouse\'s parent or stepparent, sibling or step-sibling, child or
stepchild, or grandchild or step-grandchild;

\(3\) Child\'s spouse; and

\(4\) Sibling\'s spouse.

3\. Section 600.31 is amended by revising paragraph (e) to read as
follows:

[§600.31 Change in ownership resulting in a change in control for
private nonprofit, private for-profit and public
institutions.]{.underline}

\* \* \* \* \*

\(e\) [Excluded transactions]{.underline}*.* A change in ownership and
control reported under §600.21 and otherwise subject to this section
does not include a transfer of ownership and control of all or part of
an owner's undivided interest in an institution, the institution's
parent corporation, or other legal entity that has signed the
institution's Program Participation Agreement\--

\(1\) From an owner to a \"family member\" of that owner as defined in
§600.21(f); or

\(2\) Upon the retirement or death of the owner, to a person with an
ownership interest in the institution who has been involved in
management of the institution for at least two years preceding the
transfer and who established and retained the ownership interest for at
least two years prior to the transfer.

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

# 

#  4. The authority citation for part 668 continues to read a follows:

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

5\. Section 668.174 is amended by revising paragraph (c)(4) to read as
follows:

[§668.174 Past performance.]{.underline}

\* \* \* \* \*

\(c\) \* \* \*

\(4\) \"Family member\" is defined in §600.21(f).

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #35

**Issue:** Late Disbursements

**Regulatory Cite:** §668.164(g)

**Summary of Change:** This section has been restructured to read more
easily. The substantive changes from current regulations to this section
would:

(1) Eliminate the requirement that, for Pell Grant purposes, the school
    must have received a 'valid' SAR or ISIR before the student withdrew
    \[§668.164(g)(1)\].

(2) Change the requirement that in order to make a late disbursement the
    school must have received a SAR or ISIR with an official EFC while
    the student was still eligible, to that the Secretary must have
    processed a SAR or ISIR with an official EFC while the student was
    still eligible \[§668.164(g)(2)(i)\].

(3) Exclude a late disbursement of a PLUS loan from the above SAR/ISIR
    processing requirement \[§668.164(g)(2)(i)\].

(4) Clarify the current requirement that an institution must make any
    required post-withdrawal disbursement to a student who has withdrawn
    and is subject to the provisions of §668.22 \[§668.164(g)(3)(i)\].

(5) Provide that an institution must offer a late disbursement to a
    student who had completed a payment or loan period
    \[§668.164(g)(3)(ii)\].

(6) Provide an additional 30 days (total of 120 days) for the
    institution to make a late disbursement \[§668.164(g)(4)(i)\].

(7) Add PLUS loans to the prohibition of making a second or subsequent
    late disbursement of a FFEL or Direct Loan unless the student
    completed the period for which the loan was intended
    \[§668.164(g)(4)(ii)\].

(8) Provide that a school may make a late disbursement to a first-year,
    first-time borrower if the school is exempt from the delayed
    disbursement requirements \[§668.164(g)(4)(iii)\].

**Updated Information Since 3/6-8 Meetings:**

(1) This section has been redrafted to read more easily. Because a
    marked-up version would be difficult to follow, a clean version of
    the draft language is provided.

(2) Makes clear that a SAR or ISIR is not required for a late
    disbursement of a PLUS loan.

(3) Changes the requirement that in order to make a late disbursement
    the school must have received a SAR or ISIR with an official EFC
    while the student was still eligible, to that the Secretary must
    have processed a SAR or ISIR with an official EFC while the student
    was still eligible.

(4) For a late disbursement to a student who completed a payment or
    enrollment period, clarifies that the school may credit the
    student's account to pay for allowable costs but must offer any
    remaining funds to the student.

(5) Provides that a late disbursement must be made within 120 days
    instead of 90 days.

(6) Provides that a school may make a late disbursement to a first-year,
    first-time borrower if the school is exempt from the 30-day delayed
    disbursement requirements.

**Tentative Agreement:** No

**Change**:

§668.164 [Disbursing funds.]{.underline}

\* \* \* \* \*

\(g\) [Late disbursements]{.underline}. (1) [Ineligible
student]{.underline}. For purposes of this paragraph, an otherwise
eligible student becomes ineligible to receive title IV, HEA program
funds on the date that\--

\(i\) For a loan under the FFEL and Direct Loan programs, the student is
no longer enrolled at the institution as at least a half-time student
for the loan period; or

\(ii\) For an award under the Federal Pell Grant, FSEOG, and Federal
Perkins Loan programs, the student is no longer enrolled at the
institution for the award year.

\(2\) [Conditions for a late disbursement]{.underline}. Except as
limited under paragraph (g)(4) of this section, a student who becomes
ineligible (or the student's parent) may receive a late disbursement if
before the date the student became ineligible---

\(i\) Except in the case of a PLUS loan, the Secretary processed a SAR
or ISIR with an official expected family contribution; and

(ii)(A) For a loan under the FFEL or Direct Loan programs, the
institution certified or originated the loan; or

\(B\) For an award under the Federal Perkins Loan or FSEOG programs, the
institution made that award to the student.

\(3\) [Making a late disbursement]{.underline}. Provided that the
conditions described in paragraph (g)(2) of this section are satisfied-

\(i\) If the student withdrew from the institution during a payment
period or period of enrollment, the institution must make any
post-withdrawal disbursement required under §668.22(a)(3) in accordance
with the provisions of §668.22(a)(4);

\(ii\) If the student successfully completed the payment period or
period of enrollment, the institution must provide the student (or
parent) the opportunity to receive the amount of title IV HEA funds that
the student (or parent) was eligible to receive while the student was
enrolled at the institution. For a late disbursement in this
circumstance, the institution may credit the student's account to pay
for current and allowable charges as described in paragraph (d) of this
section, but

must offer any remaining amount to the student or parent; or

\(iii\) If the student did not withdraw but ceased to be enrolled as at
least a half-time student, the institution may make the late
disbursement of a loan under the FFEL or Direct Loan programs to pay for
educational costs that the institution determines the student incurred
for the period in which the student was eligible.

\(4\) [Limitations]{.underline}. (i) An institution may not make a late
disbursement later than 120 days after the date of the institution's
determination that the student withdrew, as provided under §668.22, or,
for a student who did not withdraw, 120 days after the date the student
otherwise became ineligible;

\(ii\) An institution may not make a second or subsequent late
disbursement of a loan under the FFEL or Direct Loan program unless the
student successfully completed the period of enrollment for which the
loan was intended; and

\(iii\) An institution may not make a late disbursement of a loan under
the FFEL or Direct Loan program if the student was a first-year,
first-time borrower unless the student completed the first 30 days of
his or her program of study. This limitation does not apply if the
institution is exempt from the 30-day delayed disbursement requirements
under §682.604(c)(5)(i)--(iii) or §685.303(b)(4)(i)(A)--(C).

**Regulatory Language Format for Notice of Proposed Rulemaking**

PART 668 - STUDENT ASSISTANCE GENERAL PROVISIONS

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

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

2\. Section 668.164(g) is revised to read as follows:

§668.164 [Disbursing funds.]{.underline}

\* \* \* \* \*

\(g\) [Late disbursements]{.underline}. (1) [Ineligible
student]{.underline}. For purposes of this paragraph, an otherwise
eligible student becomes ineligible to receive title IV, HEA program
funds on the date that\--

\(i\) For a loan under the FFEL and Direct Loan programs, the student is
no longer enrolled at the institution as at least a half-time student
for the loan period; or

\(ii\) For an award under the Federal Pell Grant, FSEOG, and Federal
Perkins Loan programs, the student is no longer enrolled at the
institution for the award year.

\(2\) [Conditions for a late disbursement]{.underline}. Except as
limited under paragraph (g)(4) of this section, a student who becomes
ineligible (or the student's parent) may receive a late disbursement if
before the date the student became ineligible---

\(i\) Except in the case of a PLUS loan, the Secretary processed a SAR
or ISIR with an official expected family contribution; and

(ii)(A) For a loan under the FFEL or Direct Loan programs, the
institution certified or originated the loan; or

\(B\) For an award under the Federal Perkins Loan or FSEOG programs, the
institution made that award to the student.

\(3\) [Making a late disbursement]{.underline}. Provided that the
conditions described in paragraph (g)(2) of this section are
satisfied\--

\(i\) If the student withdrew from the institution during a payment
period or period of enrollment, the institution must make any
post-withdrawal disbursement required under §668.22(a)(3) in accordance
with the provisions of §668.22(a)(4);

\(ii\) If the student successfully completed the payment period or
period of enrollment, the institution must provide the student (or
parent) the opportunity to receive the amount of title IV, HEA funds
that the student (or parent) was eligible to receive while the student
was enrolled at the institution. For a late disbursement in this
circumstance, the institution may credit the student's account to pay
for current and allowable charges as described in paragraph (d) of this
section, but must offer any remaining amount to the student or parent;
or

\(iii\) If the student did not withdraw but ceased to be enrolled as at
least a half-time student, the institution may make the late
disbursement of a loan under the FFEL or Direct Loan programs to pay for
educational costs that the institution determines the student incurred
for the period in which the student was eligible.

\(4\) [Limitations]{.underline}. (i) An institution may not make a late
disbursement later than 120 days after the date of the institution's
determination that the student withdrew, as provided under §668.22, or,
for a student who did not withdraw, 120 days after the date the student
otherwise became ineligible;

\(ii\) An institution may not make a second or subsequent late
disbursement of a loan under the FFEL or Direct Loan program unless the
student successfully completed the period of enrollment for which the
loan was intended; and

\(iii\) An institution may not make a late disbursement of a loan under
the FFEL or Direct Loan program if the student was a first-year,
first-time borrower unless the student completed the first 30 days of
his or her program of study. This limitation does not apply if the
institution is exempt from the 30-day delayed disbursement requirements
under §682.604(c)(5)(i) through (iii) or §685.303(b)(4)(i)(A) through
(C).

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #39

**Issue:** Limit the definition of \"an institution required to take
attendance.\"

**Regulatory Cite:** §668.22(b)(3)

**Summary of Change:** Clarify that for the Return of Title IV Aid
purposes institutions are \"required to take attendance\" only if an
outside entity, such as the institution's accrediting agency or state
agency, has determined that they require the institution to take
attendance.

# Updated Information Since 3/6-8 Meetings: Adding the sentence, "If an outside entity requires an institution to take attendance for only a portion of the payment period or period of enrollment, as applicable, the institution must use its attendance records to determine a withdrawal date in accordance with paragraph (b)(1) of this section for only the period for which attendance taking is required.", qualifies the duration of attendance taking to that required by the outside entity.

The phrase at the end of the sentence, "\[f\]or some or all of its
students.", was eliminated as unnecessary given the provision in
§668.22(b)(3)(ii) which is included at the request of the negotiators
for clarity but remains unmodified.

**Tentative Agreement:** No

**Change:**

[§ 668.22 Treatment of title IV funds when a student
withdraws.]{.underline}

\* \* \* \* \*

\(b\) *Withdrawal date for a student who withdraws from an institution
that is required to take attendance.*

\* \* \*

(3)(i) An institution is required to take attendance if an outside
entity (such as the institution\'s accrediting agency, or a state
agency) has a requirement, as determined by the entity, that the
institution take attendance. ~~for some or all of its students.~~

\(ii\) If an outside entity requires an institution to take attendance
for only some students, the institution must use its attendance records
to determine a withdrawal date in accordance with paragraph (b)(1) of
this section for those students.

\(iii\) If an outside entity requires an institution to take attendance
for only a portion of the payment period or period of enrollment, as
applicable, the institution must use its attendance records to determine
a withdrawal date in accordance with paragraph (b)(1) of this section
for only the period

for which attendance taking is required.

\* \* \* \* \*

**Regulatory Language Format for Notice of Proposed Rulemaking:**

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

1\. The authority citation for part 668 continues to read as

follows:

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

2\. Section 668.22 is amended by revising paragraph (b)(3)(i)

and by adding a new paragraph (b)(3)(iii) to read as follows:

[§668.22 Treatment of title IV funds when a student
withdraws.]{.underline}

\* \* \* \* \*

\(b\) \* \* \*

\* \* \*

(3)(i) An institution is required to take attendance if an outside
entity (such as the institution\'s accrediting agency, or a state
agency) has a requirement, as determined by the entity, that the
institution take attendance.

\* \* \* \* \*

\(iii\) If an outside entity requires an institution to take attendance
for only a portion of the payment period or period of enrollment, as
applicable, the institution must use its attendance records to determine
a withdrawal date in accordance with paragraph (b)(1) of this section
for only the period for which attendance taking is required.

\* \* \* \* \*

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #41

**Issue:** Leave of Absence (LOA) definition

**Regulatory Cite:** §668.22(d)

**Summary of Change:** Simplify the LOA definition and allow multiple
LOAs not to exceed a total of 180 days within a 12-month period.

# Updated Information Since 3/6-8 Meetings: 

In the redesignated §668.22(d)(2) the word "on" is removed and

replaced with "at" for clarity to indicate that a student does not
return "on" the end of a leave of absence, but rather "at" the end of a
leave of absence.

The Department was asked to consider amending the regulations to permit
temporary interruptions in a student\'s education to count as a Title IV
leave of absence when, upon the student\'s return, the student does not
continue his or her education where he or she left off. We have
discussed the issue and do not believe that a change to the regulations
is needed. We will discuss our decision at the next negotiating session.

**Tentative Agreement:** No

**Change:**

[§ 668.22 Treatment of title IV funds when a student
withdraws.]{.underline}

\* \* \* \* \*

\(d\) *Approved leave of absence.* (1) For purposes of this section
(and, for a title IV, HEA program loan borrower, for purposes of
terminating the student\'s in-school status), an institution does not
have to treat a leave of absence as a withdrawal if it is an approved
leave of absence. A leave of absence is an approved leave of absence if
\--

\(i\) The institution has a formal policy regarding leaves of absence;

\(ii\) The student follows the institution\'s policy in requesting the
leave of absence;

\(iii\) The institution determines that there is a reasonable
expectation that the student will return to the school;

\(iv\) The institution approves the student\'s request in accordance
with the institution\'s policy;

\(v\) The leave of absence does not involve additional charges by the
institution;

\(vi\) The number of days in the approved leave of absence, when added
to the number of days in all other approved leaves of absence, does not
exceed 180 days in any 12-month period;

\(vii\) Upon the student\'s return from the leave of absence, the
student is permitted to complete the coursework he or she began prior to
the leave of absence; and

\(viii\) If the student is a title IV, HEA program loan recipient, the
institution explains to the student, prior to granting the leave of
absence, the effects that the student\'s failure to return from a leave
of absence may have on the student\'s loan repayment terms, including
the exhaustion of some or all of the student\'s grace period.

\(2\) If a student does not resume attendance at the institution at or
before the end of a leave of absence that meets the requirements of this
section, the institution must treat the student as a withdrawal in
accordance with the requirements of this section.

\(3\) For purposes of this paragraph \--

\(i\) The number of days in a leave of absence is counted beginning with
the first day of the student\'s initial leave of absence in a 12-month
period.

\(ii\) A 12-month period begins on the first day of the student\'s
initial leave of absence.

\(iii\) An institution\'s leave of absence policy is a formal policy if
the policy \--

\(A\) Is in writing and publicized to students; and

\(B\) Requires students to provide a written, signed, and dated request
that includes the reason for the request for a leave of absence prior to
the leave of absence. However, if unforeseen circumstances prevent a
student from providing a prior written request, the institution may
grant the student\'s request for a leave of absence if the institution
documents its decision and collects the written request at a later date.

\* \* \* \* \*

**[Regulatory Language Format for Notice of Proposed
Rulemaking:]{.underline}**

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

# 

#  1. The authority citation for part 668 continues to read a follows:

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

2\. Section 668.22 is amended as follows:

A. By revising paragraph (d)(1)(vi).

B. By revising paragraph (d)(1)(vii).

C. By redesignating paragraph (d)(1)(viii) as (d)(1)(vii).

D. By redesignating paragraph (d)(1)(ix) as (d)(1)(viii).

E. By removing paragraph (d)(2).

F. By redesignating paragraph (d)(3) as (d)(2) and revising the
redesignated paragraph.

G. By redesignating paragraph (d)(4) as (d)(3) and revising the
redesignated paragraph.

[§ 668.22 Treatment of title IV funds when a student
withdraws.]{.underline}

\* \* \* \* \*

\(d\) \* \* \*

\(1\) \* \* \*

\(vi\) The number of days in the approved leave of absence, when added
to the number of days in all other approved leaves of absence, does not
exceed 180 days in any 12-month period;

\* \* \* \* \*

\(2\) If a student does not resume attendance at the institution at or
before the end of a leave of absence that meets the requirements of this
section, the institution must treat the student as a withdrawal in
accordance with the requirements of this section.

\(3\) For purposes of this paragraph \--

\(i\) The number of days in a leave of absence is counted beginning with
the first day of the student\'s initial leave of absence in a 12-month
period.

\(ii\) A 12-month period begins on the first day of the student\'s
initial leave of absence.

\(iii\) An institution\'s leave of absence policy is a formal policy if
the policy \--

\(A\) Is in writing and publicized to students; and

\(B\) Requires students to provide a written, signed, and dated request
that includes the reason for the request for a leave of absence prior to
the leave of absence. However, if unforeseen circumstances prevent a
student from providing a prior written request, the institution may
grant the student\'s request for a leave of absence if the institution
documents its decision and collects the written request at a later date.

\* \* \* \* \*

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** 1/7/02 Suggestion

**Issue:** Timely Refunds

**Regulatory Cite:** §668.173(a), (b), and (c)

**Summary of Change:** This section has been restructured to read more
easily. The substantive changes from current regulations to this section
would:

(1) Clarify when the Secretary considers a return of Title IV, HEA
    program funds to have been made \[§668.173(b)\].

(2) Increase from one to two the number of late returns that would not
    trigger a letter of credit \[§668.173(c)(1)\].

(3) Provide that a letter of credit must be submitted no later than 30
    days after the institution submits its compliance audit or 30 days
    after the Secretary or a guaranty agency issues a review report or
    written notice to the institution \[§668.173(d)(2)(ii)\].

(4) Add a provision that allows an institution, that would otherwise be
    required to submit a letter of credit, to request the Secretary to
    reconsider an audit or review finding that it failed to return title
    IV, HEA program funds timely because of exceptional circumstances
    beyond its control \[§668.173(d)(3)\].

# Updated Information Since 3/6-8 Meetings:

These updates represent changes to the draft distributed by the
Department to negotiators during the March meetings.

(1) This section has been redrafted to read more easily. Because a
    marked-up version would be difficult to follow, a clean version of
    the draft language is provided.

(2) Adds a time requirement for the return of FFEL funds made under a
    "hold and release" process \[§668.173(b)(3)\].

(3) Increases from 30 to 35 the number of days for check clearance
    \[§668.173(b)(4)\].

(4) Increases from one to two the number of late returns that would not
    trigger a letter of credit \[§668.173(c)(1)\].

(5) Specifies that an institution has 30 days from the date the
    Secretary or the guaranty agency issues a review report or written
    notice to submit the letter of credit \[§668.173(d)(2)(ii)\].

(6) Replaces the term "appeal" with the phrase "request the Secretary to
    reconsider a finding" \[§668.173(d)(3)\].

**Tentative Agreement:** No

**Change:**

§668.173 [Refund reserve standards]{.underline}.

\(a\) [General]{.underline}. The Secretary considers that an institution
has sufficient cash reserves, as required under §668.171(b)(2), if the
institution\--

\(1\) Satisfies the requirements for a public institution under
§668.171(c)(1);

\(2\) Is located in a State that has a tuition recovery fund approved by
the Secretary and the institution contributes to that fund; or

\(3\) Returns, in a timely manner as described in paragraph (b) of this
section, unearned title IV, HEA program funds that it is responsible for
returning under the provisions of §668.22 for a student that withdrew
from the institution.

\(b\) [Timely return of title IV, HEA program funds]{.underline}. An
institution returns to the Secretary or FFEL Program lender unearned
title IV, HEA funds timely if, in accordance with procedures established
by the Secretary or FFEL Program lender\--

\(1\) The institution deposits or transfers the funds into the bank
account it maintains under §668.163(a) or (b) no later than 30 days
after the date it determines that the student withdrew;

\(2\) The institution initiates an electronic funds transfer (EFT) to
the Secretary or FFEL Program lender no later than 30 days after the
date it determines that the student withdrew;

\(3\) The institution initiates an electronic transaction for returning
the funds no later than 30 days after the date it determines that the
student withdrew; or

\(4\) The clearance date of the check used by the institution to return
the funds is not later than 35 days after the date it determines that
the student withdrew.

\(c\) [Audit or review findings]{.underline}. The Secretary does not
consider that an institution has returned unearned title IV, HEA program
funds in a timely manner if the independent auditor who conducted the
institution's compliance audit, or the Secretary or guaranty agency that
conducted a review of the institution, finds\--

\(1\) In the sample of student records audited or reviewed, that the
institution did not return the funds within the timeframes described in
paragraph (b) of this section funds for at least two students and those
students represent 5% or more of the students in the sample. (For
purposes of determining this percentage, the sample includes only
students for whom the institution was required to return unearned title
IV, HEA program funds under §668.22); or

\(2\) A material weakness or reportable condition in the institution's
report on internal controls relating to the return of unearned title IV,
HEA program funds for either of its two most recently completed fiscal
years.

\(d\) [Letter of credit]{.underline}. (1) Except as provided under
paragraph (d)(3) of this section, if an institution does not satisfy a
refund standard under paragraphs (a)(1) or (2) of this section, and a
finding is made in an audit or review that the institution is not
returning unearned title IV, HEA program funds in a timely manner as
provided under paragraph (c) of this section for either of its two most
recently completed fiscal years, the institution must submit an
irrevocable letter of credit, acceptable and payable to the Secretary.

(2) A letter of credit under this paragraph must---

\(i\) Equal 25 percent of the total amount of unearned title IV, HEA
program funds that it returned or should have returned under §668.22
during the institution's most recently completed fiscal year; and

\(ii\) Be submitted by the institution no later than 30 days after the
institution submits its compliance audit, or no later than 30 days after
the Secretary or guaranty agency either issues a review report or sends
a written notice to the institution requesting the letter of credit.

\(3\) An institution may delay submitting a letter of credit and request
the Secretary to reconsider a finding made in its most recent compliance
audit or review report that it failed to return unearned title IV, HEA
program funds in a timely manner if\--

\(i\) The institution submits documentation that shows that the unearned
title IV, HEA program funds were not returned in a timely manner solely
because of exceptional circumstances beyond the institution's control
and that the institution would not have come within the provisions of
paragraph (c)(1) of this section had it not been for these exceptional
circumstances; and

\(ii\) The institution's request, along with the documentation described
in paragraph (d)(3)(i) of this section, is submitted to the Secretary no
later than 30 days after the institution submits its compliance audit,
or no later than 30 days after the Secretary or guaranty agency either
issues a review report or sends a written notice to the institution
requesting the letter of credit.

\(4\) If the Secretary denies the institution's request under paragraph
(d)(3) of this section, the Secretary notifies the institution of the
date it must submit the letter of credit described in paragraph (d)(2)
of this section.

**Regulatory Language Format for Notice of Proposed Rulemaking:**

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

# 

#  1. The authority citation for part 668 continues to read as 

follows:

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

2\. Section 668.173 is amended by redesignating paragraph (d) as
paragraph (e); revising paragraphs (a), (b), and (c); and adding a new
paragraph (d) to read as follows:

§668.173 [Refund reserve standards]{.underline}.

\(a\) [General]{.underline}. The Secretary considers that an institution
has sufficient cash reserves, as required under §668.171(b)(2), if the
institution\--

\(1\) Satisfies the requirements for a public institution under
§668.171(c)(1);

\(2\) Is located in a State that has a tuition recovery fund approved by
the Secretary and the institution contributes to that fund; or

\(3\) Returns, in a timely manner as described in paragraph (b) of this
section, unearned title IV, HEA program funds that it is responsible for
returning under the provisions of §668.22 for a student that withdrew
from the institution.

\(b\) [Timely return of title IV, HEA program funds]{.underline}. An
institution returns to the Secretary or FFEL Program lender unearned
title IV, HEA funds timely if, in accordance with procedures established
by the Secretary or FFEL Program lender\--

\(1\) The institution deposits or transfers the funds into the bank
account it maintains under §668.163(a) or (b) no later than 30 days
after the date it determines that the student withdrew;

\(2\) The institution initiates an electronic funds transfer (EFT) to
the Secretary or FFEL Program lender no later than 30 days after the
date it determines that the student withdrew;

\(3\) The institution initiates an electronic transaction for returning
the funds no later than 30 days after the date it determines that the
student withdrew; or

\(4\) The clearance date of the check used by the institution to return
the funds is not later than 35 days after the date it determines that
the student withdrew.

\(c\) [Audit or review findings]{.underline}. The Secretary does not
consider that an institution has returned unearned title IV, HEA program
funds in a timely manner if the independent auditor who conducted the
institution's compliance audit, or the Secretary or guaranty agency that
conducted a review of the institution, finds\--

\(1\) In the sample of student records audited or reviewed, that the
institution did not return the funds within the timeframes described in
paragraph (b) of this section funds for at least two students and those
students represent 5% or more of the students in the sample. (For
purposes of determining this percentage, the sample includes only
students for whom the institution was required to return unearned title
IV, HEA program funds under §668.22); or

\(2\) A material weakness or reportable condition in the institution's
report on internal controls relating to the return of unearned title IV,
HEA program funds for either of its two most recently completed fiscal
years.

\(d\) [Letter of credit]{.underline}. (1) Except as provided under
paragraph (d)(3) of this section, if an institution does not satisfy a
refund standard under paragraphs (a)(1) or (2) of this section, and a
finding is made in an audit or review that the institution is not
returning unearned title IV, HEA program funds in a timely manner as
provided under paragraph (c) of this section for either of its two most
recently completed fiscal years, the institution must submit an
irrevocable letter of credit, acceptable and payable to the Secretary.

(3) A letter of credit under this paragraph must---

\(i\) Equal 25 percent of the total amount of unearned title IV, HEA
program funds that it returned or should have returned under §668.22
during the institution's most recently completed fiscal year; and

\(ii\) Be submitted by the institution no later than 30 days after the
institution submits its compliance audit, or no later than 30 days after
the Secretary or guaranty agency either issues a review report or sends
a written notice to the institution requesting the letter of credit.

\(3\) An institution may delay submitting a letter of credit and request
the Secretary to reconsider a finding made in its most recent compliance
audit or review report that it failed to return unearned title IV, HEA
program funds in a timely manner if\--

\(i\) The institution submits documentation that shows that the unearned
title IV, HEA program funds were not returned in a timely manner solely
because of exceptional circumstances beyond the institution's control
and that the institution would not have come within the provisions of
paragraph (c)(1) of this section had it not been for these exceptional
circumstances; and

\(ii\) The institution's request, along with the documentation described
in paragraph (d)(3)(i) of this section, is submitted to the Secretary no
later than 30 days after the institution submits its compliance audit,
or no later than 30 days after the Secretary or guaranty agency either
issues a review report or sends a written notice to the institution
requesting the letter of credit.

\(4\) If the Secretary denies the institution's request under paragraph
(d)(3) of this section, the Secretary notifies the institution of the
date it must submit the letter of credit described in paragraph (d)(2)
of this section.

\* \* \* \* \*

Proposed Regulatory Language

**Committee II - Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #75

**Issue:** Modification to the EADA Requirements

**Regulatory Cite:** §668.41

**Summary of Requested Change:** The request was to modify the
regulations that provide when an institution must make public its
consumerism information related to its intercollegiate athletic program.

**Regulatory Change:** None at this time.

**Reason:** As agreed at the last meeting, the Department and NAICU have
had several conversations about this provision. The original request was
to make the disclosure date correspond to the date that institutions
submit their annual audited financial statements. However, the statutory
date of October 1 for the first year's disclosure (which was modified by
regulations to October 15 for subsequent years) was based upon the
NCAA's early signing date for major women's sports. The issue for
discussion is whether shifting the date to a later date such as January
15 will assist institutions and will continue to serve the needs of the
students for obtaining this consumer information.

# Updated Information

**Since 3/6-8 Meetings:** The NCAA requires its Division I participants
to provide this information by October 15, and we have been told that
these institutions would be unlikely to amend that data to reflect any
changes resulting from its annual financial audit. Given that
information and that advocates not represented at this negotiating
session have expressed concerns to the Department about modifying the
disclosure date, we suggest an alternative approach to address the
initial concern expressed in Fed Up that the information provided in
these disclosures has not been audited and that when comparing the
initial data to the audited data there could be discrepancies. The
Department will notify institutions at the time we are collecting the
data that we are aware that the data may not have been audited prior to
its submission.

**Tentative Agreement:** No

Proposed Regulatory Language

**Committee II - Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #94

**Issue:** Student Eligibility -- Regaining Eligibility

**Regulatory Cite:** None

**Summary of Requested Change:** Establish uniform retroactive treatment
for ineligible students who regain eligibility within a payment period.

**Regulatory Change:** None.

**Reason:** The regulations do not specifically speak to when a student
gains or regains eligibility. However, the Department has, over the
years and in a number of ways, provided the following guidance in this
area.

The circumstances addressed by this guidance are those where the student
resolves an eligibility issue related to when the student:

Becomes a "regular student"

Resolves a default or overpayment problem

Is no longer incarcerated

Becomes a high school graduate or successfully passes an approved ATB
test

Satisfies the citizenship requirements

Registers with Selective Service

Is considered to be making satisfactory academic progress

For the FFEL and Direct Loan programs, the student becomes eligible for
the enrollment period in which the eligibility issue was resolved.

In general a student becomes eligible for Pell Grant and campus-based
aid beginning with the payment period in which the eligibility issue was
resolved. The exceptions are that if the initial ineligibility was due
to a question related to the citizenship requirements, valid social
security number or selective service registration the student becomes
eligible for Pell and campus-based aid for the entire award year.

**Updated Information Since 3/6-8 Meetings:** The negotiators asked the
Department to look at the provision that allows a student who is in
default on a Perkins Loan who brings the loan current to be eligible to
receive additional Perkins Loans, but does not allow the student to
regain eligibility for the other Title IV programs. That provision is
statutory (sections 464(b) and 462(g)(1)(E) of the HEA) and applies
exclusively to Perkins Loans.

The negotiators asked the Department to review its current policies
concerning when a student establishes or regains eligibility for the
Title IV programs and to consider applying the policy that is in effect
for the FFEL and Direct Loan Programs to all of the Title IV programs.
At this point, the Department is not willing to change the policy.
However, the Department will continue to review this issue.

**Tentative Agreement:** No

Proposed Regulatory Language

**Committee II - Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #67

**Issue:** "90/10 Rule"

**Regulatory Cite:** §600.5

**Summary of Requested Change:** There were two components to the
request for modification to the regulations governing the so called
"90/10" rule. First was a request to allow institutions to include in
the calculation of their 90/10 ratio the institutional matching that is
required under the FSEOG Program. Second was a request to add
distributions from "IRS 529" tuition savings plans to the list of
exceptions to the general rule that assumes that Title IV aid paid
institutional charges first.

**Regulatory Change:** None.

**Reason:** On the first issue, the Department does not agree to make
the suggested change. As was discussed during the negotiated rulemaking
on this issue two years ago, unless the institution's matching came from
outside of the school, counting such contribution in the formula
(especially in the denominator) would violate the 90/10 measurement of
outside sources of revenue. It would also be contrary to the "cash
basis" accounting standards that must be used in calculating the 90/10
ratio.

On the second issue, before proceeding the Department needs additional
information on how an institution would track and document that payments
made by families were derived from the 529 tuition savings plans and
wants to identify what other information would be available during that
process. The Department also needs additional information on how monies
from 529 tuition savings plans are different from any other monies that
a family uses to satisfy their EFC. One distinction between a prepaid
State tuition plan and a 529 tuition savings plan as we understand it,
is that a prepaid State tuition plan is used as a resource in
calculating need (is excluded from calculating the EFC) and with a 529
tuition savings plan, the funds are counted in determining the EFC and
actually result in increasing the EFC. Further, part of a 529 tuition
savings plan distribution is income to the beneficiary and could
increase the EFC based on the beneficiary\'s income.

# Updated Information

**Since 3/6-8 Meetings:**

The Department has given further consideration to the request that
distributions from 529 tuition savings plans be added to the list of
exceptions to the general rule that assumes that Title IV aid pay
institutional charges first. The Department does not agree to make the
suggested change. There are significant differences in the treatment of
funds provided under prepaid tuition plans (which are counted before
Title IV funds) and funds provided under a 529 plan. As noted in the
preamble to the regulations that permitted prepaid tuition plans to
count before Title IV funds, those funds are provided by a third party
to the institution. Under provisions of the HEA, prepaid tuition plan
funds are treated as a defined benefit (resource or estimated financial
assistance) in the determination of a student's eligibility for Title IV
aid. Funds from 529 savings plans are treated the same way as other
family savings such as Education IRAs. Those funds do not displace Title
IV funds in the 90/10 calculation, and only count in the 90/10
calculation when paying institutional costs that exceed the Title IV
funds for a student.

**Tentative Agreement:** Agreed not to make a change addressing the
FSEOG matching funds issue. No agreement reached on the 529 tuition
savings plan issue.

**Proposed Regulatory Language**

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed Up \# 65

**Issue:** 12 hour rule

**Regulatory Cite:** §668.2 Definition of \"Academic year\", §668.4
Payment Period, §668.8 Eligible Program, §682.603 FFEL Loan
Certification, §685.301 Direct Loan Origination, and §690.75 Pell
Payment Eligibility.

**Summary of Change:** These proposed regulations change the definition
of an academic year by eliminating the requirement that for non-standard
and non-term programs a week of instruction is a week of at least 12
hours of regularly scheduled instruction or examinations. Instead, the
rule that applies to standard term programs would also be applied to
non-standard and non-term programs - that a week of instruction must
have at least 1 day of regularly scheduled instruction or examination.
The definition of academic year is removed from §668.2 and the revised
definition is placed in a new §668.3.

Similar changes are made to §668.8 -- Eligible Program.

The elimination of the 12 hour rule necessitates modifications to the
definition of payment period to insure that, in addition to the
completion of a certain number of credit hours, there is also a calendar
time element that must be met before subsequent disbursements of Title
IV funds can be made. Thus, these rules modify §668.4 in order to
include a time element in the determination of a payment period.

These changes also necessitate minor cross-reference changes in the FFEL
and Direct Loan regulations. Finally, the Pell Grant payment eligibility
regulation is slightly modified to refer to the new definitions of
payment period in §668.4.

**Updated Information Since 3/6-8 Meetings:**

The following technical changes were made to the draft regulatory
language:

(3) The phrase, \"at least\" was moved from §668.3(a)(2)(i) to
    §668.3(a)(2) to reflect that the full-time student requirement for
    an undergraduate clock hour program is [at least]{.underline} 900
    clock hours.

(4) The phrase \"or payment period\" was added to §668.3(b)(2) to
    conform to the language of §668.8(b)(3)(i)(A).

(5) The word \"final\" was added to §663(b)(2) and §668.8(b)(3)(i)(A) to
    conform to the language in the current regulations which provides
    that any week in which at lease on day of study for
    [final]{.underline} examinations occurs counts as a week of
    instructional time.

(6) The phrase, \"the second half of\" was removed from §668.4(b)(1)(ii)
    because it is unnecessary.

(7) Section 690.75(a)(3) was revised to make clear that it would apply
    to credit hour programs without terms and all clock hour programs,
    term or nonterm.

**Tentative Agreement:** No

**Change:**

[§ 668.3 Academic year .]{.underline}

Section 668.3 is revised to read as follows.

[§668.3 Academic year.]{.underline}

\(a\) [General.]{.underline} Except as provided in paragraph (c) of this
section, an academic year is a period that begins on the first day of
classes and ends on the last day of classes or examinations during
which\--

\(1\) An institution provides a minimum of 30 weeks of instructional
time; and

(2) For an undergraduate educational program, a full-time student is
    expected to complete at least\--

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(i) Twenty-four semester or trimester credit hours or 36 quarter credit
    hours for a program measured in credit hours; or

(ii) 900 clock hours for a program measured in clock hours.

\(b\) [Definitions.]{.underline} For purposes of paragraph (a) of this
section\--

\(1\) A week is a consecutive seven-day period;

\(2\) A week of instructional time is any week in which at least one day
of regularly scheduled instruction or examinations occurs or, after the
last scheduled day of classes for a term or payment period, at least one
day of study for final examinations occurs; and

\(3\) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.

\(c\) [Reduction in the length of an academic year.]{.underline}

\(1\) Upon the written request of an institution, the Secretary may
approve, for good cause, an academic year of between 26 and 29 weeks of
instructional time for educational programs offered by the institution
if the institution offers a two-year program leading to an associate
degree or a four-year program leading to a baccalaureate degree.

\(2\) An institution\'s written request must\--

\(i\) Identify each educational program for which the institution
requests a reduction, and the requested number of weeks of instructional
time for that program;

\(ii\) Demonstrate good cause for the requested reductions; and

\(iii\) Include any other information that the Secretary may require to
determine whether to grant the request.

(3)(i) The Secretary grants the request of an eligible institution for a
reduction in the length of its academic year if the institution has
demonstrated good cause for granting the request and the institution\'s
accrediting agency and State licensing agency have approved the request.

\(ii\) If the Secretary approves the request, the approval terminates
when the institution\'s program participation agreement expires. The
institution may request an extension of that approval as part of the
recertification process.

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

\* \* \* \* \*

Section 668.4 is revised to read as follows.

[§668.4 Payment period.]{.underline}

\* \* \* \* \*

\(a\) [Payment periods for an eligible program that
measures]{.underline}

[progress in credit hours and has academic terms.]{.underline}

For a student enrolled in an eligible program that is offered in terms
and measures progress in credit hours, the payment period is the
academic term.

\(b\) [Payment periods for an eligible program that
measures]{.underline}

[progress in credit hours and does not have academic terms.]{.underline}

\(1\) For a student enrolled in an eligible program that is one academic
year or less in length\--

\(i\) The first payment period is the period of time in which the
student completes half the number of credit hours in the program and
half the number of weeks in the program; and

\(ii\) The second payment period is the period of time in which the
student completes the program.

\(2\) For a student enrolled in an eligible program that is more than
one academic year in length\--

\(i\) For the first academic year and any subsequent full academic
year\--

\(A\) The first payment period is the period of time in which the
student completes half the number of credit hours in the academic year
and half the number of weeks in the academic year; and

\(B\) The second payment period is the period of time in which the
student completes the academic year.

\(ii\) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length\--

\(A\) The first payment period is the period of time in which the
student completes half the number of credit hours in the remaining
portion of the program and half the number of weeks remaining in the
program; and

\(B\) The second payment period is the period of time in which the
student completes the remainder of the program.

\(iii\) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.

\(3\) For purposes of paragraph (b)(1) and (b)(2) of this section, if an
institution is unable to determine when a student has completed half of
the credit hours in a program, academic year, or the remainder of a
program; the student is considered to begin the second payment period of
the program, academic year, or remainder of a program at the later of---

\(i\) When, as determined by the institution, the student has completed
half of the academic coursework in the program, academic year, or the
remainder of the program; or

\(ii\) The calendar midpoint between the first and last scheduled days
of class of the program, academic year, or the remainder of the program.

\(c\) [Payment periods for an eligible program that measures progress in
clock hours.]{.underline}

\(1\) For a student enrolled in an eligible program that is one academic
year or less in length\--

\(i\) The first payment period is the period of time in which the
student completes half the number of clock hours in the program; and

\(ii\) The second payment period is the period of time in which the
student completes the program.

\(2\) For a student enrolled in an eligible program that is more than
one academic year in length\--

\(i\) For the first academic year and any subsequent full academic
year\--

\(A\) The first payment period is the period of time in which the
student completes half the number of clock hours in the academic year;
and

\(B\) The second payment period is the period of time in which the
student completes the remaining number of clock hours in the academic
year.

\(ii\) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length\--

\(A\) The first payment period is the period of time in which the
student completes half the number of clock hours in the remaining
portion of the program; and

\(B\) The second payment period is the period of time in which the
student completes the remainder of the program.

\(iii\) For any remaining portion of an eligible program that is not
more than one half of an academic year, the payment period is the
remainder of the program.

\(d\) [Number of payment periods]{.underline}. Notwithstanding
paragraphs (b) and (c) of this section, an institution may choose to
have more than two payment periods. If an institution so chooses, the
rules in paragraphs (b and (c) of this section are modified to reflect
the increased number of payment periods. For example, if an institution
chooses to have three payment periods in an academic year, each payment
period must correspond to one-third of the academic year measured in
both credit hours and weeks of instruction.

\* \* \* \* \*

[§668.8 Eligible program.]{.underline}

\* \* \* \* \*

(b)(3)(i) The Secretary considers that an institution provides one week
of instructional time in an academic program during any week the
institution provides at least one day of regularly scheduled instruction
or examinations or after the last scheduled day of classes for a term or
a payment period, at least one day of study for final examinations.

\(ii\) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.

\* \* \* \* \*

[§ 682.603 Certification by a participating school in connection with a
loan application.]{.underline}

\* \* \* \* \*

(f)(1) The minimum period of enrollment for which a school may certify a
loan application is \--

\(i\) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, a single academic term
(e.g., a semester or quarter); or

\(ii\) At a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system, the lesser of \--

\(A\) The length of the student\'s program at the school; or

\(B\) The academic year as defined by the school in accordance with 34
CFR 668.3.

\(2\) The maximum period for which a school may certify a loan
application is \--

\(i\) Generally an academic year, as defined by 34 CFR 668.3, except
that a guaranty agency may allow a school to use a longer period of
time, not to exceed 12 months, corresponding to the period to which the
agency applies the annual loan limits under § 682.401(b)(2)(ii); or

\* \* \* \* \*

[§ 685.301 Origination of a loan by a Direct Loan Program
school.]{.underline}

\* \* \* \* \*

\(a\) (9)(i) The minimum period of enrollment for which a school may
originate a Direct Loan is \--

\(A\) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, a single academic term
(e.g., a semester or quarter); or

\(B\) At a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system, the lesser of \--

(*1*) The length of the student\'s program at the school; or

(*2*) The academic year as defined by the school in accordance with 34
CFR 668.3.

\(ii\) The maximum period for which a school may originate a Direct Loan
is \--

\(A\) Generally an academic year, as defined by 34 CFR 668.3, except
that a school may use a longer period of time, not to exceed 12 months,
corresponding to the period to which the school applies the annual loan
limits under § 685.203; or

\(B\) For a defaulted borrower who has regained eligibility, the
academic year in which the borrower regained eligibility.

\* \* \* \* \*

[§ 690.75 Determination of eligibility for payment.]{.underline}

\* \* \* \* \*

\(a\) For each payment period, an institution may pay a Federal Pell
Grant to an eligible student only after it determines that the student
\--

\(1\) Qualifies as an eligible student under 34 CFR part 668, subpart C;

\(2\) Is enrolled in an eligible program as an undergraduate student;
and

\(3\) If enrolled in a credit hour program without terms or a clock hour
program, has completed the payment period as defined in §668.4 for which
he or she has been paid a Federal Pell Grant.

\* \* \* \* \*

**Regulatory Language Format for Notice of Proposed Rulemaking:**

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

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

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

2\. Section 668.3 is revised to read as follows:

[§668.3 Academic year.]{.underline}

\(a\) [General.]{.underline} Except as provided in paragraph (c) of this
section, an academic year is a period that begins on the first day of
classes and ends on the last day of classes or examinations during
which\--

\(1\) An institution provides a minimum of 30 weeks of instructional
time; and

> \(2\) For an undergraduate educational program, a full-time student is
> expected to complete at least\--

\(i\) Twenty-four semester or trimester credit hours or 36 quarter
credit hours for a program measured in credit hours;

or

\(ii\) 900 clock hours for a program measured in clock hours.

\(b\) [Definitions.]{.underline} For purposes of paragraph (a) of this
section\--

\(1\) A week is a consecutive seven-day period;

\(2\) A week of instructional time is any week in which at least one day
of regularly scheduled instruction or examinations occurs or, after the
last scheduled day of classes for a term or payment period, at least one
day of study for final examinations occurs; and

\(3\) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.

\(c\) [Reduction in the length of an academic year.]{.underline}

\(1\) Upon the written request of an institution, the Secretary may
approve, for good cause, an academic year of between 26 and 29 weeks of
instructional time for educational programs offered by the institution
if the institution offers a two-year program leading to an associate
degree or a four-year program leading to a baccalaureate degree.

\(2\) An institution\'s written request must\--

\(i\) Identify each educational program for which the institution
requests a reduction, and the requested number of weeks of instructional
time for that program;

\(ii\) Demonstrate good cause for the requested reductions; and

\(iii\) Include any other information that the Secretary may require to
determine whether to grant the request.

(3)(i) The Secretary grants the request of an eligible institution for a
reduction in the length of its academic year if the institution has
demonstrated good cause for granting the request and the institution\'s
accrediting agency and State licensing agency have approved the request.

\(ii\) If the Secretary approves the request, the approval terminates
when the institution\'s program participation agreement expires. The
institution may request an extension of that approval as part of the
recertification process.

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

3\. Section 668.4 is revised to read as follows:

[§668.4 Payment period.]{.underline}

\(a\) [Payment periods for an eligible program that
measures]{.underline}

[progress in credit hours and has academic terms.]{.underline} For a
student enrolled in an eligible program that is offered in terms and
measures progress in credit hours, the payment period is the academic
term.

\(b\) [Payment periods for an eligible program that
measures]{.underline}

[progress in credit hours and does not have academic
terms.]{.underline}(1) For a student enrolled in an eligible program
that is one academic year or less in length\--

\(i\) The first payment period is the period of time in which the
student completes half the number of credit hours in the program and
half the number of weeks in the program; and

\(ii\) The second payment period is the period of time in which the
student completes the program.

\(2\) For a student enrolled in an eligible program that is more than
one academic year in length\--

\(i\) For the first academic year and any subsequent full academic
year\--

\(A\) The first payment period is the period of time in which the
student completes half the number of credit hours in the academic year
and half the number of weeks in the academic year; and

\(B\) The second payment period is the period of time in which the
student completes the academic year.

\(ii\) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length\--

\(A\) The first payment period is the period of time in which the
student completes half the number of credit hours in the remaining
portion of the program and half the number of weeks remaining in the
program; and

\(B\) The second payment period is the period of time in which the
student completes the remainder of the program.

\(iii\) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.

\(3\) For purposes of paragraphs (b)(1) and (b)(2) of this section, if
an institution is unable to determine when a student has completed half
of the credit hours in a program, academic year, or the remainder of a
program; the student is considered to begin the second payment period of
the program, academic year, or remainder of a program at the later of---

\(i\) When, as determined by the institution, the student has completed
half of the academic coursework in the program, academic year, or the
remainder of the program; or

\(ii\) The calendar midpoint between the first and last scheduled days
of class of the program, academic year, or the remainder of the program.

\(c\) [Payment periods for an eligible program that measures progress in
clock hours.]{.underline} (1) For a student enrolled in an eligible
program that is one academic year or less in length\--

\(i\) The first payment period is the period of time in which the
student completes half the number of clock hours in the program; and

\(ii\) The second payment period is the period of time in which the
student completes the program.

\(2\) For a student enrolled in an eligible program that is more than
one academic year in length\--

\(i\) For the first academic year and any subsequent full academic
year\--

\(A\) The first payment period is the period of time in which the
student completes half the number of clock hours in the academic year;
and

\(B\) The second payment period is the period of time in which the
student completes the remaining number of clock hours in the academic
year.

\(ii\) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length\--

\(A\) The first payment period is the period of time in which the
student completes half the number of clock hours in the remaining
portion of the program; and

\(B\) The second payment period is the period of time in which the
student completes the remainder of the program.

\(iii\) For any remaining portion of an eligible program that is not
more than one half of an academic year, the payment period is the
remainder of the program.

\(d\) [Number of payment periods.]{.underline} Notwithstanding
paragraphs (b) and (c) of this section, an institution may choose to
have more than two payment periods. If an institution so chooses, the
rules in paragraphs (b) and (c) of this section are modified to reflect
the increased number of payment periods. For example, if an institution
chooses to have three payment periods in an academic year, each payment
period must correspond to one-third of the academic year measured in
both credit hours and weeks of instruction.

(Authority: 20 U.S.C. 1070 *et seq.*)

4\. Section 668.8 is amended by revising paragraph (b)(3) and removing
paragraph (b)(4) to read as follows:

[§668.8 Eligible program.]{.underline}

\* \* \* \* \*

\(b\) \* \* \*

(3)(i) The Secretary considers that an institution provides one week of
instructional time in an academic program during any week the
institution provides at least one day of regularly scheduled instruction
or examinations or after the last scheduled day of classes for a term or
a payment period, at least one day of study for final examinations.

\(ii\) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.

\* \* \* \* \*

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

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

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

6\. Sections 682.603(f)(1)(ii)(B) and (f)(2)(i) are revised by changing
"34 CFR 668.2" to "34 CFR 668.3".

\* \* \* \* \*

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

Authority: 20 U.S.C. 1087a [et seq]{.underline}., unless otherwise
noted.

8\. Sections 685.301(a)(9)(i)(B)([2]{.underline}) and (a)(9)(ii)(A) are
revised by changing "34 CFR 668.2" to "34 CFR 668.3".

# PART 690 -- FEDERAL PELL GRANT PROGRAM

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

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

10\. Section 690.75 paragraph (a) is revised to read as follows:

[§690.75 Determination of eligibility for payment.]{.underline}

\(a\) For each payment period, an institution may pay a Federal Pell
Grant to an eligible student only after it determines that the
student\--

\(1\) Qualifies as an eligible student under 34 CFR part 668, subpart C;

\(2\) Is enrolled in an eligible program as an undergraduate student;
and

\(3\) If enrolled in a credit hour program without terms or a clock hour
program, has completed the payment period as defined in §668.4 for which
he or she has been paid a Federal Pell Grant.

\* \* \* \* \*

Proposed Regulatory Language

**Committee II -- Program Issues**

**Quick Fix:** No

**Origin:** Fed Up #64

**Issue:** Incentive compensation

**Regulatory Cite:** §668.14

**Summary of Change:** Provides clarification on the prohibitions on
providing incentive compensation based on success in securing
enrollments or financial aid.

**Updated Information Since 3/6-8 meetings:**

(8) Subparagraph A\--Added language from the conference report to
    clarify that adjustments may not be based solely on the number of
    students recruited, admitted, enrolled, or awarded financial aid,
    and an exemption for cost of living increases.

(9) Subparagraph B\--Clarified that the students must only enroll in
    non-Title IV eligible programs in order for this practice to qualify
    as an acceptable activity.

(10) Subparagraph C\--Clarified that the employer must pay more that 50%
     of the tuition and fees, that the compensation is not based upon
     the number of employees who enroll or the revenue they generate,
     and that the recruiter have no contact with the employees.

(11) Subparagraph D\--Added admissions and financial aid staff.

(12) Subparagraph F\--Clarified \"pre-enrollment\" activities.

(13) Subparagraph G\--Added \"directly\" per our last session.

(14) Subparagraph H\--Changed \"value\" to \"cost\" per our last
     session.

(15) Subparagraph I\--Clarified that profit distributions are
     proportional to the individual\'s ownership interest per our last
     session.

(16) Subparagraph K\--Conforming changes to paragraph I and changed to
     \"compensation in a manner that would be impermissible under this
     paragraph\" per our last session.

**Tentative agreement:** No

**Change:**

§668.14 Program participation agreement.

\* \* \* \* \*

\(b\) \* \* \*

\(22\) (i) It will not provide any commission, bonus, or other incentive
payment based directly or indirectly upon success in securing
enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions
regarding the awarding of Title IV, HEA program funds, except that this
limitation ***\[the use of the word \"limitation\" in place of
\"requirement\" is a change from the last meeting\]*** does not apply to
the recruitment of foreign students residing in foreign countries who
are not eligible to receive Title IV, HEA program funds.

***\[None of the following language is in the current regulations. The
mark-up shows the changes from the language presented at the last
meeting.\]***

\(ii\) Activities and arrangements that an institution may carry out
without violating the provisions of paragraph (b)(22)(i) of this section
include, but are not limited to:

\(A\) The payment of fixed compensation, such as a fixed annual salary,
as long as that compensation is not adjusted, up or down, more than
twice during any twelve month period, and any adjustment is not based
solely on the number of students recruited, admitted, enrolled, or
awarded financial aid. For this purpose, an increase in fixed
compensation resulting from a cost of living increase that is paid to
all or substantially all employees is not considered an adjustment.

\(B\) Compensation to recruiters based upon their recruitment of
students who enroll only in programs that are not eligible programs
under the Title IV, HEA programs.

\(C\) Compensation to recruiters who arrange contracts between the
institution and an employer under which the employer\'s employees enroll
in the institution, and the employer pays more than 50 percent of the
tuition and fees charged to its employees; provided that compensation is
not based upon the number of employees who enroll in the institution, or
the revenue they generate, and the recruiters have no contact with the
employees.

\(D\) Compensation to all or substantially all of the institution\'s
full-time professional and administrative employees as part of a
profit-sharing plan, or substantially all of the full-time employees at
the same organizational level, except that an organizational level may
not consist predominantly of recruiters, admissions staff, or financial
aid staff.

\(E\) Compensation that is based upon students successfully completing
their educational programs or one academic year of their educational
programs, whichever is shorter. For this purpose, successful completion
of an academic year means that the student has earned at least 24
semester or trimester credit hours or 36 quarter credit hours, or has
successfully completed at least 900 clock hours of instruction.

\(F\) Compensation paid to employees who perform \"pre-enrollment\"
activities, such as answering telephone calls, referring inquiries, or
distributing institutional materials, as long as compensation is not
based on actual enrollment.

\(G\) Compensation to managerial or supervisory employees who do not
directly manage or supervise employees who are directly involved in
recruiting or admissions activities, or the awarding of Title IV, HEA
program funds.

\(H\) The awarding of token gifts to the institution\'s students or
alumni, provided that the gifts are not in the form of money, no more
than one gift is provided annually to an individual, and the cost of the
gift is less than \$100.

\(I\) Profit distributions proportionately based upon an individual\'s
ownership interest in the institution.

\(J\) Compensation paid for Internet-based recruitment and admission
activities that provide information about the institution to prospective
students, or permit them to apply for admission on-line.

\(K\) Payments to third parties, including tuition sharing arrangements,
that deliver various services to the institution, provided that none of
the services involves recruiting or admission activities, or the
awarding of Title IV, HEA program funds.

\(L\) Payments to third parties, including tuition sharing arrangements,
that deliver various services to the institution, even if one of the
services involves recruiting or admission activities or the awarding of
Title IV, HEA program funds, provided that the individuals performing
the recruitment or admission activities, or the awarding of Title IV,
HEA Program funds, are not compensated in a manner that would be
impermissible under paragraph (b)(22) of this section.

**Regulatory Language Format for Notice of Proposed Rulemaking:**

# PART 668 -- STUDENT ASSISTANCE GENERAL PROVISIONS

1\. The authority citation for part 668 continues to read as

follows:

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

2\. Section 668.14(b)(22) is revised to read as follows:

§668.14 [Program participation agreement.]{.underline}

\* \* \* \* \*

\(b\) \* \* \*

(22)(i) It will not provide any commission, bonus, or other incentive
payment based directly or indirectly upon success in securing
enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions
regarding the awarding of Title IV, HEA program funds, except that this
limitation does not apply to the recruitment of foreign students
residing in foreign countries who are not eligible to receive Title IV,
HEA program funds.

\(ii\) Activities and arrangements that an institution may carry out
without violating the provisions of paragraph (b)(22)(i) of this section
include, but are not limited to:

\(A\) The payment of fixed compensation, such as a fixed annual salary,
as long as that compensation is not adjusted, up or down, more than
twice during any twelve month period, and any adjustment is not based
solely on the number of students recruited, admitted, enrolled, or
awarded financial aid. For this purpose, an increase in fixed
compensation resulting from a cost of living increase that is paid to
all or substantially all employees is not considered an adjustment.

\(B\) Compensation to recruiters based upon their recruitment of
students who enroll only in programs that are not eligible programs
under the Title IV, HEA programs.

\(C\) Compensation to recruiters who arrange contracts between the
institution and an employer under which the employer\'s employees enroll
in the institution, and the employer pays more than 50 percent of the
tuition and fees charged to its employees; provided that compensation is
not based upon the number of employees who enroll in the institution, or
the revenue they generate, and the recruiters have no contact with the
employees.

\(D\) Compensation to all or substantially all of the institution\'s
full-time professional and administrative employees as part of a
profit-sharing plan, or substantially all of the full-time employees at
the same organizational level, except that an organizational level may
not consist predominantly of recruiters, admissions staff, or financial
aid staff.

\(E\) Compensation that is based upon students successfully completing
their educational programs or one academic year of their educational
programs, whichever is shorter. For this purpose, successful completion
of an academic year means that the student has earned at least 24
semester or trimester credit hours or 36 quarter credit hours, or has
successfully completed at least 900 clock hours of instruction.

\(F\) Compensation paid to employees who perform \"pre-enrollment\"
activities, such as answering telephone calls, referring inquiries, or
distributing institutional materials, as long as compensation is not
based on actual enrollment.

\(G\) Compensation to managerial or supervisory employees who do not
directly manage or supervise employees who are directly involved in
recruiting or admissions activities, or the awarding of Title IV, HEA
program funds.

\(H\) The awarding of token gifts to the institution\'s students or
alumni, provided that the gifts are not in the form of money, no more
than one gift is provided annually to an individual, and the cost of the
gift is less than \$100.

\(I\) Profit distributions proportionately based upon an individual\'s
ownership interest in the institution.

\(J\) Compensation paid for Internet-based recruitment and admission
activities that provide information about the institution to prospective
students, or permit them to apply for admission on-line.

\(K\) Payments to third parties, including tuition sharing arrangements,
that deliver various services to the institution, provided that none of
the services involves recruiting or admission activities, or the
awarding of Title IV, HEA program funds.

\(L\) Payments to third parties, including tuition sharing arrangements,
that deliver various services to the institution, even if one of the
services involves recruiting or admission activities or the awarding of
Title IV, HEA program funds, provided that the individuals performing
the recruitment or admission activities, or the awarding of Title IV,
HEA Program funds, are not compensated in a manner that would be
impermissible under paragraph (b)(22) of this section.

\* \* \* \*