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, to a spouse\'s children and
grandchildren, and family members as a result of remarriage.

**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 the legal entity covered
by 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 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) .

> \* \* \* \*

Proposed Regulatory Language

Committee II -- Program Issues

**Quick Fix:** No

**Origin:** ED

**Issue:** Overpayment

**Regulatory Cite: §**668.35(c), §673.5(f), and §690.79

**Summary of Change:** Current policy under Return of Title IV Funds
provides that a student does not lose eligibility nor has to repay a
grant overpayment resulting from withdrawal if the total amount of the
Title IV grant funds the student is responsible for repaying is less
than \$25 and is not a remaining balance after the application of prior
payments or of institutional credit balances. These proposed regulatory
changes would apply that policy to all Title IV grant or Federal Perkins
loan overpayments, as long as the overpayment is not the result of
school error. The under \$25 de minimis amount does not apply to amounts
for which the school is liable.

[Section 668.35]{.underline} - The proposed change to §668.35 would
provide that owing an overpayment amount of less than \$25 under the
Federal Perkins Loan program or under a Title IV grant program that is
not a remaining balance nor a result of the application of the
campus-based overaward threshold would not cause a student to be
ineligible for Title IV, HEA funds.

[Section 673.5]{.underline} - The proposed change to §673.5 would
provide that a student is not liable for a Federal Perkins loan
overpayment or an FSEOG overpayment that is less than \$25 if the
overpayment is not a remaining balance nor a result of the application
of the campus-based overaward threshold. For purposes of determining,
recovering and referring an FSEOG overpayment, the non-Federal share is
not counted unless the institution meets its FSEOG matching requirement
by using the fund specific method.

For such de minimis overpayments, the school is not required to attempt
recovery of the overpayment or refer it to the Secretary. However, the
school must attempt recovery of all other overpayment amounts for which
it is not liable and refer any FSEOG overpayment to the Secretary for
collection purposes. Note that under Return to Title IV Funds policy,
Perkins Loans are not treated as an overpayment. Rather, unearned
Perkins Loan funds are repaid according to the terms of the loan. That
is a distinction from this policy.

[Section 690.79]{.underline} - The proposed change to §690.79 would
provide that a student is not liable for a Federal Pell Grant
overpayment amount that is less than \$25 and is not a remaining
balance. For such overpayments, the school is not required to attempt
recovery of the overpayment or refer it to the Secretary. However, the
school must attempt recovery of and refer all other Pell Grant
overpayment amounts for which it is not liable.

**§ 668.35 Student debts under the HEA and to the U.S.**

\* \* \* \* \*

\(c\) A student who receives an overpayment under the Federal Perkins
Loan Program, or under a title IV, HEA grant program may nevertheless be
eligible to receive title IV, HEA program assistance if---

\(1\) The student pays the overpayment in full;

\(2\) The student makes arrangements satisfactory to the holder of the
overpayment debt to pay the overpayment; or

\(3\) The overpayment amount is less than \$25 and is not a remaining
balance nor a result of the application of the overaward threshold in 34
CFR 673.5(d).

\* \* \* \* \*

**§ 673.5 Overaward.**

\* \* \* \* \*

\(f\) *Liability for and recovery of Federal Perkins loan and FSEOG
overpayments.*

\(1\) Except as provided in paragraphs (f)(2) and (f)(3) of this
section, a student is liable for any Federal Perkins loan or FSEOG
overpayment made to him or her. The FSEOG overpayment for purposes of
paragraph (f) of this section does not include the non-Federal share of
FSEOG awards if an institution meets its FSEOG matching share by the
individual recipient method or the aggregate method.

\(2\) The institution is liable for a Federal Perkins loan or FSEOG
overpayment if the overpayment occurred because the institution failed
to follow the procedures in this part, 34 CFR part 668, 34 CFR part 674,
or 34 CFR part 676. The institution shall restore an amount equal to the
overpayment and any administrative cost allowance claimed on that amount
to its loan fund for a Federal Perkins loan overpayment or to its FSEOG
account for an FSEOG overpayment.

\(3\) A student is not liable for and the institution is not required to
attempt recovery of a Federal Perkins loan or FSEOG overpayment, or
refer to the Secretary an FSEOG overpayment, if the overpayment---

(i) Is less than \$25, and

(ii) Is not a remaining balance nor a result of the application of the
     overaward threshold in paragraph (d) of this section.

\(4\) *Recovery attempts for Federal Perkins loan or FSEOG overpayment.*

\(i\) Except as provided in paragraph (f)(3) of this section, if an
institution makes a Federal Perkins loan or FSEOG overpayment for which
it is not liable, it shall promptly send a notice to the student
requesting repayment of the overpayment amount. The notice must state
that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to pay the
overpayment, makes the student ineligible for further title IV aid until
final resolution of the overpayment.

\(ii\) If a student objects to the institution's Federal Perkins loan or
FSEOG overpayment determination on the grounds that it is erroneous, the
institution shall consider any information provided by the student and
determine whether the objection is warranted.

\(5\) *Referral of FSEOG overpayment.*

Except as provided in paragraph (f)(3) of this section, if a student
fails to repay an FSEOG overpayment, or make arrangements satisfactory
to the holder of the overpayment debt to pay the FSEOG overpayment,
after the institution has taken the action required by paragraph (f)(4)
of this section, the institution shall refer the FSEOG overpayment to
the Secretary for collection purposes, in accordance with procedures
required by the Secretary. After referring the FSEOG overpayment to the
Secretary under this section, the institution need make no further
effort to recover the overpayment.

\* \* \* \* \*

**§ 690.79 Liability for and recovery of Federal Pell Grant
overpayments.**

(a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this
section, a student is liable for any Federal Pell Grant overpayment made
to him or her.

\(2\) The institution is liable for a Federal Pell Grant overpayment if
the overpayment occurred because the institution failed to follow the
procedures set forth in this part or 34 CFR part 668. The institution
shall restore an amount equal to the overpayment to its Federal Pell
Grant account.

\(3\) A student is not liable for and the institution is not required to
attempt recovery of or refer to the Secretary a Federal Pell Grant
overpayment if the amount of the overpayment is less than \$25 and is
not a remaining balance.

(b*) Recovery attempts for Federal Pell Grant overpayment.*

(i)Except as provided in paragraph (a)(3) of this section, if an
institution makes a Federal Pell Grant overpayment for which it is not
liable, it shall promptly send a written notice to the student
requesting repayment of the overpayment amount. The notice must state
that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to pay the
overpayment, makes the student ineligible for further title IV aid until
final resolution of the Federal Pell Grant overpayment.

\(ii\) If a student objects to the institution's Federal Pell Grant
overpayment determination on the grounds that it is erroneous, the
institution shall consider any information provided by the student and
determine whether the objection is warranted.

\(c\) *Referral of Federal Pell Grant overpayment.*

Except as provided in paragraph (a)(3) of this section, if the student
fails to repay a Federal Pell Grant overpayment, or make arrangements
satisfactory to the holder of the overpayment debt to pay the Federal
Pell Grant overpayment, after the institution has taken the action
required by paragraph (b) of this section, the institution shall refer
the overpayment to the Secretary for collection purposes, in accordance
with procedures required by the Secretary. After referring the Federal
Pell Grant overpayment to the Secretary under this section, the
institution need make no further efforts to recover the overpayment.

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.

**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
requirement 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 the salary is not adjusted, by promotion or otherwise, up or
down, more than twice during any twelve month period.

\(B\) Compensation to recruiters based upon their recruitment of
students who enroll 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 directly or by reimbursement
all or substantially all of the tuition and fees of its employees.

\(D\) Compensation paid 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 employees at the
same organizational level, except that an organizational level may not
consist predominately of recruiters.

\(E\) Compensation paid to recruiters that is based upon students
successfully completing the program or one academic year of the
educational program in which they enroll, 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 or providing access to
institutional information or institutional applications as long as
compensation is not based on actual enrollment.

\(G\) Compensation to managerial or supervisory employees who do not
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 to an individual, and the value of the gift is
no more than \$100.

\(I\) Profit distributions to an individual who owns at least 25 percent
of the institution.

\(J\) 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 involve recruiting or admission activities, or the awarding
of Title IV, HEA program funds.

\(L\) Payments to third parties that deliver various services to the
institution, even if one of the services involves recruiting or
admission activities, provided that the individuals performing the
recruitment or admission activities, or the awarding of Title IV, HEA
Program funds, are not compensated on an incentive payment basis.

**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 Programs.

The elimination of the 12 hour rule necessitates modifications to the
definition of payment periods 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 periods in §668.4.

**Change:**

[§ 668.3 Academic year .]{.underline}

Section 668.3 is revised to read as follows.

[§668.3 Academic year.]{.underline}

\(a\) 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\--

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(i) At least 24 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.

\(b\) 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, at least one day of study for
examinations occurs.

\(3\) 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 second half of 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.

\(c\) For purposes of paragraph (b) 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---

\(1\) 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

\(2\) The calendar midpoint between the first and last scheduled days of
class of the program, academic year, or the remainder of the program.

\(d\) [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 of 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.

\(e\) Notwithstanding paragraphs (b) through (d) of this section, an
institution may choose to have more than two payment periods. If an
institution so chooses, the rules in paragraphs (b), (c), and (d) 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\--

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

\* \* \* \* \*