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[Federal Register: June 18, 2010 (Volume 75, Number 117)]
[Proposed Rules]               
[Page 34805-34890]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jn10-28]                         

[[Page 34805]]

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Part II

Department of Education

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34 CFR Parts 600, 602, et al.

Program Integrity Issues; Proposed Rule

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 602, 603, 668, 682, 685, 686, 690, and 691

[Docket ID ED-2010-OPE-0004]
RIN 1840-AD02

 
Program Integrity Issues

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to improve integrity in the programs 
authorized under title IV of the Higher Education Act of 1965, as 
amended (HEA) by amending the regulations for Institutional Eligibility 
Under the HEA, the Secretary's Recognition of Accrediting Agencies, the 
Secretary's Recognition Procedures for State Agencies, the Student 
Assistance General Provisions, the Federal Family Education Loan (FFEL) 
Program, the William D. Ford Federal Direct Loan Program, the Teacher 
Education Assistance for College and Higher Education (TEACH) Grant 
Program, the Federal Pell Grant Program, and the Academic 
Competitiveness Grant (AGC) and National Science and Mathematics Access 
to Retain Talent Grant (National Smart Grant) Programs.

DATES: We must receive your comments on or before August 2, 2010.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by e-mail. Please submit your comments only 
one time, in order to ensure that we do not receive duplicate copies. 
In addition, please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal. Go to http://www.regulations.gov to submit your comments electronically. Information 
on using Regulations.gov, including instructions for accessing agency 
documents, submitting comments, and viewing the docket, is available on 
the site under ``How To Use This Site.''
     Postal Mail, Commercial Delivery, or Hand Delivery. If you 
mail or deliver your comments about these proposed regulations, address 
them to Jessica Finkel, U.S. Department of Education, 1990 K Street, 
NW., room 8031, Washington, DC 20006-8502.

    Privacy Note: The Department's policy for comments received from 
members of the public (including those comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing in their entirety on the Federal 
eRulemaking Portal at http://www.regulations.gov. Therefore, 
commenters should be careful to include in their comments only 
information that they wish to make publicly available on the 
Internet.

FOR FURTHER INFORMATION CONTACT: For information related to gainful 
employment in a recognized occupation, John Kolotos. Telephone: (202) 
502-7762 or via the Internet at: John.Kolotos@ed.gov.
    For information related to the provisions related to the definition 
of credit hour, Marianna Deeken or Fred Sellers. Telephone: (206) 615-
2583 or via the Internet at Marianna.Deeken@ed.gov. Telephone: (202) 
502-7502 or via the Internet at: Fred.Sellers@ed.gov.
    For information related to provisions on State authorization, Fred 
Sellers. Telephone: (202) 502-7502 or via the Internet at: 
Fred.Sellers@ed.gov.
    For information related to the provisions on retaking coursework, 
Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at: 
Vanessa.Freeman@ed.gov.
    For information related to the provisions for written agreements 
between institutions, Carney McCullough. Telephone: (202) 502-7639 or 
via the Internet at: Carney.McCullough@ed.gov.
    For information on the provisions related to incentive 
compensation, Marty Guthrie. Telephone: (202) 219-7031 or via the 
Internet at: Marty.Guthrie@ed.gov.
    For information related to the provisions on ability to benefit, 
Dan Klock. Telephone: (202) 377-4026 or via the Internet at 
Dan.Klock@ed.gov.
    For information related to the provisions on misrepresentation, 
Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at: 
Vanessa.Freeman@ed.gov.
    For information related to the provisions on satisfactory academic 
progress, Marianna Deeken. Telephone: (206) 615-2583 or via the 
Internet at: Marianna.Deeken@ed.gov.
    For information related to the provisions on high school diplomas 
and verification of information on the Free Application for Federal 
Student Aid (FAFSA), Jacquelyn Butler. Telephone: (202) 502-7890, or 
via the Internet at: Jacquelyn.Butler@ed.gov.
    For information related to the return of title IV, HEA funds 
calculation provisions for term-based modules or taking attendance, 
Jessica Finkel. Telephone: (202) 502-7647, or via the Internet at: 
Jessica.Finkel@ed.gov.
    For information related to the provisions on timeliness and method 
of disbursement, John Kolotos. Telephone: (202) 502-7762, or via the 
Internet at: John.Kolotos@ed.gov.
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print, audiotape, or computer 
diskette) on request to one of the contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: 

Invitation To Comment

    As outlined in the section of this notice entitled Negotiated 
Rulemaking, significant public participation, through a series of three 
regional hearings and three negotiated rulemaking sessions, has 
occurred in developing this notice of proposed rulemaking (NPRM). In 
accordance with the requirements of the Administrative Procedure Act, 
the Department invites you to submit comments regarding these proposed 
regulations on or before August 2, 2010. To ensure that your comments 
have maximum effect in developing the final regulations, we urge you to 
identify clearly the specific section or sections of the proposed 
regulations that each of your comments addresses and to arrange your 
comments in the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments, in person, in room 8031, 1990 K 
Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4:00 
p.m., Eastern time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If

[[Page 34807]]

you want to schedule an appointment for this type of aid, please 
contact one of the persons listed under FOR FURTHER INFORMATION 
CONTACT.

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary, before publishing 
any proposed regulations for programs authorized by title IV of the 
HEA, to obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations from the 
public, including individuals and representatives of groups involved in 
the Federal student financial assistance programs, the Secretary must 
subject the proposed regulations to a negotiated rulemaking process. 
All proposed regulations that the Department publishes on which the 
negotiators reached consensus must conform to final agreements 
resulting from that process unless the Secretary reopens the process or 
provides a written explanation to the participants stating why the 
Secretary has decided to depart from the agreements. Further 
information on the negotiated rulemaking process can be found at: 
http://www.ed.gov/policy/highered/leg/hea08/index.html.
    On September 9, 2009, the Department published a notice in the 
Federal Register (74 FR 46399) announcing our intent to establish two 
negotiated rulemaking committees to prepare proposed regulations. One 
committee would develop proposed regulations governing foreign schools, 
including the implementation of the changes made to the HEA by the 
Higher Education Opportunity Act of 2008 (HEOA), Public Law 110-315, 
that affect foreign schools. The proposed regulations governing foreign 
schools will be published in the Federal Register at a future date. A 
second committee would develop proposed regulations to improve 
integrity in the title IV, HEA programs. The notice requested 
nominations of individuals for membership on the committees who could 
represent the interests of key stakeholder constituencies on each 
committee.
    Team I--Program Integrity Issues (Team I) met to develop proposed 
regulations during the months of November 2009 through January 2010.
    The Department developed a list of proposed regulatory provisions, 
including provisions based on advice and recommendations submitted by 
individuals and organizations as testimony to the Department in a 
series of three public hearings held on:
     June 15, 2009 at Community College of Denver in Denver, 
CO.
     June 18, 2009 at University of Arkansas in Little Rock, 
AR.
     June 22, 2009 at Community College of Philadelphia in 
Philadelphia, PA.
    In addition, the Department accepted written comments on possible 
regulatory provisions submitted directly to the Department by 
interested parties and organizations. A summary of all comments 
received orally and in writing is posted as background material in the 
docket for this NPRM. Transcripts of the regional meetings can be 
accessed at http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html#ph.
    Staff within the Department also identified issues for discussion 
and negotiation.
    At its first meeting, Team I reached agreement on its protocols. 
These protocols provided that for each community identified as having 
interests that were significantly affected by the subject matter of the 
negotiations, the non-Federal negotiators would represent the 
organizations listed after their names in the protocols in the 
negotiated rulemaking process.
    Team I included the following members:
    Rich Williams, U.S. PIRG, and Angela Peoples (alternate), United 
States Student Association, representing students.
    Margaret Reiter, attorney, and Deanne Loonin (alternate), National 
Consumer Law Center, representing consumer advocacy organizations.
    Richard Heath, Anne Arundel Community College, and Joan Zanders 
(alternate), Northern Virginia Community College, representing two-year 
public institutions.
    Phil Asbury, University of North Carolina, Chapel Hill, and Joe 
Pettibon (alternate), Texas A&M University, representing four-year 
public institutions.
    Todd Jones, Association of Independent Colleges and Universities of 
Ohio, and Maureen Budetti (alternate), National Association of 
Independent Colleges and Universities, representing private, non-profit 
institutions.
    Elaine Neely, Kaplan Higher Education Corp., and David Rhodes, 
(alternate), School of Visual Arts, representing private, for-profit 
institutions.
    Terry Hartle, American Council on Education, and Bob Moran 
(alternate), American Association of State Colleges and Universities, 
representing college presidents.
    David Hawkins, National Association for College Admission 
Counseling, and Amanda Modar (alternate), National Association for 
College Admission Counseling, representing admissions officers.
    Susan Williams, Bridgeport University, and Anne Gross (alternate), 
National Association of College and University Business Officers, 
representing business officers.
    Val Meyers, Michigan State University, and Joan Berkes (alternate), 
National Association of Student Financial Aid Administrators, 
representing financial aid administrators.
    Barbara Brittingham, Commission on Institutions of Higher Education 
of the New England Association of Schools and Colleges, Sharon Tanner 
(1st alternate), National League for Nursing Accreditation Commission, 
and Ralph Wolf (2nd alternate), Western Association of Schools and 
Colleges, representing regional/programmatic accreditors.
    Anthony Mirando, Nation Accrediting Commission of Cosmetology Arts 
and Sciences, and Michale McComis (alternate), Accrediting Commission 
of Career Schools and Colleges, representing national accreditors.
    Jim Simpson, Florida State University, and Susan Lehr (alternate), 
Florida State University, representing work force development.
    Carol Lindsey, Texas Guaranteed Student Loan Corp, and Janet Dodson 
(alternate), National Student Loan Program, representing the lending 
community.
    Chris Young, Wonderlic, Inc., and Dr. David Waldschmidt 
(alternate), Wonderlic, Inc., representing test publishers.
    Dr. Marshall Hill, Nebraska Coordinating Commission for 
Postsecondary Education, and Dr. Kathryn Dodge (alternate), New 
Hampshire Postsecondary Education Commission, representing State higher 
education officials.
    Carney McCullough and Fred Sellers, U.S. Department of Education, 
representing the Federal Government.
    These protocols also provided that, unless agreed to otherwise, 
consensus on all of the amendments in the proposed regulations had to 
be achieved for consensus to be reached on the entire NPRM. Consensus 
means that there must be no dissent by any member.
    During the meetings, Team I reviewed and discussed drafts of 
proposed regulations. At the final meeting in January 2010, Team I did 
not reach consensus on the proposed regulations

[[Page 34808]]

in this document. With regard to gainful employment in a recognized 
occupation, this document addresses technical, reporting, and 
disclosure issues. The remaining issues under consideration that 
address the extent to which certain educational programs lead to 
gainful employment and the conditions under which those programs remain 
eligible for title IV, HEA program funds are not included in this NPRM.

Summary of Proposed Changes

    These proposed regulations would address program integrity issues 
by:
     Requiring institutions to develop and follow procedures to 
evaluate the validity of a student's high school diploma if the 
institution or the Secretary has reason to believe that the diploma is 
not valid or was not obtained from an entity that provides secondary 
school education;
     Expanding eligibility for title IV, HEA program assistance 
to students who demonstrate they have the ability to benefit by 
satisfactorily completing six credits of college work, or the 
equivalent amounts of coursework, that are applicable toward a degree 
or certificate offered by an institution;
     Amending and adding definitions of terms related to 
ability to benefit testing, including ``assessment center,'' 
``independent test administrator,'' ``individual with a disability,'' 
``test,'' ``test administrator,'' and ``test publisher'';
     Consolidating into a single regulatory provision the 
approval processes for ability to benefit tests developed by test 
publishers and States;
     Establishing requirements under which test publishers and 
States must provide descriptions of processes for identifying and 
handling test score abnormalities, ensuring the integrity of the 
testing environment, and certifying and decertifying test 
administrators;
     Requiring test publishers and States to describe any 
accommodations available for individuals with disabilities, as well as 
the process a test administrator would use to identify and report to 
the test publisher instances in which these accommodations were used;
     Revising the test approval procedures and criteria for 
ability to benefit tests, including procedures related to the approval 
of tests for speakers of foreign languages and individuals with 
disabilities;
     Revising the definitions and provisions that describe the 
activities that constitute substantial misrepresentation by an 
institution of the nature of its educational program, its financial 
charges, or the employability of its graduates;
     Removing the ``safe harbor'' provisions related to 
incentive compensation for any person or entity engaged in any student 
recruitment or admission activity, including making decisions regarding 
the award of title IV, HEA program assistance;
     Clarifying what is required for an institution of higher 
education, a proprietary institution of higher education, and a 
postsecondary vocational institution to be considered legally 
authorized by the State;
     Defining a credit hour and establishing procedures that 
certain institutional accrediting agencies must have in place to 
determine whether an institution's assignment of a credit hour is 
acceptable;
     Modifying provisions to clarify whether and when an 
institution must award student financial assistance based on clock or 
credit hours and the standards for credit-to-clock-hour conversions;
     Modifying the provisions related to written arrangements 
between two or more eligible institutions that are owned or controlled 
by the same person or entity so that the percentage of the educational 
program that may be provided by the institution that does not grant the 
degree or certificate under the arrangement may not exceed 50 percent;
     Prohibiting written arrangements between an eligible 
institution and an ineligible institution that has had its 
certification to participate in title IV, HEA programs revoked or its 
application for recertification denied;
     Expanding provisions related to the information that an 
institution with a written arrangement must disclose to a student 
enrolled in a program affected by the arrangement, including, for 
example, the portion of the educational program that the institution 
that grants the degree or certificate is not providing;
     Revising the definition of unsubsidized student financial 
aid programs to include TEACH Grants, Federal PLUS Loans, and Direct 
PLUS Loans;
     Codifying current policy that an institution must complete 
verification before the institution may exercise its professional 
judgment authority;
     Eliminating the 30 percent verification cap;
     Retaining the ability of institutions to select additional 
applicants for verification;
     Replacing the five verification items for all selected 
applicants with a targeted selection from items included in an annual 
Federal Register notice published by the Secretary;
     Allowing interim disbursements when changes to an 
applicant's FAFSA information would not change the amount that the 
student would receive under a title IV, HEA program;
     Codifying the Department's IRS Data Retrieval System 
Process, which allows an applicant to import income and other data from 
the IRS into an online FAFSA;
     Requiring the processing of all changes and corrections to 
an applicant's FAFSA information;
     Modifying the provisions related to institutional 
satisfactory academic progress policies and the impact these policies 
have on a student's eligibility for title IV, HEA program assistance;
     Expanding the definition of full-time student to allow, 
for a term-based program, repeated coursework taken in the program to 
count towards a full-time workload;
     Clarifying when a student is considered to have withdrawn 
from a payment period of enrollment for the purpose of calculating a 
return of title IV, HEA program funds;
     Clarifying the circumstances under which an institution is 
required to take attendance for the purpose of calculating a return of 
title IV, HEA program funds;
     Modifying the provisions for disbursing title IV, HEA 
program funds to ensure that certain students can obtain or purchase 
books and supplies by the seventh day of a payment period;
     Updating the definition of the term recognized occupation 
to reflect current usage; and
     Establishing requirements for institutions to submit 
information on program completers for programs that prepare students 
for gainful employment in recognized occupations.

Significant Proposed Regulations

    We group major issues according to subject, with appropriate 
sections of the proposed regulations referenced in parentheses. We 
discuss other substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect.

Part 600 Institutional Eligibility Under the Higher Education Act of 
1965, as Amended

Gainful Employment in a Recognized Occupation (Sec. Sec.  600.2, 600.4, 
600.5, 600.6, 668.6, and 668.8)
    Statute: Sections 102(b) and (c) of the HEA define, in part, a 
proprietary institution and a postsecondary vocational institution, 
respectively, as

[[Page 34809]]

an institution that provides an eligible program of training that 
prepares students for gainful employment in a recognized occupation. 
Section 101(b)(1) of the HEA defines an institution of higher 
education, in part, as any institution that provides not less than a 
one-year program of training that prepares students for gainful 
employment in a recognized occupation.
One-Year Programs at Institutions of Higher Education
    Current Regulations: Sec.  600.4(a)(4)(iii) provides that a public 
or nonprofit institution may provide a training program of at least one 
academic year that leads to a certificate, degree, or other recognized 
educational credential and prepares students for gainful employment in 
a recognized occupation. In addition, Sec.  668.8(c)(3) provides that 
an eligible program at an institution of higher education may be at 
least a one-academic-year training program that leads to a certificate, 
degree, or other recognized credential and prepares students for 
gainful employment in a recognized occupation.
    Proposed Regulations: The proposed regulations would amend 
Sec. Sec.  600.4(a)(4)(iii) and 668.8(c)(3) by removing the reference 
to degree programs.
    Reasons: In keeping with the statute, we would clarify in proposed 
Sec. Sec.  600.4(a)(4)(iii) and 668.8(c)(3) that only certificate or 
credentialed nondegree programs of at least one academic year, that are 
offered by a public or nonprofit institution of higher education, are 
programs that must prepare students for gainful employment in a 
recognized occupation.
    Recognized Occupation
    Current Regulations: Section 600.2 defines a recognized occupation 
as an occupation that is listed in an ``occupational division'' of the 
latest edition of the Dictionary of Occupational Titles, published by 
the U.S. Department of Labor, or an occupation determined to be a 
recognized occupation by the Secretary in consultation with the 
Secretary of Labor.
    Proposed Regulations: Proposed Sec.  600.2 would define recognized 
occupation as an occupation identified by a Standard Occupational 
Classification (SOC) code established by the Office of Management and 
Budget or an Occupational Information Network O* NET-SOC code 
established by the Department of Labor and available at http://online.onetcenter.org or its successor site.
    Reasons: The definition of recognized occupation in proposed Sec.  
600.2 would simply replace an outdated reference to the Dictionary of 
Occupational Titles with current references to SOC codes established by 
the Office of Management and Budget or the Department of Labor.
Gainful Employment
    Current Regulations: Sections 600.4(a)(4)(iii), 600.5(a)(5), and 
600.6(a)(4) mirror the statutory provisions, and like the statute, do 
not define or further describe the meaning of the phrase ``gainful 
employment.''
    Proposed Regulations: Under proposed Sec.  668.6(a), an institution 
would annually submit information about students who complete a program 
that leads to gainful employment in a recognized occupation. That 
information would include, at a minimum, identifying information about 
each student who completed a program, the Classification of 
Instructional Program (CIP) code for that program, the date the student 
completed the program, and the amounts the student received from 
private educational loans and institutional financing plans.
    In addition, under proposed Sec.  668.6(b), an institution would be 
required to disclose on its Web site information about (1) the 
occupations that its programs prepare students to enter, along with 
links to occupational profiles on O*NET, (2) the on-time graduation 
rate of students entering a program, (3) the cost of each program, 
including costs for tuition and fees, room and board, and other 
institutional costs typically incurred by students enrolling in the 
program, (4) beginning no later than June 30, 2013, the placement rate 
for students completing each of those programs, as determined under 
Sec.  668.8(g) or a State-sponsored workforce data system, and (5) the 
median loan debt incurred by students who completed each program in the 
preceding three years, identified separately as title IV, HEA loan debt 
and debt from private educational loans and institutional financing 
plans.
    Reasons: The Department plans to use this information to continue 
to assess the outcomes of programs that lead to gainful employment in a 
recognized occupation. The proposed new requirement would enable the 
Department to further evaluate and monitor the outcomes of these 
programs. In addition, to better inform prospective students, proposed 
Sec.  668.6(b) would require an institution to disclose on its Web site 
the cost, graduation and placement rates, job-related information for 
each of its programs, and debt levels of students who completed the 
program during the past three years. We seek comment on whether the 
proposed Web-based approach is the most appropriate way to ensure that 
prospective students obtain this information or whether we should 
consider other approaches. With regard to disclosing Federal and non-
Federal loan debt, based on the information an institution would submit 
under proposed Sec.  668.6(a), the Department would be able to provide 
the institution with the median title IV, HEA loan debt, by program, 
and the median debt from private loans and institutional financing 
plans by program. The institution would then disclose these amounts. 
While we believe that Sec.  668.43 already requires an institution to 
disclose program cost information, we wish to make it an explicit 
requirement in this part of the regulations because our research showed 
that program cost information was not disclosed on the Web sites of 
many institutions.
Definition of a Credit Hour (Sec. Sec.  600.2, 602.24, 603.24, and 
668.8)
    Statute: Section 481(a)(2) of the HEA defines an academic year for 
an undergraduate program, in part, as requiring a minimum of 24 
semester or trimester credit hours or 36 quarter credit hours in a 
course of study that measures academic progress in credit hours or 900 
clock hours in a course of study that measures academic progress in 
clock hours. Section 481(b) of the HEA defines an eligible program, in 
part, as a program of at least 600 clock hours, 16 semester hours, or 
24 quarter hours or, in certain instances, a program of at least 300 
clock hours, 8 semester hours, or 12 quarter hours. Sections 428(b)(1), 
428B(a)(2), 428H(d)(1), 455(a)(1), and 484(b)(3) and (4) of the HEA 
specify that a student must be carrying at least one-half of the normal 
full-time work load for the student's course of study in order to 
qualify for any loan under parts B and D of title IV of the HEA. 
Section 401 of the HEA provides that a student's Federal Pell Grant 
must be adjusted based on the student's enrollment status and that a 
student must be enrolled at least half-time to be eligible for a second 
consecutive Federal Pell Grant in an award year. Section 496(a)(5)(H) 
of the HEA requires that an accrediting agency assess an institution's 
measure of program length. Section 487(c)(4) of the HEA requires that 
the Secretary publish a list of State agencies which the Secretary 
determines to be reliable authorities as to the quality of public

[[Page 34810]]

postsecondary vocational education in their respective States for the 
purpose of determining institutional eligibility for Federal student 
assistance programs.
    Current Regulations: There is no definition of a credit hour in any 
current regulations for programs funded under the HEA; and the term is 
not defined in the regulations that set out the requirements for the 
Secretary's recognition of accrediting agencies or State agencies for 
the approval of public postsecondary vocational education. The 
regulations that address an institutional accrediting agency's, or 
State approval agency's, reviews and evaluations of an institution's 
assignment of credit hours are set out in 34 CFR part 602 for an 
accrediting agency and 34 CFR part 603 for a State approval agency.
    In current Sec.  668.8(k) and (l), the regulations provide the 
formula that certain undergraduate programs must use to convert the 
number of clock hours offered to the appropriate number of credit hours 
used for title IV, HEA aid calculations and the requirements for 
identifying the undergraduate programs subject to using the formula. 
For these programs, each semester or trimester hour must include at 
least 30 clock hours of instruction, and each quarter hour must include 
at least 20 hours of instruction. An institution must use the formula 
to determine if a program is eligible for title IV, HEA purposes unless 
(1) the institution offers an undergraduate program in credit hours 
that is at least two academic years in length and leads to an associate 
degree, a bachelor's degree, or a professional degree or (2) each 
course within the program is acceptable for full credit toward an 
associate degree, bachelor's degree, or professional degree offered by 
the institution, and the degree offered by the institution requires at 
least two academic years of study.
Proposed Regulations: Definition of a Credit Hour
    The Department proposes to add to Sec.  600.2 a definition of a 
credit hour that would measure credit hours in terms of the amount of 
time and work during which a student is engaged in academic activity 
using commonly accepted academic practice in higher education, and 
further would provide for institutionally established equivalencies as 
represented by learning outcomes and verified achievement.
Accrediting Agency Procedures
    The Department proposes to amend current Sec.  602.24 by adding a 
new paragraph (f). Proposed Sec.  602.24(f) would describe the 
responsibilities of an accrediting agency to review and evaluate an 
institution's policies and procedures for the assignment of credit 
hours and the institution's application of its policies and procedures 
in assigning credit hours to its programs and courses. An accrediting 
agency would be required to make a reasonable determination of whether 
the institution's assignment of credit hours conforms to commonly 
accepted practice in higher education. The proposed regulations in 
Sec.  602.24(f) also would provide that an accrediting agency may use 
sampling or other methods in its reviews of programs at institutions, 
must take such actions that it deems appropriate to address any 
deficiencies that it identifies, and must notify the Secretary promptly 
of any systemic noncompliance with the agency's policies or significant 
noncompliance regarding one or more programs at the institution.
State Approval Agency Procedures
    The Department proposes to amend current Sec.  603.24 by 
redesignating paragraph (c) as paragraph (d) and adding a new paragraph 
(c). For State agencies for the approval of public postsecondary 
education, proposed Sec.  603.24(c) would provide for the same 
responsibilities as described for accrediting agencies regarding the 
review and evaluation of an institution's policies and procedures for 
the assignment of credit hours and the institution's application of its 
policies and procedures in assigning credit hours to its programs and 
courses.
Clock-to-Credit-Hour Conversion
    Proposed Sec.  668.8(l)(1) would revise the method of converting 
clock hours to credit hours to use a ratio of the minimum clock hours 
in an academic year to the minimum credit hours in an academic year, 
i.e., 900 clock hours to 24 semester or trimester hours or 36 quarter 
hours. Thus, a semester or trimester hour would be based on at least 
37.5 clock hours, and a quarter hour would be based on at least 25 
clock hours. Proposed Sec.  668.8(l)(2) creates an exception to the 
conversion ratio in proposed Sec.  668.8(l)(1) if neither an 
institution's designated accrediting agency nor the relevant State 
licensing authority for participation in the title IV, HEA programs 
determines there are any deficiencies in the institution's policies, 
procedures, and practices for establishing the credit hours that the 
institution awards for programs and courses, as defined in proposed 
Sec.  600.2. Under the exception provided by proposed Sec.  
668.8(l)(2), an institution may combine students' work outside of class 
with the clock-hours of instruction in order to meet or exceed the 
numeric requirements established in proposed Sec.  668.8(l)(1). 
However, under proposed Sec.  668.8(l)(2), the institution must use at 
least 30 clock hours for a semester or trimester hour or 20 clock hours 
for a quarter hour.
    In determining whether there is outside work that a student must 
perform, the analysis must take into account differences in coursework 
and educational activities within the program. Some portions of a 
program may require student work outside of class that justifies the 
application of proposed Sec.  668.8(l)(2). In addition, the application 
of proposed Sec.  668.8(l)(2) may vary within a program depending on 
variances in required student work outside of class for different 
portions of the program. Other portions of the program may not have 
outside work, and proposed Sec.  668.8(l)(1) must be applied. Of 
course, an institution applying only proposed Sec.  668.8(l)(1) to a 
program eligible for conversion from clock hours to credit hours, 
without an analysis of the program's coursework, would be considered 
compliant with the requirements of proposed Sec.  668.8(l).
    Proposed Sec.  668.8(k)(1)(ii) modifies a provision in current 
regulations to provide that a program is not subject to the conversion 
formula in Sec.  668.8(l) where each course within the program is 
acceptable for full credit toward a degree that is offered by the 
institution and that this degree requires at least two academic years 
of study. Additionally, under proposed Sec.  668.8(k)(1)(ii), the 
institution would be required to demonstrate that students enroll in, 
and graduate from, the degree program.
    Proposed Sec.  668.8(k)(2)(i) would provide that a program is 
considered to be a clock-hour program if the program must be measured 
in clock hours to receive Federal or State approval or licensure, or if 
completing clock hours is a requirement for graduates to apply for 
licensure or the authorization to practice the occupation that the 
student is intending to pursue. Under proposed Sec.  668.8(k)(2)(ii) 
and (iii), the program is also considered to be offered in clock hours 
if the credit hours awarded for the program are not in compliance with 
the definition of a credit hour in proposed Sec.  600.2, or if the 
institution does not provide the clock hours that are the basis for the 
credit hours awarded for the program or each course in the program and, 
except as provided in current Sec.  668.4(e), require attendance in the 
clock hours that are the basis for the credit hours awarded. The 
proposed regulations on which tentative agreement was reached did not 
include

[[Page 34811]]

the provision in proposed Sec.  668.8(k)(2)(iii) that, except as 
provided in current Sec.  668.4(e), an institution must require 
attendance in the clock hours that are the basis for the credit hours 
awarded. However, during the negotiations we had previously proposed to 
include such a provision.
    Proposed Sec.  668.8(k)(3) would provide that proposed Sec.  
668.8(k)(2)(i) would not apply if a limited portion of the program 
includes a practicum, internship, or clinical experience component that 
must include a minimum number of clock hours due to a State or Federal 
approval or licensure requirement.
Reasons: Definition of a Credit Hour
    A credit hour is a unit of measure that gives value to the level of 
instruction, academic rigor, and time requirements for a course taken 
at an educational institution. At its most basic, a credit hour is a 
proxy measure of a quantity of student learning. The credit hour was 
developed as part of a process to establish a standard measure of 
faculty workloads, costs of instruction, and rates of educational 
efficiencies as well as a measure of student work for transfer 
students. While the credit hour was developed to provide some uniform 
measure, it may not consistently relate to comparable measures of time 
or workload within institutions or between different types of 
institutions. Most postsecondary institutions do not have specific 
policies or criteria to assign credit hours to coursework in a uniform 
manner.
    In keeping with the original purpose of providing a consistent 
measure of at least a minimum quantity of a student's academic 
engagement, the proposed definition of a credit hour will establish a 
basis for measuring eligibility for Federal funding. This standard 
measure will provide increased assurance that a credit hour has the 
necessary educational content to support the amounts of Federal funds 
that are awarded to participants in Federal funding programs and that 
students at different institutions are treated equitably in the 
awarding of those funds.
    We recognize, however, that other measures of educational content 
are being developed by institutions and do not intend to limit the 
methods by which an institution may measure a student's work in his or 
her educational activities. We, therefore, are including in paragraph 
(3) of the proposed definition of a credit hour a provision that an 
institution may provide institutional equivalencies for the amount of 
work specified in paragraph (1) of the proposed definition as 
represented in intended learning outcomes and verified by evidence of 
their achievement. Further, the institution's equivalencies must be in 
accordance with any process or conditions required by an institution's 
designated accrediting agency for title IV, HEA program participation, 
because these agencies are well positioned to provide oversight in this 
area.
    During the negotiated rulemaking sessions, a few of the non-Federal 
negotiators were opposed to any proposal to define a credit hour 
because they believed that a definition would impinge upon an 
institution's ability to create innovative courses and teaching 
methods. They also argued that the proposed definition was too 
restrictive and inhibited the academic freedom of schools. Other non-
Federal negotiators agreed that a definition was necessary and did not 
believe the Department's proposed definition would adversely impact 
institutions. These other non-Federal negotiators agreed with our 
position that the proposed definition of a credit hour would provide 
sufficient flexibilities for institutions and supported keeping it in 
the proposed regulations.
    One significant change is proposed in the regulations to address a 
concern raised during the negotiated rulemaking sessions regarding a 
definition of a credit hour. The change is to recognize in paragraph 
(3) of the proposed definition that an institution would be able to 
establish reasonable equivalent measures of a credit hour. As is also 
the case with paragraphs (1) and (2) of the proposed definition, the 
measures must be reasonable and in accordance with the requirements of 
the institution's designated accrediting agency, or State agency for 
the approval of public postsecondary vocational education, for title 
IV, HEA program participation as well as for participation in other HEA 
programs. This change further ensures that the definition will allow 
institutions to adopt alternative measures of student work.
    The proposed definition of a credit hour does not change our policy 
that we provide funding based only on credit hours that are the direct 
result of postsecondary student work. Thus, we do not currently, nor do 
we propose to, provide funding for credits awarded based on Advanced 
Placement (AP) or International Baccalaureate (IB) programs, tests or 
testing out, life experience, or similar competency measures.
    No agreement was reached to amend Sec.  600.2 to include a 
definition of a credit hour due to the belief of some non-Federal 
negotiators that a definition would limit an institution's ability to 
use alternative measures of student work.
Accrediting Agency Procedures
    Section 496(a)(5) of the HEA requires that, to be recognized by the 
Secretary, an accrediting agency must have standards to evaluate an 
institution's or program's ``measures of program length and the 
objectives of the degrees or credentials offered.'' Thus, accrediting 
agencies are required to make a judgment about program length and the 
amount of credit an institution or program grants for course work. 
Accrediting agency standards related to program length differ 
significantly in their specificity and these standards generally do not 
define what a credit hour is. This lack of specificity in standards 
covering student achievement and program length has inherent 
limitations and may result in inconsistent treatment of Federal funds.
    We believe that the lack of more direct accrediting agency 
oversight in the assignment of credits to coursework may result in some 
institutions not being able to demonstrate that there is sufficient 
course content to substantiate the credit hours for certain programs. 
Such abuse may be more likely due to the expanded availability to a 
student of two Federal Pell Grants in an award year. We believe that 
the potential for such abuse and the inconsistent treatment of Federal 
funds would be significantly alleviated by establishing the proposed 
definition of credit hour in Sec.  600.2 and providing in proposed 
Sec.  602.24(f) that accrediting agencies must review (1) an 
institution's policies and procedures for the assignment of credit 
hours in accordance with the proposed definition in Sec.  600.2 and (2) 
the institution's application of its policies and procedures in 
assigning credit hours to its programs and courses.
    The negotiators reached tentative agreement on adding proposed 
Sec.  602.24(f).
State Agency Procedures for the Approval of Public Vocational Education
    The regulations concerning the recognition of State agencies for 
the approval of public vocational education were not discussed during 
the negotiations. We believe that Sec.  603.24 should be amended to 
make changes comparable to the proposed regulations for the recognition 
of accrediting agencies. We believe these proposed changes are needed 
for the same reasons as we are proposing to amend part 602. The changes 
are also necessary for purposes of determining equivalencies

[[Page 34812]]

to a credit hour under paragraph (3) of the proposed definition of a 
credit hour in Sec.  600.2 as well as for Sec.  668.8(l) regarding 
credit-to-clock-hour conversions.
Credit-to-Clock-Hour Conversion
    Section 668.8(k) and (l) of the current regulations that provide 
conditions and formulas for the conversion of clock hours to credit 
hours for undergraduate programs were adopted prior to the statutory 
change in the definition of an academic year for clock-hour programs. 
Under section 481(b) of the HEA, an academic year for a program must 
now provide for a minimum of 26 weeks of instructional time in a clock-
hour program as opposed to the 30 weeks of instructional time required 
for credit-hour programs. However, undergraduate programs continue to 
include 900 clock hours, 24 semester or trimester hours, or 36 quarter 
credits. We are proposing to update the formula to reflect the 
statute's treatment of 900 clock hours over 26 weeks of instructional 
time as reflecting no outside student work and the 900 clock hours 
being directly proportional to 24 semester hours or 36 quarter credits.
    As a result, proposed Sec.  668.8(l)(1) would revise the minimum 
general standard for converting clock hours to credit hours to reflect 
the ratio of the minimum clock hours in an academic year to the minimum 
credit hours in an academic year. As some non-Federal negotiators 
noted, portions of some clock-hour programs require student work 
outside of class. Proposed Sec.  668.8(l)(2) would, therefore, provide 
an exception to the standard in proposed Sec.  668.8(l)(1) for 
coursework in a program that qualifies for a lesser rate of conversion 
based on additional student work outside of class. For coursework that 
includes student work outside of class in a qualifying program, an 
institution would take into account the amount of outside coursework to 
determine the appropriate number of clock hours to convert to a credit 
hour, but may not use less than the current requirements of 30 clock 
hours for a semester or trimester hour or 20 clock hours for a quarter 
hour.
    We believe that changes are needed to the conditions in current 
Sec.  668.8(k)(1) for determining that a program is not subject to the 
conversion formula in Sec.  668.8(l). We have identified potential 
abuses with the provision that an institution's program is not subject 
to the conversion formula in Sec.  668.8(l) if each course within the 
program is acceptable for full credit toward a degree that is offered 
by the institution and requires at least two academic years of study. 
Some institutions appear to have established degree programs in which 
few if any students enroll or graduate but which are the basis for 
claiming that all courses of another nondegree program are acceptable 
for full credit in the degree program. To address this abuse, proposed 
Sec.  668.8(k)(1)(ii) would require the institution to demonstrate that 
students enroll in, and graduate from, the degree program. Proposed 
Sec.  668.8(k)(2)(i) would provide that a program must be considered a 
clock-hour program if the program must be measured in clock hours to 
receive Federal or State approval or licensure or completing clock 
hours is a requirement for graduates to apply for licensure or the 
authorization to practice the occupation that the student is intending 
to pursue. We believe such requirements show that the program is still 
fundamentally a clock-hour program and should not be treated as a 
credit-hour program for purposes of title IV, HEA program assistance. 
We also believe it is appropriate under proposed Sec.  668.8(k)(2)(ii) 
and (iii) to require that a program must be considered to be offered in 
clock hours if an institution is failing either to award the credit 
hours that are in compliance with the definition of a credit hour in 
proposed Sec.  600.2 or to ensure that students are attending at least 
the minimum number of clock hours that are the basis for the credit 
hours awarded for the program. A program that may qualify for 
conversion to credit hours is still fundamentally a clock-hour program 
that must meet additional requirements. If the provisions of proposed 
Sec.  668.8(k)(1) and (2) are applicable, a program should not qualify 
for conversion to credit hours because the program's essential nature 
as a clock-hour program requires that it be measured in clock hours for 
other purposes or because it fails to be offered in a manner that 
supports the conversion.
    In response to some non-Federal negotiators' concerns, proposed 
Sec.  668.8(k)(3) would clarify the requirements in proposed Sec.  
668.8(k)(2)(i) by providing that proposed Sec.  668.8(k)(2)(i) would 
not apply if a limited portion of a program such as a practicum, 
internship, or clinical experience component must be measured in clock 
hours due to a State or Federal approval or licensure requirement. We 
agree with the non-Federal negotiators that such a limited requirement 
should not be an impediment to the program qualifying for a clock-to-
credit-hour conversion.
    The negotiators reached tentative agreement on proposed Sec.  
668.8(l) and (k), except for proposed Sec.  668.8(k)(2)(iii) which has 
been changed to provide that an institution must require attendance in 
the clock hours that are the basis for the credit hours awarded, except 
as provided in current Sec.  668.4(e). We believe the change assures 
that the clock hours are being offered and that students are attending 
the clock hours that are the basis for the clock-to-credit-hour 
conversion.
State Authorization (Sec. Sec.  600.4(a)(3), 600.5(a)(4), 600.6(a)(3), 
and 600.9)
    Statute: Section 101(a)(2) of the HEA defines the term 
``institution of higher education'' to mean, in part, an educational 
institution in any State that is legally authorized within the State to 
provide a program of education beyond secondary education. Section 
102(a) of the HEA provides, by reference to section 101(a)(2) of the 
HEA, that a proprietary institution of higher education and a 
postsecondary vocational institution must be similarly authorized 
within a State.
    Current Regulations: The regulations do not define or describe the 
statutory requirement that an institution must be legally authorized in 
a State.
    Proposed Regulations: Under proposed Sec.  600.9, an institution 
would be legally authorized by a State through a charter, license, 
approval, or other document issued by a State government agency or 
State entity that affirms or conveys the authority to the institution 
to operate educational programs beyond secondary education. An 
institution would also be considered legally authorized in a State if 
the institution were authorized to offer programs beyond secondary 
education by the Federal Government or an Indian Tribe as that term is 
described in 25 U.S.C. 1802(2) or if it were exempt from State 
authorization as a religious institution under the State constitution.
    The Secretary would consider an institution to be legally 
authorized by a State if (1) the authorization is given to the 
institution specifically to offer programs beyond secondary education, 
(2) the authorization is subject to adverse action by the State, and 
(3) the State has a process to review and appropriately act on 
complaints concerning an institution and enforces applicable State 
laws.
    References to Sec.  600.9 would be added for clarity in Sec. Sec.  
600.4(a)(3), 600.5(a)(4), and 600.6(a)(3).
    Reasons: The HEA requires institutions to have approval from the 
States where they operate to provide postsecondary educational 
programs. State oversight through obtaining approval to offer 
postsecondary

[[Page 34813]]

education and by State regulatory agency ongoing activities plays an 
important role in protecting students, although there may be a lot of 
variation in how those responsibilities are exercised. One indicator of 
the importance of State oversight has been seen in the movement of 
substandard institutions and diploma mills from State to State in 
response to changing requirements. These entities set up operation in 
States that may initially provide very little oversight and operate 
until a State strengthens its oversight of those entities in response 
to complaints from the public. In some cases, those entities simply 
move to another State that appears to offer little oversight and 
repeats the process.
    The Department historically viewed the requirement for State 
authorization for entities to offer postsecondary education as minimal, 
and would deem an entity that had been exempted by its State from State 
oversight to have such approval so long as it was able to operate 
within the State. Thus, in some States an institution was considered to 
be legally authorized to offer postsecondary education based on such 
methods as a business license or establishment as an eleemosynary 
organization.
    Upon further review, we believe the better approach is to view the 
State approval to offer postsecondary educational programs as a 
substantive requirement where the State is expected to take an active 
role in approving an institution and monitoring complaints from the 
public about its operations and responding appropriately. The weakness 
of the historical approach of not requiring active State approval and 
oversight may have contributed to the recent lapse in the existence of 
California's Bureau for Private Postsecondary and Vocational Education. 
The Bureau served as the State's oversight and regulatory agency for 
private proprietary postsecondary institutions until the State 
legislature eliminated the Bureau. We were advised that the Bureau was 
permitted to lapse because the State determined that doing so would not 
immediately harm the institutions that participate in the title IV, HEA 
programs. During the period when there was no State agency authorizing 
private postsecondary institutions, these institutions continued to 
participate in the title IV, HEA programs under some voluntary 
agreements while the State legislature worked on creating a new 
oversight agency. The proposed regulations, had they been in effect at 
that time, would have required that the State keep in place the prior 
oversight agency, or to designate a different State agency to perform 
the required State functions during the transition to a new State 
oversight agency. Otherwise, under the provisions of proposed Sec.  
600.9(b), the affected institutions would have ceased to be considered 
legally authorized by the State for Federal purposes when the prior 
agency's existence lapsed and would have ceased to be eligible 
institutions.
    Additionally, we are concerned that some States are deferring all, 
or nearly all, of their oversight responsibilities to accrediting 
agencies for approval of educational institutions, or are providing 
exemptions for a subset of institutions for other reasons. Since 
accrediting agencies generally require that an institution be legally 
operating in the State, we are concerned that the checks and balances 
provided by the separate processes of accreditation and State legal 
authorization are being compromised.
    We initially proposed that State legal authorization be based on a 
charter, license, or other document issued by an appropriate State 
government agency providing the authority to an institution to operate 
educational programs beyond secondary education and grant degrees 
within the jurisdiction of the State or other documentation, issued by 
an appropriate State government agency that authorizes, licenses, or 
otherwise approves the institution to establish and operate within the 
State nondegree programs that provide education and training beyond 
secondary education. We also provided that State legal authorization 
could include reciprocal agreements between appropriate State agencies. 
In addition, for institutions in a State to be legally authorized, the 
State would be expected to monitor (1) institutional academic quality, 
potentially relying on accrediting agencies recognized by the 
Secretary; (2) an institution's financial viability; and (3) compliance 
with applicable State laws with respect to consumer protection and 
other matters of State oversight.
    In response to concerns from the non-Federal negotiators, we 
clarified in proposed Sec.  600.9(a) that legal authorization could not 
only be provided by an appropriate State agency, but also another State 
entity, e.g., a State legislature or State constitution. We removed the 
references to monitoring the quality of educational programs and 
financial responsibility. We accepted the position of some of the non-
Federal negotiators who argued that these additional State requirements 
could unnecessarily duplicate Federal or accrediting agency actions. 
Similarly we accepted the position of some of the non-Federal 
negotiators that States could enter into reciprocal agreements on an as 
needed basis without regulations.
    Also, in response to recommendations of the non-Federal 
negotiators, we added provisions to clarify that an institution would 
be considered to be legally authorized in a State if the institution is 
authorized to offer educational programs beyond secondary education by 
the Federal Government or, as defined in 25 U.S.C. 1802(2), an Indian 
tribe or if it is exempt from State authorization as a religious 
institution under the State constitution. In proposed Sec.  600.9(b), 
we also further revised the bases under which we would consider an 
institution to be legally authorized by a State. We would require that 
the authorization must be specifically to offer programs beyond 
secondary education and may not be merely of the type required to do 
business in the State. We believe that this provision would remove any 
ambiguity regarding the type of authorization acceptable to establish 
institutional eligibility to participate in Federal programs. The 
regulations also require an institution's legal authorization to be 
subject to adverse action by the State, and that a State has a process 
to review and appropriately act on complaints concerning an 
institution, and to enforce applicable State laws. We believe these 
additional conditions are necessary to establish minimal State 
oversight for institutions to be considered legally authorized to offer 
postsecondary education for purposes of qualifying as an eligible 
institution for Federal programs.
    The committee did not reach agreement on this issue. A few 
negotiators objected to allowing States to continue to rely on an 
institution's status with an outside entity, for example, accredited 
status with a nationally recognized accrediting agency, as a basis for 
State legal authorization and were also concerned that the proposed 
regulations would no longer have a requirement that a State review an 
institution's fiscal viability. The regulations do not prohibit a State 
from relying in part upon an accrediting agency, but the State is still 
required to perform certain functions itself. For example, an 
institution's authorization must be subject to adverse action by a 
State agency or other State entity, and the State must have a process 
for a State agency to review and appropriately act on complaints 
concerning an institution.

[[Page 34814]]

Part 668 Student Assistance General Provisions Coursework (Sec.  668.2)

    Statute: None.
    Current regulations: None
    Proposed regulations: The proposed regulations would amend the 
definition of ``full-time student'' in Sec.  668.2 to allow repeated 
coursework to count towards a student enrollment status in term-based 
programs.
    Reasons: The current policy provides that a student enrolled in a 
term-based program may not be paid for repeating a course unless the 
student will receive credit for the coursework in addition to any 
credits previously earned. The non-Federal negotiators were concerned 
that institutions are unable to track this type of information without 
doing a program audit of each individual student. We agreed and 
proposed to amend the definition of full-time to provide that such 
credits would count toward enrollment status and be eligible for 
payment under the title IV, HEA programs.
    The negotiators reached tentative agreement on this issue.
Written Arrangements (Sec. Sec.  668.5 and 668.43)
    Statute: None.
    Current Regulations: Under current Sec.  668.5(a), an eligible 
institution may enter into a written agreement with another eligible 
institution, or with a consortium of eligible institutions, to provide 
all or part of an educational program. The educational program is 
considered to be an eligible program if it meets the requirements of 
Sec.  668.8. There is no requirement in either Sec.  668.5 or Sec.  
668.43 of the current regulations that institutions provide information 
on written arrangements to enrolled or prospective students.
    Proposed Regulations: The Department proposes to amend current 
Sec.  668.5(a) by revising and redesignating paragraph (a) as paragraph 
(a)(1) and adding a new paragraph (a)(2). Proposed Sec.  668.5(a)(1) 
would be based on the language that is in current paragraph (a), but it 
would be modified to make it consistent with the definition of an 
``educational program'' in 34 CFR 600.2. Proposed new Sec.  668.5(a)(2) 
would specify that if a written arrangement is between two or more 
eligible institutions that are owned or controlled by the same 
individual, partnership, or corporation, the institution that grants 
the degree or certificate must provide more than 50 percent of the 
educational program. These clarifications are also intended to ensure 
that the institution enrolling the student has all necessary approvals 
to offer an educational program in the format in which it is being 
provided, such as through distance education, when the other 
institution is providing instruction under a written agreement using 
that method of delivery. Proposed Sec.  668.5(c)(1) would expand the 
list of conditions that would preclude an arrangement between an 
eligible institution and an ineligible institution. Proposed Sec. Sec.  
668.5(e) and 668.43 would require an institution that enters into a 
written arrangement to provide a description of the arrangement to 
enrolled and prospective students.
    Reasons: Under the definition of an ``educational program'' in 34 
CFR 600.2, if an institution does not provide any instruction itself, 
but merely gives credit for instruction provided by other institutions, 
it is not considered to provide an educational program. The change 
reflected in proposed Sec.  668.5(a)(1) would eliminate the 
inconsistency in these two provisions by clarifying that an institution 
may provide part, but not all, of an educational program under a 
written arrangement.
    Proposed Sec.  668.5(a)(2) would be added to address concerns that 
may arise when two institutions under common ownership enter into 
written arrangements with each other. One concern, for example, is that 
such written agreements between institutions under common ownership 
could be used to circumvent regulations governing cohort default rates 
and ``90-10'' provisions, which limit the percentage of revenue for-
profit institutions may receive from the Federal student financial 
assistance programs, by having one institution provide substantially 
all of a program while attributing the title IV revenue and cohort 
default rates to the other commonly-owned institution. In other 
situations, campus-based institutions have been used as ``portals'' to 
attract students for online institutions under common ownership where 
students may not have expected the program to be offered by a different 
institution.
    During the negotiated rulemaking sessions, the Department initially 
proposed draft regulations that would have required accrediting or 
State agency review of any written arrangement between an eligible 
institution and another eligible institution or consortium of eligible 
institutions if the portion of the educational program provided by the 
other institution under the written arrangement were more than 50 
percent. Under this initial proposal, the institution's accrediting 
agency, or State agency, as applicable, would have been required to 
make a determination that the arrangement met the agency's standards 
for written arrangements. This initial proposal was based on discussion 
at the first negotiated rulemaking session that suggested most 
accrediting agencies already review a significant portion of their 
institutions' written arrangements, even those between or among 
eligible institutions. Subsequently, several non-Federal negotiators 
explained that, contrary to the Department's initial understanding, 
this type of review of written arrangements was not common practice. 
Some of the non-Federal negotiators expressed concerns that the 
proposed changes would increase workload and costs as well as impede 
the development of innovative programs at institutions where there is 
no evidence of the problems the Department seeks to address. After 
hearing these concerns, the Department reconsidered its initial 
proposal and focused its proposed regulatory changes more narrowly on 
the types of institutions and situations where problems have been 
identified.
    The Department subsequently proposed regulatory language that would 
limit the portion of an educational program that could be provided 
under a written arrangement between two eligible for-profit 
institutions under common ownership or control to 25 percent.
    While some non-Federal negotiators expressed support for the 25 
percent limitation, a number of them expressed concern that the 25 
percent limitation was too low. For example, one non-Federal negotiator 
questioned the rationale for limiting the percentage of an educational 
program provided by two eligible institutions under a written 
arrangement to 25 percent when, under certain circumstances, current 
regulations permit an ineligible institution to provide up to 50 
percent of an educational program. Another non-Federal negotiator said 
that an institution should be responsible for at least 50 percent of 
the courses in a student's major. During the discussions, several non-
Federal negotiators supported an overall limitation of 50 percent. One 
non-Federal negotiator expressed the view that non-profit institutions 
want to ``own'' the degrees they confer, and if an institution provides 
less than 50 percent of an educational program, it does not own the 
degree. Other non-Federal negotiators argued that a limitation of 75 
percent would be more appropriate.
    Non-Federal negotiators also expressed concerns that, as proposed, 
this restriction would have an impact on students' academic 
opportunities and

[[Page 34815]]

would limit access to students attending certain institutions. 
Specifically, they explained that the proposed restrictions on the 
portion of the educational program that could be provided by the other 
eligible institution could unnecessarily limit the number of online 
courses students could take, or make it difficult for students in the 
military who are deployed, and want to take their remaining courses at 
an online institution, to finish their educational programs. Both 
Department officials and some of the non-Federal negotiators pointed 
out that these outcomes are avoidable if the students in these 
situations transferred to the institution that was providing the 
preponderance of courses.
    Based on these discussions, the Department modified the proposed 
regulatory language to refer to eligible institutions that are owned or 
controlled by the same individual, partnership, or corporation, because 
this language would be parallel to the language in current Sec.  
668.5(c)(3)(ii)(B). Some non-Federal negotiators expressed concern that 
the phrase ``owned or controlled by the same individual, partnership, 
or corporation'' could be read to apply to Jesuit institutions or other 
institutions under the control of a religious organization, or to 
institutions in a public system under the control of a board of 
governors. The Federal negotiator explained that it is not the 
Department's intention for either public or private, non-profit 
institutions to be covered by the proposed language because these 
institutions are not owned or controlled by other entities, and 
generally act autonomously.
    The proposed additions to Sec.  668.5(c)(1) would make it clear 
that educational programs offered under written arrangements between an 
eligible institution and an ineligible institution would not be 
considered eligible programs if the ineligible institution had had its 
certification to participate in the title IV, HEA programs revoked (see 
proposed Sec.  668.5(c)(1)(iii)), its application for re-certification 
to participate in the title IV, HEA programs denied (see proposed Sec.  
668.5(c)(1)(iv)), or its application for certification to participate 
in the title IV, HEA programs denied (see proposed Sec.  
668.5(c)(1)(v)). These additions are consistent with the existing 
reference in the regulations to institutions that have been terminated 
from the title IV, HEA programs.
    Finally, there was considerable discussion during the negotiated 
rulemaking sessions about the Department's proposal to require that 
institutions make information about written arrangements available to 
students. Several non-Federal negotiators said that information should 
be made available to prospective students, as well as to enrolled 
students, so prospective students could know before applying to an 
educational program whether any part of the program would be provided 
under a written arrangement. For this reason, proposed Sec.  668.5(e) 
would make clear that any eligible institution providing educational 
programs under a written arrangement is required to provide the 
information described in proposed Sec.  668.43(a)(12) to both 
prospective and enrolled students.
    The committee also discussed at length what content the proposed 
disclosures should include. Several non-Federal negotiators requested 
that institutions be required to disclose the locations of the other 
institutions or organizations at which a portion of the educational 
program would be provided. We agreed with these non-Federal negotiators 
and incorporated this disclosure requirement in proposed Sec.  
668.43(a)(12)(ii).
    There was also widespread support for requiring the disclosure of 
any additional costs that students might incur as a result of enrolling 
in an educational program provided, in part, under a written 
arrangement. There was much discussion about which costs would need to 
be disclosed. One non-Federal negotiator requested that institutions 
only be required to provide ``estimated'' costs, given that in some 
situations, such as study abroad programs, costs might change due to 
variability in living accommodations, changes in airfare for programs 
offered at distant locations, etc. We agreed with these suggestions and 
clarified in proposed Sec.  668.43(a)(12)(iv) that the required 
disclosures include estimated additional costs students may incur as 
the result of enrolling in an educational program that is provided, in 
part, under a written arrangement described in Sec.  668.5.
    In proposed Sec.  668.43(a)(12)(iii), we would require institutions 
to disclose the method of delivery of the portion of the educational 
program that the institution that grants the degree or certificate is 
not providing so potential students are given accurate information. In 
response to a question raised at one of the negotiated rulemaking 
sessions, the Federal negotiator explained that the Department would 
expect an institution to disclose whether the instruction is offered on 
campus or on-line, or offered through a combination of methods.
    During the discussions about the disclosure requirements in 
proposed Sec. Sec.  668.5 and 668.43, there were a number of questions 
about what types of arrangements would be subject to these proposed 
requirements. The Department explained that the proposed disclosure 
requirements would apply to blanket, existing arrangements between or 
among institutions. Individual, student-initiated written arrangements 
would not be subject to the disclosure requirements in proposed 
Sec. Sec.  668.5 and 668.43. Not only would such disclosures be 
impractical and excessively burdensome, but they would also be 
unnecessary: As a party to an individual, student-initiated written 
arrangement, the student would already have the information required to 
be disclosed under these proposed provisions. In addition, these 
proposed disclosure requirements would not apply to internships or 
externships because the Department does not consider these arrangements 
to be written arrangements under Sec.  668.5. While it is reasonable to 
expect that institutions that offer or require internships and 
externships will provide students in affected programs with the types 
of information described in proposed Sec.  668.43(a)(12), such programs 
would not be covered under this proposed requirement for institutional 
disclosure of written arrangements.
    Some non-Federal negotiators contended that institutions should be 
required to display the information described in proposed Sec.  
668.43(a)(12) prominently on their Web sites. Other non-Federal 
negotiators did not support this idea, pointing out that Sec.  668.43 
contains a long list of disclosures, and to single out this one 
disclosure requirement for special treatment would suggest that it is 
more important than all the other institutional information disclosure 
requirements. They explained that this proposed requirement should be 
considered in the context of all the consumer disclosure requirements 
regarding information that students need to know when they are 
considering enrolling in an institution, and noted that from a 
practical standpoint, it is likely that institutions will post the 
required information on their Web sites. One non-Federal negotiator 
expressed the concern that there is already too much general 
information provided to students that they do not read, and suggested 
that institutions might find it most useful to include information on 
written arrangements in the context of individual programs of study.
    While the Department wants to make sure students receive 
appropriate information so they can make informed decisions, the 
Department agrees with

[[Page 34816]]

the non-Federal negotiators who urged that institutions be given the 
discretion to determine the best way to disseminate the required 
information to their students.
    The negotiators reached tentative agreement on this issue.
Incentive Compensation (Sec.  668.14(b))
    Statute: Section 487(a)(20) of the HEA requires that the title IV, 
HEA program participation agreement prohibit an institution from making 
any commission, bonus, or other incentive payments based directly or 
indirectly on success in securing enrollments or financial aid to any 
persons or entities involved in student recruiting or admissions 
activities, or in making decisions about the award of student financial 
assistance. The statute states that this prohibition does not apply to 
the recruitment of foreign students residing in foreign countries who 
are not eligible to receive Federal financial assistance.
    Current Regulations: Current Sec.  668.14(b)(22)(i) incorporates 
the prohibition and exception reflected in section 487(a)(20) of the 
HEA. It prohibits an institution from making any commission, bonus, or 
other incentive payments based directly or indirectly on success in 
securing enrollments or financial aid to any persons or entities 
involved in student recruiting or admissions activities, or in making 
decisions about the award of student financial assistance. It also 
states that this restriction does not apply to the recruitment of 
foreign students living in foreign countries who are not eligible to 
receive Federal student aid.
    Current Sec.  668.14(b)(22)(ii) goes on to specify 12 ``safe 
harbors''--12 activities and arrangements that an institution may carry 
out without violating the prohibition against incentive compensation 
reflected in section 487(a)(20) of the HEA and current Sec.  
668.14(b)(22)(i). The first safe harbor explains the conditions under 
which an institution may adjust compensation without that compensation 
being considered an incentive payment. The 12 safe harbors describe the 
conditions under which payments that could potentially be construed as 
based upon securing enrollments or financial aid are nonetheless not 
prohibited under section 487(a)(20) of the HEA and current Sec.  
668.14(b)(22)(i).
    The payment or compensation plans covered by the safe harbors 
address the following subjects:
    1. Adjustments to employee compensation (current Sec.  
668.14(b)(22)(i)(A)). Under this safe harbor, an institution may make 
up to two adjustments (upward or downward) to a covered employee's 
annual salary or fixed hourly wage rate within any 12-month period 
without the adjustment being considered an incentive payment, provided 
that no adjustment is based solely on the number of students recruited, 
admitted, enrolled, or awarded financial aid. This safe harbor also 
permits one cost-of-living increase that is paid to all or 
substantially all of the institution's full-time employees.
    2. Enrollment in programs that are not eligible for title IV, HEA 
program funds (current Sec.  668.14(b)(22)(i)(B)). This safe harbor 
permits compensation to recruiters based upon enrollment of students 
who enroll in programs that are ineligible for title IV, HEA funds.
    3. Contracts with employers to provide training (current Sec.  
668.14(b)(22)(i)(C)). This safe harbor addresses payments to recruiters 
who arrange contracts between an institution and an employer, where the 
employer pays the tuition and fees for its employees (either directly 
to the institution or by reimbursement to the employee).
    4. Profit-sharing bonus plans (current Sec.  668.14(b)(22)(i)(D)). 
Under this safe harbor, profit-sharing and bonus payments to all or 
substantially all of an institution's full-time employees are not 
considered incentive payments based on success in securing enrollments 
or awarding financial aid in violation of the prohibition in section 
487(a)(20) of the HEA and current Sec.  668.14(b)(22)(i). As long as 
the profit-sharing or bonus payments are substantially the same amount 
or the same percentage of salary or wages, and as long as the payments 
are made to all or substantially all of the institution's full-time 
professional and administrative staff, compensation paid as part of a 
profit-sharing or bonus plan is not considered a violation of the 
incentive payment prohibition.
    5. Compensation based upon program completion (current Sec.  
668.14(b)(22)(i)(E)). This safe harbor permits compensation based upon 
students successfully completing their educational programs or one 
academic year of their educational programs, whichever is shorter.
    6. Pre-enrollment activities (current Sec.  668.14(b)(22)(i)(F)). 
This safe harbor states that clerical pre-enrollment activities, such 
as answering telephone calls, referring inquiries, or distributing 
institutional materials, are not considered recruitment or admission 
activities. Accordingly, under this safe harbor, an institution may 
make incentive payments to individuals whose responsibilities are 
limited to clerical pre-enrollment activities.
    7. Managerial and supervisory employees (current Sec.  
668.14(b)(22)(i)(G)). This safe harbor states that the incentive 
payment prohibition in section 487(a)(20) of the HEA and current Sec.  
668.14(b)(22)(i) does not apply to managerial and 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.
    8. Token gifts (current Sec.  668.14(b)(22)(i)(H)). Under this safe 
harbor, an institution may provide a token gift not to exceed $100 to 
an alumnus or student provided that the gift is not in the form of 
money and no more than one gift is provided annually to an individual.
    9. Profit distributions (current Sec.  668.14(b)(22)(i)(I)). This 
safe harbor states that profit distributions to owners of the 
institution are not payments based on success in securing enrollments 
or awarding financial aid in violation of the prohibition in section 
487(a)(20) of the HEA and current Sec.  668.14(b)(22)(i) as long as the 
distribution represents a proportionate share of the profits based upon 
the individual's ownership interest.
    10. Internet-based activities (current Sec.  668.14(b)(22)(i)(J)). 
This safe harbor permits an institution to award incentive compensation 
for Internet-based recruitment and admission activities that provide 
information about the institution to prospective students, refer 
prospective students to the institution, or permit prospective students 
to apply for admission online.
    11. Payments to third parties for non-recruitment activities 
(current Sec.  668.14(b)(22)(i)(K)). This safe harbor states that the 
incentive compensation prohibition does not apply to 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.
    12. Payments to third parties for recruitment activities (current 
Sec.  668.14(b)(22)(i)(L)). Under this safe harbor, if an institution 
uses an outside entity to perform activities for it, including 
recruitment or admission activities, the institution may make incentive 
payments to the third party without violating the incentive payment 
prohibition in section 487(a)(20) of the HEA and current Sec.  
668.14(b)(22)(i) as long as the individuals performing the recruitment 
or admission activities are not compensated in a way that is

[[Page 34817]]

prohibited by section 487(a)(20) of the HEA and current Sec.  
668.14(b)(22)(i).
    Proposed Regulations: The Department proposes to revise Sec.  
668.14(b)(22) to align it more closely with the statutory language from 
section 487(a)(20) of the HEA. Specifically, proposed Sec.  
668.14(b)(22)(i)(A) would restate the statutory provision in the HEA, 
which provides that to be eligible to participate in the Federal 
student financial aid programs authorized under title IV of the HEA, an 
institution must agree that it will not provide any commission, bonus, 
or other incentive payment based directly or indirectly on 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 award of student financial assistance. Proposed 
Sec.  668.14(b)(22)(i)(B) would provide that the incentive compensation 
prohibition does not apply to the recruitment of foreign students 
residing in foreign countries who are not eligible to receive Federal 
student assistance.
    The Department would delete the 12 safe harbors reflected in 
current Sec.  668.14(b)(22)(ii). The Department would, however, 
clarify, in proposed Sec.  668.14(b)(22)(ii), that eligible 
institutions and their contractors may make merit-based adjustments to 
employee compensation, provided that such adjustments are not based 
directly or indirectly upon success in securing enrollments or the 
award of financial aid.
    Finally, in proposed Sec.  668.14(b)(22)(iii), the Department would 
define the following key terms that would be used in proposed Sec.  
668.14(b)(22): Commission, bonus, or other incentive payment, securing 
enrollments or the awards of financial aid, and enrollment.
    Proposed Sec.  668.14(b)(22)(iii)(A) would define commission, 
bonus, or other incentive payment as a sum of money or something of 
value paid or given to a person or entity for services rendered.
    Proposed Sec.  668.14(b)(22)(iii)(B) would define securing 
enrollments or the awards of financial aid as activities that a person 
or entity engages in for the purpose of the admission or matriculation 
of students for any period of time or the award of financial aid to 
students. Proposed Sec.  668.14(b)(22)(iii)(B)(1) and 
(b)(22)(iii)(B)(2) would clarify that the term securing enrollments or 
the awards of financial aid includes recruitment contact in any form 
and excludes making a payment to a third party for student contact 
information for prospective students, respectively.
    Proposed Sec.  668.14(b)(22)(iii)(C) would define enrollment as the 
admission or matriculation of a student into an eligible institution.
    Reasons: Consistent with comments made by a majority of the non-
Federal negotiators, the Department believes that the language in 
section 487(a)(20) of the HEA is clear, and that the elimination of all 
of the regulatory safe harbors reflected in current Sec.  
668.14(b)(22)(ii) would best serve to effectuate congressional intent. 
The Department previously explained that it was adopting the safe 
harbors based on a ``purposive reading of section 487(a)(20) of the 
HEA.'' 67 FR 51723 (August 8, 2002). Since that time, however, the 
Department's experience demonstrates that unscrupulous actors routinely 
rely upon these safe harbors to circumvent the intent of section 
487(a)(20) of the HEA. As such, rather than serving to effectuate the 
goals intended by Congress through its adoption of section 487(a)(20) 
of the HEA, the safe harbors have served to obstruct those objectives. 
For example, the first safe harbor, which prohibits the payment of 
incentives based solely upon success in securing enrollments, has led 
institutions to establish, on paper, other factors that are purportedly 
used to evaluate student recruiters other than the sheer numbers of 
students enrolled. However, in practice, consideration of these factors 
has been minimal at best, or otherwise indiscernible. This has led the 
Department to expend vast resources evaluating the legitimacy of 
institutional compensation plans, and considerable time and effort has 
been lost by both the Department and institutions engaged in 
litigation. Moreover, the Department believes that students are 
frequently the victims of compensation plans that institutions have 
adopted within the ambit of the first safe harbor. When admissions 
personnel are compensated substantially, if not entirely, upon the 
numbers of students enrolled, the incentive to deceive or misrepresent 
the manner in which a particular educational program meets a student's 
need increases substantially. As a result, the Department believes that 
the existence of the safe harbors is a major impediment to ensuring 
that students are enrolled in educational programs that are meaningful 
to them. There was considerable discussion on this proposed approach 
during the negotiated rulemaking sessions.
    At the outset of the discussions on incentive compensation during 
negotiated rulemaking, the Department reviewed each of the 12 safe 
harbors reflected in the current regulations and stated why the 
Department views them as either inappropriate or unnecessary:
    1. Adjustments to employee compensation. The Department explained 
that this safe harbor has led to allegations in which institutions 
concede that their compensation structures include consideration of the 
number of enrolled students, but aver that they are not solely based 
upon such numbers. In some of these instances, the substantial weight 
of the evidence has suggested that the other factors purportedly 
analyzed are not truly considered, and that, in reality, the 
institution bases salaries exclusively upon the number of students 
enrolled. For this reason, the Department proposes to delete this safe 
harbor. After careful consideration, the Department has determined that 
removal of the safe harbor is preferable to trying to revise the safe 
harbor. For example, changing the word solely in this safe harbor to 
some other modifier, such as ``primarily'' or ``substantially,'' would 
not correct the problem, as the evaluation of any alternative 
arrangement would merely shift to whether the compensation was 
``primarily'' or ``substantially'' based upon enrollments.
    2. Compensation related to enrollment in programs that are not 
eligible for title IV, HEA program funds. Section 487(a)(20) of the HEA 
provides that compensation may not be based upon success in securing 
enrollments whether the students receive title IV, HEA funds, or some 
other form of student financial assistance. This safe harbor provides 
an impetus to steer students away from title IV, HEA programs. The 
potential also exists for manipulation, as students who were initially 
enrolled in non-title IV, HEA eligible programs may then be re-enrolled 
in title IV, HEA eligible programs. As a result, the Department 
proposes to remove this safe harbor.
    3. Compensation related to contracts with employers to provide 
training. Compensation permitted under this safe harbor includes 
compensation that is ultimately based upon success in securing 
enrollments, and is thus inconsistent with section 487(a)(20) of the 
HEA.
    4. Compensation related to profit-sharing bonus plans. There is no 
statutory proscription upon offering employees either profit-sharing or 
a bonus; however, if either is based upon success in securing 
enrollments, it is not permitted. Therefore, this safe harbor is 
unnecessary.
    5. Compensation based on program completion. The Department 
believes that this safe harbor permits compensation that is 
``indirectly'' based

[[Page 34818]]

upon securing enrollments--that is, unless the student enrolls, the 
student cannot successfully complete an educational program. With the 
proliferation of short-time, accelerated programs, the potential exists 
for shorter and shorter programs, and increased efforts to rely upon 
this safe harbor to incentivize recruiters. Moreover, this safe harbor 
may lead to lowered or misrepresented admissions standards and program 
offerings, lowered academic progress standards, altered attendance 
records, and a lack of meaningful emphasis on retention. The Department 
has seen schools that have devised and operated grading policies that 
all but ensure that students who enroll will graduate, regardless of 
their academic performance. For these reasons, the Department believes 
it is appropriate to delete this safe harbor.
    6. Compensation related to pre-enrollment activities. The 
Department does not believe that this safe harbor is appropriate. 
Individuals may not receive incentive compensation based on their 
success in soliciting students for interviews; soliciting students for 
interviews is a recruitment activity, not a pre-enrollment activity. In 
addition, because a recruiter's job description is to recruit, it would 
be very difficult for an institution to document that it was paying a 
bonus to a recruiter solely for clerical pre-enrollment activities. 
Such activities certainly contribute ``indirectly,'' if not 
``directly,'' to the success in securing enrollments, and hence 
compensation based upon them is prohibited by the statute. Moreover, 
with the elimination of the safe harbor relating to adjustments to 
employee compensation, an unscrupulous actor could claim that the 
activities in which its recruiters engaged, and for which they were 
compensated, consisted of ``clerical'' or ``pre-enrollment'' 
activities, regardless of whether a student ultimately enrolled.
    7. Compensation related to managerial and supervisory employees. 
The Department believes that this safe harbor provision is no longer 
appropriate because senior management may drive the organizational and 
operational culture at an institution, creating pressures for top, and 
even middle, management to secure increasing numbers of enrollments 
from their recruiters. As a result, these individuals should not be 
exempt from the ban on receiving incentive compensation.
    8. Compensation related to token gifts. As at least one non-Federal 
negotiator noted, students oft-times do things with little reflection 
if it brings an immediate reward, and such things as a $100 gift card 
constitute a substantial incentive for many students. Further, the fair 
market value of an item might be considerably greater than its cost. A 
high value item for which the institution paid a minimal cost could not 
be considered a token gift. As a result, even the provision of token 
gifts to students and alumni is fraught with the potential for abuse, 
creating the need to remove this safe harbor, as well.
    9. Compensation based on profit distributions that are based on an 
individual's ownership interest. Section 487(a)(20) of the HEA 
prohibits compensation, including profit distributions, that is based 
upon success in securing enrollments and the award of financial aid. It 
does not prohibit profit distributions based upon an individual's 
ownership interest. As a result, it is the Department's view that this 
safe harbor is unnecessary.
    10. Compensation related to Internet-based activities. 
Technological advancements and developments in Internet-based 
activities since this safe harbor was adopted, and the frequency with 
which such activities are now relied upon, argue against the continued 
provision of this safe harbor. Moreover, with the elimination of the 
first safe harbor, it can be anticipated that an institution seeking to 
avoid compliance with section 487(a)(20) of the HEA will maximize its 
Internet-based recruitment activities. For this reason, the Department 
proposes to remove this safe harbor.
    11. Compensation to third parties for non-recruitment activities. 
The Department believes that this safe harbor is no longer necessary. 
Proposed Sec.  668.14(b)(22) states that a person or entity who is 
engaged in any student recruitment or admission activity, or in making 
decisions regarding the awarding of title IV, HEA program funds may not 
be compensated directly or indirectly based upon the success in 
securing enrollments. Thus, there is no reason to provide any 
discussion of third-party activities as they relate to non-recruitment 
activities as a potential safe harbor.
    12. Compensation to third parties for recruitment activities. This 
safe harbor expands the scope of the eleventh safe harbor to include 
``recruiting or admission activities,'' while providing the caveat that 
the compensation cannot be offered in an otherwise legally 
impermissible manner. As mentioned in regard to the eleventh safe 
harbor, section 487(a)(20) of the HEA expressly proscribes payments to 
``any persons or entities'' based directly or indirectly on success in 
securing enrollments, so any further discussion of third party 
activities as they relate to recruitment activities is also 
unnecessary.
    The Department believes that removal of these regulatory safe 
harbors is necessary to ensure that section 487(a)(20) of the HEA is 
properly applied. The Department has determined that these safe harbors 
do substantially more harm than good, and believes that institutions 
should not look to safe harbors to determine whether a payment complies 
with section 487(a)(20) of the HEA. Rather, the Department believes 
that institutions can readily determine if a payment or compensation is 
permissible under section 487(a)(20) of the HEA by analyzing--
    (1) Whether it is a commission, bonus, or other incentive payment, 
defined as an award of a sum of money or something of value paid to or 
given to a person or entity for services rendered; and
    (2) Whether the commission, bonus, or other incentive payment is 
provided to any person based directly or indirectly upon success in 
securing enrollments or the award of financial aid, which are defined 
as activities engaged in for the purpose of the admission or 
matriculation of students for any period of time or the award of 
financial aid.
    If the answer to each of these questions is yes, the commission, 
bonus, or incentive payment would not be permitted under the statute. 
Therefore, the Department proposes to simplify its regulations to 
better align them with section 487(a)(20) of the HEA.
    Most non-Federal negotiators favored the Department's proposal to 
remove the current safe harbors because they believe that the 
regulatory safe harbors have led to inappropriate incentive 
compensation practices by institutions that are prohibited by the HEA. 
The majority of the non-Federal negotiators indicated strong support 
for the removal of these safe harbors, believing that doing so would 
more accurately reflect congressional intent and protect students from 
abusive recruitment practices that have directly resulted when 
institutions have sought to circumvent, if not directly flaunt, section 
487(a)(20) of the HEA.
    The non-Federal negotiator who opposed the Department's proposed 
removal of the safe harbors and their replacement with certain 
definitions argued that the safe harbors are needed to explain the 
scope of the prohibition in section 487(a)(20) of the HEA, which was 
perceived as being unclear. Without the safe harbors, it was argued, 
institutions would not have a clear sense of what practices are 
permitted

[[Page 34819]]

and, therefore, would be more likely to unintentionally violate the 
prohibition in section 487(a)(20) of the HEA and Sec.  668.14(b)(22). 
However, any merit to this argument is belied by the ease of the 
application of the two-part test the Department has offered that will 
demonstrate whether a compensation plan or payment complies with the 
statute and its implementing regulations.
    A sub-caucus of non-Federal negotiators worked between the second 
session of negotiated rulemaking and the third session of negotiated 
rulemaking to develop draft regulatory language that would retain, but 
narrow the scope of, the safe harbors in the current regulations. There 
was much discussion regarding the sub-caucus' proposed draft language, 
as well as one final counter-proposal brought to the negotiating table.
    A number of specific concerns were raised during these discussions. 
First and foremost, negotiators wanted to understand what the likely 
impact would be if the safe harbors were removed from the regulations. 
They questioned whether all previously permitted actions would now be 
prohibited. The Department explained its position: That, going forward, 
under the proposed regulations, institutions would need to re-examine 
their practices to ensure that they comply with proposed Sec.  
668.14(b)(22). To the extent that a safe harbor created an exception to 
the statutory prohibition found in section 487(a)(20) of the HEA, its 
removal would establish that such an exception no longer exists, and 
that the action that had been permitted is now prohibited.
    Several negotiators were concerned that under the Department's 
proposal, institutions would be prohibited from paying merit-based 
increases to their financial aid or admissions personnel. In 
particular, some negotiators supported the inclusion of language that 
would permit an institution to make merit-based adjustments based on an 
employee's performance in relation to an institution's goals, such as 
those for enrollment, completion, or graduation.
    The Department's proposed regulations continue to authorize merit-
based compensation for financial aid or admissions staff. An 
institution could use a variety of standard evaluative factors as the 
basis for such an increase; however, consistent with section 487(a)(20) 
of the HEA, under proposed Sec.  668.14(b)(22), it would not be 
permitted to consider the employee's success in securing student 
enrollments or the award of financial aid or institutional goals based 
on that success among those factors. Further, an increase that is based 
either directly or indirectly on individual student numbers would be 
prohibited. The Department believes that the language in proposed Sec.  
668.14(b)(22)(ii) makes this clear.
    One negotiator felt strongly that it was critical to use the word 
``solely,'' or some other modifier, to limit the prohibition in 
proposed Sec.  668.14(b)(22)(i) (i.e., ``It will not provide any 
commission, bonus, or other incentive payment based solely upon success 
* * *'' rather than ``It will not provide any commission, bonus, or 
other incentive payment based directly or indirectly upon success''). 
This negotiator said that the use of the word solely, or some other 
modifier, would be consistent with the use of that term solely in the 
first safe harbor reflected in current Sec.  668.14(b)(22)(ii)(A) 
(i.e., `` * * * is not based solely on the number of students 
recruited, admitted, enrolled, or awarded financial aid''). As 
discussed earlier in this preamble, given the Department's experience 
with how the first safe harbor in current Sec.  668.14(b)(22) has been 
abused, the Department does not believe that such a construction is 
warranted. It is the Department's view that, consistent with section 
487(a)(20) of the HEA, incentive payments should not be based in any 
part, directly or indirectly, on success in securing enrollments or the 
awards of financial aid.
    In addition, some negotiators advocated for an institution's 
ability to pay bonuses on the basis of students who complete their 
programs of instruction, as currently provided for in the fifth safe 
harbor. They believed that this category of students (i.e., students 
who complete their programs), is different from the category of 
students who enroll, for which compensation may not be based. The 
Department does not agree. As previously stated, the Department 
believes that the regulations must clearly reinforce the statutory 
provision and exclude the possibility of basing any portion of a bonus 
on success in securing student enrollments or financial aid awards.
    Several negotiators requested that the Department define the term 
``bonus'' as a way to help institutions understand what types of 
compensation are appropriate. Accordingly, in proposed Sec.  
668.14(b)(22)(iii)(A), the Department proposes to define the term 
commission, bonus, or other incentive payment as a sum of money or 
something of value paid to or given to a person or an entity for 
services rendered. Linked to the language in proposed Sec.  
668.14(b)(22)(i)(A), this definition is unambiguous in prohibiting 
payment of any money or item of value on the basis of direct or 
indirect success in securing enrollments or the award of financial aid.
    Several non-Federal negotiators asked for clarification about the 
extent to which supervisors and upper level administrators would be 
covered by proposed Sec.  668.14(b)(22). The Department's position is 
that section 487(a)(20) of the HEA is clear that the incentive 
compensation prohibition applies all the way to the top of an 
institution or organization. Therefore, individuals who are engaged in 
any student recruitment or admissions activity or in making decisions 
about the award of student financial aid are covered by this 
prohibition.
    One negotiator asked the Department to clarify how the prohibition 
reflected in proposed Sec.  668.14(b)(22) would work in the case of an 
institution that partners with other institutions or organizations to 
receive shared services, an approach that some institutions are turning 
to for economic reasons. As an example, a group of institutions might 
share a centralized campus security team because doing so could be less 
expensive than having each institution set up its own team. If 
institutions use this model of shared services for financial aid 
purposes and the payment for the shared services is volume-driven 
(e.g., an institution is billed based on the number of student files 
that are processed), the negotiator asked if institutions would comply 
with proposed Sec.  668.14(b)(22). The Department does not believe that 
the proposed language would automatically preclude an institution's use 
of this type of arrangement, provided that payment is not based on 
success in securing enrollments or the awards of financial aid. In the 
normal course, the contractor would be paid for services rendered 
without violating the proposed regulations.
    Several negotiators were concerned about the impact of the proposed 
language on an institution's Internet-based activities. Negotiators 
asserted that the HEA permits advertising and marketing activities by a 
third party, as long as payment to the third party is based on those 
who ``click'' and is not based on the number of individuals who enroll. 
The Department agrees and does not believe that the proposed regulatory 
language would prohibit such click-through payments.
    The issue of token gifts prompted some discussion. Several 
negotiators asked the Department to clarify whether an institution that 
offers some type of payment to current students in exchange for their 
contact list would

[[Page 34820]]

violate proposed Sec.  668.14(b)(22). The Department believes that this 
type of activity is permitted as long as the student is not paid or 
given an item of value on the basis of the number of students who apply 
or enroll. Most negotiators agreed with this position.
    Finally, several non-Federal negotiators asked whether the 
Department would offer private letter guidance on conduct that may 
violate proposed Sec.  668.14(b)(22). Accordingly, the Department 
believes the proposed language is clear and reflective of section 
487(a)(20) of the HEA. The Department believes it will appropriately 
guide institutions as they evaluate compensation issues. To the extent 
that ongoing questions arise on a particular aspect of the regulations, 
the Department will respond appropriately. This response may include a 
clarification in a Department publication, such as the Federal Student 
Aid Handbook or a Dear Colleague Letter. The Department believes that 
rather than focusing clarifying guidance on the situation at a 
particular institution, any illuminating statements must be broadly 
applicable and distributed widely to all participating institutions. As 
a result, the Department does not intend to provide private guidance 
regarding particular compensation structures in the future and will 
enforce the law as written.
    Negotiators did not reach agreement on this issue.
Satisfactory Academic Progress (Sec. Sec.  668.16(e), 668.32(f), 
668.34)
    Statute: Section 484(a)(2) of the HEA requires that a student make 
satisfactory progress in the student's course of study in order to be 
eligible to receive title IV, HEA program funds. Section 484(c) of the 
HEA provides that a student is making satisfactory progress if the 
institution reviews the progress of the student at the end of each 
academic year, or its equivalent, and the student has a cumulative C 
average, or its equivalent, or academic standing consistent with the 
requirements for graduation, as determined by the institution, at the 
end of the student's second academic year. Section 484(c)(2) of the HEA 
provides that a student who has failed to maintain satisfactory 
progress and, subsequent to that failure, has academic standing 
consistent with the requirements for graduation, as determined by the 
institution, may again be determined eligible for assistance under 
title IV, HEA programs. Section 484(c)(3) of the HEA allows an 
institution to waive the satisfactory progress provisions for undue 
hardship based on the death of a relative of the student, the personal 
injury or illness of the student, or special circumstances as 
determined by the institution.
    Current Regulations: Three sections in current regulations contain 
satisfactory academic progress requirements. Current Sec.  668.16(e) 
specifies that for an institution to be considered administratively 
capable, it must, for the purpose of determining student eligibility, 
establish, publish and apply reasonable standards for measuring whether 
a student is maintaining satisfactory progress in his or her 
educational program.
    Under current Sec.  668.16(e), a satisfactory academic progress 
policy is considered reasonable if the standards are the same as or 
stricter than the institution's standards for students enrolled in the 
same educational program who are not receiving title IV, HEA program 
funds and contain both qualitative (grade-based) and quantitative 
(time-related) standards. Under current Sec.  668.16(e)(3), the 
institution must apply the standards consistently to all students 
within each category of students, e.g., full-time, part-time, 
undergraduate, and graduate students, and each educational program.
    The policy must provide that the institution checks both 
qualitative and quantitative components of the standards at the end of 
each increment, which may not be longer than one half of the 
educational program or one academic year, whichever is less.
    Current Sec.  668.16(e)(5) and (e)(6) require that a satisfactory 
academic policy provide specific procedures under which a student may 
appeal a determination that the student is not making satisfactory 
academic progress and specific procedures for a student to re-establish 
that the student is making satisfactory academic progress.
    Current Sec.  668.32 contains general student eligibility 
requirements. Current paragraph (f) of this section specifies that to 
be eligible to receive title IV, HEA program assistance, a student must 
maintain satisfactory progress in his or her course of study under the 
institution's published satisfactory progress standards. These 
standards must comply with the provisions of Sec.  668.16(e) and, if 
applicable, Sec.  668.34.
    Current Sec.  668.34 specifies that a student who is enrolled in a 
program of study that is longer than two academic years must, at the 
end of the second year, have a grade point average (GPA) of at least a 
``C'' or its equivalent, or have academic standing that is consistent 
with the institution's graduation requirements. Under current Sec.  
668.34(c), an institution may find that a student is making 
satisfactory academic progress, even if the student does not meet these 
requirements, if the student's failure to meet these requirements is 
based upon the death of a relative of the student, an injury or illness 
of the student, or other special circumstances. Current Sec.  668.34(e) 
requires an institution to review a student's academic progress at the 
end of each year, at a minimum.
    Proposed regulations: The proposed regulations would restructure 
the satisfactory academic progress requirements. Proposed Sec.  
668.16(e) (Standards of administrative capability) would be revised to 
include only the requirement that an institution establish, publish, 
and apply satisfactory academic progress standards that meet the 
requirements of Sec.  668.34. The remainder of current Sec.  668.16(e) 
would be moved to proposed Sec.  668.34 such that it, alone, describes 
all of the required elements of a satisfactory academic progress policy 
as well as how an institution would implement such a policy. The 
references in paragraph Sec.  668.32(e) would be updated to conform the 
section with the changes proposed to Sec. Sec.  668.16(e) and 668.32.
    Proposed Sec.  668.34(a) would specify the elements an 
institution's satisfactory academic policy must contain to be 
considered a reasonable policy. Under the proposed regulations, 
institutions would continue to have flexibility in establishing their 
own policies; institutions that choose to measure satisfactory academic 
progress more frequently than at the minimum required intervals would 
have additional flexibility (see proposed Sec.  668.34(a)(3)).
    All of the policy elements in the current regulations under 
Sec. Sec.  668.16(e) and 668.34 would be combined in proposed Sec.  
668.34. In addition, proposed Sec.  668.34(a)(5) would make explicit 
the requirement that institutions specify the pace at which a student 
must progress through his or her educational program to ensure that the 
student will complete the program within the maximum timeframe, and 
provide for measurement of a student's pace at each evaluation. Under 
proposed Sec.  668.34(a)(6), institutional policies would need to 
describe how a student's GPA and pace of completion are affected by 
transfers of credit from other institutions. This provision would also 
require institutions to count credit hours from another institution 
that are accepted toward a student's educational program as both 
attempted and completed hours.
    Proposed Sec.  668.34(a)(7) would provide that, except as permitted 
in Sec.  668.34(c) and (d), the policy requires that, at the time of 
each evaluation, if

[[Page 34821]]

the student is not making satisfactory academic progress, the student 
is no longer eligible to receive title IV, HEA assistance.
    Proposed Sec.  668.34(a)(8) would require institutions that use 
``financial aid warning'' and ``financial aid probation'' statuses 
(concepts that would be defined in proposed Sec.  668.34(b)) in 
connection with satisfactory academic progress evaluations to describe 
these statuses and how they are used in their satisfactory academic 
progress policies. Proposed Sec.  668.34(a)(8)(i) would specify that a 
student on financial aid warning may continue to receive assistance 
under the title IV, HEA programs for one payment period despite a 
determination that the student is not making satisfactory academic 
progress. Financial aid warning status may be assigned without an 
appeal or other action by the student. Proposed Sec.  668.34(a)(8)(ii) 
would make clear that an institution with a satisfactory academic 
progress policy that includes the use of the financial aid probation 
status could require that a student on financial aid probation fulfill 
specific terms and conditions, such as taking a reduced course load or 
enrolling in specific courses.
    Proposed Sec.  668.34(a)(9) would require an institution that 
permits a student to appeal a determination that the student is not 
making satisfactory academic progress to describe the appeal process in 
its policy. The policy would need to contain specified elements. 
Proposed Sec.  668.34(a)(9)(i) would require an institution to describe 
how a student may re-establish his or her eligibility to receive 
assistance under the title IV, HEA programs. Under proposed Sec.  
668.34(a)(9)(ii), a student would be permitted to file an appeal based 
on the death of a relative, an injury or illness of the student, or 
other special circumstances. Under proposed Sec.  668.34(a)(9)(iii), a 
student would be required to submit, as part of the appeal, information 
regarding why the student failed to make satisfactory academic 
progress, and what has changed in the student's situation that would 
allow the student to demonstrate satisfactory academic progress at the 
next evaluation.
    Proposed Sec.  668.34(a)(10) would require the satisfactory 
academic progress policy of an institution that does not permit 
students to appeal a determination that they are not making 
satisfactory academic progress to describe how a student may regain 
eligibility for assistance under the title IV, HEA programs.
    Proposed Sec.  668.34(a)(11) would require that an institution's 
policy provide for notification to students of the results of an 
evaluation that impacts the student's eligibility for title IV, HEA 
program funds.
    In proposed Sec.  668.34(b), we would define several important 
terms that are used in this section:
    We would define the term appeal as a process by which a student who 
is not meeting the institution's standards petitions the institution 
for reconsideration of the student's eligibility for title IV, HEA 
program funds.
    The term financial aid probation would be defined as a status 
assigned by an institution to a student who fails to make satisfactory 
academic progress and who has appealed and has had eligibility for aid 
reinstated.
    The term financial aid warning would be defined as a status 
assigned to a student who fails to make satisfactory academic progress 
at an institution that evaluates academic progress at the end of each 
payment period.
    We would add a definition of the term maximum timeframe, which 
would be based entirely on the description of maximum timeframe in 
current Sec.  668.16(e)(2)(ii).
    Proposed Sec.  668.34(c) and (d) would specify that an 
institution's policy may provide for disbursement of title IV, HEA 
program funds to a student who has not met an institution's 
satisfactory academic standards in certain circumstances.
    Proposed Sec.  668.34(c) would permit an institution that measures 
satisfactory academic progress at the end of each payment period to 
have a policy that would permit a student who is not making 
satisfactory academic progress to be placed automatically on financial 
aid warning, a newly defined term.
    Finally, under proposed Sec.  668.34(d), at an institution that 
measures satisfactory academic progress annually, or less frequently 
than at the end of each payment period, a student who has been 
determined not to be making satisfactory academic progress would be 
able to receive title IV, HEA program funds only after filing an appeal 
and meeting one of two conditions: (1) The institution has determined 
that the student should be able to meet satisfactory progress standards 
after the subsequent payment period, or (2) the institution develops an 
academic plan with the student that, if followed, will ensure that the 
student is able to meet the institution's satisfactory academic 
progress standards by a specific point in time.
    Reasons: Recent questions from institutions and reviews of 
institutional satisfactory academic progress policies have raised 
concerns about the effectiveness of institutions' satisfactory academic 
policies, even those that comply with the Department's current 
regulatory criteria. For example, it has become evident that the use of 
automatic probationary periods has resulted in some students receiving 
title IV, HEA aid for as long as 24 months even though they are not 
meeting the institution's satisfactory academic progress standards. 
Moreover, it is also clear that institutions use a variety of terms--
warning, probation, amnesty--to describe situations in which a student 
is not making satisfactory academic progress, but nevertheless has been 
determined eligible to receive assistance under the title IV, HEA 
programs. Repeated uses of these statuses, or use of a combination of 
these statuses, applied sequentially, may lead to prolonged periods 
during which students who are not making satisfactory academic progress 
nevertheless continue to receive title IV, HEA program funds.
    The proposed changes to Sec. Sec.  668.16(e), 668.32, and 668.34 
are designed to implement a more structured, comprehensive, and 
consistent approach to the development and implementation of 
institutional satisfactory progress policies.
    During the discussions at the negotiated rulemaking sessions, the 
Department explained the problems it has identified and solicited 
information on current institutional policies and recommendations from 
the non-Federal negotiators on ways to amend the current regulations 
that would curtail abuses while retaining flexibility for institutions. 
The Department used this information in developing the proposed 
regulations.
    In the following paragraphs, we describe the Department's rationale 
for the specific substantive changes proposed to the satisfactory 
academic progress regulations.
    First we propose to expand the elements required for an 
institution's satisfactory academic progress policy to include a 
description and specific treatment of transfer credits, a description 
of financial aid warning and probationary statuses (if applicable), a 
requirement to notify students of the results of a satisfactory 
progress review that impacts their eligibility for title IV, HEA 
program assistance, specific information required for appeals (if the 
institution permits appeals), and if an institution does not permit 
appeals, how students may re-establish eligibility for title IV, HEA 
program funds. Having a clear understanding of an institution's 
satisfactory progress policy will help

[[Page 34822]]

students understand the institution's academic expectations and will 
increase the likelihood of their academic success.
    We also propose to make changes to the regulatory language 
concerning the frequency with which an institution measures the 
satisfactory academic progress of its students. During negotiated 
rulemaking, several of the non-Federal negotiators stressed the 
importance of early intervention in helping students meet their 
educational goals. The Department agrees with this approach; however, 
because section 484(c) of the HEA requires institutions to evaluate a 
student's progress at the end of each academic year or the equivalent, 
the Department is limited in its ability to have institutions evaluate 
students' progress more frequently (for example, at the end of each 
payment period). To encourage institutions to evaluate a student's 
academic progress more frequently, the Department proposes regulatory 
language that would offer additional flexibility to institutions that 
measure satisfactory academic progress at the end of each payment 
period. Proposed Sec.  668.34(c) would permit institutions that review 
student progress at the end of each payment period to place students on 
financial aid warning for one payment period, which would encourage 
institutions to provide additional support to students in a timely 
manner and would help students be successful.
    We would define the term financial aid warning (as well as the term 
financial aid probation) in proposed Sec.  668.34(b) to promote 
consistent application of these types of designations among 
institutions that use these designations in connection with their 
satisfactory academic progress reviews. The term financial aid warning 
would be defined as a status conferred automatically and without action 
by a student, while the term financial aid probation would be defined 
as a status conferred after a student has submitted an appeal that has 
been granted. The financial aid warning designation would be available 
only at an institution that measures satisfactory academic progress at 
the end of each payment period. Defining each status would help all 
institutions to clearly distinguish when a student may continue to 
receive title IV, HEA funds and under what conditions. By defining 
these terms to describe the eligibility of the student to receive 
future disbursements, we can help ensure that students are treated 
consistently and equitably regardless of the institution they attend.
    We also would add some regulatory language to ensure that 
institutional satisfactory academic progress policies specify the 
circumstances under which a student may appeal a determination that the 
student is not making satisfactory academic progress and is not 
eligible to receive title IV, HEA funds for the subsequent term. The 
proposed regulations would not require institutions to permit students 
to appeal, but they would specify that students may appeal only under 
certain circumstances. Several non-Federal negotiators asserted that 
their institutions had established the practice of granting appeals 
only to students who could explain how the circumstances that had 
caused their academic problems had changed. These negotiators explained 
that in their experience, if the root problem was not addressed 
successfully, the student was just setting himself or herself up for 
failure the next term. These non-Federal negotiators made a compelling 
argument for this approach; therefore, we have incorporated it in 
proposed Sec.  668.34(c)(8)(ii) (i.e., the student must submit 
information regarding why the student failed to make satisfactory 
academic progress and what has changed in the student's situation that 
will allow the student to demonstrate satisfactory academic progress in 
the next evaluation).
    There was also discussion during the negotiated rulemaking sessions 
regarding what aspect of failure to meet satisfactory academic progress 
standards a student could appeal. The non-Federal negotiators generally 
agreed that failure to meet both the qualitative and quantitative 
standards may be appealed under current regulations, and that this 
should be true under the proposed regulations as well. The Department 
agrees. There was also discussion about whether failure to meet the 
maximum timeframe has been subject to appeal in the past, and whether 
it would be permitted under the proposed regulations. Under the current 
regulations, a student can appeal his or her failure to complete his 
program in the maximum timeframe. The Department believes a student 
should continue to be able to appeal a determination that the student 
has failed or will fail to meet the maximum timeframe requirements. We 
note that the proposed regulations provide flexibility to institutions 
to help address the needs of a student who is likely to exceed the 
maximum timeframe. An institution could work with the student to 
develop an academic plan that would require the student to meet the 
institution's graduation requirements by a specific point in time.
    Some non-Federal negotiators asked whether the proposed regulations 
would permit institutions to have satisfactory academic policies that 
provide for academic amnesty. One of the examples given was of an 
individual who had an unsuccessful academic career 10 years ago and now 
wants to reenroll. The Department's position is that in such a 
situation, it would be appropriate for the institution to require the 
individual to submit an appeal that explains the change in 
circumstances from when the student failed to make satisfactory 
academic progress 10 years ago. Under proposed Sec.  668.34(d), an 
institution's satisfactory academic progress policy could provide for 
such students to submit an appeal and develop an academic plan with the 
institution that would specify milestones the student would be expected 
to meet. As in other situations where a student has had academic 
difficulty and been placed on financial aid probation, the institution 
would have the option of placing certain restrictions on the student, 
such as limiting the number of hours taken or specifying a certain 
sequence of courses.
    We propose to require institutions that do not permit students to 
appeal a determination that they are not making satisfactory academic 
progress to inform students how they may re-establish eligibility. This 
regulatory provision would be consistent with the language in section 
484(c)(2) of the HEA, which provides that a student who has failed to 
maintain satisfactory progress and, subsequent to that failure, has 
academic standing consistent with the requirements for graduation, as 
determined by the institution, may again be determined eligible for 
assistance under title IV, HEA programs.
    Throughout the discussions during the negotiated rulemaking 
sessions, non-Federal negotiators raised questions about whether the 
statutory requirement that an institute review a student's academic 
progress at the end of each academic year or its equivalent is tied to 
the student's academic year, the award year, the calendar year, or the 
institution's defined academic year. It became apparent that most 
institutions that review student progress annually, review all students 
at a specific point in time, such as at the end of the spring term or 
spring payment period. The Department agrees that this is an 
appropriate and reasonable institutional policy for an institution that 
reviews academic progress annually.
    Finally, there was some discussion during the negotiated rulemaking 
sessions about whether a student's work completed during a summer term 
is subject to evaluation. The Department's position is that any 
evaluations of satisfactory academic progress,

[[Page 34823]]

regardless of the frequency with which they are conducted, must include 
all work completed by the student since the last review. The Department 
welcomes comments as to the clarity of the proposed language in this 
regard.
Evaluating the Validity of High School Diplomas (Sec.  668.16(p))
Standards of Administrative Capability (Sec.  668.16(p))
    Statute: None.
    Current Regulations: The current regulations do not define the term 
``high school diploma'' or otherwise include provisions regarding the 
evaluation of the validity of a student's high school diploma. While 
the term recognized equivalent of a high school diploma is defined in 
34 CFR 600.2 (Definitions), the term ``high school diploma'' is not 
defined anywhere in the HEA or its implementing regulations. The 
current regulations do, however, refer to high school diplomas in the 
context of determining institutional eligibility as well as student 
eligibility for the title IV, HEA programs.
    First, 34 CFR 600.4(a)(2) (Institutions of higher education) 
requires an institution of higher education participating in the 
Federal student aid programs to admit as regular students only 
individuals who have obtained a high school diploma or its recognized 
equivalent, or who are beyond the age of compulsory school attendance 
in the State in which the institution is located.
    In order to be eligible to receive title IV, HEA aid, current Sec.  
668.32(e) (Student eligibility) requires a student to have a high 
school diploma or its recognized equivalent, have completed secondary 
school in a home school setting, or pass an independently administered 
examination approved by the Secretary.
    Proposed Regulations: Under proposed Sec.  668.16(p), an 
institution would be required to develop and follow procedures to 
evaluate the validity of a student's high school completion if the 
institution or the Secretary has reason to believe that the high school 
diploma is not valid or was not obtained from an entity that provides 
secondary school education.
    Reasons: We propose adding paragraph (p) to Sec.  668.16 to provide 
that it is the institution's responsibility to evaluate the validity of 
the diploma if either the institution or the Secretary believes that a 
closer examination of the diploma is warranted. This proposed change is 
designed to ensure that students who report having high school diplomas 
and obtain title IV, HEA aid in fact have valid high school diplomas. 
The language reflected in this proposed provision is also intended to 
address the Government Accountability Office recommendation raised in 
its August 17, 2009 report that the Secretary should provide 
institutions of higher education with information and guidance on 
determining the validity of high school diplomas for use in gaining 
access to Federal student aid.
    During the negotiated rulemaking sessions, we initially proposed 
draft regulatory language that would have required institutions to 
evaluate the credentials of secondary schools for purposes of 
determining whether high school diplomas issued from the schools were 
valid. As part of this evaluation, institutions would have been 
required to maintain three listings of secondary schools (schools that 
are acceptable, schools that are unacceptable, and schools that require 
further evaluation) based on regulatory criteria for determining the 
acceptability of their credential for title IV, HEA program purposes.
    Many non-Federal negotiators expressed concern over this proposed 
draft regulatory language. Several non-Federal negotiators stated that 
K-12 issues, including defining high school diploma, should be handled 
at the State level. Some non-Federal negotiators also objected to 
requiring institutions to research the legitimacy of the high school 
diploma a student presents and to maintain lists of secondary schools 
based on this research. They argued that these activities would be 
unduly burdensome. Instead, many non-Federal negotiators argued that 
the Department should assume responsibility for maintaining a 
centralized list of secondary schools that institutions could use to 
determine whether a student's high school diploma was valid.
    Based on concerns raised by the non-Federal negotiators, the 
Department agreed to establish and maintain a list of secondary 
schools. We believe that such a solution moves us appropriately toward 
our goal of uncovering questionable high school diplomas, while 
imposing a minimal burden on institutions.
    In furtherance of this approach, the Department has begun the 
process of adding two questions to the FAFSA for the 2011-2012 award 
year:
    (1) What is the name of the secondary school or entity that 
provided the student's secondary school program of study?
    (2) What is the State that awarded the student's high school 
diploma?
    The Department intends to use the information it collects from 
students in response to these questions to help identify whether each 
student has a valid high school diploma. If, in response to these 
questions on the FAFSA, a student lists a secondary school or entity 
that does not match the list of secondary schools maintained by the 
Department, or if the student does not provide the name of the 
secondary school or entity or the State that issued the diploma, the 
Department may select the student's FAFSA for further review by the 
institution to determine if the student has a valid high school diploma 
before the student can receive any title IV, HEA aid. Therefore, in 
cases where the student is selected for review because the Secretary 
questions the validity of his or her high school diploma, institutions 
are expected to determine the validity of the high school diploma. 
Under proposed Sec.  668.16(p), institutions also would be responsible 
for determining the validity of a high school diploma if the 
institution has reason to believe that the diploma is invalid or was 
not obtained from an entity that provides secondary school education. 
To determine the validity of a student's high school diploma, an 
institution would need to follow the procedures it develops to evaluate 
the validity of diplomas. These procedures could include, for example, 
obtaining a copy of the student's diploma.
    We intend to provide more specific guidance to institutions on 
developing and following procedures for evaluating the validity of high 
school diplomas through the Federal Student Aid Handbook or through 
other means. This guidance will address such issues as what procedures 
an institution might use to determine the validity of a high school 
diploma.
    A non-Federal negotiator expressed concern that the proposed 
regulations do not go far enough to address fraud committed at an 
institution. This negotiator suggested that the proposed regulations 
should be further modified to indicate that officials at an institution 
should be aware and held accountable for fraudulent activities 
committed at the institution. We did not accept this suggestion because 
the Department has other avenues to address fraudulent activities. We 
noted that the Department has successfully litigated cases where 
institutions are held responsible for regulatory violations of its 
employees.
    We were able to reach tentative agreement on this issue.

[[Page 34824]]

Return of Title IV, HEA Program Funds (Sec. Sec.  668.22(a), 668.22(b), 
and 668.22(f))
Treatment of Title IV, HEA Program Funds When a Student Withdraws From 
Term-Based Programs With Modules or Compressed Courses (Sec.  668.22(a) 
and (f))
    Statute: None.
    Current Regulations: In accordance with Sec.  668.22, when a 
recipient of title IV, HEA aid withdraws from an institution, the 
institution must determine the amount of title IV, HEA aid that the 
student earned for the period the student attended. For term-based 
programs, a student is paid aid for each term. The regulations address 
the institution's and the student's responsibilities when a student 
does not finish the term (i.e., withdraws from all courses in the term) 
and specifies how to calculate how much aid the student earned for 
attending part of the term prior to withdrawing. The regulations do 
not, however, specifically address the treatment of term-based 
programs, in which courses are less than the length of the term, under 
the return of title IV funds calculation. In Dear Colleague Letter GEN-
00-24, published in December 2000, the Department established the 
policy that a student who completes only one module or compressed 
course, within a term in which he or she is expected to continue 
attendance in additional coursework, is not considered to have 
withdrawn under the return calculation.
    Proposed Regulations: The proposed changes to Sec.  668.22(a)(2) 
would clarify when a student is considered to have withdrawn from a 
payment period or period of enrollment. In the case of a program that 
is measured in credit hours, the student would be considered to have 
withdrawn if he or she does not complete all the days in the payment 
period or period of enrollment that the student was scheduled to 
complete prior to withdrawing. In the case of a program that is 
measured in clock hours, the student would be considered to have 
withdrawn if he or she does not complete all of the clock hours in the 
payment period or period of enrollment that the student was scheduled 
to complete prior to withdrawing.
    The proposed change to Sec.  668.22(f)(2)(i) would clarify that, 
for credit hour programs, in calculating the percentage of the payment 
period or period of enrollment completed, it is necessary to take into 
account the total number of calendar days that the student was 
scheduled to complete prior to withdrawing without regard to any course 
completed by the student that is less than the length of the term.
    These proposed regulations would affect all programs with courses 
that are less than the length of a term, including, for example, a 
semester-based program that has a summer nonstandard term with two 
consecutive six-week sessions within the term.
    Reasons: The Department proposes these changes to ensure more 
equitable treatment between students who withdraw from programs that 
are measured in credit hours, regardless of whether those programs span 
the full length of the term, or are programs with modules or compressed 
courses.
    Under the guidance provided in Dear Colleague Letter GEN-00-24, we 
have equated completing one compressed course or module with completing 
one course taken over the span of the term. Under this guidance, a 
student who was scheduled to take several modules or compressed courses 
in a term but dropped out after completing only one course (for 
example, a 5-week course in a 15-week term) was not viewed as having 
withdrawn from the term. Accordingly, while we required an institution 
to recalculate the student's Federal Pell Grant payment as a result of 
any reduction in enrollment status under Sec.  690.80(b)(2)(ii) when 
the student did not begin attendance in subsequent classes in the term, 
we did not require the school to perform a return calculation under 
Sec.  668.22.
    Based on this guidance, a student who completed only a one- or two-
week course in a 15-week term and then ceased attendance for the term 
would NOT be considered to have withdrawn from the term under the 
return of title IV requirements. The institution or student or both 
would keep aid intended for a 15-week period of time when the student 
only attended the term for as little as one week.
    For a number of reasons, we have reconsidered our prior guidance. 
First, this change would provide a more equitable treatment of students 
who are attending for comparable periods of time during a semester 
because a student's aid is based on, and intended to cover, in whole or 
in part, not only tuition and fees for the term, but the student's 
living expenses for the term. Title IV, HEA aid is provided for the 
entire term, and section 484B of the HEA provides that these same 
amounts are earned on a prorata basis for the first 60 percent of the 
term. Second, a student who only attends one module or compressed 
course and then ceases to be enrolled without attending other modules 
or compressed courses he or she is scheduled to attend in the term is 
withdrawing before completing the term, and the portion of the term 
completed should be considered to determine how much of the title IV, 
HEA aid the student earned. Third, the prior guidance has resulted in 
abusive cases where institutions have created term-based programs with 
a very short initial module or course of as little as one week in 
length so that institutions can keep all of the title IV, HEA aid for 
students who withdraw after that point.
    During the negotiations, the non-Federal negotiators raised 
concerns about the proposed approach, believing that it would unfairly 
penalize students. The negotiators also raised concerns about the 
possibility of additional burden from a significant increase in the 
number of return to title IV funds calculations that an institution 
might have to perform, as well as about the inability of many 
institutions to track the number of students who are taking these types 
of compressed courses.
    The non-Federal negotiators presented three options to address 
their concerns by limiting the applicability of the proposed treatment 
based upon the relative amounts of the modules that students completed 
before withdrawing. The first option was to exclude students who 
completed the same enrollment status for which they were originally 
paid title IV, HEA aid. The second option suggested by the non-Federal 
negotiators was to exclude students who completed 50 percent of the 
credits that were awarded and 50 percent of the projected enrollment 
time. The third option was to only apply the proposed regulations to 
compressed coursework that was shorter than a ``to-be-determined'' 
percent of the payment period; the non-Federal negotiators did not 
reach agreement as to what the appropriate percentage should be.
    We appreciate the concerns of the non-Federal negotiators, but we 
do not agree with the proposed alternatives. By recognizing that 
students who are taking module classes are expected to earn their title 
IV, HEA aid over time on a prorata basis, those students are subject to 
those requirements up to the point where they complete more than 60 
percent of the period. We continue to believe that the proposed changes 
are necessary to ensure the equitable application of these provisions 
for all students, regardless of the academic calendar of the programs 
that students are attending.
Withdrawal Date for a Student Who Withdraws From an Institution That Is 
Required To Take Attendance (Sec.  668.22(b))
    Statute: Section 484B(c)(1) of the HEA requires institutions and 
students to return unearned portions of title IV,

[[Page 34825]]

HEA grant or loan assistance (other than funds received under the 
Federal Work-Study Program) when a student withdraws during a payment 
period or period of enrollment. The statute defines the term the ``day 
the student withdrew'' differently for institutions that are required 
to take attendance and for those not required to take attendance. For 
an institution that is required to take attendance, the ``day the 
student withdrew'' is determined by the institution from its attendance 
records. For an institution that is not required to take attendance, 
the ``day the student withdrew'' is the date that the institution 
determines that (1) the student began the withdrawal process prescribed 
by the institution; (2) the student otherwise provided official 
notification to the institution of the intent to withdraw; or (3) in 
the case of a student who does not begin the withdrawal process or 
otherwise notify the institution of the intent to withdraw, the date 
that is the midpoint of the payment period for which title IV, HEA 
program funds were disbursed or a later date documented by the 
institution.
    Current regulations: Section 668.22(b)(3) provides the requirements 
for determining whether an institution is required to take attendance 
for an educational program. Under Sec.  668.22(b)(3), an institution is 
required to take attendance if an outside entity (such as the 
institution's accrediting agency or a State agency) requires that the 
institution take attendance, as determined by the entity. In this case, 
the student's withdrawal date is the last date of academic attendance, 
as determined by the institution from its attendance records.
    Proposed regulations: The proposed revisions to Sec.  668.22(b)(3) 
would clarify the programs for which institutions are required to take 
attendance. An institution would be required to take attendance if an 
outside entity or the institution itself has a requirement that its 
instructors take attendance, or if the institution or an outside entity 
has a requirement that can only be met by taking attendance or a 
comparable process, including, but not limited to, requiring that 
students in a program demonstrate attendance in the classes of that 
program, or a portion of that program. In addition, the proposed 
regulations would remove the provisions in Sec.  668.22(b)(3)(i) and 
(ii) that it is the entity that determines whether there is a 
requirement to take attendance since the new provision looks at the 
substance of the information being collected rather than the 
characterization of that information or process by the entity.
    Proposed Sec.  668.22(b)(3)(ii) would clarify that if an 
institution is required to take attendance by an outside entity or 
requires its instructors to take attendance for only some of its 
student, then it must use its attendance records to determine a 
withdrawal date for those students.
    Proposed Sec.  668.22(b)(3)(iii) would incorporate in the 
regulations current nonregulatory guidance regarding an institution 
that is required to take attendance, or requires that attendance be 
taken, for a limited period of time, such as for the first two weeks of 
courses or until a ``census date.'' These proposed provisions would 
specify that an institution must use its attendance records to 
determine a withdrawal date for a student who withdraws during that 
limited period. A student in attendance at the end of that limited 
period who subsequently stops attending during the payment period would 
be treated as a student for whom the institution was not required to 
take attendance.
    Proposed Sec.  668.22(b)(3)(iv) would also incorporate in the 
regulations current nonregulatory guidance that if an institution is 
required to take attendance, or requires that attendance be taken, on a 
specified date to meet a census reporting requirement, the institution 
is not considered to take attendance.
    Reasons: These proposed changes would provide a more accurate 
determination of how much title IV, HEA aid a student earned who 
withdrew from an institution during a period when an instructor or 
other institution employee or procedure was required to monitor student 
attendance. The non-Federal negotiators had a number of concerns with 
respect to our proposals regarding whether an institution is required 
to take attendance and regarding the proposed requirement that these 
institutions must use their records in determining a student's 
withdrawal date in a return to title IV calculation. The non-Federal 
negotiators pointed out that having to determine a more exact date of 
withdrawal, as opposed to assuming a 50 percent point, would be more 
burdensome. They also noted that attendance does not necessarily 
accurately reflect academic activity, and also stated that they cannot 
ensure that faculty members will keep accurate and up-to-date 
attendance records. While we can appreciate these concerns, we continue 
to believe that the best date available should be used to determine the 
amount of time that a student was in attendance. Using the best date 
available would support the fair treatment of students and avoid the 
potential for fraud and abuse of Federal funds.
    Proposed Sec.  668.22(b)(3)(iii) would address instances where 
institutions take attendance for the period of time between the 
beginning of classes and the deadline for adding or dropping classes. 
Where a student withdraws and an institution's records show that the 
student stopped attending during that period, that is the best 
information available for determining how much aid the student earned. 
This proposed regulation reflects current guidance about whether such 
institutions were viewed as being required to take attendance for this 
limited period, and this change in the text will help clarify that 
requirement. The non-Federal negotiators expressed concern that 
students who appear to have stopped attending during a census period 
may have subsequently attended other classes before withdrawing. 
Institutions have the option under Sec.  668.22(c)(3) to use a 
student's participation in an academically related activity to show 
that the student continued to be enrolled to a point where the 
institution was no longer required to take attendance.
    Proposed Sec.  668.22(b)(3)(iv) also would incorporate in the 
regulations our current nonregulatory guidance that an institution is 
not required to use attendance records for return of title IV, HEA aid 
purposes if it is only required to take attendance on a specific date. 
We would welcome comments on whether this proposed regulation should be 
further clarified to specify that it applies only for one calendar 
date, or, for one class that meets during a small range of dates, for 
example, for one day for any class that met during a particular week, 
rather than ``a specific date.''

Verification and Updating of Student Aid Application Information 
(Subpart E of Part 668)

Application Information
    Current subpart E of part 668 governs the verification and updating 
of the FAFSA information used to calculate an applicant's Expected 
Family Contribution (EFC) for purposes of determining an applicant's 
need for student financial assistance under title IV of the HEA. In 
general, financial need is defined as the difference between the 
applicant's cost of attendance (COA) and EFC (see section 471 of the 
HEA). Based on the need analysis formula established in part F of the 
HEA, the EFC is the amount that an applicant and the applicant's family 
can reasonably be expected to contribute toward the

[[Page 34826]]

applicant's cost of attendance at an institution of higher education.
    These proposed regulations would implement statutory changes made 
to part F of the HEA by the HEOA and further align these regulations 
with enhancements that have been made to the Federal Student Aid (FSA) 
application processing system. In the following paragraphs we describe 
the substantive changes we propose to make to subpart E of part 668 and 
the reasons for the changes. These proposed changes include--
     Revising the subpart E heading to reflect that an 
applicant and an institution have updating responsibilities in addition 
to completing specific verification responsibilities;
     Removing, redefining, and adding definitions;
     Codifying current policy that an institution must complete 
verification before exercising any authority under professional 
judgment;
     Removing the 30 percent cap on the number of applicants 
selected by the Secretary that an institution must verify in order to 
move towards a more targeted verification system;
     Restructuring the exclusions from verification section;
     Requiring any changes to a student's dependency status be 
updated throughout the award year, including changes resulting from a 
change in the student's marital status;
     Updating the section heading under Sec.  668.56 and 
replacing the five items that an institution currently is required to 
verify for all applicants selected for verification with a targeted 
verification process that is specific to each applicant selected as 
described in a Federal Register notice published annually by the 
Secretary;
     Codifying the Department's Internal Revenue Service (IRS) 
Data Retrieval Process, which allows an applicant to import income and 
other data from the IRS into an online FAFSA;
     Updating the IRS deadline granted for extension filers;
     Clarifying when an institution is required to reverify the 
adjusted gross income (AGI) and taxes paid by an applicant and his or 
her spouse or parents for individuals with an IRS tax filing extension;
     Expanding the information a tax preparer must provide on 
the copy of the filer's return that has been signed by the preparer;
     Describing in an annual Federal Register notice other 
documentation that an applicant must provide for the information that 
is selected for verification;
     Allowing interim disbursements when changes to an 
applicant's FAFSA information would not change the amount the applicant 
would receive under title IV, HEA;
     Requiring all corrections to be submitted to the Secretary 
for reprocessing;
     Removing all allowable tolerances;
     Applying the cash management procedures for proceeds 
received from a Subsidized Stafford Loan or Direct Subsidized Loan on 
behalf of an applicant; and
     Describing the liability to an institution that disburses 
title IV, HEA aid to an applicant without receiving a corrected Student 
Aid Report (SAR) or Institutional Student Information Record (ISIR) 
within an established deadline.
    Tentative agreement was reached on these proposed regulations 
during the negotiated rulemaking.
General (Sec.  668.51)
    Statute: Section 487(a)(5) of the HEA provides that an institution 
may participate in a title IV, HEA program if the institution enters 
into a written program participation agreement with the Secretary. A 
program participation agreement conditions the initial and continued 
participation of an eligible institution in any title IV, HEA program 
upon compliance with the provisions of part 668, the individual program 
regulations, and any additional conditions specified in the program 
participation agreement that the Secretary requires the institution to 
meet.
    Current Regulations: Current Sec.  668.51(a) describes the scope 
and purpose of subpart E of part 668. Current Sec.  668.51(b) requires 
that if the Secretary or an institution requests documents or 
information from an applicant under this subpart, the applicant must 
provide the specified documents or information. Under current Sec.  
668.51(c), institutions participating in the Federal Stafford Loan 
Program that are not located in a State are exempted from the 
provisions of subpart E of part 668.
    Proposed Regulations: Proposed Sec.  668.51 would remain largely 
unchanged from current Sec.  668.51. We propose to revise Sec.  
668.51(a) to refer to ``student financial assistance under the 
subsidized student financial assistance programs'' rather than to 
``student financial assistance in connection with the calculation of 
their expected family contributions (EFC) for the Federal Pell Grant, 
ACG, National SMART Grant, campus-based, Federal Stafford Loan, Federal 
Direct Stafford/Ford Loan programs.'' In addition, in paragraph (c) of 
proposed Sec.  668.51, we would refer to ``participating institutions'' 
rather than ``institutions participating in the Federal Stafford Loan 
Program.''
    Reasons: Throughout the proposed regulations, including in this 
proposed Sec.  668.51, we propose to remove all the program names and 
regulatory citations for the ACG and National SMART Grant programs 
because the authority to make grants under these programs will expire 
at the end of the 2010-2011 award year, before these proposed 
regulations become effective. In making this change, we also determined 
that it would be appropriate to refer to the title IV, HEA programs 
affected by this subpart more generally as ``subsidized student 
financial assistance programs'' and ``unsubsidized student financial 
assistance programs,'' as appropriate. We would define these terms in 
proposed Sec.  668.52.
Definitions (Sec.  668.52)
    Statute: In 2008, the HEOA amended the definition of the term total 
income in section 480(a) of the HEA to provide that, when calculating 
total income, the Secretary may use income and other data from the 
second preceding tax year to carry out the FAFSA simplification efforts 
used for the estimation and determination of financial aid eligibility. 
This provision also allows the sharing of data between the IRS and the 
Secretary with the consent of the taxpayer as discussed later under 
proposed Sec.  668.57.
    Current Regulations: Current Sec.  668.52 includes definitions of 
key terms used in this subpart including base year, edits, 
institutional student information record, and student aid application.
    Proposed Regulations: Proposed Sec.  668.52 would (1) remove the 
definitions of base year, edits, and student aid application; (2) 
revise the definition for institutional student information record 
(ISIR); and (3) add definitions for the terms Free Application for 
Federal Student Aid (FAFSA), specified year, Student Aid Report (SAR), 
subsidized student financial assistance programs, and unsubsidized 
student financial assistance programs.
    Reasons: We propose to delete the definitions of the terms base 
year, edits, and student aid application because these terms would no 
longer be used in these proposed regulations.
    We propose to define the term Free Application for Federal Student 
Aid (FAFSA) and to use this term ``FAFSA information''--rather than 
application--throughout subpart E of part 668 in order to clarify that 
the information we

[[Page 34827]]

seek to verify includes not only the information provided in the 
initial FAFSA form submitted by an applicant, but also any subsequent 
transactions sent to the Secretary for processing that originated from 
the information reported on the initial FAFSA (i.e., corrections).
    We propose to revise the definition of the term institutional 
student information record (ISIR) to make it consistent with the 
definition of ISIR in 34 CFR 690.2(c) of the Federal Pell Grant Program 
regulations. By establishing this definition in this subpart, we would 
make the term generally applicable to all title IV, HEA programs that 
are subject to the requirements in subpart E of part 668.
    We propose to define the term specified year to assist in the 
implementation of section 480(a) of the HEA, which gives the Secretary 
the option of using income and other data from the second preceding tax 
year to calculate the statutorily defined EFC that determines the 
applicant's eligibility for, and amount of, Federal aid. While the 
Department does not plan to exercise this option for the 2011-2012 
award year, we believe it is appropriate to modify the regulations at 
this time to allow for this flexibility in the future.
    Under the current process for completing the FAFSA, an applicant, 
the parents of a dependent applicant, or the spouse of an applicant are 
required to use base year income and tax information to respond to 
questions used to calculate the statutorily defined EFC that determines 
the applicant's eligibility for, and amount of, Federal aid i.e., 
grants, loans and work-study assistance. Under the new flexibility 
offered to the Secretary in section 480(a) of the HEA, applicants could 
use income and other data from the second preceding tax year--rather 
than only the base year. For example, an applicant completing the FAFSA 
for the 2013-2014 award year could use income and other related data 
pertaining to January 1, 2011-December 31, 2011 (the second preceding 
tax year) in addition to the data the Secretary currently collects from 
the base year (January 1, 2012-December 31, 2012).
    Allowing the use of data from an earlier tax year would help with 
the significant calendar difference between when an applicant may file 
a FAFSA and when the data is available from the filed income tax 
return. This is because the FAFSA application process begins on January 
1, and it is unlikely that tax return information would be available 
for the majority of financial aid applicants who complete their FAFSA 
in the weeks, and in some cases months, before the general tax-filing 
deadline of April 15. The proposed definition of specified year would 
allow the Department to use a single term that, depending on the 
context in which it is used, means (1) the base year (i.e., the 
calendar year preceding the first calendar year of an award year) or 
(2) the year before the base year.
    We propose to add a definition of the term Student Aid Report (SAR) 
and simplify the repeated references to it in these proposed 
regulations.
    We propose to add definitions for the terms subsidized student 
financial assistance programs and unsubsidized student financial 
assistance programs to group similar title IV, HEA programs together 
(i.e., subsidized programs versus unsubsidized programs). By doing so, 
we would simplify the repeated references to the numerous affected 
programs in these proposed regulations.
Policies and Procedures--Professional Judgment (Sec.  668.53(c))
    Statute: Section 479A of the HEA specifically gives the financial 
aid administrator the authority to use professional judgment to make 
adjustments to the cost of attendance or to the values of the items 
used in calculating the EFC to reflect a student's special 
circumstances.
    Current Regulations: Current Sec.  668.53 requires institutions to 
establish and use written policies and procedures for verifying 
information contained in the FAFSA. Current Sec.  668.53(a)(1) through 
(5) describes the items that must be included in the policies and 
procedures. Current Sec.  668.53(b) requires that an institution's 
procedures provide that the institution furnish to each application 
selected for verification an explanation of the documentation needed to 
satisfy the verification requirements and the applicant's 
responsibilities with respect to the verification of applicant 
information.
    Proposed Regulations: Except for minor technical and conforming 
changes, proposed Sec.  668.53(a) and (b) would remain largely 
unchanged from current Sec.  668.53(a) and (b). We propose to add 
paragraph (c) to this section. Under proposed Sec.  668.53(c), an 
institution's written policies and procedures for verifying information 
contained in a FAFSA must provide that verification for an application 
selected for verification is completed prior to the institution 
exercising professional judgment authority as permitted under section 
479A of the HEA to make changes to the applicant's COA or to the value 
of the data items used to calculate the EFC.
    Reasons: Proposed Sec.  668.53(c) would codify as a requirement the 
Department's longstanding policy that an institution must complete 
verification before exercising professional judgment under section 479A 
of the HEA.
Selection of FAFSA Information for Verification (Sec.  668.54)
    Statute: None.
    Current Regulations: Current Sec.  668.54(a) provides that an 
institution is not required to verify the information from more than 30 
percent of its applicants for title IV, HEA assistance in any award 
year. Under current Sec.  668.54(a)(2)(ii), an institution may only 
include those applicants selected for verification by the Secretary in 
its calculation of the 30 percent total number of applicants. Under 
current Sec.  668.54(a)(3), if an institution has reason to believe 
that any information on an application used to calculate an EFC is 
inaccurate, it must require the applicant to verify the information 
that it has reason to believe is inaccurate.
    Except for information already verified under a previous 
application, if an applicant is selected for verification, each 
additional application he or she submits for the award year must also 
be verified (see current Sec.  668.54(a)(4)).
    Current Sec.  668.54(a)(5) provides that an institution or the 
Secretary may require an applicant to verify any data elements that the 
institution or the Secretary specifies.
    Under current Sec.  668.54(b)(1), the Secretary excludes an 
applicant who dies during the award year from verification.
    In addition, under current Sec.  668.54(b)(2), the Secretary 
excludes the following categories of applicants from verification if 
the institution has no reason to believe that the information reported 
by the applicant is incorrect:
     An applicant or his or her parents who are legal residents 
of the Commonwealth of the Northern Mariana Islands, Guam, or American 
Samoa; or a citizen of the Republic of the Marshall Islands, the 
Federated States of Micronesia, or the Republic of Palau (current Sec.  
668.54(b)(2)(i)).
     An applicant who is incarcerated (current Sec.  
668.54(b)(2)(ii)).
     A dependent applicant whose parents are residing in a 
country other than the United States and cannot be contacted by normal 
means of communication (current Sec.  668.54(b)(2)(iii)).
     An applicant who is a recent immigrant (current Sec.  
668.54(b)(2)(iv)).

[[Page 34828]]

     An applicant whose parents' address is unknown and cannot 
be obtained by the applicant (current Sec.  668.54(b)(2)(v)).
     A dependent applicant, both of whose parents are deceased 
or are physically or mentally incapacitated (current Sec.  
668.54(b)(2)(vi)).
     An applicant who does not receive assistance for reasons 
other than his or her failure to verify the information on the 
application (current Sec.  668.54(b)(2)(vii)).
     An applicant who previously completed verification at 
another institution (current Sec.  668.54(b)(2)(viii)).
    Finally, under current Sec.  668.54(b)(3), the Secretary excludes 
the following categories of applicants from verification:
     An applicant whose spouse is deceased (current Sec.  
668.54(b)(3)(i)).
     An applicant whose spouse is mentally or physically 
incapacitated (current Sec.  668.54(b)(3)(ii)).
     An applicant whose spouse is residing in a country other 
than the United States and cannot be contacted by normal means of 
communication (current Sec.  668.54(b)(3)(iii)).
     An applicant whose spouse cannot be located because his or 
her address is unknown and cannot be obtained by the applicant (current 
Sec.  668.54(b)(3)(iv)).
    Proposed Regulations: The Department proposes to require an 
institution to verify an applicant's FAFSA information for all 
applicants that are selected for verification by the Secretary (see 
proposed Sec.  668.54(a)). Under proposed Sec.  668.56(a), the 
Secretary would publish an annual Federal Register notice that would 
describe the information that an institution and an applicant may be 
required to verify for those applicants selected for verification. In 
proposed Sec.  668.54(a)(2), we would retain the provisions requiring 
an institution to verify the accuracy of FAFSA information it has 
reason to believe is inaccurate. In proposed Sec.  668.54(a)(3), we 
would continue to provide institutions with the flexibility to verify 
any FAFSA information that an institution specifies.
    Under Sec.  668.54(b), we would restructure the exclusions from 
verification to make clear the provisions that are applicable to all 
applicants, and those that are specific to dependent or independent 
applicants. We also would remove the following categories of applicants 
from the list of verification exclusions:
     An applicant or his or her parents who are legal residents 
of the Commonwealth of the Northern Mariana Islands, Guam, or American 
Samoa; or a citizen of the Republic of the Marshall Islands, the 
Federated States of Micronesia, or the Republic of Palau.
     An applicant who is incarcerated.
     An applicant who is a recent immigrant.
     A dependent applicant, both of whose parents are deceased 
or are physically incapacitated.
     An independent applicant's spouse who is physically 
incapacitated.
    Proposed Sec.  668.54(b)(2) and (b)(3) would list the circumstances 
under which the parents' or spouse's information is not subject to 
verification unless the institution has reason to believe the parents' 
or spouse's information reported by the applicant is incorrect.
    Reasons: The proposed changes to Sec.  668.54 are needed to align 
this section of the regulations with modifications that the Department 
proposes to make to the verification selection process. Specifically, 
the Department proposes to remove the 30 percent limitation of the 
total number of applicants selected for verification and target the 
selection criteria based on the most error prone data items that are 
specific to each applicant selected.
    Based on years of data analysis compiled from random samples of 
FAFSA submissions and the IRS Statistical Study and Quality Assurance 
Program analysis, we have made improvements to the verification process 
that will better identify and select those applicants whose FAFSA 
information is most error prone. For this reason, we propose to remove 
the 30 percent limitation on the number of applicants an institution is 
required to verify.
    During negotiated rulemaking, some non-Federal negotiators 
expressed concern that the removal of the 30 percent limitation on the 
number of applicants an institution is required to verify would 
significantly increase an institution's workload. Other non-Federal 
negotiators stated that many institutions currently verify 100 percent 
of those applicants the Department selects for verification.
    Although some institutions may experience an increase in the number 
of applicants that are selected for verification under the new process, 
institutions would no longer be required to verify all five items for 
each applicant selected. Instead the information that an institution 
would be required to verify would be specific to each applicant 
selected (see proposed Sec.  668.56(b)). For example, one applicant may 
be required to verify the five items required under the current 
regulations (because the Secretary includes them in the Federal 
Register notice published under Sec.  668.56(a) and specifies that 
those items must be verified for that one applicant) while another 
applicant may only be required to verify AGI and household size 
(because the Secretary includes these two items in the Federal Register 
notice published under Sec.  668.56(a) and specifies that these are the 
only items that must be verified for this applicant).
    Moreover, we expect information obtained through the IRS Data 
Retrieval process to significantly reduce institutional burden as 
discussed later under proposed Sec.  668.57. For example, if one of the 
items selected for verification for an applicant includes data that the 
applicant imported from the IRS, we likely would not require the 
institution to verify that item.
    We are proposing to restructure paragraph (b) to clarify under what 
circumstances an institution is not required to verify the FAFSA 
information of: (1) the applicant; (2) the parents of a dependent 
applicant; or (3) the spouse of an independent applicant. In instances 
where FAFSA information from the parents or a spouse is not required, 
we would still expect an institution to verify any information that 
would be applicable to the applicant.
    We are also proposing to modify a number of exclusions that are 
included in the current regulations. Previously, if the parent of a 
dependent student, or the spouse of an independent student, could not 
be located because their address was unknown, verification was not 
required. Given the shift to routinely contacting people using e-mail 
and cell phone numbers, lack of a physical mailing address no longer 
precludes contact and communication. We believe it would be more 
appropriate to provide an exclusion from verification only in 
circumstances where the parents or spouse cannot be located because 
their contact information is unknown. We are also proposing to 
eliminate the provision that a dependent student need not provide 
parental information if both parents are deceased or are physically 
incapacitated. If both parents are deceased, the student would be an 
independent student, not a dependent student. Parents who are 
physically incapacitated, but not mentally incapacitated, should be 
able to provide the documentation required for verification under most 
circumstances.
Updating Information--Changes in Dependency Status (Sec.  668.55(c))
    Statute: None.
    Current Regulations: Current Sec.  668.55 describes the information 
in an application that applicants must update

[[Page 34829]]

when there is a change and when and how these changes must be made.
    Under current Sec.  668.55(a)(2), an institution need not require 
an applicant to verify information in the applicant's FAFSA if the 
applicant previously submitted a FAFSA for that award year, the 
applicant updated the FAFSA information, and no change in the 
information has taken place since the last update.
    Current Sec.  668.55(a)(3) requires applicants to update their 
dependency status on the FAFSA at any time the status changes 
throughout the award year, except when the change in dependency status 
results from a change in the student's marital status.
    Under current Sec.  668.55(b), updating the family household size 
and number of family members enrolled in college is required for 
students selected for verification and is updated as of the time 
verification is completed.
    Current Sec.  668.55(c) describes an institution's responsibilities 
when an applicant has received Federal financial assistance for an 
award year, the applicant submits another application for Federal 
financial assistance, and the applicant is required to update household 
size or the number of household family members attending postsecondary 
educational institutions on the subsequent application.
    Current Sec.  668.55(d) provides that if an applicant's dependency 
status changes after the applicant applies to have his or her EFC 
calculated for an award year, the applicant must file a new application 
for that award year reflecting the applicant's new dependency status 
regardless of whether the applicant is selected for verification.
    Proposed Regulations: We propose to revise Sec.  668.55 to require 
an applicant to update all changes in dependency status that occur 
throughout the award year, including changes resulting from a change in 
the applicant's marital status, regardless of whether the applicant is 
selected for verification. With this proposed change, which would be 
reflected in proposed paragraph (c) of Sec.  668.55, we would make a 
number of other changes to this section to remove language that 
implements the marital status exception in the current regulations, 
including removing current Sec.  668.55(a)(3) and revising Sec.  
668.55(b).
    We would remove current Sec.  668.55(c).
    Reasons: We propose to simplify Sec.  668.55 and to make the 
updating requirement for dependency status consistent with the other 
changes we propose to make to Sec.  668.58(a)(3)(i) and Sec.  
668.59(a). We believe these changes would help ensure that the amount 
of assistance received by an applicant is based on the best available 
information.
    During negotiated rulemaking, there was much discussion about 
identifying in the regulations a specific time by which an institution 
would need to require an applicant to update his or her family 
household size, number of family members enrolled in college, and 
dependency status in the applicant's FAFSA. Non-Federal negotiators 
wanted the updating requirements to be date specific because of 
concerns that institutions would be continually revising an applicant's 
aid package throughout the award year. To address these concerns, we 
considered a number of alternatives:
     Allow updating up to the beginning of the award year 
(i.e., July 1, 2011 for the 2011-2012 award year). We have not adopted 
this alternative in the proposed regulations because this date would 
not take into account those applicants who apply later in the 
processing year.
     Require updating by the later of July 1 or the date of 
verification, after which updating would become optional. We have not 
adopted this alternative in the proposed regulations because it would 
not allow a student who transfers to an institution after this deadline 
to update his or her application information to reflect his or her 
current status unless the institution selects the student for 
verification.
     Allow updating until the end of the first payment period. 
We have not adopted this alternative in the proposed regulations 
because it would result in inconsistent treatment between students at 
institutions that have open enrollment with multiple start dates and 
students at institutions whose enrollment is based on a traditional 
calendar.
    Other time periods considered included allowing updating half way 
through the award year, throughout the award year, up to the first day 
of an applicant's enrollment at an institution, through an 
institution's academic year, or by the end of the calendar year similar 
to the precedent set by the IRS for changes to income tax data. After 
considerable discussion, we determined that no single date would be 
ideal for all situations.
    Therefore, we propose no substantive change to the current 
requirement, reflected in Sec.  668.55(b), that if an applicant is 
selected for verification, the applicant must update information as to 
the family household size and the number of family members enrolled in 
postsecondary institutions at the time of verification.
    We propose to eliminate the marital status exception and to require 
all applicants to update changes to dependency status that occur 
throughout the award year regardless of whether the applicant was 
selected for verification to provide more accurate information for 
determining an applicant's need for assistance. It is important to note 
that the applicant is responsible for notifying an institution when 
there is a change that affects his or her dependency status and not the 
responsibility of the institution to initiate the updating of this data 
item. However, an institution must resolve discrepancies in the 
information that the institution receives from different sources with 
respect to a student's application for financial aid under the title 
IV, HEA programs in accordance with Sec.  668.16(f).
    Finally, we propose to delete current Sec.  668.55(c) to remove an 
obsolete process that required applicants to complete a correction 
application if his or her dependency status changes.
Information To Be Verified (Sec.  668.56)
    Statute: None.
    Current Regulations: Under current Sec.  668.56 an institution must 
require an applicant selected for verification to submit acceptable 
documentation to verify or update the following items, if applicable, 
used to determine the applicant's EFC:
     Adjusted gross income (AGI);
     U.S. income tax paid;
     Number of family members in the household;
     Number of family members in the household enrolled at 
least half-time in postsecondary educational institutions; and
     Untaxed income and benefits.
    Current Sec.  668.56(b) through (e) provides a number of exclusions 
from verification of the number of family members in the household, the 
number of family members enrolled in college and untaxed income and 
benefits under certain circumstances.
    Proposed Regulations: The Department proposes to amend the section 
heading for Sec.  668.56 by replacing the term ``Items'' with the term 
``Information''.
    We also propose to eliminate from the regulations the five items 
that an institution currently is required to verify for all applicants 
selected for verification. Instead, pursuant to proposed Sec.  
668.56(a), for each award year, the Secretary would specify in a 
Federal Register notice the FAFSA information and documentation that an 
institution and an applicant may be required to verify. The Department 
would then specify on an individual student's SAR and ISIR what

[[Page 34830]]

information must be verified for that applicant.
    We would also remove current Sec.  668.56(c) through (e).
    Reasons: Due to several statutory changes that remove untaxed 
income and benefits items from the FAFSA and need analysis formula and 
with the importing of data as part of the IRS Data Retrieval process, 
we believe it is no longer necessary to require all selected applicants 
to verify AGI, U.S. taxes paid, the number of family members in the 
household size, number of family members enrolled in college, and 
untaxed income and benefits. Therefore, in Sec.  668.56, we propose to 
remove the list of items to be verified as well as the exclusions from 
verification contained in current Sec.  668.56(b) through (e). Instead, 
we propose to target verification based on the most error prone data 
items that are specific to each applicant selected.
    During negotiated rulemaking, the non-Federal negotiators supported 
this targeted approach of selecting specific items for verification. In 
particular, they stated that including dependency status as a 
verifiable item would help alleviate the difficulties institutions 
experience with inappropriate designations of dependency status.
    In implementing this proposed section, we expect that the Federal 
Register notice may, at least initially, include the five items 
included for verification under current Sec.  668.56 as well as other 
items the Department deems necessary to ensure the accuracy of the data 
being reported. With this approach, not all applicants selected for 
verification would have to verify all the information identified in the 
notice. For each applicant, the Department would identify on an 
applicant's SAR or ISIR the specific FAFSA information that requires 
further review applicable to that applicant.
    We intend to publish the Federal Register notice described in 
proposed Sec.  668.56 as early as possible to give institutions 
sufficient time to make any system changes that may be necessary to 
verify the information the Secretary may require under the notice. 
(Note that the notice referred to under proposed Sec.  668.56 is not 
the same notice referred to under proposed Sec.  668.60(c)(1).)
Acceptable Documentation (Sec.  668.57(a)(2), (a)(4)(ii)(A), (a)(5), 
(a)(7), and (d))
    Statute: Section 484(q) of the HEA gives the Secretary authority, 
in cooperation with the Secretary of Treasury, to obtain from the IRS 
the AGI, Federal income taxes paid, filing status, and exemptions 
reported on the Federal income tax return by an applicant, or any other 
individual whose financial information is required on the FAFSA. Under 
this provision of the HEA, as a condition of a student receiving title 
IV, HEA assistance, the Secretary may require an applicant, the parents 
of a dependent applicant, or the spouse of an applicant to provide 
consent in order for the IRS to disclose the necessary information.
    Current Regulations: Current Sec.  668.57 specifies the 
documentation an institution must obtain from an applicant to verify an 
applicant's household size, number of family members enrolled in 
college, AGI, U.S. income tax paid, and certain untaxed income and 
benefits.
    Current Sec.  668.57(a) describes the documentation that an 
institution must require an applicant selected for verification to 
provide to verify the AGI, income earned from work, and U.S. income tax 
paid listed on the applicant's FAFSA.
    Under current Sec.  668.57(a)(2), if the applicant selected for 
verification does not have a copy of his or her tax return, an 
institution may require an applicant to submit a copy of an IRS form 
which lists tax account information.
    As alternate documentation to verify an applicant's AGI, income 
earned from work or taxes paid, the applicant may provide the 
institution with a copy of IRS Form 4868 that was filed with the IRS 
for the base year requesting an extension to file income tax return, or 
a copy of the extension beyond the automatic four-month extension 
granted to the applicant by the IRS (see current Sec.  
668.57(a)(4)(ii)(A)). Once the return is filed, the applicant must 
provide the institution with a copy of the tax return pursuant to 
current Sec.  668.57(a)(5). When the institution receives a copy of the 
tax return that was filed, the institution could, but is not required 
to, re-verify the applicant's AGI and taxes paid. Under current Sec.  
668.60, if the tax return was not collected, the institution and the 
student are liable for any funds disbursed.
    Under current Sec.  668.57(a)(7), an institution may accept the tax 
preparer's signature or stamp instead of the filer's signature on the 
tax return.
    Current Sec.  668.57(b) describes the documentation that an 
institution must require an applicant selected for verification to 
provide to verify the number of family household members that is listed 
on the applicant's FAFSA.
    Current Sec.  668.57(c) describes the documentation that an 
institution must require an applicant selected for verification to 
provide to verify the number of family household members enrolled in 
postsecondary institutions that is listed on the applicant's FAFSA.
    Current Sec.  668.57(d) describes the documentation that an 
institution must require an applicant selected for verification to 
provide to verify any untaxed income and benefits listed on the 
applicant's FAFSA.
    Proposed Regulations: We propose to make a number of technical and 
conforming changes throughout Sec.  668.57. We also propose to make the 
following substantive changes:
    Proposed Sec.  668.57(a)(2) would allow an institution to accept, 
in lieu of an income tax return or an IRS form that lists tax account 
information, the electronic importation of data obtained from the IRS 
into an applicant's online FAFSA.
    We also propose to amend Sec.  668.57(a)(4)(ii)(A) to accurately 
reflect that, upon application, the IRS grants a six-month extension 
beyond the April 15 deadline rather than the four-month extension 
currently stated in the regulations.
    Under proposed Sec.  668.57(a)(5), an institution may require an 
applicant who has been granted an extension to file his or her income 
tax return to provide a copy of that tax return once it has been filed. 
If the institution requires the applicant to submit the tax return, it 
must reverify the AGI and taxes paid of the applicant and his or her 
spouse or parents when the institution receives the return.
    Proposed Sec.  668.57(a)(7) would clarify that an applicant's 
income tax return that is signed by the preparer or stamped with the 
preparer's name and address must also include the preparer's Social 
Security Number, Employer Identification Number or the Preparer Tax 
Identification Number.
    Proposed Sec.  668.57(b) and (c) would remain substantively 
unchanged.
    We would delete current Sec.  668.57(d) regarding acceptable 
documentation for untaxed income and benefits and replace it with new 
proposed Sec.  668.57(d). This new section would provide that if an 
applicant is selected to verify other information specified in an 
annual Federal Register notice, the applicant must provide the 
documentation specified for that information in the Federal Register 
notice.
    Reasons: Generally, our proposed changes to Sec.  668.57 are 
intended to implement section 484(q) of the HEA, update and clarify the 
language to ensure that it accurately reflects the IRS documentation 
and processes to which it refers and is consistent with the other 
changes we propose to make to subpart E of part 668.

[[Page 34831]]

    Our goal with the implementation of the IRS Data Retrieval Process 
in proposed Sec.  668.57(a)(2) is to relieve burden on institutions by 
no longer requiring verification of the information that is imported 
from the IRS to populate a student's online FAFSA or requiring 
institutions to collect the documentation for those items. For 
instance, an institution would no longer be required to verify an 
applicant's and his or her family's AGI and taxes paid or collect 
income tax returns for students who import that data from the IRS.
    Under current Sec.  668.57(a)(5), an institution that requires an 
applicant who was granted an extension to file his or her income tax 
return to submit to the institution his or her completed return once it 
was filed, has the option of re-verifying the AGI and taxes paid by the 
applicant and his or her spouse or parents when the institution 
receives the copy of the return. Under these proposed regulations, if 
an institution requires an applicant that is granted an extension to 
file his or her income tax return to submit a copy of the return that 
was filed, the institution must act on the return received by re-
verifying the AGI and taxes paid by the applicant and his or her spouse 
or parents.
    During the negotiated rulemaking sessions, we initially proposed 
removing current Sec.  668.57(a)(7), which allows a tax preparer to 
sign an applicant's income tax return. Some non-Federal negotiators 
indicated that administrative burden would be reduced if an institution 
could continue to accept a tax preparer's signature or stamp in lieu of 
the filer's signature on the tax return. Based on concerns raised by 
the non-Federal negotiators, we agreed to retain this provision in the 
proposed regulations, but to clarify that an applicant's income tax 
return must include the preparer's Social Security Number, Employer 
Identification Number or the Preparer Tax Identification Number in 
addition to his or her signature or a stamp of the preparer's name and 
address.
    Except for minor technical and conforming changes, proposed Sec.  
668.57(b) and (c) would remain largely unchanged from current Sec.  
668.57(b) and (c).
    We would delete current Sec.  668.57(d) regarding acceptable 
documentation for untaxed income and benefits because several statutory 
changes would eliminate any consideration of untaxed income and 
benefits from the need analysis formula to determine an applicant's 
eligibility for assistance under the title IV, HEA programs. Instead, 
we would require an applicant selected to verify other information 
specified in an annual Federal Register notice to provide the 
documentation identified as acceptable in the Federal Register notice. 
We propose to add this paragraph to allow the Secretary the flexibility 
to identify in an annual Federal Register notice other documentation 
that can be used to verify FAFSA information.
Interim Disbursements (Sec.  668.58(a)(3))
    Statute: None.
    Current Regulations: Current Sec.  668.58 sets out the conditions 
under which an institution may, but is not required to, disburse title 
IV, HEA program funds to an applicant before the applicant completes 
verification.
    Under current Sec.  668.58(a)(2)(ii)(A), if an institution does not 
have reason to believe that an applicant's FAFSA information is 
inaccurate, it may choose to disburse only one disbursement of title 
IV, HEA program funds to the applicant before he or she completes 
verification.
    Proposed Regulations: Proposed Sec.  668.58 would largely reflect 
the substance of current Sec.  668.58 except that we would make a 
number of technical and conforming changes throughout the section and 
we would add a new paragraph (a)(3). Under proposed Sec.  668.58(a)(3), 
an institution would be allowed to disburse title IV, HEA program funds 
after verification is completed but before receiving the corrected SAR 
or ISIR if the changes to an applicant's FAFSA information would not 
change the amount the applicant would receive under a title IV, HEA 
program. If an institution chooses to make a disbursement before 
receiving the corrected SAR or ISIR, it must ensure that all 
corrections are submitted to the Department to avoid any liability for 
a disbursement made without receiving a corrected SAR or ISIR within 
the established deadline as discussed under proposed Sec.  668.61(c).
    Reasons: During the negotiated rulemaking sessions, some non-
Federal negotiators expressed concern that applicants would be harmed 
if their disbursements were delayed until the institution received a 
corrected SAR or ISIR. To address these concerns, we propose to add 
paragraph (a)(3) to Sec.  668.58. This new provision would permit 
institutions to make interim disbursements of title IV, HEA program 
funds prior to receiving an applicant's corrected SAR or ISIR within 
the established deadline date. By adding this provision, we would 
increase institutional flexibility in disbursing title IV, HEA program 
funds.
Consequences of a Change in an Applicant's FAFSA Information (Sec.  
668.59)
    Statute: None.
    Current Regulations: For the Federal Pell Grant, Academic 
Competitiveness Grant (ACG) and National Science and Mathematics Access 
to Retain Talent Grant (National SMART Grant) programs, if the 
information on an application changes as a result of verification, the 
institution must require the applicant to resubmit his or her 
application information to the Department for corrections (see current 
Sec.  668.59(a)(1)).
    Under current Sec.  668.59(a)(2), an institution is not required to 
make an applicant resubmit his or her application information if the 
errors are nondollar items used to calculate the applicant's EFC or the 
errors in the dollar amount are within a $400 tolerance.
    Current Sec.  668.59(b) provides that if an institution does not 
recalculate an applicant's EFC under the provisions of Sec.  668.59(a), 
the institution must disburse the applicant's Federal Pell Grant, ACG, 
or National SMART Grant award based on the applicant's original EFC.
    If an institution recalculates an applicant's EFC because of a 
change in application information resulting from verification, the 
institution must require the applicant to resubmit his or her 
application to the Secretary; recalculate the applicant's Federal Pell 
Grant, ACG, and National SMART Grant award based on the EFC on the 
corrected SAR or ISIR and disburse any additional funds, if additional 
funds are payable, once the applicant provides the institution with the 
corrected SAR or ISIR.
    If an institution determines, after verification, that the change 
in application information increases the applicant's award, the 
institution may disburse the applicant's Federal Pell Grant, ACG, and 
National SMART Grant based on the original EFC without requiring the 
applicant to resubmit his or her application information and disburse 
any additional funds under the increased award reflecting the new EFC 
if the institution receives the corrected SAR or ISIR, except as 
provided under current Sec.  668.60(b).
    For the campus-based, Federal Stafford Loan and Federal Direct 
Stafford Loan programs, if the information on an application changes as 
a result of verification, the institution must recalculate the 
applicant's EFC, and adjust the applicant's financial aid package to 
reflect the new EFC if the

[[Page 34832]]

new EFC results in an over award of campus-based funds or decreases the 
applicant's recommended loan amount (see current Sec.  668.59(c)(1)). 
Under current Sec.  668.59(c)(2), an institution is not required to 
recalculate an applicant's EFC or adjust his or her aid package if the 
errors are nondollar items used to calculate the applicant's EFC; or 
the errors in the dollar amount is within a $400 tolerance.
    Under current Sec.  668.59(d), if the institution selects an 
applicant for verification for an award year who previously received a 
Subsidized Stafford Loan or Direct Subsidized Loan for that award year, 
and as a result of verification the loan amount is reduced, the 
institution must eliminate the amount in excess of the student's need 
by returning funds to the lender or by reducing or cancelling 
subsequent disbursements.
    An institution must forward the applicant's name, social security 
number, and other relevant information to the Department if the 
applicant received funds based on information that may be incorrect and 
the institution has made a reasonable effort to resolve the alleged 
discrepancy (see current Sec.  668.59(e)).
    Proposed Regulations: We propose to revise Sec.  668.59 by removing 
all allowable tolerances and requiring instead that an institution 
submit to the Department all changes to an applicant's FAFSA 
information resulting from verification for those applicants receiving 
assistance under any of the subsidized student financial assistance 
programs (see proposed Sec.  668.59(a)).
    Under proposed Sec.  668.59(b), for the Federal Pell Grant program, 
once the applicant provides the institution with the corrected SAR or 
ISIR, the institution would be required to recalculate the applicant's 
Federal Pell Grant and disburse any additional funds, if additional 
funds are payable. If the applicant's Federal Pell Grant would be 
reduced as a result of verification, the institution would be required 
to eliminate any overpayment by adjusting subsequent disbursements or 
reimbursing the program account by requiring the applicant to return 
the overpayment or making restitution from its own funds (see proposed 
Sec.  668.59(b)(2)(ii)).
    Proposed Sec.  668.59(c) would provide that, for the subsidized 
student financial assistance programs, excluding the Federal Pell Grant 
Program, if an applicant's FAFSA information changes as a result of 
verification, the institution must recalculate the applicant's EFC and 
adjust the applicant's financial aid package on the basis of the EFC on 
the corrected SAR or ISIR.
    With the exception of minor technical edits, proposed Sec.  
668.59(d), which describes the consequences of a change in an 
applicant's FAFSA information, would be substantively the same as 
current Sec.  668.59(d).
    Finally, we would remove current Sec.  668.59(e), the provision 
that requires an institution to refer to the Department unresolved 
disputes over the accuracy of information provided by the applicant if 
the applicant received funds on the basis of that information.
    Reasons: Some non-Federal negotiators objected to the Department's 
proposal to require that all corrections to an applicant's FAFSA 
information be submitted to the Department for reprocessing. They 
argued that this approach would increase burden on both institutions 
and applicants with minimum impact on an applicant's EFC and the amount 
of assistance the applicant is eligible to receive. They recommended 
that the Department require the submission of corrections only for 
applicants receiving a Federal Pell Grant or if the corrections would 
change an applicant's EFC. They did not object to removal of the 
tolerances. Negotiators who offered their views indicated they did not 
use the tolerances.
    The Department believes that allowing any errors in financial and 
nonfinancial information would undermine our efforts to make decisions 
based on the best available information. We believe that requiring all 
changes to an applicant's FAFSA data to be submitted to the Department 
will enhance particularly our ability to identify error-prone 
applications. We removed the tolerances because a change in an 
applicant's FAFSA information could have a major impact on an 
applicant's EFC, which would either reduce or increase an applicant's 
Federal student aid awards. Taken together, the removal of the 
tolerances and the requirement to report any errors in FAFSA data would 
ensure that the Department can rely on accurate data for applicant 
selection, EFC calculation, cross-year edits, and data analysis and 
would make certain that applicants receive the Federal student aid 
funds for which they are eligible.
    Although proposed Sec.  668.59(a) would require an institution to 
submit only changes affecting students receiving subsidized student 
financial assistance, institutions are encouraged to submit all changes 
in any student's FAFSA information because those changes could impact 
the type of aid for which a student qualifies. For example, an 
applicant who was initially eligible only for unsubsidized assistance 
may qualify for subsidized assistance based on corrected FAFSA 
information.
    Proposed Sec.  668.59(b) would require an institution to 
recalculate the applicant's Federal Pell Grant award based on the EFC 
on the corrected SAR or ISIR and to disburse any additional funds only 
after receiving a corrected SAR or ISIR. This requirement would ensure 
that if the amount of the applicant's Federal Pell Grant increases as a 
result of verification, the applicant would receive any additional 
funds only after providing the institution with a corrected SAR or 
ISIR. If the Federal Pell Grant award decreased as a result of 
verification, the institution would be required to apply the procedures 
specified in Sec.  668.61(a) to eliminate any overpayment. We are 
proposing changes to the current regulatory requirements to ensure that 
all applicants receive the Federal Pell Grant funds for which the 
applicants are eligible and to ensure that the Department's database 
reflects the information upon which any disbursements are based.
    Under Sec.  668.59(c), the current exceptions to the requirement to 
recalculate an applicant's EFC and adjust subsidized financial aid 
awards other than Pell--for nondollar items and tolerance of net income 
changes under $400--would be eliminated to ensure that all applicants 
receive the amounts for which they are eligible and that the 
Department's database reflects the information upon which any 
disbursements are based.
    Finally, we propose to remove current Sec.  668.59(e) because it 
refers to an obsolete operational unit in the Department that resolved 
verification discrepancies reported by an institution.
Deadlines for Submitting Documentation and the Consequences of Failing 
To Provide Documentation (Sec. Sec.  668.60(b)(1)(ii), (b)(3) (c)(1), 
and (d))
    Statute: None.
    Current Regulations: Current Sec.  668.60 contains the regulatory 
requirements concerning the deadlines for submitting documentation when 
a student is selected for verification and the consequences of failing 
to provide documentation.
    Current Sec.  668.60(b)(1)(ii) provides that if an applicant fails 
to provide the requested documentation within a reasonable time period 
established by the institution or the Secretary, the institution must 
return to the lender or Secretary, as applicable, any Federal Stafford 
Loan or Direct Subsidized Loan proceeds that otherwise would be payable 
to the applicant.

[[Page 34833]]

    Current Sec.  668.60(b)(3) provides that an institution may not 
withhold any Federal Stafford Loan proceeds from an applicant for more 
than 45 days for an applicant that fails to provide the requested 
documents for verification within the time period established by the 
institution. Under this provision, if the applicant does not complete 
verification within 45 days, the institution must return the proceeds 
to the lender.
    Current Sec.  668.60(c)(1) grants an extension of the submission 
deadline for students who must resubmit a verified SAR or ISIR when the 
SAR or ISIR must be corrected. Under this provision, when an extension 
is granted, the student is paid from the original SAR or ISIR or the 
corrected SAR or ISIR depending upon which SAR or ISIR yields the lower 
award.
    Current Sec.  668.60(d) provides that the Secretary may determine 
not to process any subsequent application for Federal Pell Grant, ACG, 
or National SMART Grant program assistance, and an institution, if 
directed by the Secretary, may not process any subsequent application 
for campus-based, Federal Direct Stafford/Ford Loan, or Federal 
Stafford Loan program assistance of an applicant who has been requested 
to provide documentation until the applicant provides the documentation 
or the Secretary decides that there is no longer a need for the 
documentation.
    Proposed Regulations: Proposed Sec.  668.60 would largely retain 
the substance of current Sec.  668.60. In addition to minor clarifying 
changes, we propose to remove paragraphs (b)(1)(ii) and (b)(3) of Sec.  
668.60.
    We would replace current Sec.  668.60(b)(3) with a provision that 
would require an institution to follow the cash management procedures 
under Sec.  668.166(a) or Sec.  668.166(b), or under Sec.  668.167(c), 
(which incorporates the provisions of Sec.  668.167(b) by reference), 
if the institution has received proceeds from a Subsidized Stafford 
Loan and Direct Subsidized Loan and an applicant does not complete 
verification within the time period specified. A description of these 
cash management procedures follows.
    Under Sec.  668.166(a), any proceeds from a Direct Subsidized Loan 
that an institution has not disbursed to students by the end of the 
third business day following the date the institution received those 
funds is considered excess cash. Under Sec.  668.166(b), an institution 
is allowed to maintain excess cash for seven days in an amount not to 
exceed one percent of the total amount of funds it drew down in the 
previous year. In instances where the Department finds that an 
institution maintains excess cash for an amount or time period greater 
than that allowed, an institution may be subject to adverse actions 
(e.g., reimbursing the Secretary the cost incurred for providing the 
excess cash to the institution, or providing funds to the institution 
under the reimbursement or cash monitoring payment method) (see Sec.  
668.166(c)).
    For Subsidized Stafford Loans, Sec.  668.167(b)(1) requires an 
institution to return to a lender loan proceeds if the institution does 
not disburse the funds to a student or parent within (a) 10 business 
days following the date the institution receives the loan funds if the 
institution receives the funds by EFT and master check on or after July 
1, 1997 but before July 1, 1999; (b) 3 business days following the date 
the institution receives the loan funds if the institution receives the 
funds by EFT and master check on or after July 1, 1999; or (c) 30 days 
after the institution receives the loan funds by check. For funds that 
are not disbursed within the specified timeframe, Sec.  668.167(b)(2) 
requires the institution to return the funds to the lender no later 
than 10 business days after the last day those funds are required to be 
disbursed. If the borrower establishes eligibility before the 
institution returns the loan funds to the lender, the institution may 
disburse those funds to the borrower (see Sec.  668.167(b)(3)).
    In proposed Sec.  668.60(c)(1), we would remove the language that 
requires a student to receive the lowest amount of a Federal Pell Grant 
if the student submits a valid SAR or valid ISIR after verification 
while the student was no longer enrolled.
    Proposed Sec.  668.60(d) and (e) contain only editorial changes 
from the corresponding current regulations.
    Reasons: We propose to remove paragraph (b)(1)(ii) of Sec.  668.60. 
This paragraph refers to an outdated process that prohibits an 
institution from certifying the student's loan application or 
processing a check, and requires the check payable to the student to be 
returned to the lender for any student who does not provide the 
required verification information within the required reasonable time.
    The proposed changes to Sec.  668.60(b)(3) are needed to update 
these regulations to be consistent with the Department's current cash 
management policy.
    In proposed Sec.  668.60(c)(1), we would remove the limit placed on 
students that complete verification while no longer enrolled at an 
institution. We made this change because students should be permitted 
to receive the correct amount of Federal Pell Grant regardless of when 
they complete verification.
Recovery of Funds (Sec.  668.61(c))
    Statute: None.
    Current Regulations: Current Sec.  668.61 describes the 
institution's obligation to recover funds if the institution discovers, 
as a result of the verification process, that an applicant received or 
would receive more financial aid than the applicant was eligible to 
receive.
    Proposed Regulations: Proposed Sec.  668.61 would retain the 
substance from current Sec.  668.61, except that we would add a 
paragraph (c) that would require an institution to reimburse the 
program account using its own funds if it disbursed subsidized student 
financial assistance to an applicant without receiving his or her 
corrected SAR or ISIR within the established deadlines under Sec.  
668.60.
    Reasons: We propose this change to Sec.  668.61 to clarify what 
would happen if institutions did not submit corrections and to 
emphasize the liability an institution could face if subsidized student 
financial assistance is disbursed under Sec.  668.58(a)(3) (interim 
disbursements) and the institution does not receive a corrected SAR or 
ISIR by the deadline date established in the notice of deadline dates 
for receipt of applications, reports, and other records published 
annually pursuant to Sec.  668.60.
    Some non-Federal negotiators argued that the proposed requirement 
to make institutions liable for funds disbursed in accordance with 
Sec.  668.58(a)(3) is unreasonable given that the interim disbursement 
would not result in an applicant receiving an overpayment of title IV, 
HEA program funds.
    Section 668.58(a)(3) was added at the request of non-Federal 
negotiators who wanted institutions to have the flexibility to disburse 
title IV, HEA program funds to students without having to wait for a 
corrected SAR or ISIR when a student's award did not change after 
completing verification. Under this provision, the disbursement would 
be allowed if the institution ensured that all corrections were 
submitted to the Department for reprocessing.
    Therefore, we believe it is appropriate to hold institutions liable 
for disbursing aid if corrections are not submitted to the Department 
in a timely manner to allow the institution to receive the corrected 
SAR or ISIR within the deadlines established in Sec.  668.60. This 
provision would also help in our efforts to obtain accurate information 
for data analysis and identification of error prone applications.

[[Page 34834]]

    Moreover, an institution is not required to make an interim 
disbursement of title IV, HEA program funds to an applicant. However, 
if an institution exercises this option, it assumes liability for the 
funds disbursed.

Misrepresentation (Subpart F of Part 668)

    Statute: Section 487 of the HEA provides that institutions 
participating in the title IV, HEA programs shall not engage in 
substantial misrepresentation of the nature of the institution's 
educational program, its financial charges, or the employability of its 
graduates.
General
    Current regulations: Current subpart F of part 668 sets forth the 
types of consumer information statements and communications by an 
eligible entity that constitute misrepresentation. The regulations 
prohibit any substantial misrepresentation made by an institution 
regarding the nature of its educational program, its financial charges, 
or the employability of its graduates.
    Proposed regulations: In the following paragraphs, we explain in 
detail the changes we propose to make to subpart F of part 668.
    Reasons: We propose to make changes to subpart F of part 668 to 
strengthen the Department's regulatory enforcement authority against 
eligible institutions that engage in substantial misrepresentations. 
The Department oft-times receives complaints from students who allege 
that they were the victims of false promises and other forms of 
deception when they were considering their postsecondary educational 
opportunities. We believe that helping students to make sound decisions 
regarding their educational pursuits is essential to maintaining the 
integrity of the title IV, HEA programs.
    For these reasons, we propose to revise subpart F of part 668 by 
making changes based on information the Department has received and 
comments from participants in the negotiated rulemaking meetings.
Scope and Special Definitions (Sec.  668.71)
    Current regulations: Current Sec.  668.71(a) describes the scope of 
subpart F of part 668 as establishing the standards and rules by which 
the Secretary may initiate a proceeding under subpart G of part 688 
against an otherwise eligible institution for any substantial 
misrepresentation made by that institution regarding the nature of its 
educational program, its financial charges, or the employability of its 
graduates.
    Current Sec.  668.71(b) provides definitions for the terms 
misrepresentation, prospective students, and substantial 
misrepresentation.
    Proposed regulations: We propose to restructure Sec.  668.71 so 
that paragraph (a) describes the actions the Secretary may take if the 
Secretary determines that an eligible institution has engaged in 
substantial misrepresentation.
    Paragraph (b) of proposed Sec.  668.71 would--
     Describe generally what types of activities constitute 
substantial misrepresentation;
     Provide that an eligible institution is deemed to have 
engaged in substantial misrepresentation when the institution itself, 
one of its representatives, or any ineligible institution, 
organization, or person with whom the eligible institution has an 
agreement, makes a substantial misrepresentation regarding the eligible 
institution, including about the nature of its educational program, its 
financial changes, or the employability of its graduates; and
     Clarify that substantial misrepresentations are prohibited 
in all forms.
    Current Sec.  668.71(b) would be redesignated as proposed Sec.  
668.71(c) and we would make a number of revisions to the definition of 
the term misrepresentation:
     We would clarify that a misrepresentation is any false, 
erroneous, or misleading statement an eligible institution, one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement makes directly or 
indirectly to a student, prospective student or any member of the 
public, or to an accrediting agency, to a State agency, or to the 
Secretary.
     Within this definition, we would also define what we mean 
by the term ``misleading statement;'' we would clarify that a 
misleading statement includes any statement (which is any communication 
made in writing, visually, orally, or through other means) that has the 
capacity, likelihood, or tendency to deceive or confuse.
     Finally, we would retain the express reference in the 
definition of misrepresentation to the dissemination of a student 
endorsement or testimonial that a student gives under duress. We would 
expand this language to also refer to the dissemination of a student 
endorsement or testimonial that a student gives because the institution 
required the student to make such an endorsement or testimonial to 
participate in a program.
    Reasons: We propose to restructure Sec.  668.71 to lay out more 
clearly the scope of subpart F of part 668.
    In new paragraph (b) of proposed Sec.  668.71, we would clarify 
that an eligible institution is deemed to have engaged in substantial 
misrepresentation when the institution itself, one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement, makes a 
substantial misrepresentation regarding the eligible institution. We 
believe it is appropriate to hold the eligible institution accountable 
in these instances because the integrity of the title IV, HEA programs 
requires that institutions are responsible for the actions of their 
representatives and agents.
    Proposed Sec.  668.71(b) would also state that substantial 
misrepresentations are prohibited in all forms, including those made in 
any advertising, promotional materials, or in the marketing or sale of 
courses or programs of instruction offered by the institution. We 
propose to add this language because of the importance of these 
materials and activities in communicating to students and prospective 
students information regarding the nature of the institution's 
educational programs, its financial charges, and the employment 
opportunities available to the institution's graduates.
    In the revised definition of the term misrepresentation, we would 
again state that a misrepresentation is any false, erroneous, or 
misleading statement made not only by the eligible institution, but 
also any false, erroneous, or misleading statement made by one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement. As discussed 
earlier in this preamble, we believe that it is appropriate to hold 
eligible institutions accountable for misrepresentations made by 
representatives and agents to ensure program integrity.
    We propose to broaden the definition of misrepresentation to 
include false, erroneous, or misleading statements made directly or 
indirectly to a student, prospective student or any member of the 
public, or to an accrediting agency, to a State agency, or to the 
Secretary. We propose to broaden the concept of misrepresentation to 
include both direct and indirect false, erroneous or misleading 
statements because students, prospective students, members of the 
public, and others can be significantly

[[Page 34835]]

harmed by indirect false, erroneous, or misleading statements. For 
example, an institution could be deemed to engage in misrepresentation 
if it falsely advertised an exceptional placement rate. Further, the 
institution could also be deemed to engage in misrepresentation if an 
individual heard an advertisement containing the false placement rate 
and relayed the information to a potential student. In this example, 
the potential student received the information indirectly but the 
information could still have the capacity, likelihood, or tendency to 
deceive or confuse.
    In an effort to give the field more guidance on what the Department 
means by misrepresentation, we propose to provide more detail in the 
definition. Because the definition of misrepresentation turns on the 
meaning of the term a ``statement'', we would clarify that a misleading 
statement includes any statement (which is any communication made in 
writing, visually, orally, or through other means) that has the 
capacity, likelihood, or tendency to deceive or confuse. We believe 
that fleshing out the definition of misrepresentation would help 
institutions determine whether statements they (or their 
representatives or any ineligible institution, organization, or person 
with whom they have an agreement) make constitute a misrepresentation 
under subpart F of part 668. Moreover, by providing more detail in the 
definition of misrepresentation, we believe that the regulations would 
be clearer as to the difference between misrepresentations, on the one 
hand, and substantial misrepresentations, on the other. This subpart 
would prohibit substantial misrepresentations only and those would 
continue to be defined as any misrepresentation on which the person to 
whom it was made could reasonably be expected to rely, or has 
reasonably relied, to that person's detriment.
    Finally, we would add language to the definition of 
misrepresentation regarding the dissemination of a student endorsement 
or testimonial that a student gives because the institution required 
the student to make such an endorsement or testimonial to participate 
in a program. We propose to add this language because we are concerned 
about the potential of such testimonials to mislead students or 
prospective students.
Nature of Educational Program (Sec.  668.72)
    Current regulations: Current Sec.  668.72 describes the types of 
false, erroneous, or misleading statements about an institution's 
educational program that would be prohibited as misrepresentations 
under subpart F of part 668.
    Proposed Regulations: Proposed Sec.  668.72 would retain the list 
of the types of misrepresentation regarding the nature of an 
institution's educational program that is included in current Sec.  
668.72, but would expand this list. First, in proposed Sec.  668.72(a), 
we would expand the types of programmatic false statements that would 
be prohibited as misrepresentations under this section. Specifically, 
false, erroneous, or misleading statements about programmatic and 
specialized accreditation--not only institutional accreditation--would 
be expressly covered as misrepresentations.
    Second, in proposed Sec.  668.72(b)(2), we propose to add language 
on the conditions under which an institution will accept credits earned 
at another institution.
    Third, in proposed Sec.  668.72(c), we would revise the language 
regarding misrepresentations about whether successful completion of a 
course of instruction qualifies a student to receive a local, State, or 
Federal license or a non-governmental certification required as a 
precondition for employment, or to perform the functions required of an 
employee in the occupation for which the program is represented to 
prepare students. We would broaden this language to clarify that a 
prohibited misrepresentation includes false, erroneous, or misleading 
statements regarding whether completion of a given course of study will 
qualify a student ``to apply to take or to take an examination required 
to receive'' a needed license or certification as a precondition of 
employment in an occupation for which the program is represented to 
prepare its students (rather than only qualifying a student to receive 
such a license or certification).
    In addition, we would refine the language in Sec.  668.72(c)(2) to 
clarify that institutions must not make false, erroneous, or misleading 
statements regarding whether completion of a given course of study will 
qualify a student to perform certain functions in the State in which 
the program or institution is located, or to meet additional conditions 
that the institution knows, or reasonably should know, are generally 
needed to secure employment in a recognized occupation for which the 
program is represented to prepare students.
    Finally, we would add to the list of the types of 
misrepresentations regarding the nature of an institution's educational 
program, any misrepresentation regarding:
     The requirements for successfully completing the course of 
study or program and the circumstances that would constitute grounds 
for terminating the student's enrollment (see proposed Sec.  
668.72(d)).
     Whether the institution's courses have been the subject of 
unsolicited testimonials or endorsements by vocational counselors, high 
schools, colleges, educational organizations, employment agencies, 
members of a particular industry, students, former students, or others; 
or governmental officials for governmental employment (see proposed 
Sec.  668.72(e)).
     The subject matter, content of the course of study, or any 
other fact related to the degree, diploma, certificate of completion, 
or any similar document that the student is to be, or is, awarded upon 
completion of the course of study (see proposed Sec.  668.72(m)).
     Whether the academic, professional, or occupational degree 
that the institution will confer upon completion of the course of study 
has been authorized by the appropriate State educational agency. This 
type of misrepresentation includes, in the case of a degree that has 
not been authorized by the appropriate State educational agency, any 
failure by an eligible institution to disclose this fact in any 
advertising or promotional materials that reference such degree (see 
proposed Sec.  668.72(n)).
    Reasons: The Department believes it is critical that potential 
students have a clear understanding about any educational program in 
which they may enroll. Each institution has a responsibility to provide 
complete and accurate information about the programs it offers. For 
this reason, we are proposing numerous changes to Sec.  668.72. Many of 
these proposed changes are based on discussions during the negotiated 
rulemaking sessions and the concerns raised by non-Federal negotiators 
during those discussions.
    Several non-Federal negotiators believed that institutions should 
make potential or current students aware of institutional accreditation 
or any specific programs at the institution that have accreditation 
before students enroll in the program. Some negotiators also argued 
that an institution's failure to disclose a lack of accreditation 
should constitute misrepresentation under Sec.  668.72. The Department 
agrees that students need accurate information about the types, 
sources, nature, and extent of institutional, programmatic or 
specialized accreditation an institution or program has. Proposed Sec.  
668.72(a) would expressly prohibit institutions from making false, 
erroneous, or

[[Page 34836]]

misleading statements concerning these matters.
    Some non-Federal negotiators expressed concern that students should 
understand the conditions under which their transfer credits would 
count towards a degree program before they left another program or 
institution. The Department agrees and proposes to add Sec.  
668.72(b)(2) to expressly prohibit misrepresentations about the 
conditions under which an institution will accept credits earned at 
another institution.
    Some non-Federal negotiators expressed concern about the extent of 
information that institutions ``reasonably'' should know. For example, 
they argued that it is unrealistic to expect institutions to have 
knowledge about each State's licensure requirements.
    The Department agrees. Proposed Sec.  668.72(c)(2), therefore, 
would specifically refer to licensure and certification information for 
the State in which the program or institution is located, as well as 
conditions generally needed to secure employment in a particular 
occupation.
    We would add proposed Sec.  668.72(d), regarding misrepresentations 
concerning the requirements for successfully completing the course of 
instruction and the circumstances that would constitute grounds for 
terminating the student's enrollment, because potential and current 
students need to be able to make informed decisions regarding course 
completion and situations that may lead to their inability to complete 
the program of instruction they choose to pursue.
    In proposed Sec.  668.72(e), we would expressly include as 
prohibited any misrepresentations regarding whether an institution's 
courses have been the subject of unsolicited testimonials or 
endorsements because potential and current students should not be 
mislead into pursuing a particular program of instruction based upon 
purported (but not actual) recommendations and endorsements.
    We would add proposed Sec.  668.72(m) and (n), regarding 
misrepresentations concerning any fact related to the degree, diploma, 
certificate of completion, or similar document to be awarded to a 
student upon course completion, as well as whether the academic, 
professional, or occupational degree that the institution confers upon 
completion has been authorized by the appropriate State educational 
agency. We propose adding these provisions because potential and 
current students need to know the truth regarding the credential they 
will receive before committing to attend a particular postsecondary 
institution.
Nature of Financial Charges (Sec.  668.73)
    Current regulations: Current Sec.  668.73 describes prohibited 
false, erroneous, or misleading statements related to the cost of the 
program and financial aid that is available to potential and current 
students.
    Proposed regulations: Proposed Sec.  668.73 would retain the list 
of the types of misrepresentation regarding the nature of an 
institution's financial charges that are in current Sec.  668.73, but 
also would add the following:
     Misrepresentation regarding the cost of the program and 
the institution's refund policy if the student does not complete the 
program (see proposed Sec.  668.73(c)).
     Misrepresentation regarding the availability or nature of 
any financial assistance offered to students, including a student's 
loan repayment responsibility, regardless of program completion or 
subsequent employment (see proposed Sec.  668.73(d)).
     Misrepresentation regarding a student's right to apply for 
or reject any particular type of financial aid or other assistance (see 
proposed Sec.  668.73(e)).
    Reasons: Several non-Federal negotiators expressed concern about 
whether students clearly understand the cost of their educational 
program. Other non-Federal negotiators emphasized the difficulty of 
estimating program costs and cautioned the Department against making 
the regulations too specific in this regard. The Department agrees it 
is a serious problem if students who enroll in a program do not have 
the necessary information about the cost of the program or the 
institution's refund policy. For this reason, the Department proposes 
to add proposed Sec.  668.73(c) to highlight that misrepresentations 
about the cost of an institution's program or its refund policy are 
prohibited.
    In addition, some non-Federal negotiators pointed out as a 
significant problem the fact that some students do not understand the 
financial aid options available to them when they enroll in a program. 
Others expressed concern that students may feel pressure to apply for 
credit financing to pay for the cost of their educational program.
    The Department strongly believes that students, potential students, 
and parents must have relevant information to make informed decisions 
about the type of financial aid that is available to the student. By 
prohibiting institutions from making misrepresentations regarding the 
availability or nature of the financial aid offered to students, as 
well as a student's right to reject any particular type of financial 
aid (see proposed Sec.  668.73(d) and (e), respectively), the 
Department seeks to ensure that students are provided with the accurate 
information they need to make informed choices about the type of 
financial aid they use to fund their education.
Employability of Graduates (Sec.  668.74)
    Current regulations: Current Sec.  668.74 lists what constitutes 
misrepresentation by an institution regarding the employability of its 
graduates.
    Proposed regulations: Proposed Sec.  668.74 would retain the list 
of the types of misrepresentation regarding the employability of 
graduates that is in current Sec.  668.74. In addition to the types of 
misrepresentations already included in the regulations, we would add 
the following:
     Misrepresentations relating to the institution's knowledge 
about the current or likely future conditions, compensation, or 
employment opportunities for its graduates (see proposed Sec.  
668.74(c)).
     Misrepresentations relating to whether employment is being 
offered by the institution or that a talent hunt or contest is being 
conducted (see proposed Sec.  668.74(d)).
     Misrepresentations relating to other requirements that are 
generally needed in order to be employed in certain fields (see 
proposed Sec.  668.74(f)).
    Reasons: During the negotiated rulemaking sessions, the non-Federal 
negotiators appeared to be in agreement that students should be fully 
informed about their likely employment options once they complete a 
course of study. Several non-Federal negotiators, however, expressed 
concern about how best to address this issue in the regulations. In 
particular, given the uncertainty of the economic climate, they were 
concerned about the possibility of having an enforcement action brought 
against them even in instances when they provided students and the 
public with the best available information about likely employment 
options, which, in retrospect, were overly optimistic. The Department 
believes that proposed Sec.  668.74 appropriately highlights the types 
of information about employability that institutions need to monitor 
carefully when advertising or otherwise promoting their educational 
programs. Institutions must disclose clear information about the 
employability of graduates from a program, including likely 
compensation, and other requirements necessary to perform the job for 
which the educational program prepares students, to help give students 
the knowledge they need to make

[[Page 34837]]

informed decisions about potential career paths.
Relationship With the Department of Education (Sec.  668.75)
    Current regulations: Current Sec.  668.75 describes the 
Department's procedures for reviewing allegations or complaints 
regarding misrepresentation claims.
    Proposed regulations: We are proposing to delete current Sec.  
668.75 (Procedures) and replace it with new Sec.  668.75 (Relationship 
with the Department of Education). Proposed Sec.  668.75 would prohibit 
an institution, its representatives, or any ineligible institution, 
organization, or person with whom the eligible institution has an 
agreement from making statements that suggest the U.S. Department of 
Education approves or endorses the quality of an institution's 
educational program simply because the institution is eligible to 
participate in the title IV, HEA programs.
    Reasons: We propose to remove current Sec.  668.75 because these 
procedures have not been used to take enforcement actions against 
institutions for making substantial misrepresentations. Instead, when 
the Department determines that there has been a misrepresentation by an 
institution, its representatives, or any ineligible institution, 
organization, or person with whom the eligible institution has an 
agreement, the Department has used its other administrative remedies to 
take the appropriate actions against the institution without relying 
upon the procedures described in current Sec.  668.75. Proposed Sec.  
668.71(a) addresses the types of actions the Department anticipates it 
may take in response to a violation of subpart F of part 668.
    We propose to add new Sec.  668.75 because the Secretary has been 
made aware of instances where institutions have misled the public by 
mentioning the U.S. Department of Education in their advertising in a 
manner that implies that the Department endorses the quality of these 
institutions' educational programs. The Department does not approve of 
this behavior and considers it to be a misrepresentation. For this 
reason, the proposed regulations would expressly forbid this type of 
activity.
Ability To Benefit (668.32 and Subpart J of Part 668)
    Statute: Section 484(d) of the HEA describes the circumstances 
under which a student who does not have a high school diploma or the 
equivalent may establish eligibility for title IV, HEA program funds. 
Under this provision, a student who does not have a high school diploma 
or the equivalent may establish eligibility for title IV, HEA program 
funds by: (1) Taking an ability to benefit (ATB) test approved by the 
Secretary; (2) being enrolled in an institution that participates in an 
approved State process; or (3) by completing a secondary school 
education in a home school setting that is treated as a home school or 
private school under State law. In 2008, this section of the HEA was 
amended by adding section 484(d)(4), which provides that a student 
shall be determined by an institution of higher education as having the 
ability to benefit from the education or training offered by the 
institution of higher education upon satisfactory completion of six 
credit hours or the equivalent coursework that are applicable toward a 
degree or certificate offered by the institution.
Student Eligibility (Sec.  668.32(e))
    Current Regulations: Paragraph (e) of current Sec.  668.32 provides 
that, in order to be eligible for title IV, HEA program funds, a 
student must: (1) Have a high school diploma or its recognized 
equivalent; (2) have obtained a passing score on an ATB test 
administered in accordance with subpart J of part 668; (3) have been 
enrolled in an eligible institution that participates in a State 
process approved by the Secretary under subpart J of part 668; or (4) 
have been home-schooled and have obtained a secondary school completion 
credential for home school or, if State law does not require a home-
schooled student to obtain such a credential, have completed a 
secondary school education in a home school setting that qualifies as 
an exemption from compulsory attendance requirements under State law.
    Proposed Regulations: We propose to revise Sec.  668.32(e) by 
adding new paragraph (e)(4) to provide that a student is eligible to 
receive title IV, HEA program assistance if the student has been 
determined by the institution to have the ability to benefit from the 
education or training offered by the institution based on the 
satisfactory completion of 6 semester hours, 6 trimester hours, 6 
quarter hours, or 225 clock hours that are applicable toward a degree 
or certificate offered by the institution.
    Reasons: We propose to add new paragraph (e)(4) to Sec.  668.32 to 
incorporate the new method for students to show that they have the 
ability to benefit, which was added to the section 484(d) of the HEA in 
2008. Under this new statutory provision, students who satisfactorily 
complete six credits of college work, or the equivalent amounts of 
coursework, that are applicable to a degree or certificate offered by 
the school qualify to receive title IV, HEA program funds. In proposing 
regulations to implement this statutory change, the Department took 
into consideration extensive discussions at the negotiated rulemaking 
sessions.
    The Department explained during negotiated rulemaking that its 
proposal was based on the statutory language that students would need 
to earn six credit hours or the equivalent. The statute does not 
distinguish among semester, trimester or quarter hours, nor does it 
suggest an equivalent number of clock hours. Under the proposed 
regulations and the statute, all credit hour students, whether earning 
semester, trimester, or quarter hours would need to be enrolled for six 
hours--the number of hours that would be equivalent to enrollment on a 
half-time basis for one term. A student who completed 6 semester hours, 
6 trimester hours, or 225 clock hours would be completing one quarter 
of an academic year. The Federal negotiator noted the apparent 
inconsistency between the statutory language regarding the new ATB 
provision, which requires satisfactory completion of six credit hours 
or the equivalent coursework, and the definition of an ``academic 
year'', which is defined as a period of time during which a full-time 
undergraduate student is expected to complete 24 semester or trimester 
hours, 36 quarter hours, or 900 clock hours. Several non-Federal 
negotiators expressed their belief that completion of six hours of 
program leading to a certificate or degree was a much better indicator 
of an individual's ability to benefit from a program than passing an 
ATB test.
    Some of the discussion at the negotiated rulemaking sessions 
focused on whether a student should be required to complete the 
specified credit hours or clock hours in the program in which the 
student planned to enroll and for which the student applied to receive 
title IV, HEA program funds. The Department noted that the provision 
was based on an experimental site program which tested and established 
the effectiveness of permitting students to display the ability to 
benefit based on successful completion of six semester hours in any 
program leading to a degree or certificate. One non-Federal negotiator 
expressed concern that unless the hours completed were in the intended 
program, the coursework might not be rigorous enough, and the provision 
would not be effective as a means of demonstrating the student's 
ability to

[[Page 34838]]

benefit from the program in which they intend to enroll. Several non-
Federal negotiators voiced their view that the statutory language did 
not impose that kind of limitation. They pointed out that students 
often start a program and change their mind; therefore, the simplest 
approach to the provision would be the best. The Department agrees, but 
expects that the credit hours completed would be part of an eligible 
program offered by the institution and would show that the student has 
the ability to benefit from the postsecondary educational program in 
which the student is enrolled or intends to enroll.
    One non-Federal negotiator expressed concern that some institutions 
might reduce or waive tuition for the portion of the program required 
to demonstrate the ability to benefit, while not requiring the student 
to complete coursework at a sufficiently challenging level, thereby 
nullifying the impact of the provision and setting a student up for 
failure. Other non-Federal negotiators pointed out that if an 
institution did not waive or reduce tuition, a student who did not yet 
qualify for aid might be forced to take out a high interest private 
loan to pay for the initial 6 credit hours or 225 clock hours needed to 
establish student eligibility.
    In response to a question regarding whether the option to 
demonstrate the ability to benefit from the educational or training 
program by passing an approved test or successfully completing six 
credit hours or the equivalent was at the discretion of the student or 
the institution, the Department noted that the provision relates to 
establishing eligibility for assistance under the title IV, HEA 
programs. It is a financial aid requirement, not an admissions 
requirement. An institution may have a policy that it does not admit 
any students who do not have a high school diploma or the equivalent. 
There is no requirement that an institution determine a student's 
eligibility for title IV, HEA program funds on the basis of either 
passing an ATB test or successfully completing coursework.
    There was considerable discussion during the negotiated rulemaking 
sessions regarding whether a student who established student 
eligibility under one of the ATB provisions could be paid for the 
payment period in which eligibility was established. The Department's 
position is that a student who establishes eligibility for title IV, 
HEA program funds by passing an ATB test during a payment period may be 
paid for the entire payment period. However, if a student establishes 
title IV, HEA eligibility by completing six credit hours, or the 
equivalent, eligibility is not established until after the end of the 
payment period, and the student may not be paid for the payment period 
during which the student took the requisite coursework. Furthermore, to 
establish eligibility under the new ATB provision, a student in a 
credit hour program must earn six credit hours; a student who enrolls 
in six credit hours but receives a failing grade for one or more of 
those credits has not successfully completed six credit hours. 
Similarly, a student in a clock hour program must have attended 225 
clock hours and been graded on those 225 clock hours to establish 
eligibility.
Scope (Sec.  668.141)
    Current Regulations: Current Sec.  668.141 describes the scope of 
subpart J of part 668 of the current regulations. Current subpart J 
sets forth: (1) The provisions under which a student who does not have 
a high school diploma or the equivalent may establish eligibility for 
title IV, HEA program funds either by taking an ATB test approved by 
the Secretary or by being enrolled in an institution that participates 
in an approved State process; and (2) the criteria and procedures for 
approval of ATB tests, the requirements for independent administration 
of approved tests, the requirements for maintaining the Secretary's 
approval of ATB tests, and the procedures for the Secretary's approval 
of alternate State processes.
    Proposed Regulations: Section 668.141 would be revised to reference 
the new requirements that we propose to add to subpart J of part 668. 
Specifically, we would redesignate current paragraph (b)(4) of Sec.  
668.141 as paragraph (b)(6) and add new paragraphs (b)(4) and (b)(5). 
Proposed Sec.  668.141(b)(4) would reference the information on test 
anomaly studies that the test publishers and States must submit as part 
of their test submission, and proposed Sec.  668.141(b)(5) would 
reference the proposed requirements that test publishers and States 
have a process to identify and follow up on test score irregularities, 
take corrective action when irregularities have occurred, and report 
the names of decertified test administrators to the Secretary.
    Reason: These proposed changes to Sec.  668.141 would align the 
description of the subpart's scope with the substantive changes the 
Department proposes to make to this subpart. These proposed changes are 
discussed in more detail in the following sections.
Special Definitions (Sec.  668.142)
Definition of Assessment Center
    Current regulations: Current Sec.  668.142 contains a definition of 
the term assessment center.
    Proposed regulations: The proposed definition of assessment center 
would largely track the current definition of that term. We propose 
only to clarify in the definition that an assessment center uses test 
administrators who, by definition, have been certified by the test 
publisher or State to administer ATB tests approved by the Secretary 
under this subpart.
    Reasons: We propose to require, as part of this definition, that 
the individuals who administer ATB tests in assessment centers be 
certified by the test publisher, or the State, as appropriate. Test 
publishers have indicated that they have encountered situations at 
assessment centers where there has been high staff turnover, and 
individuals giving tests are not familiar with the requirements and 
procedures. The Department solicits comments on whether it would be 
appropriate or advisable to permit specified test administrators in the 
assessment center to train other individuals at that assessment center 
to administer ATB tests.
Definition of Independent Test Administrator
    Current regulations: None.
    Proposed regulations: We propose to add a definition of the term 
independent test administrator to Sec.  668.142. Under this proposed 
definition, an independent test administrator would be a test 
administrator who administers tests at a location other than an 
assessment center and who--
    (1) Has no current or prior financial or ownership interest in the 
institution, its affiliates, or its parent corporation, other than the 
interest obtained through its agreement to administer the test, and has 
no controlling interest in any other institution;
    (2) Is not a current or former employee of or consultant to the 
institution, its affiliates, or its parent corporation, a person in 
control of another institution, or a member of the family of any of 
these individuals;
    (3) Is not a current or former member of the board of directors, a 
current or former employee of or a consultant to a member of the board 
of directors, chief executive officer, chief financial officer of the 
institution, its affiliates, or its parent corporation or of any other 
institution, or a member of the family of any of these individuals; and

[[Page 34839]]

    (4) Is not a current or former student of the institution.
    This definition would be based largely on the description of 
prohibited relationships of independent test administrators contained 
in current Sec.  668.151(b)(2).
    Reasons: The proposed regulations would distinguish between ``test 
administrators,'' defined in Sec.  668.142, and ``independent test 
administrators.'' For this reason, the Department proposes to add a 
definition of the term independent test administrator and, as discussed 
later in this preamble, to revise the current definition of test 
administrator.
    The concept of an independent test administrator is not new. 
Current Sec.  668.151(b)(2) describes the circumstances under which a 
test given by a test administrator is considered to be ``independently 
administered''. We used much of this language in crafting the 
definition of the term independent test administrator.
    During the negotiated rulemaking discussions, some of the non-
Federal negotiators expressed confusion about the difference between 
test administrators and independent test administrators. They suggested 
adding language to make it clear that an independent test administrator 
is a test administrator who ``administers tests at a location other 
than an assessment center'' in addition to meeting the other 
requirements. We agreed with this recommendation. Therefore, the 
proposed regulations would specify, as part of the definition of 
independent test administrator, that an independent test administrator 
is a test administrator who administers tests at a location other than 
at an assessment center.
Definition of Individual With a Disability
    Current regulations: Current Sec.  668.142 contains a definition of 
the term disabled student.
    Proposed regulations: Proposed Sec.  668.142 would replace the term 
``disabled student'' with the term ``individual with a disability.'' We 
would largely retain the current definition, except we would make clear 
that the term refers to a person (not only a student) who has a 
physical or mental impairment which substantially limits one or more 
major life activities, has a record of such an impairment, or is 
regarded as having such an impairment.
    Reasons: The Department proposes to use the term individual with a 
disability, rather than disabled student, because that is the term more 
commonly used in the disability community and is consistent with the 
usage of the term by other programs administered by the Department. In 
addition, this proposed revision would clarify that the defined term 
applies to individuals who are not yet students as well as to 
individuals who are already enrolled in institutions participating in 
the title IV, HEA programs.
Definition of Test
    Current regulations: None.
    Proposed regulations: We propose to add a definition of the term 
test to Sec.  668.142. Under this proposed definition, a test would be 
a standardized test, assessment or instrument that has formal protocols 
regarding the administration of the test that include the use of 
parallel, equated forms, testing conditions, time allowed for the test, 
and standardized scoring. The definition also would clarify that tests 
are not limited to traditional paper and pencil (or computer-
administered) instruments for which forms are constructed prior to 
administration to examinees and that tests may include adaptive 
instruments that use computerized algorithms for selecting and 
administering items in real time provided that, for such instruments, 
the size of the item pool and the method of item selection ensures 
negligible overlap in items across retests.
    Reasons: We propose to add a definition of the term test to Sec.  
668.142 because, as one non-Federal negotiator pointed out during our 
discussions, our current ATB regulations define the terms test item, 
test administrator and test publisher, but do not define the term test. 
The proposed definition is based on the definition of test in 34 CFR 
462.4 of the Department's Measuring Educational Gain in the National 
Reporting System for Adult Education regulations.
Definition of Test Administrator
    Current regulations: Current Sec.  668.142 defines a test 
administrator as an individual who may give tests under subpart J of 
part 668.
    Proposed regulations: We propose to revise the definition of the 
term test administrator to mean an individual who (1) is certified by 
the test publisher or the State to administer tests approved under 
subpart J of part 668 and to protect the test and test results from 
improper disclosure or release, and (2) is not compensated on the basis 
of test outcomes.
    Reasons: We propose to revise this definition to clarify that a 
test administrator must be certified by the test publisher or the 
State, and that a test administrator is responsible for keeping both 
the tests and the test results secure from improper disclosure or 
release. The proposed definition would also clarify that a test 
administrator may not be compensated on the basis of test outcomes. The 
non-Federal negotiators were generally in favor of including this 
additional clarity in the definition.
Definition of Test Publisher
    Current regulations: Current Sec.  668.142 defines a test publisher 
as an individual, organization, or agency that owns a registered 
copyright of a test, or is licensed by the copyright holder to sell or 
distribute a test.
    Proposed regulations: We propose to revise the definition of a test 
publisher by providing that a test publisher may be authorized by the 
copyright holder to represent the copyright holder's interest regarding 
the test, rather than specifying that the individual or organization 
must be licensed the right to sell or distribute the test by the 
copyright holder.
    Reasons: One non-Federal negotiator recommended making this 
revision to the definition of test publisher. This non-Federal 
negotiator explained that this definitional change is appropriate 
because the term test publisher should include agencies or 
organizations that may represent the copyright holder's interest in the 
test, but may not be licensed by the copyright holder. The Department 
agrees.
Approval of State Tests or Assessments (Sec.  668.143)
    Current regulations: Current Sec.  668.143 describes the procedures 
for the Secretary's approval of State tests or assessments.
    Proposed regulations: We propose to move the requirements governing 
the submission of tests by States in current Sec.  668.143 to proposed 
Sec.  668.144 (Application for test approval). With this change, we 
would reserve Sec.  668.143 for future use.
    Reason: We propose to combine the requirements from current 
Sec. Sec.  668.143 and 668.144 into a single section because the test 
publisher and State submission processes have common elements. To the 
extent we propose to make changes to the submission requirements for 
States (and test publishers), we discuss those changes in the 
discussion relating to proposed Sec.  668.144.
Application for Test Approval (Sec.  668.144)
    Current regulations: Current Sec.  668.144 describes the approval 
process for tests submitted by test publishers. The current regulations 
do not require test publishers to describe their process for

[[Page 34840]]

certifying test administrators, their test anomaly analysis, or the 
types of accommodations available for individuals with disabilities. In 
current regulations, the requirements for approval of State tests or 
assessments are contained in a separate section, Sec.  668.143.
    Proposed regulations: We propose to clarify and expand the 
requirements in current Sec. Sec.  668.143 and 668.144 and include all 
of the requirements for test approval in one section, proposed Sec.  
668.144. Paragraphs (a) and (b) of proposed Sec.  668.144 would 
describe the general requirement for test publishers and States to 
submit to the Secretary any test they wish to have approved under 
subpart J of part 668. Paragraph (c) of proposed Sec.  668.144 would 
describe the information that a test publisher must include with its 
application for approval of a test. Paragraph (d) of proposed Sec.  
668.144 would describe the information a State must include with its 
application when it submits a test to the Secretary for approval.
    In proposed Sec.  668.144(c), we would largely retain the test 
publisher application requirements contained in current Sec.  
668.144(c). In addition to making some minor technical changes to these 
requirements, we would revise paragraphs (c)(8) and (c)(11)(iv)(B). 
Under proposed paragraph (c)(8), test publishers would be required to 
provide documentation of periodic reviews of the content and 
specifications of all tests submitted to the Secretary for approval 
(not just tests first published five years before submission), to 
ensure that the tests reflect secondary school level verbal and 
quantitative skills.
    Under the revisions reflected in proposed Sec.  
668.144(c)(11)(iv)(B), a test publisher would be required to include, 
in its technical manual, evidence that the test was normed using a 
contemporary sample that is representative of the population of persons 
who have earned a high school diploma in the United States instead of a 
contemporary population representative of persons who are beyond the 
usual age of compulsory school attendance in the United States.
    We would remove paragraph (c)(14), which required a test publisher 
to include, for performance-based tests or tests containing 
performance-based sections, a description of the training or 
certification required of test administrators and scorers by the test 
publishers.
    We would then redesignate paragraphs (c)(15) and (c)(16) of Sec.  
668.144 as proposed paragraphs (c)(14) and (c)(15) and add new proposed 
paragraphs (c)(16) through (c)(18). Proposed Sec.  668.144(c)(16) would 
require test publishers to include in their applications a description 
of their test administrator certification process. In proposed Sec.  
668.144(c)(17), we would require test publishers to include in their 
applications a description of the test anomaly analysis the test 
publisher will conduct and submit to the Secretary. Finally, proposed 
Sec.  668.144(c)(18) would require test publishers to include in their 
applications a description of the types of accommodations available for 
individuals with disabilities, including a description of the process 
used to identify and report when accommodations for individuals with 
disabilities were provided.
    Proposed Sec.  668.144(d) would be added to describe what States 
must include in their test submissions to the Secretary. While this 
provision would replace the content in current Sec.  668.143, its 
language would be revised to be parallel, where appropriate, to the 
test publisher submission requirements in current Sec.  668.144. In 
addition to paralleling most of the current requirements for test 
publisher test submissions, proposed Sec.  668.144(d) would also 
include the new requirements proposed to be added to the test publisher 
submissions. A description of those new provisions follows:
    Both test publishers and States would be required to submit a 
description of their test administrator certification process that 
indicates how the test publisher or State, as applicable, will 
determine that a test administrator has the necessary training, 
knowledge, skills, and integrity to test students in accordance with 
the test publisher's requirements and how the test publisher or the 
State will determine that the test administrator has the ability and 
facilities to keep its test secure against disclosure or release (see 
proposed Sec.  668.144(c)(16) (test publishers) and Sec.  668.144(d)(7) 
(States)).
    The proposed regulations would require both test publishers and 
States to submit a description of the test anomaly analysis they will 
conduct. This analysis would need to include a description of how they 
will identify potential test irregularities and make a determination 
that test irregularities have occurred; an explanation of corrective 
action to be taken in the event of test irregularities; and information 
on when and how the Secretary, test administrator, and institutions 
will be notified if a test administrator is decertified (see proposed 
Sec.  668.144(c)(17) (test publishers) and Sec.  668.144(d)(8) 
(States)).
    Under proposed Sec.  668.144(c)(18) and (d)(9) respectively, both 
test publishers and States would be required to describe any accessible 
technologies that are available to individuals with disabilities, and 
the process for a test administrator to identify and report to the test 
publisher when accommodations for individuals with disabilities were 
provided.
    Reasons: Because many of the requirements for approval of tests, 
whether submitted by test publishers or States, are parallel, the non-
Federal negotiators suggested, and the Department agreed, that it would 
be appropriate to combine State submission requirements, currently 
addressed in Sec.  668.143, and the test publisher submission 
requirements, currently addressed in Sec.  668.144 in a single 
regulatory provision. For this reason, we combined and, where 
appropriate, standardized the language for the submission requirements 
for both States and test publishers in proposed Sec.  668.144.
    We propose to make a number of changes to the test publisher 
submission requirements, reflected in Sec.  668.144(c). First, we 
propose to revise Sec.  668.144(c)(8) because we believe it is 
important for test publishers to periodically review the content and 
specifications of all tests (not only those tests first published five 
years before submission) to ensure that they reflect secondary school 
level verbal and quantitative skills. In addition, we propose to revise 
Sec.  668.144(c)(11)(iv)(B) to require that a test publisher's 
technical manual, which must be submitted as part of its test 
submission, include evidence demonstrating that the test was normed 
using a sample that is representative of the population of persons who 
have earned a high school diploma in the United States. We propose this 
change because the purpose of this subpart is to implement the 
statutory provisions that provide an alternative means for students who 
do not have a high school diploma or the equivalent to establish 
eligibility for the title IV, HEA programs. To determine the ability of 
such students to benefit from a postsecondary education or training 
program, passing scores on ATB tests should be based only on the scores 
of test takers who have a high school diploma, not the scores of test 
takers who are beyond the age of compulsory attendance but who may not 
have completed high school.
    We also propose to delete the requirements relating to performance-
based tests or tests containing

[[Page 34841]]

performance-based sections, reflected in current Sec.  668.144(c)(14), 
because no performance-based tests have ever been submitted to the 
Secretary for approval and, therefore, we believe the provision is 
unnecessary.
    Finally, we are proposing to add three requirements to both the 
test publisher and State test submission requirements.
    First, we propose to include, in proposed Sec.  668.144(c)(16) and 
(d)(7), a requirement that test publishers and States, respectively, 
describe their test administrator certification process, including how 
they will determine that a test administrator has the necessary 
training, knowledge, skills, and integrity to test students. We believe 
that it is important for test publishers and States to provide this 
information with their test submissions to demonstrate that adequate 
screening procedures are used. Throughout the negotiated rulemaking 
discussions on the ATB provisions, one of the non-Federal negotiators 
voiced the belief that test publishers should be required to determine 
the ``integrity'' of the test administrators they certify. Other non-
Federal negotiators questioned how test publishers or States would 
evaluate a test administrator's integrity and expressed concern that if 
such a requirement were in the regulations, it would be too 
prescriptive. We have included in proposed Sec.  668.144(c)(16)(i) and 
(d)(7)(i) a requirement that test publishers and States describe how 
they will determine that a test administrator has the integrity 
necessary to administer tests. The Department does not intend to impose 
unnecessary or ill-defined burdens; therefore, we are specifically 
soliciting feedback on the proposal to require test publishers and 
States to describe how they will determine that test administrators 
have integrity, in addition to the training, skills, and knowledge 
necessary to administer tests.
    Second, we propose to include, in proposed Sec.  668.144(c)(17) and 
(d)(8), a requirement that test publishers and States submit a 
description of the test anomaly analysis they will conduct and how they 
will identify potential test irregularities and make a determination 
that test irregularities have occurred. We propose these requirements 
to promote some transparency in the screening process that is being 
used.
    Third, we propose to include, in proposed Sec.  668.144(c)(18) and 
(d)(9), a requirement that test publishers and States describe the 
types of accommodations available for individuals with disabilities and 
the process for identifying and reporting to the test publisher or the 
State when accommodations for individuals with disabilities were 
provided. This additional information is necessary for scoring and 
norming purposes.
Test Approval Procedures (Sec.  668.145)
    Current regulations: Current Sec.  668.145 describes both 
procedures for the review of tests submitted by test publishers and the 
circumstances under which the Secretary's approval may be withdrawn.
    Proposed regulations: We propose to revise Sec.  668.145 to extend 
the test approval procedures to tests submitted by States. We would 
make a number of non-substantive technical changes to this section as 
well.
    Proposed Sec.  668.145(c)(1) would specify that the approval of a 
test begins five years from the date the notice of approval for the 
test is published in the Federal Register. Under proposed Sec.  
668.145(d)(1), test approval could be revoked if a test publisher or 
State violated any terms of the agreement described in Sec.  668.150 or 
if the test publisher or State substantially changed the test and did 
not resubmit the test, as revised, for approval. Proposed Sec.  
668.145(d)(2) would provide that revocation would become effective 120 
days from the date the notice of revocation was published in the 
Federal Register or an earlier date specified by the Secretary in a 
notice published in the Federal Register.
    Reasons: Consistent with the changes reflected in proposed Sec.  
668.144, we would amend Sec.  668.145 to make the test approval 
procedures applicable to States as well as to test publishers, where 
appropriate. In proposed Sec.  668.144(c)(1), we would specify that the 
approval period, not to exceed five years, would start on the date the 
notice of approval is published in the Federal Register. We propose to 
provide that the approval period commences on this date, rather than on 
the date the Secretary provides written notice to the test publisher of 
approval, because the public will be able to determine the effective 
date from the notice and that might be relevant information for 
institutions.
    One of the non-Federal negotiators suggested expanding the reasons 
for revocation to include substantially changing a test without 
resubmitting it to the Department. The Department agreed. For this 
reason, we would add language to proposed Sec.  668.145(d)(1) to 
provide that test approval could be revoked if a test publisher or 
State substantially changed the test and did not resubmit the test, as 
revised, for approval.
    Finally, in proposed Sec.  668.145(d)(2), we would provide that a 
revocation of test approval would become effective 120 days after the 
date the notice of revocation is published in the Federal Register or 
an earlier date specified by the Secretary in a notice published in the 
Federal Register. We propose this change to ensure that the public has 
access to this information.
Criteria for Approving Tests (Sec.  668.146)
    Current regulations: Current Sec.  668.146 sets forth the criteria 
the Secretary uses to evaluate and approve tests submitted under 
subpart J of part 668. Under this provision, in order for a test to be 
approved, a test publisher must provide specified information and norm 
the test with groups of sufficient size to produce defensible standard 
errors of the mean, with groups not composed disproportionately of any 
race or gender, and with a contemporary population representative of 
persons who are beyond the usual age of compulsory school attendance in 
the United States.
    Proposed regulations: We propose to revise Sec.  668.146 to provide 
that the criteria for approving tests apply to tests submitted by 
States as well as test publishers. In addition, we propose to make a 
number of small technical and conforming changes to this section. 
Finally, in proposed Sec.  668.146(c)(4)(ii), we require that States 
and test publishers norm their tests with a contemporary sample that is 
representative of the population of persons who have earned a high 
school diploma in the United States.
    Reasons: Consistent with the changes we propose to make to Sec.  
668.144, we propose to amend Sec.  668.145 to ensure that the criteria 
for approving tests apply to States as well as to test publishers, 
where appropriate.
    We propose to amend Sec.  668.146(c)(4)(ii) to ensure that tests 
are being normed with a contemporary sample of persons who have earned 
a high school diploma in the United States, rather than persons who are 
beyond the usual age of compulsory school attendance in the United 
States. The purpose of this subpart is to implement the statutory 
provisions that provide an alternative means for students who do not 
have a high school diploma or the equivalent to establish eligibility 
for the title IV, HEA programs. Therefore, to determine the ability of 
such students to benefit from a postsecondary education or training 
program, pass scores should be based only on the scores of test takers 
who have a high school diploma, not the scores of test takers who are 
beyond the age of compulsory attendance but who may not have completed 
high school.

[[Page 34842]]

Passing Scores (Sec.  668.147)
    Current regulations: Under current Sec.  668.147, the Secretary 
specifies that the passing score on each approved test is one standard 
deviation below the mean for students with high school diplomas who 
have taken the test within three years before the test was submitted 
for approval.
    Proposed regulations: Proposed Sec.  668.147 would specify that 
passing scores are based on the mean score of a sample of individuals 
who have taken the test during the three years before it was submitted. 
The sample would need to be representative of the population of high 
school graduates in the United States.
    Reasons: The proposed changes to Sec.  668.147 would specify that 
the passing score is based on the mean score of a sample of high school 
graduates who have taken the test. This change would make it clear that 
a sample of test takers would be used, and that the test takers whose 
scores are used need not be students.
Additional Criteria for the Approval of Certain Tests (Sec.  668.148)
    Current regulations: Current Sec.  668.148 specifies additional 
criteria for approval of tests that are performance-based, developed 
for non-native speakers of English, modified for use for persons with 
disabilities, and computer-based.
    Proposed regulations: Proposed Sec.  668.148 would largely track 
current Sec.  668.148. In addition to making technical updates and 
conforming changes (e.g., updating references to documents incorporated 
by reference and updating defined terms to use those terms proposed in 
this document), we propose to remove the criteria for approval of 
performance-based tests, reflected in current Sec.  668.148(a)(1). We 
also propose to revise the regulatory provision relating to tests 
developed for non-native speakers of English who are enrolled in a 
program that is taught in their native language to provide that if the 
test is in a language other than Spanish, it must be accompanied by a 
recommendation for a provisional passing score based upon performance 
of a sample of test takers representative of non-English speaking 
individuals who speak a language other than Spanish and who have a high 
school diploma. The sample upon which the recommended provisional 
passing score would be based would need to be large enough to produce 
stable norms. In addition, we would provide, in proposed Sec.  
668.148(b)(2), that the recommended passing scores for tests designed 
solely to measure the English language competence of non-native 
speakers of English would need to be based on the mean score of test 
takers beyond the age of compulsory school attendance who completed 
(rather than entered) specified programs.
    Reasons: We propose to remove the regulatory provision related to 
performance-based tests because, as mentioned earlier in this preamble 
discussion, no performance-based tests have ever been submitted to the 
Secretary for approval.
    The change proposed in the regulatory provision relating to tests 
developed for non-native speakers of English who are enrolled in a 
program that is taught in their native language (other than Spanish) is 
intended to provide that the provisional passing scores are based on a 
sample of test takers whose native language is not Spanish and who have 
a high school diploma. This is parallel to the proposed change in Sec.  
668.144(c)(11)(iv)(B).
    Finally, the change reflected in proposed Sec.  668.148(b)(2), 
which would require basing recommendations for passing scores for tests 
to measure English language competence on scores of test takers that 
have completed, rather than entered, specified educational and training 
programs, is designed to be consistent with changes throughout these 
proposed regulations. The Department specifically seeks input on the 
possible impact of this change due to the potential for unintended 
consequences.
Special Provisions for the Approval of Assessment Procedures for 
Individuals With Disabilities (Sec.  668.149)
    Current regulations: Current Sec.  668.149 (Special provisions for 
the approval of assessment procedures for special populations for whom 
no tests are reasonably available) describes the special procedures 
that apply when testing persons with disabilities and students whose 
native language is not English and who are not fluent in English under 
subpart J of part 668.
    Proposed regulations: We propose to restructure Sec.  668.149 to 
focus only on the special provisions for the approval of assessment 
procedures for individuals with disabilities. We would remove current 
Sec.  668.149(b), which describes the procedures for automatic test 
approval for tests provided in a student's native language for students 
whose native language is not English.
    Reasons: We propose to revise Sec.  668.149 to make clear the 
respective responsibilities of test publishers (or States, where 
appropriate) and test administrators when using special assessment 
procedures for individuals with disabilities.
    We expect test administrators who administer tests under this 
section to ensure there is documentation of the test-taker's need for a 
modified test and to comply with the provisions of Sec.  668.149(c)(2). 
We would encourage a test administrator to coordinate with the 
institution's disability support services center, or other 
institutional or State staff who have knowledge of an individual's need 
for a modified test to ensure that an appropriate test is given.
    We propose to remove the regulatory language concerning the use of 
foreign language tests, because historically there have been no 
submissions of foreign language tests for approval. Moreover, pursuant 
to the current regulations, because there are no currently approved 
foreign language tests, any foreign language test that has not been 
rejected by the Secretary is considered automatically to be approved 
even if it has not been submitted to the Secretary for approval. Under 
the current regulatory framework, therefore, test publishers and States 
lack an incentive to submit tests in foreign languages for the 
Secretary's approval. Continuing under the current regulations in Sec.  
668.149(b) would allow test publishers and States to circumvent the ATB 
test approval process; therefore, we propose its removal. With the 
removal of ``Students whose native language is not English'' from Sec.  
668.149(b), foreign language tests would be required to be submitted 
through the established test approval procedures in Sec. Sec.  668.145 
and 668.148.
    During the negotiated rulemaking discussions, some of the non-
Federal negotiators thought it might be advisable to have a transition 
period before removing the special provisions in current Sec.  
668.149(b). In light of this suggestion, the Department is soliciting 
comments on whether a transition period is necessary and, if one is 
necessary, how long should it be.
Agreement Between the Secretary and a Test Publisher or a State (Sec.  
668.150)
    Current regulations: The current regulations require test 
publishers to enter into an agreement with the Secretary before an 
institution may use the test publisher's test to determine a student's 
eligibility for title IV, HEA program funds. Current Sec.  668.150(b) 
describes the specific provisions that must be included in the 
agreement. Current Sec.  668.150(c) contains the regulations governing 
the Secretary's termination of an agreement.
    Proposed regulations: Proposed Sec.  668.150 would provide that 
States, as

[[Page 34843]]

well as test publishers, must enter into agreements with the Secretary 
in order to have their tests approved.
    We would also revise this section to require both test publishers 
and States to comply with a number of new requirements that would be 
added to the agreement with the Secretary. These requirements would 
include:
     Requiring the test administrators that they certify to 
provide them with certain information about whether they have been 
decertified (see proposed Sec.  668.150(b)(2)).
     Certifying only test administrators who have not been 
decertified within the last three years (see proposed Sec.  
668.150(b)(3)(iii)).
     Re-evaluating the qualifications of a test administrator 
who has been decertified by another test publisher or State (see 
proposed Sec.  668.150(b)(5)).
     Immediately notifying the test administrator, the 
Secretary, and institutions when the test administrator is decertified 
(see proposed Sec.  668.150(b)(6)).
     Reviewing test results of tests administered by a 
decertified test administrator and immediately notifying affected 
institutions and students (see proposed Sec.  668.150(b)(7)).
     Providing copies of test anomaly analysis every 18 months 
instead of every 3 years (see proposed Sec.  668.150(b)(13)).
     Providing access to test records or other documents 
related to an audit, investigation, or program review of an 
institution, the test publisher, or a test administrator (see proposed 
Sec.  668.150(b)(14)).
     Reporting to the Secretary any credible information 
indicating that a test has been compromised (see proposed Sec.  
668.150(b)(15)).
     Reporting to the Office of Inspector General of the 
Department of Education any credible information indicating that a test 
administrator or institution may have engaged in fraud or other 
criminal misconduct (see proposed Sec.  668.150(b)(16)).
     Requiring a test administrator who provides a test to an 
individual with a disability who requires an accommodation in the 
test's administration to report to the test publisher or the State the 
nature of the disability and the accommodations that were provided (see 
proposed Sec.  668.150(b)(17)).
    Reasons: Many of the requirements we propose to add to the required 
provisions in agreements between the Secretary and test publishers 
(and, under the proposed regulations, States) are based on 
recommendations the Department received from the Government 
Accountability Office (GAO). GAO issued a report in August 2009 that 
cited the Department for weak oversight of the ATB test requirements; 
in its report, GAO provided recommendations to the Department to 
strengthen controls over the ATB testing process and to amend the ATB 
regulations. Specifically, the GAO identified the following problems 
with the current regulations:
     Current regulations require test publishers to conduct 
test score analyses only every three years. This means it is possible 
for test administrators who are administering tests improperly to go 
undetected for up to three years.
     While the current regulations require that test publishers 
decertify test administrators who fail to administer tests properly, 
they do not require test publishers to report to the Department on 
implementation of their decertification process.
     Current regulations do not specifically require test 
publishers to follow up on test score irregularities or report any 
corrective actions to the Department. Therefore, the Department has no 
way of knowing whether actual violations occurred or how the test 
publishers dealt with any violations they identified.
    In response to the first problem identified by GAO, we propose to 
require, in proposed Sec.  668.150(b)(13), that test publishers conduct 
test score analyses every 18 months, instead of every 3 years. This 
change would reduce the possibility that test administrators who are 
administering tests improperly would go undetected. The Department 
initially proposed that test anomaly analysis be submitted 18 months 
after test approval, then annually thereafter. However, after hearing 
the discussion of the benefits and drawbacks of more frequent analysis, 
the Department agrees that receiving test score analyses every 18 
months after approval would address its concerns.
    The second problem identified by GAO was that current regulations 
do not require test publishers to report to the Department on 
implementation of their decertification process. The Department seeks 
to address this problem in proposed Sec.  668.150(b)(6), which would 
require test publishers and States to immediately notify the test 
administrator, the Secretary, and the institutions where the test 
administrator previously administered approved tests, when the test 
publisher or the State decertifies a test administrator.
    The decertification of test administrators and the draft regulatory 
language the Department offered to address this problem generated a 
considerable amount of discussion during the negotiated rulemaking 
sessions. The Department initially proposed draft regulatory language 
that would require test publishers and States to review the tests 
results of the tests administered by a decertified test administrator 
and determine which tests were invalid. During the discussion at 
negotiated rulemaking, it became clear that the focus of the proposed 
regulations should be on a determination of whether the tests were 
administered improperly, rather than on a determination of whether the 
tests were invalid. For this reason, proposed Sec.  668.150(b)(7)(i) 
would require test publishers and States to review the test results of 
tests administered by decertified test administrators to determine 
which tests may have been administered improperly. Proposed Sec.  
668.150(b)(7)(ii) would require that test publishers and States 
immediately notify the affected institutions and students when they 
determine that tests were improperly administered. The Department is 
committed to providing guidance to test publishers, States, and 
institutions regarding how to handle situations where tests have been 
determined to be improperly administered and to working with the test 
publishers and the States on notification letters to institutions and 
students.
    Some non-Federal negotiators said it was important for all students 
who had been given an ATB test by a decertified test administrator to 
be notified. Other non-Federal negotiators believed this was not 
necessary. The Department solicits comments on whether notification to 
all potentially affected institutions, students, or prospective 
students should take place when a test administrator is decertified, 
regardless of whether there has been a determination that the tests 
given to those students or prospective students were improperly 
administered.
    Some non-Federal negotiators expressed the opinion that once a test 
administrator was decertified, he or she should not be able to be 
recertified, and that the Department should keep a list of decertified 
test administrators. The discussion of this topic at negotiated 
rulemaking caused the Department to examine options for the appropriate 
length of time for decertification, the impact of a decertification by 
one test publisher or State on the certification of that test 
administrator by other test publishers or States, and the extent of 
notifications.

[[Page 34844]]

    The Department's position is that the decertification process 
should not be any more complicated than necessary. As there is no 
provision for a third party to appeal a decertification, we do not 
believe it is appropriate for a test administrator who is decertified 
by one test publisher to be decertified forever--without the ability to 
be certified by any test publisher again.
    Therefore, we propose a number of regulatory changes to ensure that 
States and test publishers have rigorous certification and 
decertification processes. Specifically, we would require, at the front 
end of the certification process, that a test publisher (or State) 
obtain a statement from potential test administrators indicating that 
they are not currently decertified and agreeing that they will notify 
the test publisher or State if they become decertified by another 
entity (see proposed Sec.  668.150(b)(2)). We would then provide, under 
proposed Sec.  668.150(b)(3)(iii), that a decertified test 
administrator would not be able to get a new certification again until 
three years after his or her decertification. We believe that these 
provisions would address the potential problem of having a decertified 
test administrator obtain certification from another test publisher and 
getting certified.
    In the case of a test administrator who has been certified by more 
than one test publisher (or State) but then is decertified by one test 
publisher (or State), we would not require the immediate and automatic 
decertification of the test administrator by other test publishers (or 
States). Instead, as reflected in proposed Sec.  668.150(b)(5), we 
would require that other test publishers re-evaluate the qualifications 
of the test administrator to determine whether it is appropriate to 
continue the test administrator's certification.
    The Department is proposing this approach to avoid the problem of 
one entity's actions having an inappropriate negative impact on another 
entity. It is conceivable that the cause for decertification by one 
test publisher or State would be unlikely to arise at a different test 
publisher or State because of different procedures. Also, in the 
context of test publishers, this approach would avoid the potential for 
one test publisher being able to affect the services of a competitor.
    The third problem identified by GAO (i.e., the fact that the 
current regulations do not require any follow-up on test score 
irregularities or corrective action) is addressed by a number of 
proposed provisions. In addition to proposed Sec.  668.150(b)(7), which 
we discussed earlier, Sec.  668.150(b)(15) would require that a test 
publisher or State immediately report to the Secretary any credible 
information indicating that a test has been compromised. Proposed 
paragraph (b)(16) of Sec.  668.150 would require that test publishers 
and States immediately report to the Department's Office of Inspector 
General any credible information indicating that a test administrator 
or institution may have engaged in fraud or other criminal misconduct.
    Finally, in proposed Sec.  668.150(b)(17), we would require that 
test administrators notify test publishers (and States) if they provide 
any accommodations to individuals with disabilities. We believe that 
adding this requirement is appropriate because it would allow test 
publishers and States to take this information into account when 
norming tests in the future.
Administration of Tests (Sec.  668.151)
    Current regulations: Current Sec.  668.151 requires institutions to 
select a test administrator to give approved tests and to use results 
from an approved test publisher or assessment center. This provision 
also describes the conditions under which a test is considered to be 
independently administered.
    Proposed regulations: Proposed Sec.  668.151(a) would largely 
mirror the language in current Sec.  668.151(a), except that, in 
paragraph (a)(1), we would remove the reference to tests approved under 
Sec.  668.143 and we would refer to ``test administrator'', rather than 
``certified test administrator.'' As discussed elsewhere in this 
preamble, we have moved much of the language from current Sec.  
668.151(b) to the definition of the term independent test administrator 
in proposed Sec.  668.142. As revised, proposed Sec.  668.151(b)(1) 
would retain the current provision that the Secretary considers a test 
to be independently administered if it is given at an assessment center 
by a test administrator who is an employee of the center. In proposed 
Sec.  668.151(b)(2), we would add language to provide that the 
Secretary also considers a test to be independently administered if it 
is given by an independent test administrator (defined in Sec.  
668.142) who maintains tests at a secure location and submits the test 
for scoring by the test publisher or the State or, for a computer-based 
test, a record of the test scores, within two business days of 
administering the test.
    Proposed Sec.  668.151(c) and (d) would largely track current Sec.  
668.151(c) and (d) except that we would update these paragraphs so that 
they would apply to both States and test publishers. In addition, we 
would revise proposed Sec.  668.151(d)(3) to ensure that it is 
consistent with the changes reflected in proposed Sec.  668.151(b)(2) 
and Sec.  668.152(b)(2). We are proposing to remove Sec.  668.152(d)(6) 
because the requirement is covered in proposed Sec.  668.150(b)(14).
    Finally, in proposed Sec.  668.151(g)(4), we would require 
institutions to keep a record of each individual who took an ATB test 
and the name and address of the test administrator who administered the 
test and any identifier assigned to the test administrator by the test 
publisher or the State. If the individual who took the test has a 
disability and is unable to be evaluated by the use of an approved ATB 
test, or requested or required a testing accommodation, the institution 
would be required, under proposed Sec.  668.151(g)(5), to maintain 
documentation of the individual's disability and of the testing 
arrangements provided.
    We would also make minor technical and conforming changes 
throughout this section.
    Reasons: The minor changes reflected in proposed Sec.  668.151(a) 
would be made to make the provision consistent with other changes in 
the proposed regulations. Specifically, we remove the reference to 
Sec.  668.143 because we are not including that provision in the 
proposed regulations, and we refer to ``test administrator'' because, 
by definition, a test administrator must be certified (see proposed 
definition of test administrator in Sec.  668.142).
    In proposed Sec.  668.151(b)(2), we would add a requirement to 
address the need to maintain tests in a secure location. This topic 
generated a great deal of discussion during the negotiated rulemaking 
sessions. After the second negotiated rulemaking session, the 
Department proposed draft language that would have required test 
publishers to maintain tests at a secure location, somewhere other than 
at the institution at which the tests are being administered.
    Those non-Federal negotiators who had expressed the belief that 
tests should not be kept at an institution, unless the institution had 
an assessment center, were supportive of this proposal. Some of the 
other non-Federal negotiators identified a number of potential problems 
with this proposal. For example, they explained that it is common 
practice for test publishers to ship cartons of tests to the 
institutions where the tests will be administered, whether the tests 
are being administered at a test assessment center or by an independent 
test administrator. In addition, we were informed that many, if not 
most tests approved for ATB are

[[Page 34845]]

used for placement and other purposes and not used solely for the 
determination of individuals' eligibility for title IV, HEA programs. 
Some non-Federal negotiators noted that, in fact, it is also possible 
that tests may be far more secure if they are located at an institution 
where the facilities are monitored. Independent test administrators may 
not have access to secure locations apart from the institutions at 
which they give tests. For this reason, some non-Federal negotiators 
urged the Department not to require that tests be maintained in a 
secure location other than the institution at which they would be 
administered.
    The language in proposed Sec.  668.151(b)(2) is consistent with the 
Department's position that all ATB tests must be kept at a secure 
location. However, we also understand that if some of the tests are 
used for multiple purposes, it is difficult to prohibit the delivery of 
these tests to an institution. Therefore, the Department is 
specifically soliciting comments regarding proposed Sec.  668.151(b)(2) 
and on other ways the Department can ensure that tests can be kept 
secure. Specifically, what does it mean to keep tests at a secure 
location? Does it mean a locked facility to which only the test 
administrator has a key? Should the focus be on maintaining a chain of 
custody, with adequate safeguards, rather than on the location itself? 
Is there a way to maintain inventory that would address the test 
security issue? As test publishers have a vested interest in keeping 
their tests secure, the Department is particularly interested in 
recommendations regarding how best to address the security issue in 
regulations.
    With regard to the changes reflected in proposed Sec.  668.151(g), 
we would be adding to the information that an institution must record. 
The added information that the institution would be required to 
maintain for each individual who took an ATB test would include: (1) 
the name and address of the test administrator who administered the 
test and any identifier assigned to the test administrator by the test 
publisher or the State; and (2) if the individual who took the test has 
a disability and is unable to be evaluated by the use of an approved 
ATB test or the individual requested or required a testing 
accommodation, documentation of the individual's disability and of the 
testing arrangements that is provided in accordance with Sec.  
668.153(b). This proposed provision is intended to encompass 
documentation of accommodations provided through the use of accessible 
technologies, as described in Sec.  668.144(c)(18) and(d)(9), as well 
as other accommodations requested or required by the individual with a 
disability in accordance with Sec.  668.153(b). Requiring the name, 
address and any assigned identifier for each test administered would 
enable the test publisher or State to identify all tests administered 
by a test administrator and facilitate the notification of test takers 
should the test publisher or the State determine that the test was 
improperly administered. Requiring documentation of disabilities that 
necessitate testing accommodation, and of the testing arrangements 
provided, would provide important information for two reasons. First, 
collection of the information would help emphasize that testing 
accommodations may be provided only to individuals with documentation 
of a disability who require testing accommodations. We would encourage 
test administrators to work with an institution's disability support 
services center, or other institutional or State staff who have 
knowledge and experience in providing appropriate testing 
accommodations to individuals with disabilities to ensure that 
appropriate testing accommodations are provided and are appropriately 
documented. Second, providing such information to the test publisher or 
State would let those entities know that testing accommodations were 
provided, so that entity can make a determination regarding whether to 
include the score with scores of other test takers, for whom no testing 
accommodations were provided, for evaluative or norming purposes in the 
future.
Administration of Tests by Assessment Centers (Sec.  668.152)
    Current regulations: Under current Sec.  668.152(a), assessment 
centers are required to follow the requirements for administering tests 
specified in Sec.  668.151(d). If the assessment center scores tests, 
it must send copies of completed tests, or a report listing all test-
takers' scores, to the test publisher on an annual basis (see current 
Sec.  668.152(b)).
    Proposed regulations: Proposed Sec.  668.152(a) would clarify that 
assessment centers are also required to comply with the provisions of 
Sec.  688.153 (Administration of tests for individuals whose native 
language is not English or for individuals with disabilities), if 
applicable.
    Under proposed Sec.  668.152(b)(2), assessment centers that score 
tests would be required to provide copies of completed tests or lists 
of test-takers' scores to the test publisher or the State, as 
applicable, on a weekly basis. Under proposed Sec.  668.152(b)(2)(i) 
and (b)(2)(ii), copies of completed tests or reports listing test-
takers' scores would be required to include the name and address of the 
test administrator who administered the test and any identifier 
assigned to the test administrator by the test publisher or the State.
    Reasons: In proposed Sec.  668.152(a), we would clarify that 
assessment centers are also required to comply with the provisions of 
Sec.  668.153. With respect to individuals whose native language is not 
English, the test assessment center would be required to use the 
appropriate test, depending on the type of program in which an 
individual plans to enroll, and whether the classes are conducted in 
English or in the individual's native language. With respect to 
individuals with disabilities, the assessment center would be required 
to maintain documentation of an individual's disability, and would be 
required to ensure that there is documentation that an individual with 
a disability requires accommodations, such as extra time or a quiet 
room, for taking an approved test. Under current regulations, the 
presumption is that assessment centers comply with the provisions of 
Sec.  668.153, but the proposed regulations would make the requirement 
explicit so there is no misunderstanding.
    In proposed Sec.  668.152(b)(2), we would require assessment 
centers that score tests to provide on a weekly basis (rather than an 
annual basis) the test publisher, or the State, as applicable, with all 
copies of the completed tests and a report listing, among other things, 
all test-takers' scores and institutions to which the scores were sent. 
We would also revise this section to require assessment centers to 
record the name and address of the test administrator who administered 
the test and any identifier assigned to the test administrator by the 
test publisher and to maintain this information in the copies of the 
completed tests or a report listing all test-takers' scores and 
institutions to which the scores were sent. These changes would enable 
the test publisher or State to identify all tests administered by a 
test administrator and to facilitate the notification of test takers 
should the test publisher or the State determine that the test was 
improperly administered.
    We also propose minor technical and conforming changes throughout 
this section.

[[Page 34846]]

Administration of Tests for Individuals Whose Native Language Is Not 
English or for Individuals With Disabilities (Sec.  668.153)
    Current regulations: Current Sec.  668.153 describes the 
requirements governing the administration of tests for students whose 
native language is not English or for persons with disabilities.
    Current Sec.  668.153(a) specifies the requirements that apply to 
the tests that must be used for students whose native language is not 
English and those requirements differ depending on whether the student 
is enrolled in (1) a program conducted entirely in his or her native 
language, (2) a program that is taught in English with an English as a 
Second Language (ESL) component; or (3) a program that is taught in 
English without an ESL component, or the student does not enroll in the 
ESL component if the institution offers such a component.
    Current Sec.  668.153(b) specifies the requirements that apply to 
the tests that must be used for students with a documented impairment. 
Under this provision, an institution must use a test described in Sec.  
668.148(a)(3) or Sec.  668.149(a) for students with a documented 
impairment. The institution must document that a student is disabled 
and unable to be evaluated by the use of a conventional test.
    Proposed regulations: In addition to reflecting a number of 
technical and conforming changes, proposed Sec.  668.153 would clarify 
that this section applies to individuals whose native language is not 
English or individuals with disabilities who are enrolled or who plan 
to enroll at an institution (i.e., not only students).
    Proposed Sec.  668.153(a)(1) and (a)(3) would remain largely 
unchanged from the current regulations. Under proposed Sec.  
668.153(a)(2), an individual whose native language is not English who 
is enrolled or plans to enroll in a program taught in English with an 
ESL component would now be required to take an English language 
proficiency assessment approved under Sec.  668.148(b) and, before 
beginning the portion of the program taught in English, a test approved 
under Sec.  668.146.
    Proposed Sec.  668.153(b) would be revised by removing references 
to an individual's impairment and, in its place, using the term 
individual with a disability, which would be defined in proposed Sec.  
668.142. The substantive changes reflected in paragraph (b) of proposed 
Sec.  668.153 relate to the documentation necessary to support the 
determination that an individual has a disability and requires 
accommodations for taking an approved test. If an individual with a 
disability requires accommodations--such as extra time or a quiet 
room--for taking an approved test, or is unable to be evaluated by the 
use of an approved ATB test, the test administrator would be required 
to ensure that there is documentation to support the alternative 
arrangements. Proposed Sec.  668.153(b)(4), which lists potential 
sources of such documentation, would be expanded to include a record of 
the disability from a local or State educational agency, or other 
government agency, such as the Social Security Administration or a 
vocational rehabilitation agency that identifies the disability and may 
include a diagnosis as well as recommended testing accommodations.
    Reasons: We propose to refer to ``individuals who are enrolled, or 
who plan to enroll'', instead of ``students who are enrolled'', 
throughout this section because it is common for individuals to take 
ATB tests prior to enrollment.
    We propose to make the changes reflected in proposed Sec.  
668.153(a)(2) to address a problem with the current regulations, which 
require non-native English speakers who enroll in a program that is 
taught in English and that has an ESL component to take either an ESL 
test or an ATB test in the student's native language. Testing such an 
individual in his or her native language does not demonstrate that the 
individual has the ability to benefit from a program taught in English. 
Rather, for these individuals, it is necessary first to determine how 
proficient they are in English. Therefore, proposed Sec.  668.153(a)(2) 
would require individuals who wish to enroll in such a program to first 
take an English language proficiency assessment to determine 
appropriate placement in the ESL component. Before such students could 
begin a program taught in English, they would be required to take a 
regular ATB test in English.
    Finally, we would revise Sec.  668.153(b)(3) to require that test 
administrators ensure that there is adequate documentation to support 
determinations that a test-taker is an individual with a disability and 
requires accommodations for taking an approved test or is unable to be 
evaluated by the use of an approved ATB test. The examples of 
documentation that would be added to Sec.  668.153(b)(4) are provided 
to assist institutions in understanding what kinds of documentation are 
appropriate for supporting a determination that an individual has a 
disability and requires accommodations for taking an approved test.
Institutional Accountability (Sec.  668.154)
    Current regulations: Current Sec.  668.154 limits institutional 
liability for title IV, HEA program funds disbursed to a student whose 
eligibility is determined under subpart J of part 668 only if the 
institution used a test administrator who: (1) was not independent of 
the institution at the time the test was given, (2) compromised the 
testing process, or (3) was unable to demonstrate that the student 
received a passing score on an approved test.
    Proposed regulations: Proposed Sec.  668.154 would largely track 
current Sec.  668.154, except that it would provide for institutional 
liability if institutions used a test that was not administered 
independently in accordance with Sec.  668.151(b). In addition, in 
proposed Sec.  668.154(b), we would clarify that an institution would 
be liable if it or an employee of the institution compromised the test 
in any way.
    Reasons: We propose to amend Sec.  668.154(a) to provide that an 
institution would be liable if the institution used a test that was not 
administered independently, in accordance with Sec.  668.151(b). In 
making this change, we would clarify that ATB tests must be 
administered independently, whether in an assessment center or by an 
independent test administrator in order to preserve the integrity of 
the testing process.
    In addition, we propose to provide that an institution would be 
held responsible if either the institution or an employee of the 
institution compromises the testing process to promote accountability.
Transitional Rule for the 1996-97 Award Year (Sec.  668.155)
    Current regulations: Current Sec.  668.155 contains a transitional 
rule for the 1996-97 award year.
    Proposed regulations: The proposed regulations would remove current 
Sec.  668.155 and reserve that section for future use.
    Reason: We propose to remove the transitional rule for 1996-97 
because it is outdated.
Approved State Process (Sec.  668.156)
    Current regulations: Current Sec.  668.156 provides the 
requirements for the Department's approval of a State process that 
serves as an alternative to the requirement for passage of a test 
approved under subpart J of part 668.
    Proposed regulations: Proposed Sec.  668.156 would remain largely 
unchanged from current Sec.  668.156. The one change, in proposed Sec.  
668.156(e), would specify that an approved State

[[Page 34847]]

process would become effective on the date the Secretary approves the 
process or six months after the State submits the process for approval 
if the Secretary neither approves nor disapproves the process.
    Reason: The change clarifies that the effective date of a State 
process is the date the process has been deemed to be approved. We made 
this change to clarify what the effective date of a process is when the 
Secretary affirmatively approves it.
Disbursements (Sec. Sec.  668.164(i), 685.102(b), 685.301(e), 686.2(b), 
and 686.37(b))
Provisions for Books and Supplies
    Statute: Section 401(e) of the HEA provides that an institution may 
credit a student's account with Federal Pell Grant funds to pay for the 
cost of tuition and fees, and for institutionally owned housing, room, 
and board. For other goods and services provided by the institution, 
the student may elect to have his or her account credited with Federal 
Pell Grant funds to pay those costs. In all other respects, section 
401(e) provides that payments of Federal Pell Grant funds are made in 
accordance with regulations promulgated by the Secretary. The HEA does 
not address the issue of crediting student accounts for the other title 
IV, HEA programs.
    Current regulations: Section 668.164(b) provides that an 
institution must disburse title IV, HEA program funds (except for FWS 
funds) on a payment period basis. Section 668.164(d) reflects the 
statutory requirements for crediting a student's account with Federal 
Pell Grant funds, but provides that those requirements also apply to 
ACG, National SMART Grant, TEACH Grant, FSEOG, Federal Perkins Loan, 
Direct Loan, and FFEL program funds. In addition, Sec. Sec.  686.33(a), 
690.76(a), and 691.76(a), provide that for each payment period, an 
institution may pay Federal Pell Grants, ACGs, National SMART Grants, 
and TEACH Grants to a student in a time and manner that best meets the 
student's needs.
    Proposed regulations: Under proposed Sec.  668.164(i), an 
institution would provide a way for a Federal Pell Grant eligible 
student to obtain or purchase required books and supplies by the 
seventh day of a payment period under certain conditions. An 
institution would have to comply with this requirement only if, 10 days 
before the beginning of the payment period, the institution could 
disburse the title IV, HEA program funds for which the student is 
eligible, and presuming that those funds were disbursed, the student 
would have a credit balance under Sec.  668.164(e). The amount the 
institution would provide to the student for books and supplies would 
be the lesser of the presumed credit balance or the amount needed by 
the student, as determined by the institution. In determining the 
amount needed by the student, the institution may use the actual costs 
of books and supplies or the allowance for books and supplies used in 
the student's cost of attendance for the payment period.
    Reasons: Although the current regulations permit institutions to 
disburse Federal Pell Grant and other title IV, HEA program funds in a 
manner that best meets the needs of students, we have identified 
situations where low-cost institutions delay disbursing funds for an 
extended time, or make partial disbursements to cover costs for only 
tuition and fees. As a result of these practices, students either have 
to pay for books and supplies that would otherwise be paid by title IV, 
HEA program funds by obtaining loans, or do without the books and 
supplies needed at the beginning of the term or enrollment period until 
the institution makes the funds available. The proposed regulations 
would reduce these disbursement delays at some institutions and enable 
students to obtain their books and supplies in a timely manner.
    During the negotiated rulemaking sessions, some of the non-Federal 
negotiators stated that many institutions advance funds (institutional 
funds or title IV, HEA program funds) or issue vouchers, or other 
credit vehicles, that students use to obtain books and supplies. The 
negotiators noted that if a student to whom the institution provided 
the advance or voucher does not begin classes, the institution risks 
losing the amount advanced. For example, if the institution advanced 
Federal Pell Grant funds to a student, e.g., made a disbursement 
directly to the student, and the institution could not show that the 
student began attendance in the payment period, under Sec.  
668.21(a)(1) the institution would be liable and would have to return 
those funds. For this reason, some of the non-Federal negotiators 
argued that in exchange for requiring an institution to advance funds 
or issue vouchers early in the payment period, and before the 
institution could establish that the student began attendance, the 
student should be liable under Sec.  668.21 for returning the funds.
    In response to these concerns and suggestions, the Department put 
forward draft proposed regulations shifting the liability to students, 
but that draft was rejected by other non-Federal negotiators for two 
reasons. First, these negotiators believed that a student should not be 
responsible for repaying a debt under the title IV, HEA programs 
because a student could be precluded from enrolling again at a 
postsecondary institution if the student did not repay the debt or make 
satisfactory arrangements to repay it. Second, some of the non-Federal 
negotiators were aware of predatory practices at some institutions 
where students were promised an advance of funds simply for enrolling 
in programs at those institutions, and these negotiators believed that 
shifting the liability to students would exacerbate these practices.
    Some of the non-Federal negotiators noted that some public 
institutions must request funds from a State office (unlike other 
institutions that have direct control of funds) and cautioned against 
adopting any regulations that would make it administratively difficult, 
if not impossible, for these institutions to comply with disbursement 
timelines. These non-Federal negotiators suggested that an advance or 
voucher for books and supplies could be issued early in the payment 
period only if the institution determined that the student was eligible 
and otherwise qualified for title IV, HEA program funds before the 
beginning of the payment period, and this suggestion is reflected in 
the proposed regulation.
    The committee agreed to adopt proposed Sec.  668.164(i), believing 
it provided an appropriate balance between the need for students to be 
able to purchase or obtain books and supplies early in the payment 
period and the administrative needs of institutions.
Reporting Disbursements, Adjustments, and Cancellations
    Statute: None.
    Current regulations: Sections 685.301(e) and 686.37(a) require an 
institution to submit a record to the Department for the initial 
disbursement of a Direct Loan or TEACH Grant no later than 30 days 
following the date of that disbursement. In addition, an institution 
must submit subsequent records for disbursements, adjustments, and 
cancellations of these program funds no later than 30 days following 
the date of those actions. However, Sec.  690.83(a)(2) of the Federal 
Pell Grant regulations provides that an institution submits Payment 
Data in accordance with procedures established by the

[[Page 34848]]

Secretary through publication in the Federal Register.
    Proposed regulations: The proposed regulations in Sec. Sec.  
685.301(e) and 686.37(b) would adopt the current Federal Pell Grant 
reporting requirements. Also, the definition of the term ``Payment 
Data'' would be added to the Direct Loan and TEACH Grant program 
regulations in Sec. Sec.  685.102(b) and 686.2(b), respectively.
    Reasons: The proposed regulations would harmonize the reporting 
requirements for the Federal Pell Grant, TEACH Grant, and Direct Loan 
programs and provide flexibility to the Secretary to modify the 
requirements to take advantage of changing technology and improved 
business processes.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the OMB. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action likely to result in a rule that may 
(1) have an annual effect on the economy of $100 million or more, or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    Pursuant to the terms of the Executive order, we have determined 
this proposed regulatory action will have an annual effect on the 
economy of more than $100 million. Therefore, this action is 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. Notwithstanding this determination, 
we have assessed the potential costs and benefits--both quantitative 
and qualitative--of this regulatory action and have determined that the 
benefits justify the costs.

Need for Federal Regulatory Action

    These proposed regulations are needed to implement provisions of 
the HEA, as amended by the HEOA, particularly related to programs that 
prepare students for gainful employment, incentive compensation, 
satisfactory academic progress policies, and verification of 
information on student aid applications which require the development 
of new or revised policies and disclosures for institutions 
participating in Federal student assistance programs. These regulations 
also would implement changes made by the HEOA to provisions related to 
ability to benefit options.
    Many regulatory provisions were included in this NPRM because of 
the length of time since they had been updated or the provisions' 
relationship to significant developments, such as the Department's 
FAFSA simplification initiative. In the following areas, the Secretary 
has exercised limited discretion in including topics in these proposed 
regulations:
    Definition of High School Diploma (Sec.  668.16(p)): The proposed 
regulations would require institutions to demonstrate the capability to 
adequately administer the program by developing and following 
procedures to evaluate the validity of a student's high school 
completion. A high school diploma is an essential factor in determining 
an institution's participation in or a student's eligibility for 
assistance under the title IV, HEA programs, but the term is not 
defined anywhere in the HEA or its implementing regulations. Under 
proposed Sec.  668.16(p), institutions would have to verify a student's 
high school completion if the institution or the Secretary has reason 
to believe a student's diploma is not valid or is not from an entity 
that provides secondary school education. This proposed provision is 
not intended to create a requirement to collect high school diplomas 
from all students. Rather, it allows operational flexibility so 
institutions can choose the best approach to make inquiries when 
warranted. To assist in this process, the Department is working to 
implement changes in the FAFSA. Specifically, beginning in 2011-2012, 
students will be required to list the name of their secondary school 
and the State that issued their diploma when completing their FAFSA. In 
addition, the Department plans to issue guidance to institutions on 
developing and following procedures for evaluating the validity of high 
school diplomas through the Federal Student Aid Handbook or other 
means.
    Ability to Benefit (Sec. Sec.  668.32 and 668.141 through 668.156): 
Students without a high school diploma or its equivalent may become 
eligible for title IV, HEA program funds if they can prove their 
ability to benefit from the planned education by taking Department-
approved ability to benefit tests or completing college coursework. The 
current regulations specify the criteria and procedures for approval of 
ATB tests, the requirements for independent administration of approved 
tests, the requirements for maintaining the Secretary's approval of ATB 
tests, and the procedures for the Secretary's approval of alternate 
State processes.
    As discussed in the ability to benefit section of this NPRM, the 
proposed regulations would update the procedures and requirements 
related to the administration and suitability of ability to benefit 
tests to ensure the security of the test, perform an analysis of test 
irregularities, take corrective action when test irregularities occur, 
report the names of decertified test administrators to the Secretary, 
and to handle testing of non-native speakers of English and individuals 
with disabilities. Several defined terms would be modified or added to 
clarify the regulations, including the terms assessment center, 
independent test administrator, test, test administrator, and test 
publisher.
    The proposed regulations related to application for test approval 
would consolidate requirements for test publishers and States 
submitting tests for approval because the processes have common 
elements. Under the proposed regulations, test publishers and States 
would be required to show that their tests are normed using a 
contemporary sample that is representative of people with a high school 
diploma instead of people beyond the age of compulsory school 
attendance. They would be required to submit a description of their 
test administrator certification process that indicates how they will 
determine that a test administrator has the necessary training, 
knowledge, skills, and integrity to test students in accordance with 
requirements. Finally, they would be required to describe how they will 
determine that the test administrator has the ability and facilities to 
keep their tests secure against disclosure or release.
    In addition, the proposed regulations would implement a new ability 
to benefit option added by the HEOA that allows students to 
satisfactorily complete six credit hours or 225 clock hours of college 
work applicable to a degree or certificate offered by the institution 
to prove ability to benefit. As described in the Reasons section 
related to this provision, the Department took into consideration 
extensive discussions at the negotiated rulemaking sessions in

[[Page 34849]]

developing this proposed regulatory provision. One issue discussed was 
whether the hours needed to be earned need to be within the program in 
which the student planned to enroll and for which the student applied 
to receive title IV, HEA program funds. Some negotiators believed that, 
if the coursework were not earned in the program the student planned to 
enroll, it might not be rigorous enough, and the provision would not be 
effective as a means of demonstrating the student's ability to benefit 
from the program in which they intend to enroll. The Department agreed 
with other non-Federal negotiators, who contended that the statutory 
language did not impose this kind of limitation and that students often 
change their mind as to the specific program of enrollment so the 
simplest approach to the provision would be best. The Department also 
noted that the proposed provision would be a financial aid requirement, 
not an admissions criterion, and that an institution could have a 
policy that it does not admit any students who do not have a high 
school diploma or the equivalent.
    Finally, the negotiators questioned whether a student who 
established student eligibility under one of the ATB provisions could 
be paid for the payment period in which eligibility was established. 
The Department's position is that a student who establishes eligibility 
by passing an ATB test during a payment period may be paid for the 
entire payment period, but that a student who establishes eligibility 
through coursework may not be paid for the payment period during which 
the student took the requisite coursework because eligibility would not 
be established until the payment period was over.
    Misrepresentation of Information to Students and Prospective 
Students (Sec. Sec.  668.71 through 668.75): The Secretary recognizes 
that choosing a college or job training program is an increasingly 
important and high-stakes decision for students, and the availability 
of accurate information about institutions is crucial. Section 487 of 
the HEA and current regulations prohibit any substantial 
misrepresentation made by an institution regarding the nature of its 
educational program, its financial charges, or the employability of its 
graduates.
    The Department proposes to strengthen regulatory enforcement 
authority against eligible institutions that engage in substantial 
misrepresentations. The proposed regulations would restructure Sec.  
668.71 so that paragraph (a) describes the actions the Secretary may 
take if the Secretary determines that an eligible institution has 
engaged in substantial misrepresentation. These actions would include 
revocation of the participation agreement, limitations on title IV, HEA 
participation, denial of participation applications, or initiation of 
proceedings against the institution.
    The proposed regulations would provide additional guidance to 
institutions to ensure that marketing materials and statements are an 
accurate representation of the institution. The proposed definition of 
misrepresentation would restate the current definition of the term 
(i.e., that misrepresentation is any false, erroneous, or misleading 
statement made not only by the eligible institution), but it would also 
clarify that the term includes any false, erroneous, or misleading 
statement made by one of its representatives, or any ineligible 
institution, organization, or person with whom the eligible institution 
has an agreement. Moreover, we would clarify in the definition of 
misrepresentation that it may be made directly or indirectly to a 
student or a member of the public in written, oral, visual, or other 
form.
    The proposed amendments in subpart F of part 668 would add further 
detail to the categories of misrepresentation described in the current 
regulations prohibiting misrepresentation. In proposed Sec.  668.72, 
which describe the types of false, erroneous, or misleading statements 
about an institution's educational program that would be prohibited as 
misrepresentations, we would expand the list of prohibited 
misrepresentations to include false, erroneous, or misleading 
statements relating to the following: Institutional, programmatic, or 
specialized accreditation; conditions for acceptance of transfer 
credits; whether completion of a course of instruction qualifies 
students to take licensing examinations or meet other additional 
conditions required for employment in the field for which the program 
is represented to prepare students; requirements to complete the course 
of study and conditions that would lead to termination of enrollment; 
the availability of unsolicited testimonials or endorsements; the 
subject matter, content of the course of study, and facts about the 
degree, certificate, or other completion document; and whether the 
degree to be given has been authorized by the appropriate State 
educational agency.
    Current Sec.  668.73 describes prohibited false, erroneous, or 
misleading statements related to the cost of the program and financial 
aid that is available to students. Proposed Sec.  668.73 would expand 
the categories to include the cost of the program and the institution's 
refund policy if a student does not complete the program; the 
availability of any financial assistance offered to students, including 
a student's loan repayment responsibility regardless of program 
completion or subsequent employment; and the student's right to apply 
for or reject any particular type of financial aid or other assistance. 
The Department agreed with non-Federal negotiators that students who 
enroll in a program should have specific knowledge of the cost of the 
program, its refund policy, and financial aid options.
    Current Sec.  668.73 describes what constitutes misrepresentation 
related to the employability of an institution's graduates and these 
prohibitions would be retained. Proposed Sec.  668.73 would prohibit 
false statements regarding an institution's knowledge of current or 
likely future conditions, compensation, or employment opportunities for 
its graduates. Misrepresentations relating to whether employment is 
being offered by the institution or that a talent hunt or contest is 
being conducted would also be prohibited. In addition, institutions 
would be prohibited from making false statements about other 
requirements that are generally needed in order to be employed in 
certain fields. Negotiators acknowledged that students need to be 
informed about employment prospects when considering postsecondary 
program options, but were concerned about the ability to provide 
accurate information given the economic environment and timeframes 
involved.
    Current Sec.  668.75 describes the Department's procedures for 
reviewing allegations or complaints regarding misrepresentation claims. 
The Department proposes removing Sec.  668.75 as these procedures have 
not been used to take enforcement actions against institutions for 
making substantial misrepresentations. The Department has used its 
other administrative remedies to take the appropriate actions against 
institutions found to have engaged in misrepresentation. The proposed 
regulations would create a new Sec.  668.75 that would prohibit an 
institution from suggesting that its participation in title IV, HEA 
programs represents a Departmental endorsement of the quality of its 
educational programs.
    Incentive Compensation (Sec.  668.14(b)): Section 487(a)(20) of the 
HEA requires that the title IV, HEA program participation agreement 
prohibit an institution from making any

[[Page 34850]]

commission, bonus, or other incentive payments based directly or 
indirectly on success in securing enrollments or financial aid to any 
persons or entities involved in student recruiting or admissions 
activities, or in making decisions about the award of student financial 
assistance. This statutory prohibition does not apply to the 
recruitment of foreign students residing in foreign countries who are 
not eligible to receive Federal financial assistance. Current 
regulations to implement HEA Section 487(a)(20) specify twelve types of 
activities and arrangements that do not violate the prohibition on 
incentive payments to an institution's employees based on success in 
securing enrollments. The first safe harbor explains the conditions 
under which an institution may adjust compensation without that 
compensation being considered an incentive payment. The twelve safe 
harbors describe the conditions under which payments that could 
potentially be construed as based upon securing enrollments or 
financial aid are nonetheless not covered by the statutory prohibition. 
As described in greater detail in the Reasons section related to this 
provision, the safe harbors under the existing regulations dealt with 
adjustments to employee compensation, enrollments in programs not 
eligible for title IV, HEA program funds, contracts to provide 
training, profit-sharing bonus plans, compensation based upon program 
completion, pre-enrollment activities, managerial and supervisory 
employees, token gifts, profit distributions, Internet-based 
activities, and payments to third parties.
    The proposed regulations would eliminate these safe harbors in 
response to student and advisor complaints about aggressive sales 
tactics from some institutions, institutions' concerns that a lack of 
clear guidance made it difficult to be confident of compliance, and the 
Department's experience that unscrupulous actors routinely rely on the 
safe harbors to circumvent the intent of section 487(a)(20) of the HEA. 
The regulations proposed by the Department would eliminate the safe 
harbors and prohibit incentive compensation linked to enrollments for 
employees engaged in recruitment, admissions, or financial aid 
activities. Institutions would be able to make merit-based adjustments 
that are not based on securing enrollments or the award of financial 
aid. The clarifying remarks about the current safe harbors in the 
preamble to this NPRM describe the potential for non-compliant conduct 
to be protected by the safe harbors. The proposed regulations would 
require institutions to focus on two questions when evaluating employee 
bonus or incentive payments: (1) Whether the payment is based on 
success in securing enrollments; and (2) whether the payment is an 
award of a sum of money. If the answer to each question is yes, the 
incentive or bonus payment would not be permitted. Non-Federal 
negotiators who agreed with the Department supported the elimination of 
the safe harbors as a way to reduce non-compliance and to make the 
regulations more consistent with the statute. Other non-Federal 
negotiators objected that the safe harbors were needed to explain an 
unclear law and to provide boundaries so institutions do not 
unintentionally run afoul of the regulations. As discussed in the 
Regulatory Alternatives Considered section below, negotiations about 
incentive compensation and safe harbors did not lead to agreement.
    State Authorization as a Component of Institutional Eligibility 
(Sec. Sec.  600.4(a)(3), 600.5(a)(4), 600.6(a)(3), and 600.9): To 
participate in the title IV, HEA student aid programs, an institution 
must be legally authorized to provide a postsecondary educational 
program within the State in which it is located. Current regulations do 
not define or describe the statutory requirement that an institution 
must be legally authorized in a State. State legal authorization can be 
granted through a charter, license, or other written document issued by 
an appropriate agency or State official and may be provided by a 
licensing board or educational agency. Some States have deferred 
approval of educational institutions to accrediting agencies or have 
exempted from State authorization requirements a subset of 
institutions. Since accrediting agencies generally require that an 
institution be legally operating in the State, the Department was 
concerned that the checks and balances provided by the separate 
processes of accreditation and State legal authorization were being 
undermined. The different requirements for authorization as an 
educational institution allow some institutions to move from State to 
State for less oversight. There was also concern over the Department's 
existing policy that an institution was authorized by a State by virtue 
of the State's decision not to have any oversight over the institution. 
As discussed in the Reasons section related to this provision, the 
recent lapse in the existence of California's Bureau for Private 
Postsecondary and Vocational Education exemplified the weakness of this 
policy in ensuring appropriate oversight of Federal programs.
    The proposed regulations would clarify what constitutes State 
authorization for participation in title IV, HEA programs. According to 
the Department's proposal, legal authorization is represented by a 
charter, license, or other document from a State agency or State entity 
that specifically grants the authority to operate postsecondary 
educational programs, including those leading to a degree or 
certificate. The State authorization must be subject to adverse action 
by the State and the State must have a process to review and act on 
complaints about an institution. An institution would also be 
considered legally authorized in a State if the institution were 
authorized to offer programs beyond secondary education by the Federal 
Government or an Indian Tribe as that term is described in 25 U.S.C. 
1802(2) or if it were exempt from State authorization as a religious 
institution under the State constitution. The proposed regulations also 
would require a State to notify students of the contact information for 
filing complaints with an institution's accreditor and State licensing 
agency.
    Gainful Employment (Sec. Sec.  600.2, 600.4, 600.5, 600.6, 668.6, 
and 668.8): The Department intends to begin collecting information on 
completers of programs that, by law, must lead to gainful employment in 
a recognized occupation. The proposed new requirement would enable the 
Department to further evaluate and monitor the outcomes of these 
programs.
    Under proposed Sec.  668.6(a), an institution would annually submit 
information about students who complete a program that leads to gainful 
employment in a recognized occupation. That information would include, 
at a minimum, identifying information about each student who completed 
a program, the CIP code for that program, the date the student 
completed the program, and the amounts the student received from 
private educational loans and institutional financing plans. In 
addition, under proposed Sec.  668.6(b), an institution would be 
required to disclose on its Web site information about (1) the 
occupations that its programs prepare students to enter, along with 
links to occupational profiles on O*NET, (2) the on-time graduation 
rate of students entering a program, (3) the cost of each program, 
including costs for tuition and fees, room and board, and other 
institutional costs typically incurred by students enrolling in the 
program, such as books and supplies, (4) beginning no later than

[[Page 34851]]

June 30, 2013, the placement rate for students completing each of those 
programs, as determined under Sec.  668.8(g) or a State-sponsored 
workforce data system; and (5) the median loan debt incurred by 
students who completed each program in the preceding three years, 
identified separately as title IV, HEA loan debt and debt from private 
educational loans and institutional financing plans.
    Definition of a Credit Hour (Sec. Sec.  600.2, 602.24, 603.24, and 
668.8): Credit hours are used to measure degree completion and award 
title IV, HEA aid, but under current regulations there is no commonly 
accepted definition of a credit hour. The increased availability of 
weekend, evening, and distance education programs complicates the 
measurement of credit hours by seat time in the definitions and 
conversion formulas existing under current regulations. In current 
Sec.  668.8(k) and (l), the regulations provide the formula that 
certain undergraduate programs must use to convert the number of clock 
hours offered to the appropriate number of credit hours, with each 
semester or trimester hour requiring at least 30 clock hours of 
instruction, and each quarter hour requiring at least 20 hours of 
instruction. An institution must use the formula to determine if a 
program is eligible for title IV, HEA purposes unless (1) the 
institution offers an undergraduate program in credit hours that is at 
least two academic years in length and leads to an associate degree, a 
bachelor's degree, or a professional degree or (2) each course within 
the program is acceptable for full credit toward an associate degree, 
bachelor's degree, or professional degree offered by the institution, 
and the degree offered by the institution requires at least two 
academic years of study.
    The proposed regulations would add a definition of a credit hour, 
amend accrediting agency procedures for reviewing the assignment of 
credit hours, and revise the clock-to-credit hour conversion formulas. 
Under the proposed regulations, a credit hour is defined as a unit 
measuring the amount of work consisting of one hour of classroom or 
direct faculty instruction and at least two hours of student work 
outside the classroom over a set period of time. The required time 
period is fifteen weeks for a semester or trimester credit hour, ten to 
twelve weeks for a quarter hour of credit, and the equivalent amount of 
work for a different amount of time. For other activities that grant 
credit such as internships, studio work, and laboratory work, the 
institution must require at least a comparable amount of work to award 
credit hours. For programs for which the provisions above are not 
appropriate, the institution must establish reasonable equivalencies as 
represented by learning outcomes for the amount of work required in the 
definition of a credit hour.
    The credit hour was developed as part of a process to establish a 
standard measure of faculty workloads, costs of instruction, and rates 
of educational efficiencies as well as a measure of student work for 
transfer students. A standard measure will provide increased assurance 
that a credit hour has the necessary educational content to support the 
amounts of Federal funds that are awarded to participants in Federal 
funding programs and that students at different institutions are 
treated equitably in the awarding of those funds. During the negotiated 
rulemaking sessions, a few of the non-Federal negotiators were opposed 
to any proposal to define a credit hour because they believed that a 
definition would impinge upon an institution's ability to create 
innovative courses and teaching methods. Other non-Federal negotiators 
agreed with the Department that the proposed definition of a credit 
hour would provide sufficient flexibilities for institutions and 
supported keeping it in the proposed regulations. In response to these 
concerns, the proposed regulations were changed to allow institutions 
to establish reasonable equivalent measures of a credit hour in 
accordance with its accrediting agency's requirements and adopt 
alternative measures of student work. The proposed definition of a 
credit hour does not change the policy providing funding based only on 
credit hours that are the direct result of postsecondary student work 
and not Advanced Placement (AP) or International Baccalaureate (IB) 
programs, tests or testing out, life experience, or similar competency 
measures. No agreement was reached on this issue due to the belief of 
some non-Federal negotiators that a definition would limit an 
institution's ability to use alternative measures of student work.
    In addition, the proposed regulations require accrediting agencies 
to review an institution's assignment of credit hours and determine 
that they comply with accepted practice in higher education. 
Accrediting agencies may use sampling or other methods in reviews of 
programs at institutions. The accrediting agency must take actions to 
address deficiencies identified in such a review and must inform the 
Secretary if it finds systemic noncompliance or significant 
noncompliance in one or more programs at an institution.
    Finally, the proposed regulations would revise the clock-to-credit 
hour conversion process. Proposed Sec.  668.8(l)(1) would modify 
existing clock hour to credit hour conversion formulas so a semester or 
trimester credit hour must include at least 37.5 clock hours of 
instruction and a quarter hour must include at least 25 clock hours of 
instruction. If an institution's process for determining credit hours 
has not been found deficient by the accrediting or State licensing 
agency, then the minimum clock hours of instruction can be reduced to 
30 for semester and trimester programs and 20 for quarter programs as 
long as the combined instruction and work outside the class meets the 
longer requirements described above. With respect to the definition of 
an eligible program in Sec.  668.8, the proposed regulations require 
that institutions demonstrate that students enroll in and graduate from 
the degree program. The proposed regulations also require a program to 
use clock hours when accrediting agencies determine that an 
institution's policies and procedures about credit hours are deficient 
or when completing clock hours is required for graduates to apply for a 
license or authorization to practice their intended occupation.
    Written Agreements between Institutions of Higher Education 
(Sec. Sec.  668.5 and 668.43): Under current regulations, two or more 
institutions may enter into agreements for students to continue 
receiving title IV, HEA funds when studying away from their ``home'' 
institution. These agreements fit into three categories: (1) consortium 
agreements between eligible institutions; (2) contractual agreements 
between an eligible institution and an ineligible institution; and (3) 
study abroad arrangements, which may involve a consortium or 
contractual agreement between two or more institutions. There is no 
requirement in either Sec.  668.5 or 668.43 of the current regulations 
that institutions provide information on written arrangements to 
enrolled or prospective students.
    The proposed regulations would address issues related to written 
agreements between institutions with common ownership, restrict 
agreements with ineligible institutions, and expand student 
notification requirements related to written agreements. The proposed 
regulations would redefine the home institution from the one that 
enrolls the student to the one that grants the degree or certificate. 
Proposed Sec.  668.5(a)(2) would specify that if the institutions 
involved in a written agreement are controlled by the same individual, 
partnership, or corporation,

[[Page 34852]]

the institution that grants the degree must provide more than 50 
percent of the educational program. This would address concerns that 
such agreements could be used to circumvent regulations governing 
cohort default rates and ``90-10'' provisions. For contractual 
agreements between an eligible institution and an ineligible 
institution, the proposed regulations would add a restriction that the 
ineligible institution has not had its certification to participate in 
title IV, HEA programs revoked or had its application for re-
certification denied. The proposed regulations also would limit the 
portion of the education program that the ineligible institution could 
provide to less than 50 percent. The proposed regulations would also 
require institutions to provide information about written agreements to 
students. This information would need to include the portion of the 
program the home institution is not providing, estimated additional 
costs that would be incurred, the method of delivery for the portion of 
education outside the home institution, and the name and locations of 
the other institutions. During negotiations, the Department explained 
that the proposed disclosure requirements would apply to blanket, 
existing arrangements between or among institutions and not to 
individual, student-initiated written arrangements, or internships and 
externships.
    Verification of Information Included on Student Aid Applications 
(Sec. Sec.  668.52 through 668.61): Under current regulations, 
institutions are required to verify the application information of up 
to 30 percent of Federal financial aid applicants selected by the 
Secretary in a given award year. Institutions have expressed concern 
that this verification process is overly complicated and invasive for 
applicants' families.
    Current subpart E of part 668 governs the verification and updating 
of the FAFSA information used to calculate an applicant's expected 
family contribution (EFC) as part of the determination of an 
applicant's need for student financial assistance. These proposed 
regulations would implement statutory changes to Part F of the HEA made 
by the HEOA and further align these regulations with enhancements that 
have been made to the application processing system. Based on the 
Department's review of current policies and procedures, the changes 
reflected in these proposed regulations would remove obsolete 
definitions, procedures, and references to programs and would include: 
(1) Describing institutional and applicant responsibilities for 
updating FAFSA information; (2) removing and refining definitions 
related to the FAFSA application; (3) codifying current policy that an 
institution must complete verification before exercising any authority 
under professional judgment; (4) removing the 30 percent cap on the 
number of applicants selected by the Secretary that an institution must 
verify in order to move towards a more targeted verification system; 
(5) restructuring the exclusions from verification section; (6) 
requiring any changes to a student's dependency status be updated 
throughout the award year, including changes in marital status; (7) 
replacing the five items that an institution currently verifies with a 
targeted verification process that is specific to each applicant 
selected as described in a Federal Register notice published annually 
by the Secretary; (8) codifying the Department's IRS Data Retrieval 
Process, which allows an applicant to import income and other data from 
the IRS into an online FAFSA; (9) updating the IRS deadline granted for 
extension filers; (10) clarifying when an institution is required to 
reverify the AGI and taxes paid by an applicant and his or her spouse 
or parents for individuals with an IRS tax filing extension; (11) 
expanding the information a tax preparer must provide on the copy of 
the filer's return that has been signed by the preparer; (12) 
describing in an annual Federal Register notice other documentation 
that an applicant must provide for the information that is selected for 
verification; (13) allowing interim disbursements when changes to an 
applicant's FAFSA information would not change the amount the applicant 
would receive under a title IV, HEA; (14) requiring all corrections to 
be submitted to the Secretary for reprocessing; (15) removing all 
allowable tolerances; (16) applying the cash management procedures for 
proceeds received from a Subsidized Stafford Loan or Direct Subsidized 
Loan on behalf of an applicant; and (17) describing the liability of an 
institution that disburses title IV, HEA aid to an applicant without 
receiving a corrected SAR or ISIR within an established deadline.
    The proposed verification regulations would align the verification 
process with the effort to simplify the FAFSA and make it flexible 
enough to accommodate future changes while still ensuring that students 
who receive Federal aid funds are eligible. Institutions would be 
required to establish procedures that are consistent with these 
provisions. For example, an institution would be required to complete 
an applicant's verification before it could exercise its authority to 
change the applicant's cost of attendance or data items to calculate 
the expected family contribution. Applicants may be excluded from 
verification if they do not receive aid under title IV, HEA programs 
for reasons outside of verification questions, only receive 
unsubsidized aid, or transfer from another institution where 
verification was already performed as proven by a letter with ISIR 
number from that institution. The specific items to be verified under 
the proposed regulations would be published by the Secretary in the 
Federal Register for each award year. The regulations would also allow 
for information to be verified as having come from the IRS instead of 
requiring an applicant's tax form.
    Satisfactory Academic Progress (Sec. Sec.  668.16(e), 668.32(f), 
668.34): To be eligible for Federal financial aid under title IV of the 
HEA, students must make satisfactory academic progress (``SAP'') and 
institutions must have a published policy to monitor that progress. As 
detailed in the Satisfactory Academic Progress section of this 
preamble, the SAP policy must include grade-based and time-related 
standards, must apply consistently to students within categories, must 
be as strict for title IV, HEA aid recipients as for non-recipients in 
the same educational program, must describe the circumstances under 
which a student may appeal a determination that the student is not 
making satisfactory academic progress, and must require an institution 
to review a student's academic progress at the end of each year, at a 
minimum. The proposed regulations would restructure the satisfactory 
academic progress requirements so that Sec.  668.16(e) would be revised 
to include only the requirement that an institution establish, publish, 
and apply satisfactory academic progress standards. The remainder of 
Sec.  668.16(e) would be moved to proposed Sec.  668.34 so that that 
provision would contain all of the required elements of a satisfactory 
academic progress policy as well as how an institution would implement 
such a policy.
    All of the policy elements in the current regulations under 
Sec. Sec.  668.16(e) and 668.34 would be combined in proposed Sec.  
668.34. The timing provisions would maintain the maximum timeframe of 
150 percent of the published length of the educational program whether 
measured in credit hours or clock hours (reflected in current Sec.  
668.16(e)(2)(ii)(A)). SAP

[[Page 34853]]

policies would need to describe how the institution treats withdrawals, 
course repetitions, and transfers from another institution. For 
educational programs greater than two academic years, students must 
have a GPA of ``C'' or its equivalent at the end of the second year or 
have academic standing that is consistent with the institution's 
graduation requirements. The proposed regulations would not require 
institutions to permit students to appeal. An institution that permits 
appeals, however, would be required to describe the appeals process in 
its satisfactory academic progress policy. Under proposed Sec.  
668.34(a)(9)(ii), a student would be permitted to file an appeal based 
on the death of a relative, an injury or illness of the student, or 
other special circumstances. Under proposed Sec.  668.34(a)(9)(iii), a 
student would be required to submit, as part of the appeal, information 
regarding why the student failed to make satisfactory academic 
progress, and what has changed in the student's situation that would 
allow the student to demonstrate satisfactory academic progress at the 
next evaluation. If an institution does not permit appeals, the 
satisfactory academic policy must describe how a student may regain 
eligibility for assistance under the title IV, HEA programs. Proposed 
Sec.  668.34(a)(11) would require that an institution's policy provide 
for notification to students of the results of an evaluation that 
impacts the student's eligibility for title IV, HEA program funds.
    Proposed Sec.  668.34(a)(8) would require institutions that use 
``financial aid warning'' and ``financial aid probation'' statuses in 
connection with satisfactory academic progress evaluations to describe 
these statuses and how they are used in their satisfactory academic 
progress policies. The term financial aid warning would be defined as a 
status conferred automatically and without action by a student, while 
the term financial aid probation would be defined as a status conferred 
after a student has submitted an appeal that has been granted. In order 
to encourage institutions to provide additional support to students in 
a timely manner, the proposed regulations would permit institutions 
that review student progress at the end of each payment period to place 
students on financial aid warning for one payment period. Proposed 
Sec.  668.34(a)(8)(ii) would make clear that an institution with a 
satisfactory academic progress policy that includes the use of the 
financial aid probation status could require that a student on 
financial aid probation fulfill specific terms and conditions, such as 
taking a reduced course load or enrolling in specific courses.
    Recent questions from institutions and reviews of institutional 
satisfactory academic progress policies have suggested that it is 
possible for an institution to have a policy that meets all of the 
current regulatory criteria, but due to use of automatic probationary 
periods, permits students to receive aid for as long as 24 months even 
though they are not meeting the institution's satisfactory progress 
standards. The proposed regulations are designed to implement a more 
structured, comprehensive, and consistent approach to development and 
implementation of institutional satisfactory progress policies.
    Retaking Coursework (Sec.  668.2): The proposed regulations would 
amend the definition of ``full-time student'' in Sec.  668.2 to allow 
repeated coursework to count towards a student's enrollment status in 
term-based programs. Currently, students in term-based credit hour 
programs may get paid for retaking courses as long as the credits are 
in addition to and not a replacement for previously earned credits, and 
the student meets the institution's overall satisfactory academic 
progress standards. Non-Federal negotiators expressed concern that 
institutions were unable to track this information without a burdensome 
program audit of each individual student. The Department agreed and 
proposed to amend the definition of full-time to allow such credits to 
count toward enrollment status and eligibility for payment under the 
title IV, HEA programs. Tentative agreement was reached on this issue.
    Return of Title IV, HEA Program Funds: Term-based Programs with 
Modules or Compressed Courses (Sec.  668.22(a) and (f)): Current 
regulations related to the return of title IV, HEA program funds when a 
student withdraws do not address the issue of student withdrawals from 
programs with courses in modules or compressed courses. Under current 
regulations, when a student withdraws from an institution, the 
institution must determine the amount of title IV, HEA aid the student 
has earned for the period the student attended. For term based programs 
with several courses offered concurrently for the length of the term, 
the student may remain in one course and not be considered as 
withdrawn. Department policy equates the completion of one course or 
module, within a term in which a student is expected to continue 
attendance in additional coursework, to the completion of one 
traditional course in a program with courses taken concurrently over 
the full term. As a result of this policy, a student who attends a week 
or two of a fifteen week term and completes a module will not be 
determined to have withdrawn, so the student or the institution can 
keep aid intended to cover fifteen weeks.
    The proposed regulations offer an opportunity to review this 
policy. Under the proposed regulations, students would be considered 
withdrawn as follows: In programs measured in credit hours, if the 
student does not complete all the days in the payment period or period 
of enrollment that the student was scheduled to complete prior to 
withdrawing. For credit hour programs, the calculation of the 
percentage of the payment period or period of enrollment completed 
would take into account the total number of calendar days that the 
student was scheduled to complete prior to withdrawing without regard 
to any course completed by the student that is less than the length of 
the term. In the case of a program that is measured in clock hours, the 
student would be considered to have withdrawn if he or she does not 
complete all of the clock hours in the payment period or period of 
enrollment that the student was scheduled to complete prior to 
withdrawing.
    Return of Title IV, HEA Program Funds: Taking Attendance (Sec.  
668.22(b)): In order to implement provisions related to the return of 
funds when a student withdraws, institutions must be able to determine 
the date a student is considered to have withdrawn. Current regulations 
specify distinctions between institutions required to take attendance 
by an outside agency and those institutions that are not required to 
take attendance. For institutions required to take attendance, the date 
of withdrawal is determined from attendance records. For other 
institutions, the date of withdrawal may be the date the student 
initiated the withdrawal process, the date the student provided 
official notice of intent to withdraw, the midpoint of the payment 
period if the student gave no notice of withdrawal, or, in lieu of the 
above, the last day of the student's attendance at an academically-
related activity. The lack of precision for a withdrawal date for these 
institutions potentially allows the abuse of Federal funds.
    The proposed regulations would require that if an institution has 
attendance records, as required by an outside entity or the institution 
itself, the attendance records should be used for the withdrawal date. 
Current nonregulatory guidance regarding an institution that is 
required to take

[[Page 34854]]

attendance, or requires that attendance be taken, for a limited period 
of time, such as for the first two weeks of courses or up until a 
``census date'' would be incorporated. These proposed provisions would 
specify that an institution must use its attendance records to 
determine a withdrawal date for a student who withdraws during that 
limited period, and a student who subsequently stops attending during 
the payment period would be treated as a student for whom the 
institution was not required to take attendance. The proposed 
regulations would also incorporate current guidance that if an 
institution is required to take attendance, or requires that attendance 
be taken, on a specified date to meet a census reporting requirement, 
the institution is not considered to take attendance.
    Non-Federal negotiators pointed out that having to determine a more 
exact date of withdrawal, as opposed to assuming a 50 percent point, 
would be more burdensome. They also noted that attendance does not 
necessarily accurately reflect academic activity, and also stated that 
they cannot ensure that faculty members will keep accurate and up-to-
date attendance records. The Department recognizes these concerns, but 
maintains that the best date available should be used to determine the 
amount of time that a student was in attendance to support the fair 
treatment of students and avoid the potential for fraud and abuse of 
Federal funds.
    Disbursements of Title IV, HEA Program Funds (Sec.  668.164(i)): As 
described in the preamble to this NPRM, current regulations provide 
that an institution must disburse title IV, HEA program funds (except 
for FWS funds) on a payment period basis and establish requirements for 
crediting a student's account with Federal Pell Grant funds. Those 
requirements also apply to ACG, National SMART Grant, TEACH Grant, 
FSEOG, Federal Perkins Loan, Direct Loan, and FFEL program funds. 
Current regulations permit institutions to disburse Pell Grants in a 
manner that best meets the needs of the student, and the proposed 
regulations would add provisions to specifically limit delays in 
disbursements.
    Students who do not receive Pell Grants in a timely manner may 
resort to taking loans or using personal funds, go without needed items 
such as books, or withdraw from school for financial reasons. The 
proposed regulations will require institutions to provide a way for a 
Federal Pell Grant eligible student to obtain or purchase required 
books and supplies by the seventh day of a payment period under certain 
conditions. The proposed regulations would limit the required early 
payment of anticipated credit balances to Federal Pell Grant-eligible 
students who have met all disbursement requirements 10 days before the 
first day of class for the payment period, and apply only if the 
student will have a title IV, HEA credit balance. The proposed language 
gives institutions the flexibility to determine the method by which 
they provide funds to students, which can include a book voucher or 
crediting books to the student's institutional account. The proposed 
regulations would not change existing liability if the student never 
begins attendance in any classes, leaving it with the institutions and 
not the students.
    The following section addresses the alternatives that the Secretary 
considered in developing these proposed regulations. These alternatives 
are also discussed in more detail in the Reasons sections of this 
preamble related to the specific regulatory provisions.
Regulatory Alternatives Considered
    Definition of High School Diploma (Sec.  668.16(p)): Initially, the 
Secretary proposed regulatory language that that would have required 
institutions to maintain three listings of secondary schools (schools 
that are acceptable, schools that are unacceptable, and schools that 
require further evaluation) based on regulatory criteria for 
determining the acceptability of their credential for title IV, HEA 
program purposes. Non-Federal negotiators objected that K-12 issues 
should be handled at the State level and that requiring institutions to 
maintain such lists was too great an administrative burden. Based on 
these concerns, the Department agreed to assume responsibility for 
establishing and maintaining a list of valid secondary schools, and 
tentative agreement was reached on this provision.
    Incentive Compensation (Sec.  668.14(b)): As discussed in the 
Incentive Compensation section of the preamble, non-Federal negotiators 
proposed and counter-proposed draft regulatory language related to 
incentive compensation for the Department to consider. In turn, the 
Department addressed some of the isues raised in the negotiations. For 
example, the Department made clear that any individuals who are engaged 
in any student recruitment or admissions activity or in making 
decisions about the award of student financial aid--including those in 
supervisory positions--would be impacted by these proposed provisions. 
Moreover, the Department clarified that the following activities would 
not necessarily be prohibited under the proposed regulations: the use 
of volume-driven shared services, contracts for financial aid services 
based on a headcount basis, third party Internet marketing activities 
paid based on clicks and not enrollments, and token gifts for contacts 
not linked to enrollments.
    The Department agreed to include a definition of the term 
commission, bonus, or other incentive payment in the proposed Sec.  
668.14(b)(22)(iii)(A) that is unambiguous in prohibiting payment of any 
money or item of value on the basis of direct or indirect success in 
securing enrollments or the award of financial aid.
    Several negotiators were concerned that under the proposed 
regulations, institutions would be prohibited from paying merit-based 
increases to their financial aid or admissions personnel. The 
Department contends that an institution could use a variety of standard 
evaluative factors as the basis for such an increase; however, it would 
not be permitted to consider the employee's success in securing student 
enrollments or the award of financial aid or related institutional 
goals based on that success among those factors. One negotiator felt 
strongly that it was critical to use the word ``solely,'' or some other 
modifier, to limit the prohibition in proposed Sec.  668.14(b)(22)(i). 
This negotiator said that the use of the word solely, or some other 
modifier, would be consistent with the use of that term solely in the 
first safe harbor reflected in current Sec.  668.14(b)(22)(ii)(A). As 
discussed earlier in this preamble, given the Department's experience 
with how the first safe harbor in current Sec.  668.14(b)(22) has been 
abused, the Department does not believe that such a construction is 
warranted. In addition, some negotiators advocated strongly for an 
institution's ability to pay bonuses on the basis of students who 
complete their program. The Department believes that these regulations 
must clearly reinforce the statutory provision and exclude the 
possibility of basing any portion of an adjustment on success in 
securing student enrollments or financial aid awards. No agreement was 
reached on incentive compensation.
    State Authorization as a Component of Institutional Eligibility 
(Sec. Sec.  600.4(a)(3), 600.5(a)(4), 600.6(a)(3), and 600.9): The 
Department clarified aspects of this provision in response to concerns 
expressed by non-Federal negotiators. Federal or Indian Tribe 
authorization was included, and the ability of State entities other 
than State Agencies such

[[Page 34855]]

as State legislatures and State Constitutions to grant authorization 
was made explicit. Provisions concerning monitoring the quality of 
educational programs and financial responsibility were removed as 
unnecessarily duplicative of Federal or accrediting agency actions. The 
Reasons section of the preamble details the development of this 
provision. Some negotiators remained concerned that these proposed 
regulations would allow States to continue to rely on an institution's 
status with an outside entity for State legal authorization and that 
there would no longer be a requirement that a State review an 
institution's fiscal viability. No agreement was reached on this 
provision.
    Written Agreements between Institutions of Higher Education 
(Sec. Sec.  668.5 and 668.43): During negotiated rulemaking, the 
Department's initial proposal was to require accrediting or State 
agency review of written agreements between institutions of higher 
education if the portion of an educational program provided under the 
written arrangement with another eligible institution, or with a 
consortium of eligible institutions, were more than 50 percent. 
Subsequently, several non-Federal negotiators explained that, contrary 
to the Department's initial understanding, it was not common practice 
for accrediting agencies to review a significant portion of written 
arrangements, even those between or among eligible institutions. After 
hearing concerns about increased workloads and impeded development of 
innovative programs, the Department agreed to reconsider its draft 
regulatory language and to focus the proposed changes more narrowly on 
the types of institutions and situations where problems had been 
identified. The Department subsequently proposed limiting the portion 
of an educational program that could be provided under a written 
arrangement between two eligible for-profit institutions under common 
ownership or control to 25 percent. After negotiations about the 
appropriate percentage and the institutions to which it should apply, 
the Department agreed to revise the proposed language to refer to 
eligible institutions that are owned or controlled by the same 
individual, partnership or corporation and to specify that the 
institution that grants the degree or certificate must provide 50 
percent or more of the educational program. When presenting this draft 
regulatory language to the negotiated rulemaking committee, the Federal 
negotiator explained that it is not the Department's intention for 
either public or private, non-profit institutions to be covered by the 
proposed language as such institutions are not owned or controlled by 
other entities and generally act autonomously.
    Return of Title IV, HEA Program Funds: Term-based Programs with 
Modules or Compressed Courses (Sec.  668.22(a) and (f)): During the 
negotiation sessions, non-Federal negotiators expressed concern that 
the proposed regulations would penalize students and burden 
institutions with a significant increase in the number of return to 
title IV, HEA funds calculations. The non-Federal negotiators presented 
three options to address their concerns. The first option was to 
exclude students who completed the same enrollment status for which 
they were originally paid title IV, HEA aid. The second option was to 
exclude students who completed 50 percent of the credits that were 
awarded and 50 percent of the projected enrollment time. The third 
option was to only apply the proposed regulations to compressed 
coursework that was shorter than a ``to-be-determined'' percent of the 
payment period; the non-Federal negotiators did not reach agreement as 
to what the appropriate percentage should be. The Department 
appreciates the concerns expressed by the non-Federal negotiators, but 
continues to believe that the proposed changes are necessary to ensure 
the equitable application of these provisions for all students, 
regardless of the academic calendar of the programs that students are 
attending.
    Disbursements of Title IV, HEA Program Funds (Sec.  668.164(i)): 
Some non-Federal negotiators stated that many institutions advance 
funds or issue vouchers that students use to obtain books and supplies, 
and that under current regulations, the institution risks losing the 
amount advanced if the student does not begin classes. For this reason, 
these non-Federal negotiators argued that in exchange for requiring an 
institution to advance funds or issue vouchers early in the payment 
period before the institution could establish student attendance, the 
student should be liable for returning the funds. In response to this 
concern, the Department drafted regulatory language to shift liability 
for this debt to students, but the proposal was rejected. Other 
negotiators objected that student liability for this debt might 
preclude reenrollment or exacerbate predatory practices at some 
institutions where students were promised an advance of funds simply 
for enrolling in programs. As a result of these negotiations, the 
proposed regulations keep liability at the institutional level.

Benefits

    Benefits provided in these proposed regulations include updated 
administrative procedures for the Federal student aid programs; a 
definition and process to determine the validity of a student's high 
school diploma; enhanced reliability and security of ATB tests; an 
additional option for students to prove ability to benefit by 
successfully completing college coursework; increased clarity about 
incentive compensation for employees at institutions of higher 
education; reporting of information on program completers for programs 
leading to gainful employment, including costs, debt levels, graduation 
rates, and placement rates; the establishment of minimum standards for 
credit hours; greater transparency for borrowers participating in the 
programs offered under written agreements between institutions; greater 
detail about misrepresentation in marketing and recruitment materials; 
a more structured and consistent approach to the development and 
implementation of satisfactory academic progress policies; updated and 
simplified procedures for verifying FAFSA applicant information; 
updated regulations related to the return of title IV, HEA funds when a 
student withdraws; harmonization of Direct Loan and Teach Grant 
disbursement procedures with other title IV, HEA programs; and revised 
disbursement requirements to ensure Federal Pell Grant recipients can 
access funds in a timely manner. It is difficult to quantify benefits 
related to the new institutional and other third-party requirements, as 
there is little specific data available on the effect of the provisions 
on borrowers, institutions, or the Federal taxpayer. The Department is 
interested in receiving comments or data that would support a more 
rigorous analysis of the impact of these provisions.
    As discussed in greater detail under Net Budget Impacts, these 
proposed provisions result in net costs to the government of $0.0 
million over 2011-2015.

Costs

    Several of the proposed regulations would require regulated 
entities to develop new disclosures and other materials, as well as 
accompanying dissemination processes. Institutions would also be 
required to update existing policies and procedures related to 
satisfactory academic progress. Other proposed regulations generally 
would require discrete changes in specific parameters associated with 
existing requirements--such as changes to title

[[Page 34856]]

IV, HEA disbursement procedures, updated processes for verification of 
FAFSA application information, clearer standards for the return of 
title IV, HEA program funds following a student's withdrawal, and 
updated definitions and processes for confirming the validity of a high 
school diploma --rather than wholly new requirements. Accordingly, 
entities wishing to continue to participate in the title IV, HEA 
programs have already absorbed many of the administrative costs related 
to implementing these proposed regulations. Marginal costs over this 
baseline are primarily due to new procedures that, while possibly 
significant in some cases, are an unavoidable cost of continued program 
participation.
    The Department would welcome comment on the analysis presented 
here. We also welcome analyses that others have done on this proposal 
which we will consider as we assess the impact of the proposed 
regulation as we prepare to publish it in final form later this year.
    In assessing the potential impact of these proposed regulations, 
the Department recognizes that certain provisions are likely to 
increase workload for some program participants. This additional 
workload is discussed in more detail under the Paperwork Reduction Act 
of 1995 section of this preamble. Additional workload would normally be 
expected to result in estimated costs associated with either the hiring 
of additional employees or opportunity costs related to the 
reassignment of existing staff from other activities. In total, these 
proposed changes are estimated to increase burden on entities 
participating in the Federal Student Assistance programs by 5,756,506 
hours. Of this increased burden, 3,596,111 hours are associated with 
institutions, 9,454 hours with ATB test publishers and ATB test 
administrators. An additional 2,150,941 hours are associated with 
borrowers, generally reflecting the time required to read new 
disclosures or submit required information.
    As detailed in the Paperwork Reduction Act of 1995 section of this 
NPRM, the additional paperwork burden is attributable to several 
provisions, with the greatest additional burden coming from the revised 
FAFSA verification process. Of the 3.6 million hours of additional 
burden associated with institutions, 1.8 million relate to FAFSA 
verification. While the average number of items to be verified is 
expected to decrease, the growth in the number of applicants and the 
requirement to submit all changes to the Department is estimated to 
increase overall burden. Other paperwork burden increases include 
729,725 hours related to academic reviews and development of academic 
plans under proposed Sec.  668.34, 425,075 hours related to calculation 
of unearned amounts when a student withdraws under proposed Sec.  
668.22, 289,005 hours associated with updating marital and dependency 
status under proposed Sec.  668.55, 105,377 hours related to the 
gainful employment reporting and disclosure provisions in proposed 
Sec.  668.6, 48,391 hours related to ATB test administration and 
reporting under proposed Sec. Sec.  668.151 and 668.152, 67,870 hours 
associated with disclosure of information about an institution's 
written agreements in proposed Sec.  668.43, 54,337 hours related to 
disbursement of funds to Pell Grant recipients for books and supplies 
under proposed Sec.  668.164, 21,982 hours related to the development 
of a high school diploma validation process and the validation of 
questionable diplomas under proposed Sec.  668.16, and 18,349 hours 
related to clock hour to credit hour conversion and the inclusion of 
outside work for program eligibility under proposed Sec.  668.8. For 
ATB test publishers and administrators, the increased burden of 9,454 
hours comes from the reporting, recordkeeping, test anomaly analysis 
and other requirements in proposed Sec. Sec.  668.144, 668.150, and 
668.151. The increased burden on students is concentrated in the FAFSA 
verification and status updating processes with 1,604,800 hours under 
proposed Sec. Sec.  668.55, 668.56, and 668.59, with additional burden 
associated with the withdrawal process under Sec.  668.22 and 
satisfactory academic progress policies under Sec.  668.34.
    Thus, for the specific information collections listed in the 
Paperwork Reduction Act section of this notice, the total cost 
estimates are as follows: For Information Collection 1845-0041, the 
total cost will be $65,913,938, for Information Collection 1845-NEW2, 
the total cost attributable to these regulatory changes will be 
$18,750,120, for Information Collection 1845-0022, the total cost will 
be $13,900,328, for Information Collection 1845-NEW1, the total cost 
attributable to the regulatory changes will be $2,182,885, for 
Information Collection 1845-0049, the total cost will be $1,097,588, 
and for Information Collection 1845-NEW3, the total cost attributable 
to these regulatory changes will be $1,012,461.
    The monetized cost of this additional burden, using wage data 
developed using Bureau of Labor Statistics available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $102,677,320, of which $67.23 
million is associated with institutions, $0.18 million with ATB test 
publishers and administrators, and $35.28 million with borrowers. For 
institutions, test publishers, and test administrators, an hourly rate 
of $18.63 was used to monetize the burden of these provisions. This was 
a blended rate based on wages of $15.51 for office and administrative 
staff and $36.33 for managers, assuming that office staff would perform 
85 percent of the work affected by these regulations. For the gainful 
employment provision, an hourly rate of $20.71 was used to reflect 
increased management time to establish new data collection procedures 
associated with that provision. For students, the first quarter 2010 
median weekly earnings for full-time wage and salary workers were used. 
This was weighted to reflect the age profile of the student loan 
portfolio, with half at the $457 per week of the 20 to 24 age bracket 
and half at the $691 per week of the 25 to 34 year old bracket. This 
resulted in a $16.40 hourly wage rate to use in monetizing the burden 
on students.
    Given the limited data available, the Department is particularly 
interested in comments and supporting information related to possible 
burden stemming from any additional workload expected under the 
proposed regulations. Estimates included in this NPRM will be 
reevaluated based on any information received during the public comment 
period.

Net Budget Impacts

    The proposed regulations are estimated to have a net budget impact 
of $0.0 million over FY 2011-2015. Consistent with the requirements of 
the Credit Reform Act of 1990, budget cost estimates for the student 
loan programs reflect the estimated net present value of all future 
non-administrative Federal costs associated with a cohort of loans. (A 
cohort reflects all loans originated in a given fiscal year.)
    These estimates were developed using the Office of Management and 
Budget's (OMB) Credit Subsidy Calculator. (This calculator will also be 
used for re-estimates of prior-year costs, which will be performed each 
year beginning in FY 2009). The OMB calculator takes projected future 
cash flows from the Department's student loan cost estimation model and 
produces discounted subsidy rates reflecting the net present value of 
all future Federal costs associated with awards made in a given fiscal 
year. Values are calculated using a ``basket of zeros'' methodology 
under which each cash flow is

[[Page 34857]]

discounted using the interest rate of a zero-coupon Treasury bond with 
the same maturity as that cash flow. To ensure comparability across 
programs, this methodology is incorporated into the calculator and used 
government-wide to develop estimates of the Federal cost of credit 
programs. Accordingly, the Department believes it is the appropriate 
methodology to use in developing estimates for these proposed 
regulations. That said, however, in developing the following Accounting 
Statement, the Department consulted with OMB on how to integrate our 
discounting methodology with the discounting methodology traditionally 
used in developing regulatory impact analyses.
    Absent evidence on the impact of these proposed regulations on 
student behavior, budget cost estimates were based on behavior as 
reflected in various Department data sets and longitudinal surveys 
listed under Assumptions, Limitations, and Data Sources. Program cost 
estimates were generated by running projected cash flows related to 
each provision through the Department's student loan cost estimation 
model. Student loan cost estimates are developed across five risk 
categories: Two-year proprietary institutions, two-year public and 
private not-for-profit institutions, freshman and sophomores at four-
year institutions, juniors and seniors at four-year institutions, and 
graduate students. Risk categories have separate assumptions based on 
the historical pattern of behavior--for example, the likelihood of 
default or the likelihood to use statutory deferment or discharge 
benefits--of borrowers in each category.
    The Department estimates no budgetary impact for most of the 
proposed regulations included in this NPRM as there is no data 
indicating that the provisions will have any impact on the volume or 
composition of Federal student aid programs.

Assumptions, Limitations, and Data Sources

    Impact estimates provided in the preceding section reflect a 
baseline in which the changes implemented in these proposed regulations 
do not exist. Costs have been quantified for five years. In general, 
these estimates should be considered preliminary; they will be 
reevaluated in light of any comments or information received by the 
Department prior to the publication of the final regulations. The final 
regulations will incorporate this information in a revised analysis.
    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including especially the Fiscal Operations Report and Application to 
Participate (FISAP); and data from a range of surveys conducted by the 
National Center for Education Statistics such as the 2008 National 
Postsecondary Student Aid Survey, the 1994 National Education 
Longitudinal Study, and the 1996 Beginning Postsecondary Student 
Survey. Data from other sources, such as the U.S. Census Bureau, were 
also used. Data on administrative burden at participating schools, 
accreditors, test administrators, and third-party servicers are 
extremely limited; accordingly, as noted earlier in this discussion, 
the Department is particularly interested in receiving comments in this 
area.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these proposed 
regulations. This table provides our best estimate of the changes in 
Federal student aid payments as a result of these proposed regulations. 
Expenditures are classified as transfers from the Federal government to 
student loan borrowers.

 Table 2--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers              $0
From Whom To Whom?                          Federal Government to
                                             Student Loan Borrowers.
------------------------------------------------------------------------

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum on ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  601.30.)
     Could the description of the proposed regulations in the 
``Supplementary Information'' section of this preamble be more helpful 
in making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand, see the instructions 
in the ADDRESSES section of this preamble.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. These proposed regulations would affect institutions that 
participate in title IV, HEA programs, ATB test publishers, and 
individual students and loan borrowers. The U.S. Small Business 
Administration Size Standards define for-profit institutions as ``small 
businesses'' if they are independently owned and operated and not 
dominant in their field of operation with total annual revenue below 
$7,000,000, and defines non-profit institutions as small organizations 
if they are independently owned and operated and not dominant in their 
field of operation, or as small entities if they are institutions 
controlled by governmental entities with populations below 50,000.
    Data from the Integrated Postsecondary Education Data System 
(IPEDS) indicate that roughly 4,379 institutions participating in the 
Federal student assistance programs meet the definition of ``small 
entities.'' The following table provides the distribution of 
institutions and students by revenue category and institutional 
control.

[[Page 34858]]

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Public                        Private NFP                     Proprietary                       Tribal
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                        Revenue category                                              No. of                          No. of                          No. of                          No. of
                                                                  No. of schools     students     No. of schools     students     No. of schools     students     No. of schools     students
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$0 to $500,000..................................................              43           2,124             103          13,208             510          38,774  ..............  ..............
$500,000 to $1 million..........................................              44           7,182              81           9,806             438          61,906               1             137
$1 million to $3 million........................................              98          29,332             243          65,614             745         217,715               3             555
$3 million to $5 million........................................              75          65,442             138          60,923             303         182,362  ..............  ..............
$5 million to $7 million........................................              49          73,798              99          62,776             224         185,705               5           2,525
$7 million to $10 million.......................................              78         129,079             110          84,659             228         235,888               9           4,935
$10 million and above...........................................           1,585      18,480,000           1,067       4,312,010             383       1,793,951              14          18,065
                                                                 -------------------------------------------------------------------------------------------------------------------------------
    Total.......................................................           1,972      18,786,957           1,841       4,608,996           2,831       2,716,301              32          26,217
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Approximately two-thirds of these institutions are for-profit 
schools subject to the disclosure and reporting requirements related to 
programs leading to gainful employment described in this NPRM. Other 
affected small institutions include small community colleges and 
tribally controlled schools. For these institutions, the new disclosure 
and administrative requirements imposed under the proposed regulations 
could impose some new costs as described below. The impact of the 
proposed regulations on individuals is not subject to the Regulatory 
Flexibility Act.
    As discussed in the preamble to this NPRM, the proposed program 
integrity regulations are being developed to update administrative 
procedures for the Federal student aid programs and to ensure that 
funds are provided to students at eligible programs and institutions. 
Many of the provisions addressed in this NPRM modify existing 
regulations and requirements. For example, the proposed regulations on 
FAFSA verification would change the number of items to be verified but 
would not require the creation of a new process. The following table 
summarizes the estimated total hours, costs, and requirements 
applicable to small entities from these provisions.

----------------------------------------------------------------------------------------------------------------
                                                                    OMB Control
                                                  Reg. section          No.            Hours           Costs
----------------------------------------------------------------------------------------------------------------
                                                           668.6       1845-NEW1          82,637       1,711,818
Annual submission of private loan, CIP, and             668.6(a)  ..............          34,999         725,001
 identifying data for completers by program..
Report CIP codes for all attendees...........  .................  ..............          37,138         769,317
Disclose occupational information, graduation           668.6(b)  ..............          10,500         217,500
 rates, program placement rates, and program
 costs.......................................
                                                           668.8       1845-0022          12,035         224,250
Determine if program is affected, evaluate     .................  ..............  ..............  ..............
 amount of outside student work that should
 be included, and perform credit to clock
 hour conversion.............................
                                                          668.16       1845-0022          14,418         268,650
Develop a high school diploma validity                 668.16(p)  ..............          13,106         244,208
 process.....................................
Verify questionable diplomas.................          668.16(p)  ..............           1,312          24,443
                                                          668.22       1845-0022         278,807       5,195,005
Establish withdrawal date and calculate        .................  ..............  ..............  ..............
 percentage of payment period or period of
 enrollment completed........................
                                                          668.34       1845-NEW2         478,627       8,918,250
Review proposed regulations and implement              668.34(a)  ..............          11,234         209,316
 changes to ensure compliance................
Perform academic reviews at the end of each            668.34(c)  ..............         137,282       2,557,972
 payment period..............................
Develop academic plan for students who do not          668.34(c)  ..............         120,123       2,238,249
 achieve satisfactory academic progress when
 reviewed at end of payment period...........
Perform academic reviews at institutions that          668.34(d)  ..............         111,994       2,086,777
 do so annually..............................
Develop academic plan for students who do not          668.34(d)  ..............          97,995       1,825,936
 achieve satisfactory academic progress when
 reviewed annually...........................
                                                          668.43       1845-NEW2          44,516         829,465
Disclose information about written agreements  .................  ..............          43,930         818,552
Make contact information for filing                    668.43(b)  ..............             586          10,914
 complaints to accreditor and State approval
 or licensing agency available to enrolled
 and prospective students....................
                                                          668.55       1845-0041         189,558       3,532,041
Update household size throughout award year..  .................  ..............         170,603       3,178,843
Update marrital status throughout award year.  .................  ..............          18,956         353,198
                                                          668.57       1845-0041         401,411       7,479,487
Review verification responses for acceptable   .................  ..............  ..............  ..............
 documentation...............................
                                                          668.59       1845-0041         802,822      14,958,975
Removes tolerances and requires institutions   .................  ..............  ..............  ..............
 to report all changes to applicants' FAFSA
 information resulting from verification.....
Recalculate applicant's EFC if information     .................  ..............  ..............  ..............
 changes from verification...................
                                                         668.151       1845-0049          28,313         527,548
Keep records of individuals who take ATB           668.151(g)(4)  ..............          25,279         471,024
 tests and details about the administrator...
Keep documentation of individual's disability      668.151(g)(5)  ..............           3,034          56,524
 and testing arrangements provided...........

[[Page 34859]]

                                                         668.152       1845-0049           3,427          63,857
Maintain the scored ATB tests and collect and  .................  ..............  ..............  ..............
 submit copies of completed ATB tests or a
 listing to the test publisher or State
 weekly......................................
                                                         668.164       1845-NEW3          35,640         664,073
Provide a way for Pell Grant recipients to     .................  ..............  ..............  ..............
 obtain or purchase required books and
 supplies by the 7th day of a payment period
 under certain conditions....................
----------------------------------------------------------------------------------------------------------------

    To assess overall burden imposed on institutions meeting the 
definition of small entities, the Department developed a methodology 
using IPEDS data and the percentage of institutions with revenues below 
$7 million and all non-profit institutions, allocating approximately 66 
percent of the paperwork burden to small institutions. Using this 
methodology, the Department estimates that the proposed regulations 
would increase total burden hours for these schools by 2.37 million, or 
roughly 541 hours per institution. Monetized using salary data from the 
Bureau of Labor Statistics, this burden is $44.4 million and $10,133, 
respectively. If calculated using the distribution of students from 
2007-08, the share of the burden allocated to small institutions would 
be much lower at approximately 21 percent, resulting in an estimated 
burden of 186 hours and $3,510 per institution. Even the more 
conservative estimate of $10,133 represents 1 percent or less of the 
midpoint revenue for all but the lowest revenue category, for which it 
is 4 percent of midpoint revenue.
    For institutions, an hourly rate of $18.63 was used to monetize the 
burden of these provisions. This was a blended rate based on wages of 
$15.51 for office and administrative staff and $36.33 for managers, 
assuming that office staff would perform 85 percent of the work 
affected by these regulations. For the gainful employment provision, an 
hourly rate of $20.71 was used to reflect increased management time to 
establish new data collection procedures associated with that 
provision. These rates are the same as those used for all institutions 
in the costs section of this analysis, reflecting the fact that the 
primary cost of meeting the paperwork burden is in additional labor and 
wages at small institutions should not be systematically higher than 
those at all institutions. The Department welcomes comments from 
institutions regarding the costs of meeting the additional burdens 
described in the Paperwork Reduction Act section of this NPRM.
    Where possible, the Department has allowed institutions flexibility 
to establish processes to comply that fit the institution's 
administrative capabilities. For example, the requirement to distribute 
funds to Pell Grant recipients for books and supplies within 7 days of 
the start of the payment period allows institutions to use book 
vouchers or a credit to the student's account. The Department has also 
tried to allow more time to establish procedures for new data 
collections, such as the placement rate information required in the 
data collection related to gainful employment. While these timing 
provisions are available to all institutions, they should help small 
institutions have time for the necessary adjustments. Granting such 
extensions to all institutions is simpler to administer and provides 
additional certainty to institutions that will not have to anticipate 
if their revenues will fall below the small business threshold to get 
more time for compliance. Approximately 60 percent of the paperwork 
burden associated with these regulations comes in OMB 1845-0041 from 
updating FAFSA application information and reporting all changes 
resulting from verification. These updated requirements will help 
ensure eligible students receive aid. As detailed in the Paperwork 
Reduction Act section of this NPRM, the increase in burden associated 
with the FAFSA acceptable documentation provision is largely driven by 
the increase in student applicants since the burden was last 
calculated. The number of verifications is estimated to have increased 
from 3.0 million in 2002-03 to 5.1 million in 2008-09. Without the 
regulatory change estimated to reduce the number of items to be 
verified, the paperwork burden on small institutions in OMB 1845-0041 
would increase by an additional 267,607 hours. Based on these 
estimates, the Department believes the proposed new requirements do not 
impose significant new costs on these institutions.
    No alternative provisions were considered that would target small 
institutions with exemptions or additional time for compliance. 
Additional time or flexibility was granted to all institutions based on 
the nature of the provision and the data requested. The Secretary 
invites comments from small institutions and other affected entities as 
to whether they believe the proposed changes would have a significant 
economic impact on them and, if so, requests evidence to support that 
belief.

Paperwork Reduction Act of 1995

    Sections 668.6, 668.8, 668.16, 668.22, 668.34, 668.43, 668.55, 
668.56, 668.57, 668.59, 668.144, 668.150, 668.151, 668.152, and 668.164 
contain information collection requirements. Under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department has submitted 
a copy of these sections to OMB for its review.

Section 668.6--Gainful Employment

    The proposed regulations would impose new requirements on certain 
programs that by law must, for purposes of the title IV, HEA programs, 
prepare students for gainful employment in a recognized occupation. For 
public and private nonprofit institutions, a program that does not lead 
to a degree would be subject to the eligibility requirement that the 
program lead to gainful employment in a recognized occupation, while a 
program leading to a degree, including a two-academic-year program 
fully transferrable to a baccalaureate degree, would not be subject to 
this eligibility requirement. For proprietary institutions, all 
eligible degree and nondegree programs would be required to lead to 
gainful employment in a recognized occupation, except for a liberal 
arts baccalaureate program under section 102(b)(1)(A)(ii) of the HEA.
    The institution would be required under proposed Sec.  668.6(a) to 
submit annually, information that would include, at a minimum, 
identifying information about each student who completed a program, the 
CIP code for that program, the date the student completed the program, 
and the amounts the student received from private educational loans and 
institutional financing plans. We estimate that it will take the 
affected 2,086 proprietary institutions, on average, 10 hours to meet 
these reporting requirements for their

[[Page 34860]]

occupational training programs for a total estimated increase in burden 
of 20,860 hours. We estimate that it will take the affected 238 private 
non-profit institutions, on average, 10 hours to meet these reporting 
requirements for their occupational training programs for a total 
estimated increase in burden of 2,380 hours. We estimate that it will 
take the affected 2,139 public institutions, on average, 10 hours to 
meet these reporting requirements for their occupational training 
programs for a total estimated increase in burden of 21,390 hours.
    Collectively, we estimate that burden for institutions to meet 
these proposed reporting requirements in accordance with procedures 
established by the Secretary would increase by 44,630 hours in OMB 
Control Number 1845-NEW1.
    We estimate that over the first three-year reporting period that 
there would be 591,966 graduates from these occupational training 
programs. We estimate that the proposed reporting for an estimated 
278,224 graduates from proprietary institutions would average 5 minutes 
(.08 hours) per graduate, increasing burden by 22,258 hours. We 
estimate that the proposed reporting for the estimated 29,598 graduates 
from private non-profit institutions would average 5 minutes (.08 
hours) per graduate, increasing burden by 2,368 hours. We estimate that 
the proposed reporting for 284,144 graduates from public institutions 
would average 5 minutes (.08 hours) per graduate, increasing burden by 
22,732 hours.
    Collectively, burden associated with the proposed disclosures 
(including the reporting of Department provided median loan debt 
information) for each graduate would increase for institutions by 
47,358 hours in OMB Control Number 1845-NEW1.
    Finally, under proposed Sec.  668.6(b) an institution would be 
required to disclose on its Web site information about (1) the 
occupations that its programs prepare students to enter, along with 
links to occupational profiles on O*NET, (2) the on-time graduation 
rate of students entering a program, (3) the cost of each program, 
including costs for tuition and fees, room and board; other 
institutional costs typically incurred by students enrolling in the 
program, such as books and supplies, (4) beginning no later than June 
30, 2013, the placement rate for students completing each of these 
programs, as determined under Sec.  668.8(g) or a State-sponsored 
workforce data system, and (5) the median loan debt incurred by 
students who completed each program in the preceding three years, 
identified separately as title IV, HEA loan debt and debt from private 
educational loans and institutional financing plans.
    We estimate that, on average, institutions would take 3 hours per 
institution to obtain the required disclosure information and to 
provide that information on the institution's Web sites. We estimate 
that 2,086 proprietary institutions would take 3 hours per institution 
to collect and post the proposed disclosures which would increase 
burden by 6,258 hours. We estimate that 238 private non-profit 
institutions would take 3 hours per institution to collect and post the 
proposed disclosures which would increase burden by 714 hours. We 
estimate that 2,139 public institutions would take 3 hours per 
institution to collect and post the proposed disclosures which would 
increase burden by 6,417 hours.
    Collectively, we estimate that these proposed disclosures would 
result in an increase in burden to institutions by 13,389 hours in OMB 
Control Number 1845-NEW1.
    In total, the proposed regulatory changes reflected in Sec.  668.6 
would increase burden by a total of 105,377 hours in OMB Control Number 
1845-NEW1.

Section 668.8--Eligible Program

    Under proposed Sec.  668.8(l)(1), we would revise the method of 
converting clock hours to credit hours to use a ratio of the minimum 
clock hours in an academic year to the minimum credit hours in an 
academic year, i.e., 900 clock hours to 24 semester or trimester hours 
or 36 quarter hours. Thus, a semester or trimester hour would be based 
on at least 37.5 clock hours, and a quarter hour would be based on at 
least 25 clock hours. Proposed Sec.  668.8(l)(2) would create an 
exception to the conversion ratio in proposed Sec.  668.8(l)(1) if 
neither an institution's designated accrediting agency nor the relevant 
State licensing authority for participation in the title IV, HEA 
programs determines there are any deficiencies in the institution's 
policies, procedures, and practices for establishing the credit hours 
that the institution awards for programs and courses, as defined in 
proposed Sec.  600.2. Under the exception provided by proposed Sec.  
668.8(l)(2), an institution would be permitted to combine students' 
work outside of class with the clock-hours of instruction in order to 
meet or exceed the numeric requirements established in proposed Sec.  
668.8(l)(1). However, under proposed Sec.  668.8(l)(2), the institution 
would need to use at least 30 clock hours for a semester or trimester 
hour or 20 clock hours for a quarter hour.
    In determining whether there is outside work that a student must 
perform, the analysis would need to take into account differences in 
coursework and educational activities within the program. Some portions 
of a program may require student work outside of class that justifies 
the application of proposed Sec.  668.8(l)(2). In addition, the 
application of proposed Sec.  668.8(l)(2) could vary within a program 
depending on variances in required student work outside of class for 
different portions of the program. Other portions of the program may 
not have outside work, and proposed Sec.  668.8(l)(1) would need to be 
applied. Of course, an institution applying only proposed Sec.  
668.8(l)(1) to a program eligible for conversion from clock hours to 
credit hours, without an analysis of the program's coursework, would be 
considered compliant with the requirements of proposed Sec.  668.8(l).
    Proposed Sec.  668.8(k)(1)(ii) would modify a provision in current 
regulations to provide that a program is not subject to the conversion 
formula in Sec.  668.8(l) where each course within the program is 
acceptable for full credit toward a degree that is offered by the 
institution and that this degree requires at least two academic years 
of study. Additionally, under proposed Sec.  668.8(k)(1)(ii), the 
institution would be required to demonstrate that students enroll in, 
and graduate from, the degree program.
    Proposed Sec.  668.8(k)(2)(i) would provide that a program is 
considered to be a clock-hour program if the program must be measured 
in clock hours to receive Federal or State approval or licensure, or if 
completing clock hours is a requirement for graduates to apply for 
licensure or the authorization to practice the occupation that the 
student is intending to pursue. Under proposed Sec.  668.8(k)(2)(ii) 
and (iii), the program would also be considered to be offered in clock 
hours if the credit hours awarded for the program are not in compliance 
with the definition of a credit hour in proposed Sec.  600.2, or if the 
institution does not provide the clock hours that are the basis for the 
credit hours awarded for the program or each course in the program and, 
except as provided in current Sec.  668.4(e), requires attendance in 
the clock hours that are the basis for the credit hours awarded. The 
proposed regulations on which tentative agreement was reached would not 
include the provision in proposed Sec.  668.8(k)(2)(iii) that, except 
as provided in current Sec.  668.4(e), an institution must require 
attendance in the clock hours

[[Page 34861]]

that are the basis for the credit hours awarded.
    Proposed Sec.  668.8(k)(3) would provide that proposed Sec.  
668.8(k)(2)(i) would not apply if a limited portion of the program 
includes a practicum, internship, or clinical experience component that 
must include a minimum number of clock hours due to a State or Federal 
approval or licensure requirement.
    We estimate that on average, for each affected program it would 
take 30 minutes for an institution to make the determination of whether 
the program is an affected program, to evaluate the amount of outside 
student work that should be included as proposed and to perform the 
clock hour to credit hour conversion. We further estimate that of the 
4,587 institutions of higher education with less than 2-year programs, 
that on average, each institution has approximately 8 non-degree 
programs of study for a total of 36,696 affected programs. We estimate 
that there are 16,513 affected programs at proprietary institutions 
times .5 hours which would increase burden by 8,257 hours. We estimate 
that there are 1,835 affected programs at private non-profit 
institutions times .5 hours which would increase burden by 918 hours. 
We estimate that there are 18,348 affected programs at public 
institutions times .5 hours which would increase burden by 9,174 hours.
    Collectively, the proposed regulatory changes reflected in Sec.  
668.8 would increase burden by 18,349 hours in OMB Control Number 1845-
0022.

Section 668.16--Standards of Administrative Capability

    Under the proposed regulations, the elements of the institution's 
satisfactory academic progress plan would be moved from current Sec.  
668.16(e) to proposed Sec.  668.34. We would also update these 
provisions. As a result, the estimated burden upon institutions 
associated with measuring academic progress currently in OMB Control 
Number 1845-0022 of 21,000 hours would be administratively removed from 
this collection and transferred to OMB Control Number 1845-NEW2.
    Under proposed Sec.  668.16(p), an institution would be required to 
develop and follow procedures to evaluate the validity of a student's 
high school completion if the institution or the Secretary has reason 
to believe that the high school diploma is not valid or was not 
obtained from an entity that provides secondary school education. The 
burden associated with this proposed requirement would be mitigated by 
the fact that many institutions already have processes in place to 
collect high school diplomas and make determinations about their 
validity.
    We estimate that burden would increase for each institution by 3.5 
hours for the development of a high school diploma validity process. We 
estimate that 2,086 proprietary institutions would on average take 3.5 
hours to develop the proposed procedures to evaluate the validity of 
high school completions which would increase burden by 7,301 hours. We 
estimate that 1,731 private non-profit institutions would on average 
take 3.5 hours to develop the proposed procedures to evaluate the 
validity of high school completion which would increase burden by 6,059 
hours. We estimate that 1,892 public institutions would on average take 
3.5 hours to develop the proposed procedures to evaluate the validity 
of high school completion which would increase burden by 6,622 hours.
    Additionally, we estimate that the validity of approximately 4,000 
high school diplomas per year would be questioned and, therefore, 
require additional verification that is estimated to take .5 hours per 
questionable diploma. We estimate that proprietary institutions would 
have 2,000 questionable diplomas times .5 hours per diploma equals 
1,000 hours of increased burden. We estimate that private non-profit 
institutions would have 600 questionable diplomas times .5 hours per 
diploma equals 300 hours of increased burden. We estimate that public 
institutions would have 1,400 questionable diplomas times .5 hours per 
diploma equals 700 hours of increased burden.
    Collectively, the proposed regulatory changes reflected in Sec.  
668.16 would increase burden by 21,982 hours in OMB Control Number 
1845-0022.

Section 668.22--Treatment of Title IV, HEA Program Funds When a Student 
Withdraws

    The proposed changes to Sec.  668.22(a)(2) would clarify when a 
student is considered to have withdrawn from a payment period or period 
of enrollment. In the case of a program that is measured in credit 
hours, the student would be considered to have withdrawn if he or she 
does not complete all the days in the payment period or period of 
enrollment that the student was scheduled to complete prior to 
withdrawing. In the case of a program that is measured in clock hours, 
the student would be considered to have withdrawn if he or she does not 
complete all of the clock hours in the payment period or period of 
enrollment that the student was scheduled to complete prior to 
withdrawing.
    The proposed change to Sec.  668.22(f)(2)(i) would clarify that, 
for credit hour programs, in calculating the percentage of the payment 
period or period of enrollment completed, it is necessary to take into 
account the total number of calendar days that the student was 
scheduled to complete prior to withdrawing without regard to any course 
completed by the student that is less than the length of the term.
    These proposed regulations would affect all programs with courses 
that are less than the length of a term, including, for example, a 
semester-based program that has a summer nonstandard term with two 
consecutive six-week sessions within the term.
    We estimate that approximately 425,075 students in term-based 
programs with modules or compressed courses will withdraw prior to 
completing more than 60 percent of their program of study. We estimate 
that on average, the burden per individual student who withdraws prior 
to the 60 percent point of their term-based program to be 45 minutes 
(.75 hours) per affected individual which would increase burden for the 
estimated 425,075 students by 318,806 hours in OMB Control Number 1845-
0022. Of these 425,075 withdrawals, we estimate that 50 percent of the 
withdrawals (212,538) would occur at proprietary institutions and would 
increase burden by 1 hour per withdrawal increasing burden by 212,538 
hours. We estimate that 10 percent of the withdrawals (42,508) would 
occur at private non-profit institutions and would increase burden by 1 
hour per withdrawal increasing burden by 42,508 hours. We estimate that 
40 percent of the withdrawals (170,029) would occur at public 
institutions and would increase burden by 1 hour per withdrawal 
increasing burden by 170,029 hours. Collectively, we estimate that 
burden will increase by 743,881 hours in OMB Control Number 1845-0022, 
of which 318,806 hours is for individuals and 425,075 hours is for 
institutions.

Section 668.34--Satisfactory Progress

    The proposed regulations would restructure the satisfactory 
academic progress requirements. Proposed Sec.  668.16(e) (Standards of 
administrative capability) would be revised to include only the 
requirement that an institution establish, publish, and apply 
satisfactory academic progress standards that meet the requirements of 
Sec.  668.34. The remainder of current Sec.  668.16(e) would be moved 
to proposed Sec.  668.34 such that it, alone, would describe all of

[[Page 34862]]

the required elements of a satisfactory academic progress policy as 
well as how an institution would implement such a policy. The 
references in paragraph Sec.  668.32(e) would be updated to conform the 
section with the changes proposed to Sec. Sec.  668.16(e) and 668.32.
    Proposed Sec.  668.34(a) would specify the elements an 
institution's satisfactory academic policy must contain to be 
considered a reasonable policy. Under the proposed regulations, 
institutions would continue to have flexibility in establishing their 
own policies; institutions that choose to measure satisfactory academic 
progress more frequently than at the minimum required intervals would 
have additional flexibility (see proposed Sec.  668.34(a)(3)).
    All of the policy elements in the current regulations under Sec.  
668.16(e) and Sec.  668.34 would be combined in proposed Sec.  668.34. 
In addition, proposed Sec.  668.34(a)(5) would make explicit the 
requirement that institutions specify the pace at which a student must 
progress through his or her educational program to ensure that the 
student will complete the program within the maximum timeframe, and 
provide for measurement of a student's pace at each evaluation. Under 
proposed Sec.  668.34(a)(6), institutional policies would need to 
describe how a student's GPA and pace of completion are affected by 
transfers of credit from other institutions. This provision would also 
require institutions to count credit hours from another institution 
that are accepted toward a student's educational program as both 
attempted and completed hours.
    Proposed Sec.  668.34(a)(7) would provide that, except as permitted 
in Sec.  668.34(c) and (d), the policy requires that, at the time of 
each evaluation, if the student is not making satisfactory academic 
progress, the student is no longer eligible to receive the title IV, 
HEA assistance.
    Proposed Sec.  668.34(a)(8) would require institutions that use 
``financial aid warning'' and ``financial aid probation'' statuses 
(concepts that would be defined in proposed Sec.  668.34(b)) in 
connection with satisfactory academic progress evaluations to describe 
these statuses and how they are used in their satisfactory academic 
progress policies. Proposed Sec.  668.34(a)(8)(i) would specify that a 
student on financial aid warning may continue to receive assistance 
under the title IV, HEA programs for one payment period despite a 
determination that the student is not making satisfactory academic 
progress. Financial aid warning status may be assigned without an 
appeal or other action by the student. Proposed Sec.  668.34(a)(8)(ii) 
would make clear that an institution with a satisfactory academic 
progress policy that includes the use of the financial aid probation 
status could require that a student on financial aid probation fulfill 
specific terms and conditions, such as taking a reduced course load or 
enrolling in specific courses.
    Proposed Sec.  668.34(a)(9) would require an institution that 
permits a student to appeal a determination that the student is not 
making satisfactory academic progress to describe the appeal process in 
its policy. The policy would need to contain specified elements. 
Proposed Sec.  668.34(a)(9)(i) would require an institution to describe 
how a student may re-establish his or her eligibility to receive 
assistance under the title IV, HEA programs. Under proposed Sec.  
668.34(a)(9)(ii), a student would be permitted to file an appeal based 
on the death of a relative, an injury or illness of the student, or 
other special circumstances. Under proposed Sec.  668.34(a)(9)(iii), a 
student would be required to submit, as part of the appeal, information 
regarding why the student failed to make satisfactory academic 
progress, and what has changed in the student's situation that would 
allow the student to demonstrate satisfactory academic progress at the 
next evaluation.
    Proposed Sec.  668.34(a)(10) would require the satisfactory 
academic progress policy of an institution that does not permit 
students to appeal a determination that they are not making 
satisfactory academic progress to describe how a student may regain 
eligibility for assistance under the title IV, HEA programs.
    Proposed Sec.  668.34(a)(11) would require that an institution's 
policy provide for notification to students of the results of an 
evaluation that impacts the student's eligibility for title IV, HEA 
program funds.
    We estimate that, on average, institutions would take 3 hours per 
institution to review the proposed regulations in Sec.  668.34(a) and 
implement any proposed changes to insure compliance. We estimate that 
2,086 proprietary institutions would take 3 hours per institution to 
review and implement the proposed regulations increasing burden by 
6,258 hours. We estimate that 1,731 private non-profit institutions 
would take 3 hours per institution to review and implement the proposed 
regulations increasing burden by 5,193 hours. We estimate that 1,892 
public institutions would take 3 hours per institution to review and 
implement the proposed regulations increasing burden by 5,676 hours. 
Collectively, the proposed regulatory changes reflected in Sec.  
668.34(a) would increase burden by 17,127 hours.
    Proposed Sec.  668.34(c) and (d) would specify that an 
institution's policy may provide for disbursement of title IV, HEA 
program funds to a student who has not met an institution's 
satisfactory academic standards in certain circumstances. Of the 17 
million applicants in 2008-2009, we estimate that 90 percent (or 
15,300,000 individuals) would begin attendance. We estimate that of the 
15,300,000 individuals that begin attendance, that 90 percent (or 
13,770,000 individuals) would persist at least through the end of the 
initial payment period and therefore the institution would evaluate the 
student's satisfactory academic progress consistent with the provision 
of proposed Sec.  668.34. We estimate that 38 percent of the 
institutions would evaluate their students at the end of each payment 
period under proposed Sec.  668.34(c), therefore 13,770,000 individuals 
times 38 percent equals 5,232,600 individuals that would be evaluated 
more than annually. We estimate that 62 percent of institutions would 
evaluate their students once per academic year under proposed Sec.  
668.34(d), therefore, 13,770,000 individuals times 62 percent equals 
8,537,400 individuals that would be evaluated annually.
    Proposed Sec.  668.34(c) would permit an institution that measures 
satisfactory academic progress at the end of each payment period to 
have a policy that would permit a student who is not making 
satisfactory academic progress to be placed automatically on financial 
aid warning, a newly defined term. We estimate as a result, the burden 
associated with an academic progress measurement at the end of each 
payment period, and when required, developing an academic plan for the 
student, would increase burden. We estimate that proprietary 
institutions, which comprise 37 percent of the total number of 
institutions of higher education, times 5,232,600 individuals equals 
1,936,062 individuals at proprietary institutions that would require an 
academic review more than once per academic year. 1,936,062 times an 
average of 2 reviews per academic year, equals 3,872,124 satisfactory 
academic progress reviews. Since these academic progress reviews are 
generally highly automated, we estimate that, on average, each review 
will take 1.2 minutes (.02 hours) and will increase burden by 77,442 
hours. We estimate that private non-profit institutions, which comprise 
30 percent of the total

[[Page 34863]]

number of institutions of higher education, times 5,232,600 individuals 
equals 1,569,780 individuals at private non-profit institutions that 
would require an academic review. 1,569,780 times an average of 2 
reviews per academic year, equals 3,139,560 satisfactory academic 
progress reviews. Since these academic progress reviews are generally 
highly automated, we estimate that, on average, each review will take 
1.2 minutes (.02 hours) and will increase burden by 62,791 hours. We 
estimate that public institutions, which comprise 33 percent of the 
total number of institutions of higher education, times 5,232,600 
individuals equals 1,726,758 individuals at public institutions that 
would require an academic review. 1,726,758 times an average of 2 
reviews per academic year, equals 3,453,516 satisfactory academic 
progress reviews. Since these academic progress reviews are generally 
highly automated, we estimate that, on average, each review will take 
1.2 minutes (.02 hours) and will increase burden by 69,070 hours.
    Collectively, we estimate that the burden for institutions would 
increase by 209,303 hours, in OMB Control Number 1845-NEW2.
    As a result of the proposed satisfactory academic progress reviews 
conducted by the institutions, we estimate that 7 percent of the 
5,232,600 enrolled students (at institutions that review academic 
progress more often than annually) or 366,282 would not successfully 
achieve satisfactory academic progress and therefore the institution 
would work with each student to develop an academic plan which would 
increase burden for the individual and the institutions. We estimate 
that under proposed Sec.  668.34(c), that 366,282 students would, on 
average, take 10 minutes (.17 hours) to establish an academic plan and 
re-evaluate the plan a second time within the academic year (2 times 
per academic year), increasing burden to individuals by 124,536 hours.
    We estimate that proprietary institutions, which comprise 37 
percent of the total number of institutions of higher education, times 
5,232,600 individuals equals 1,936,062 individuals at proprietary 
institutions that would require the development of an academic plan as 
a result of not progressing academically. 1,936,062 individuals times 7 
percent (we estimate who would not academically progress), equals 
135,524 individuals who would need to work with their institutions to 
develop an academic plan. We estimate that each academic plan would 
take, on average, 15 minutes (.25 hours) of staff time at two times 
within the academic year, increasing burden by 67,762 hours.
    We estimate that private non-profit institutions, which comprise 30 
percent of the total number of institutions of higher education, times 
5,232,600 individuals equals 1,569,780 individuals at private non-
profit institutions that would require the development of an academic 
plan as a result of not progressing academically. 1,569,780 individuals 
times 7 percent (we estimate who would not academically progress), 
equals 109,885 individuals who would need to work with their 
institutions to develop an academic plan. We estimate that each 
academic plan would take, on average, 15 minutes (.25 hours) of staff 
time at two times within the academic year, increasing burden by 54,943 
hours.
    We estimate that public institutions, which comprise 33 percent of 
the total number of institutions of higher education, times 5,232,600 
individuals equals 1,726,758 individuals at public institutions that 
would require the development of an academic plan as a result of not 
progressing academically. 1,726,758 individuals times 7 percent (we 
estimate who would not academically progress), equals 120,873 
individuals who would need to work with their institutions to develop 
an academic plan. We estimate that each academic plan would take, on 
average, 15 minutes (.25 hours) of staff time at two times within the 
academic year, increasing burden by 60,437 hours.
    Collectively, we estimate that the burden for institutions would 
increase by 183,142 hours, in OMB Control Number 1845-NEW2.
    Under proposed Sec.  668.34(d), at an institution that measures 
satisfactory academic progress annually, or less frequently than at the 
end of each payment period, a student who has been determined not to be 
making satisfactory academic progress would be able to receive title 
IV, HEA program funds only after filing an appeal and meeting one of 
two conditions: (1) the institution has determined that the student 
should be able to meet satisfactory progress standards after the 
subsequent payment period, or (2) the institution develops an academic 
plan with the student that, if followed, will ensure that the student 
is able to meet the institution's satisfactory academic progress 
standards by a specific point in time.
    Because the proposed regulations would transfer the elements of an 
institution's satisfactory academic policy from Sec.  668.16(e) to 
Sec.  668.34, we are transferring the current burden estimate of 21,000 
hours from the current OMB Control Number 1845-0022 to OMB Control 
Number 1845-NEW2.
    We estimate that proprietary institutions, which comprise 37 
percent of the total number of institutions of higher education, times 
8,537,400 individuals equals 3,158,838 individuals at proprietary 
institutions that would require an academic review. Since the academic 
progress reviews are generally highly automated, we estimate that, on 
average, each review will take 1.2 minutes (.02 hours) and will 
increase burden by 63,177 hours. We estimate that private non-profit 
institutions, which comprise 30 percent of the total number of 
institutions of higher education, times 8,537,400 individuals equals 
2,561,220 individuals at private non-profit institutions that would 
require an academic review. Since the academic progress reviews are 
generally highly automated, we estimate that, on average, each review 
will take 1.2 minutes (.02 hours) and will increase burden by 51,224 
hours. We estimate that public institutions, which comprise 33 percent 
of the total number of institutions of higher education, times 
8,537,400 individuals equals 2,817,342 individuals at public 
institutions that would require an academic review. Since the academic 
progress reviews are generally highly automated, we estimate that, on 
average, each review will take 1.2 minutes (.02 hours) and will 
increase burden by 56,347 hours.
    Collectively, we estimate that the burden for institutions would 
increase by 170,748 hours, in OMB Control Number 1845-NEW2.
    As a result of the proposed satisfactory academic progress reviews 
conducted by the institutions, we estimate that 7 percent of the 
8,537,400 enrolled students (at institutions that review academic 
progress annually) or 597,618 would not successfully achieve 
satisfactory academic progress and therefore the institution would work 
with each student to develop an academic plan which would increase 
burden for the individual and the institutions. We estimate that under 
proposed Sec.  668.34(d), that 597,618 students would, on average, take 
10 minutes (.17 hours) to establish an academic plan, increasing burden 
to individuals by 101,595 hours.
    We estimate that proprietary institutions, which comprise 37 
percent of the total number of institutions of higher education, times 
8,537,400 individuals equals 3,158,838 individuals at proprietary 
institutions that would require the development of an academic plan as 
a result of not

[[Page 34864]]

progressing academically. 3,158,838 individuals times 7 percent (we 
estimate who would not academically progress), equals 211,119 
individuals who would need to work with their institutions to develop 
an academic plan. We estimate that each academic plan would take, on 
average, 15 minutes (.25 hours) of staff time, increasing burden by 
55,280 hours.
    We estimate that private non-profit institutions, which comprise 30 
percent of the total number of institutions of higher education, times 
8,537,400 individuals equals 2,561,220 individuals at private non-
profit institutions that would require the development of an academic 
plan as a result of not progressing academically. 2,561,220 individuals 
times 7 percent (we estimate who would not academically progress), 
equals 179,285 individuals who would need to work with their 
institutions to develop an academic plan. We estimate that each 
academic plan would take, on average, 15 minutes (.25 hours) of staff 
time, increasing burden by 44,821 hours.
    We estimate that public institutions, which comprise 33 percent of 
the total number of institutions of higher education, times 8,537,400 
individuals equals 2,817,342 individuals at public institutions that 
would require the development of an academic plan as a result of not 
progressing academically. 2,817,342 individuals times 7 percent (we 
estimate who would not academically progress), equals 197,214 
individuals who would need to work with their institutions to develop 
an academic plan. We estimate that each academic plan would take, on 
average, 15 minutes (.25 hours) of staff time, increasing burden by 
49,304 hours.
    Collectively, we estimate that the burden for institutions would 
increase by 149,405 hours, in OMB Control Number 1845-NEW2.
    In total, the proposed regulatory changes reflected in Sec.  668.34 
would increase burden by a total of 955,855 hours in OMB Control Number 
1845-NEW2; however when the 21,000 hours of burden currently in OMB 
1845-0022 are administratively transferred from OMB 1845-0022 to OMB 
1845-NEW2, the grand total of burden hours under this section would 
increase to 976,855 in OMB 1845-NEW2.

Section 668.43--Institutional Information

    The Department proposes to revise current Sec.  668.5(a) by 
revising and redesignating paragraph (a) as paragraph (a)(1) and adding 
a new paragraph (a)(2). Proposed Sec.  668.5(a)(1) would be based on 
the language that is in current paragraph (a), but it would be modified 
to make it consistent with the definition of an ``educational program'' 
in 34 CFR 600.2. Proposed new Sec.  668.5(a)(2) would specify that if a 
written arrangement is between two or more eligible institutions that 
are owned or controlled by the same individual, partnership, or 
corporation, the institution that grants the degree or certificate must 
provide more than 50 percent of the educational program. These 
clarifications are also intended to ensure that the institution 
enrolling the student has all necessary approvals to offer an 
educational program in the format in which it is being provided, such 
as through distance education when the other institution is providing 
instruction under a written agreement using that method of delivery. 
Proposed Sec.  668.5(c)(1) would expand the list of conditions that 
would preclude an arrangement between an eligible institution and an 
ineligible institution. Proposed Sec. Sec.  668.5(e) and 668.43 would 
require an institution that enters into a written arrangement to 
provide a description of the arrangement to enrolled and prospective 
students.
    We estimate that 104 proprietary institutions would enter into an 
average of 1 written arrangement per institution and that, on average, 
the burden associated with the proposed collection of information about 
written agreements and its disclosure would take 30 minutes (.5 hours) 
per arrangement, increasing burden by 52 hours. We estimate that 1,731 
private non-profit institutions would enter into an average of 50 
written arrangements per institution and that, on average, the burden 
associated with the proposed collection of information about written 
agreements and its disclosure would take 30 minutes (.5 hours) per 
arrangement, increasing burden by 43,275 hours. We estimate that 1,892 
public institutions would enter into an average of 25 written 
arrangements per institution and that, on average, the burden 
associated with the proposed collection of information about written 
agreements and its disclosure would take 30 minutes (.5 hours) per 
arrangement, increasing burden by 23,650 hours.
    Collectively, we estimate that burden would increase for 
institutions in their reporting of the details of written agreements by 
66,977 hours in OMB Control Number 1845-0022.
    Currently, the Department requires that an institution must make 
available for review to any enrolled or prospective student upon 
request, a copy of the documents describing the institution's 
accreditation and its State, Federal, or tribal approval or licensing. 
The Department proposes in Sec.  668.43(b) that the institution must 
also provide its students or prospective students with contact 
information for filing complaints with its accreditor and State 
approval or licensing entity.
    We estimate that of the 2,086 proprietary institutions that 1,919 
(or 92 percent) would have to begin providing contact information for 
filing complaints with accreditors, approval or licensing agencies. We 
estimate that the other 8 percent are already providing this 
information. We estimate that on average, this disclosure would take 10 
minutes (.17 hours) per disclosure and increase burden to proprietary 
institutions by 326 hours. We estimate that of the 1,731 private non-
profit institutions that 1,593 (or 92 percent) would have to begin 
providing contact information for filing complaints with accreditors, 
approval or licensing agencies. We estimate that the other 8 percent 
are already providing this information. We estimate that on average, 
this disclosure would take 10 minutes (.17 hours) per disclosure and 
increase burden to private non-profit institutions by 271 hours. We 
estimate that of the 1,892 public institutions that 1,740 (or 92 
percent) would have to begin providing contact information for filing 
complaints with accreditors, approval or licensing agencies. We 
estimate that the other 8 percent are already providing this 
information. We estimate that on average, this disclosure would take 10 
minutes (.17 hours) per disclosure and increase burden to proprietary 
institutions by 296 hours.
    Collectively, we estimate that burden would increase for 
institutions in their reporting of the contact information for filing 
complaints to accreditors and approval or licensing agencies by 893 
hours in OMB Control Number 1845-0022.
    In total, the proposed regulatory changes reflected in Sec.  668.43 
would increase burden by 67,870 hours in OMB Control Number 1845-0022.

Section 668.55--Updating Information

    Proposed Sec.  668.55 would require an applicant to update all 
changes in dependency status that occur throughout the award year, 
including changes in the applicant's household size and the number of 
those household members attending postsecondary educational 
institutions. We estimate that 1,530,000 individuals would update their 
household size or the number of household members attending 
postsecondary educational institutions and that, on average, reporting 
would take 5 minutes (.08

[[Page 34865]]

hours) per individual, increasing burden by 122,400 hours.
    We estimate that proprietary institutions would receive updated 
household size or the updated number of household members attending 
postsecondary educational institutions from 566,100 applicants. We 
estimate that each updated record would take 10 minutes (.17 hours) to 
review each updated record thereby increasing burden by 96,237 hours. 
We estimate that private non-profit institutions would receive updated 
household size or the updated number of household members attending 
postsecondary educational institutions from 459,000 applicants. We 
estimate that each updated record would take 10 minutes (.17 hours) to 
review each updated record thereby increasing burden by 78,030 hours. 
We estimate that public institutions would receive updated household 
size or the updated number of household members attending postsecondary 
educational institutions from 504,900 applicants. We estimate that each 
updated record would take 10 minutes (.17 hours) to review each updated 
record thereby increasing burden by 85,833 hours.
    Collectively, we estimate that burden would increase for 
individuals and institutions in their reporting updated household size 
and the updated number of household members attending postsecondary 
educational institutions by 382,500 hours in OMB Control Number 1845-
0041, of which 122,400 hours is for individuals and 260,100 hours is 
for institutions.
    The Department also proposes changes resulting from a change in the 
applicant's marital status, regardless of whether the applicant is 
selected for verification. We estimate that 170,000 individuals would 
update their marital status and that on average that reporting would 
take 5 minutes (.08 hours) per individual, increasing burden by 13,600 
hours.
    We estimate that proprietary institutions would receive updated 
marital status information from 62,900 applicants. We estimate that 
each updated record would take 10 minutes (.17 hours) to review each 
updated record thereby increasing burden by 10,693 hours. We estimate 
that private non-profit institutions would receive updated marital 
status information from 51,000 applicants. We estimate that each 
updated record would take 10 minutes (.17 hours) to review each updated 
record thereby increasing burden by 8,670 hours. We estimate that 
public institutions would receive updated marital status information 
from 56,100 applicants. We estimate that each updated record would take 
10 minutes (.17 hours) to review each updated record thereby increasing 
burden by 9,537 hours.
    Collectively, we estimate that burden would increase for 
individuals and institutions in their reporting updated marital status 
information by 42,500 hours in OMB Control Number 1845-0041.
    Proposed Sec.  668.55 would also include a number of other changes 
to remove language that implements the marital status exception in the 
current regulations, including removing current Sec.  668.55(a)(3) and 
revising Sec.  668.55(b).
    In total, the proposed regulatory changes reflected in Sec.  668.55 
would increase burden by 425,005 hours in OMB Control Number 1845-0041.

Section 668.56--Information To Be Verified

    The Department proposes to eliminate from the regulations the five 
items that an institution currently is required to verify for all 
applicants selected for verification. Instead, pursuant to proposed 
Sec.  668.56(a), for each award year, the Secretary would specify in a 
Federal Register notice the FAFSA information and documentation that an 
institution and an applicant may be required to verify. The Department 
would then specify on an individual student's SAR and ISIR what 
information must be verified for that applicant.
    Currently under OMB Control Number 1845-0041, there are 1,022,384 
hours of burden associated with the verification regulations of which 
1,010,072 hours of burden are a result of the data gathering and 
submission by each individual applicant selected for verification. This 
estimate was based upon the number of applicants in the 2002-2003 award 
year. Since then, the number of applicants has grown significantly to 
17.4 million applicants for the 2008-2009 award year, of which we would 
project 5.1 million individual applicants to be selected for 
verification.
    The projected number of items to be verified under the proposed 
regulations is expected to be reduced from the current five required 
data elements to an average of three items per individual. This 
projected reduction in items to be verified would result in a reduction 
of burden per individual applicant. Also, as a result of collecting 
information to verify applicant data on this smaller average number of 
data elements (three items instead of five items), the average amount 
of time for the individual applicant to review verification form 
instructions, gather the data, respond on a form and submit a form and 
the supporting data would decrease from the current average of 12 
minutes (.20 hours) per individual to 7 minutes (.12 hours), thus 
further reducing burden on the individual applicant.
    For example, when we consider the estimated 5.1 million 2008-2009 
applicants selected for verification at an average of 12 minutes (.20 
hours) to collect and submit information, including supporting 
documentation for the five required data elements (which is the 
estimated amount of time that is associated with the requirements in 
current Sec.  668.56(a)), the requirements in that section would yield 
a total burden of 1,020,000 hours added to OMB Control Number 1845-
0041. However, under proposed Sec.  668.56(b), where the number of 
verification data elements would be reduced to an average of three, the 
estimated 5.1 million individuals selected for verification multiplied 
by the reduced average of 7 minutes (.12 hours) would yield an increase 
of 612,000 hours in burden. Therefore, with the proposed changes to 
this section, we would expect the burden to be 408,000 hours less than 
under the current regulations.
    As a result, for OMB reporting purposes, we estimate that the 
individuals, as a group, would have an increase in burden by 612,000 
hours in OMB Control Number 1845-0041 (rather than 1,020,000 hours).

Section 668.57--Acceptable Documentation

    We propose to make a number of technical and conforming changes 
throughout Sec.  668.57. We also propose to make the following 
substantive changes described in this section.
    Proposed Sec.  668.57(a)(2) would allow an institution to accept, 
in lieu of an income tax return or an IRS form that lists tax account 
information, the electronic importation of data obtained from the IRS 
into an applicant's online FAFSA.
    We also propose to amend Sec.  668.57(a)(4)(ii)(A) to accurately 
reflect that, upon application, the IRS grants a six-month extension 
beyond the April 15 deadline rather than the four-month extension 
currently stated in the regulations.
    Under proposed Sec.  668.57(a)(5), an institution may require an 
applicant who has been granted an extension to file his or her income 
tax return to provide a copy of that tax return once it has been filed. 
If the institution requires the applicant to submit the tax return, 
under this proposed provision, it would need to re-verify the AGI and 
taxes paid of the applicant and his or

[[Page 34866]]

her spouse or parents when the institution receives the return.
    Proposed Sec.  668.57(a)(7) would clarify that an applicant's 
income tax return that is signed by the preparer or stamped with the 
preparer's name and address must also include the preparer's Social 
Security number, Employer Identification Number or the Preparer Tax 
Identification Number.
    Proposed Sec.  668.57(b) and (c) would remain substantively 
unchanged.
    We would delete current Sec.  668.57(d) regarding acceptable 
documentation for untaxed income and benefits and replace it with new 
proposed Sec.  668.57(d). This new section would provide that, if an 
applicant is selected to verify other information specified in an 
annual Federal Register notice, the applicant must provide the 
documentation specified for that information in the Federal Register 
notice.
    Currently under OMB Control Number 1845-0041, there are 1,022,384 
hours of burden associated with the verification regulations, of which 
12,312 hours are attributable to institutions of higher education to 
establish their verification policies and procedures. Under proposed 
Sec.  668.57, we estimate that, on average, institutions will take 7 
minutes (.12 hours) per applicant selected for verification to review 
and take appropriate action based upon the information provided by the 
applicant, which in some cases may mean correcting applicant data or 
having the applicant correct his or her data. Under current Sec.  
668.57, when we consider the significant increase to 17.4 million 
applicants in the 2008-2009 award year, of which 5.1 million would be 
selected for verification at an average of 12 minutes (.20 hours) per 
verification response received from applicants by the institutions for 
review, the total increase in burden would have been 1,020,000 
additional hours. However, under proposed Sec.  668.57, both the 
average number of items to be verified would be reduced from five items 
to three items, as well as the average amount of time to review would 
decrease from 12 minutes (.20 hours) to 7 minutes (.12 hours). 
Therefore, under the proposed regulations, the burden to institutions 
would be 612,000 burden hours (that is, 5.1 million multiplied by 7 
minutes (.12 hours))--rather than 1,020,000 burden hours (i.e., 5.1 
million applicants multiplied by 12 minutes (.20 hours)). Thus, as 
compared to the burden under the current regulations, using the number 
of applicants from 2008-2009--17.4 million--there would be 408,000 
fewer burden hours for institutions.
    We estimate that for 2,086 proprietary institutions times 7 minutes 
(.12 hours) equals 226,440 hours of increased burden. We estimate that 
for 1,731 private non-profit institutions times 7 minutes (.12 hours) 
equals 183,600 hours of increased burden. We estimate that for 1,892 
public institutions times 7 minutes (.12 hours) equals 201,960 hours of 
increased burden.
    As a result, for OMB reporting purposes, collectively there would 
be a projected increase of 612,000 hours of burden for institutions in 
OMB Control Number 1845-0041.

Section 668.59--Consequences of a Change in FAFSA Information

    We propose to amend Sec.  668.59 by removing all allowable 
tolerances and requiring instead that an institution submit to the 
Department all changes to an applicant's FAFSA information resulting 
from verification for those applicants receiving assistance under any 
of the subsidized student financial assistance programs (see proposed 
Sec.  668.59(a)).
    Under proposed Sec.  668.59(b), for the Federal Pell Grant program, 
once the applicant provides the institution with the corrected SAR or 
ISIR, the institution would be required to recalculate the applicant's 
Federal Pell Grant and disburse any additional funds, if additional 
funds are payable. If the applicant's Federal Pell Grant would be 
reduced as a result of verification, the institution would be required 
to eliminate any overpayment by adjusting subsequent disbursements or 
reimbursing the program account by requiring the applicant to return 
the overpayment or making restitution from its own funds (see proposed 
Sec.  668.59(b)(2)(ii)).
    Proposed Sec.  668.59(c) would provide that, for the subsidized 
student financial assistance programs, excluding the Federal Pell Grant 
Program, if an applicant's FAFSA information changes as a result of 
verification, the institution must recalculate the applicant's EFC and 
adjust the applicant's financial aid package on the basis of the EFC on 
the corrected SAR or ISIR.
    With the exception of minor technical edits, proposed Sec.  
668.59(d), which describes the consequences of a change in an 
applicant's FAFSA information, would be substantively the same as 
current Sec.  668.59(d).
    Finally, we would remove current Sec.  668.59(e), the provision 
that requires an institution to refer to the Department unresolved 
disputes over the accuracy of information provided by the applicant if 
the applicant received funds on the basis of that information.
    As proposed, both individuals (students) and institutions would be 
making corrections to FAFSA information as a result of the verification 
process. We estimate that 30 percent of the 17,000,000 applicants or 
5,100,000 individuals (students) would be selected for verification. Of 
those 5,100,000 individuals, students would submit, on average, 1.4 
changes in FAFSA information as a result of verification for 7,140,000 
changes which would take an average of 7 minutes (.12 hours) per 
change, increasing burden to individuals by 856,800 hours.
    We estimate that of the 5,100,000 individuals selected for 
verification, that institutions would submit, on average 2.0 changes 
per individual in FAFSA information as a result of verification for 
10,200,000 changes. We estimate that 3,774,000 changes to FAFSA 
information as a result of verification would occur at proprietary 
institutions which would take an average of 7 minutes (.12 hours) per 
change, increasing burden by 452,880 hours. We estimate that 3,060,000 
changes to FAFSA information as a result of verification would occur at 
private non-profit institutions which would take an average of 7 
minutes (.12 hours) per change, increasing burden by 367,200 hours. We 
estimate that 3,366,000 changes to FAFSA information as a result of 
verification would occur at public institutions which would take an 
average of 7 minutes (.12 hours) per change, increasing burden by 
403,920 hours.
    Collectively, the proposed regulatory changes reflected in Sec.  
668.59 would increase for individuals and institutions by 2,080,800 
hours in OMB Control Number 1845-0041.

Section 668.144--Application for Test Approval

    We propose to clarify and expand the requirements in current 
Sec. Sec.  668.143 and 668.144 and to include all of the requirements 
for test approval in one section, proposed Sec.  668.144. Paragraphs 
(a) and (b) of proposed Sec.  668.144 would describe the general 
requirement for test publishers and States to submit to the Secretary 
any test they wish to have approved under subpart J of part 668. 
Paragraph (c) of proposed Sec.  668.144 would describe the information 
that a test publisher must include with its application for approval of 
a test. Paragraph (d) of proposed Sec.  668.144 would describe the 
information a State must include with its application when it submits a 
test to the Secretary for approval.
    Proposed Sec.  668.144(c)(16) would require test publishers to 
include in

[[Page 34867]]

their applications a description of their test administrator 
certification process. In proposed Sec.  668.144(c)(17), we would 
require test publishers to include in their applications, a description 
of the test anomaly analysis the test publisher will conduct and submit 
to the Secretary. Finally, proposed Sec.  668.144(c)(18) would require 
test publishers to include in their applications a description of the 
types of accommodations available for individuals with disabilities, 
including a description of the process used to identify and report when 
accommodations for individuals with disabilities were provided.
    Proposed Sec.  668.144(d) would be added to describe what States 
must include in their test submissions to the Secretary. While this 
provision would replace the content in current Sec.  668.143, its 
language would be revised to be parallel, where appropriate, to the 
test publisher submission requirements in current Sec.  668.144. In 
addition to paralleling most of the current requirements for test 
publisher test submissions, proposed Sec.  668.144(d) would also 
include the new requirements proposed to be added to the test publisher 
submissions. A description of those new provisions follows:
    Both test publishers and States would be required to submit a 
description of their test administrator certification process that 
indicates how the test publisher or State, as applicable, will 
determine that a test administrator has the necessary training, 
knowledge, skills, and integrity to test students in accordance with 
requirements and how the test publisher or the State will determine 
that the test administrator has the ability and facilities to keep its 
test secure against disclosure or release (see proposed Sec.  
668.144(c)(16) (test publishers) and Sec.  668.144(d)(7) (States)).
    We estimate that test publishers and States would, on average, take 
2.5 hours to develop its process to establish that a test administrator 
has the necessary training, knowledge, skills and integrity to 
administer ability-to-benefit (ATB) tests and report that process to 
the Secretary. We estimate that the burden associated with 8 ATB tests 
would increase for the proprietary test publishers by 20 hours.
    The proposed regulations would require both test publishers and 
States to submit a description of the test anomaly analysis they will 
conduct that includes how they will identify potential test 
irregularities and make a determination that test irregularities have 
occurred; an explanation of corrective action to be taken in the event 
of test irregularities; and information on when and how the Secretary, 
test administrator, and institutions will be notified if a test 
administrator is decertified (see proposed Sec.  668.144(c)(17) (test 
publishers) and Sec.  668.144(d)(8) (States)). We estimate that test 
publishers and States would, on average, take 75 hours to develop its 
test anomaly process, to establish its test anomaly analysis (where it 
explains its test irregularity detection process including its 
decertification of test administrator process) and to establish its 
reporting process to the Secretary. We estimate that the burden 
associated with 8 ATB tests would increase for the proprietary test 
publishers by 600 hours.
    Under proposed Sec.  668.144(c)(18) and (d)(9) respectively, both 
test publishers and States would be required to describe the types of 
accommodations available for individuals with disabilities, and the 
process for a test administrator to identify and report to the test 
publisher when accommodations for individuals with disabilities were 
provided. We estimate that test publishers and States would, on 
average, take 1 hour to develop and describe to the Secretary the types 
of accommodations available to individuals with disabilities, to 
describe the process the test administrator would use to support the 
identification of the disability and to develop the process to report 
when accommodations would be used. We estimate that the burden 
associated with 8 ATB tests would increase for the proprietary test 
publishers by 8 hours.
    Collectively, the proposed regulatory changes in Sec.  668.144 
would increase burden for test publishers by 628 hours in OMB 1845-
0049.

Section 668.150--Agreement Between the Secretary and a Test-Publisher 
or a State

    Proposed Sec.  668.150 would provide that States, as well as test 
publishers, must enter into agreements with the Secretary in order to 
have their tests approved.
    We would also revise this section to require both test publishers 
and States to comply with a number of new requirements that would be 
added to the agreement with the Secretary. These requirements would 
include:
     Requiring the test administrators that they certify to 
provide them with certain information about whether they have been 
decertified (see proposed Sec.  668.150(b)(2)). We estimate that 3,774 
individuals (test administrators) would take, on average, 10 minutes 
(.17 hours) to access, read, complete and submit the written 
certification to a test publisher or State, which would increase burden 
by 642 hours.
     We estimate that it would take each test publisher or 
State 1 hour per test submission to develop its process to obtain a 
certification statement from each prospective test administrator, which 
would increase burden by 8 hours. We estimate that the review of the 
submitted written certifications by the test publishers or States for 
the 3,774 test administrators would take, on average, 5 minutes (.08 
hours) per certification form, which would increase burden by 302 
hours. Immediately notifying the test administrator, the Secretary, and 
institutions when the test administrator is decertified (see proposed 
Sec.  668.150(b)(6)). We estimate that 1 percent of the 3,774 test 
administrators would be decertified. We estimate that it would take 
test publishers and States, on average, 1 hour per decertification to 
provide all of the proposed notifications, which would increase burden 
for proprietary test publishers by 38 hours. Reviewing test results of 
tests administered by a decertified test administrator and immediately 
notifying affected institutions and students (see proposed Sec.  
668.150(b)(7)). We estimate that 481,763 ATB tests would be taken for 
title IV, HEA purposes annually. Of the annual total of ATB tests 
provided, we estimate that 1 percent will be improperly administered 
and that 4,818 individuals would be contacted, which would take, on 
average, 15 minutes (.25 hours) per individual. We estimate that burden 
would increase by 1,205 hours. We estimate that it would take test 
publishers and States, on average, 5 hours per ATB test submitted, to 
develop the process to determine when ATB tests have been improperly 
administered, which for 8 approved ATB tests would increase burden by 
40 hours. We estimate that test publishers and States would, on 
average, take 20 minutes (.33 hours) for each of the 4,818 estimated 
improperly administered ATB tests to make the proposed notifications to 
institutions, students and prospective students, which would increase 
burden by 1,590 hours. Reporting to the Secretary if a test publisher 
or the State certifies a previously decertified test administrator 
after the three-year decertification period (see proposed Sec.  
668.150(b)(8)). We estimate that of the 3,774 test administrators that 
1 percent or 38 test administrators would be decertified. Of the 38 
decertified test administrators, we estimate that 2 percent or 1 
previously de-certified test administrator would be re-certified after

[[Page 34868]]

a three-year period and therefore reported to the Secretary. We 
estimate the burden for test publishers for this reporting would be 1 
hour. We project that it will be very rare that a decertified test 
administrator will seek re-certification after the three-year 
decertification period.
     Providing copies of test anomaly analysis every 18 months 
instead of every 3 years (see proposed Sec.  668.150(b)(13)). We 
estimate that it would take test publishers or States, on average, 75 
hours to conduct its test anomaly analysis and report the results to 
the Secretary every 18 months as proposed. We estimate the burden on 
test publishers for the submission of the 8 test anomaly analysis every 
18 months would be 600 hours.
     Reporting to the Secretary any credible information 
indicating that a test has been compromised (see proposed Sec.  
668.150(b)(15)). We estimate that 481,763 ATB tests for title IV, HEA 
purposes would be given on an annual basis. Of that total number ATB 
tests provided, we estimate that 482 ATB tests will be compromised. On 
average, we estimate that test publishers would take 1 hour per test to 
collect the credible information to make the determination that a test 
would be compromised and report it to the Secretary. We estimate that 
burden would increase by 482 hours. Reporting to the Office of 
Inspector General of the Department of Education any credible 
information indicating that a test administrator or institution may 
have engaged in fraud or other criminal misconduct (see proposed Sec.  
668.150(b)(16)). We estimate that 481,763 ATB tests for title IV, HEA 
purposes would be given on an annual basis. Of that total number ATB 
tests provided, we estimate that 482 ATB tests will be compromised. On 
average, we estimate that test publishers would take 1 hour per test to 
collect the credible information to make the determination that a test 
would be compromised and report it to the U.S. Department of 
Education's Office of the Inspector General. We estimate that burden 
would increase by 482 hours.
     Requiring a test administrator who provides a test to an 
individual with a disability who requires an accommodation in the 
test's administration to report to the test publisher or the State the 
nature of the disability and the accommodations that were provided (see 
proposed Sec.  668.150(b)(17)). Census data indicate that 12 percent of 
the U.S. population is severely disabled. We estimate that 12 percent 
of the ATB test population (481,763 ATB test takers) or 57,812 of the 
ATB test takers would be individuals with disabilities that would need 
accommodations for the ATB test. We estimate that it would take 5 
minutes (.08 hours) to report the nature of the disability and any 
accommodation that the test administrator made for the test taker, 
increasing burden by 4,625 hours.
    We estimate that, on average, test publishers and States would take 
2 hours per ATB test to develop the process for having test 
administrators report the nature of the test taker's disability and any 
accommodations provided, times 8 tests would increase burden for 
proprietary ATB test publishers by 16 hours.
    Collectively, the proposed changes reflected in Sec.  668.150 would 
increase burden by 10,031 hours in OMB Control Number 1845-0049.

Section 668.151--Administration of Tests

    Proposed Sec.  668.151(g)(4), would require institutions to keep a 
record of each individual who took an ATB test and the name and address 
of the test administrator who administered the test and any identifier 
assigned to the test administrator by the test publisher or the State.
    We estimate that 481,763 ATB tests for title IV, HEA purposes would 
be given on an annual basis. We estimate that proprietary institutions 
would provide 36 percent of those ATB tests or 173,445 tests and that, 
on average, the amount of time to record the test takers name and 
address as well as the test administrators identifiers would be 5 
minutes (.08 hours) per test, increasing burden by 13,876 hours. We 
estimate that private non-profit institutions would provide 31 percent 
of those ATB tests or 149,347 tests and that, on average, the amount of 
time to record the test takers name and address as well as the test 
administrators identifiers would be 5 minutes (.08 hours) per test, 
increasing burden by 11,948 hours. We estimate that public institutions 
would provide 33 percent of those ATB tests or 158,962 tests and that, 
on average, the amount of time to record the test takers name and 
address as well as the test administrators identifiers would be 5 
minutes (.08 hours) per test, increasing burden by 12,717 hours.
     If the individual who took the test has a disability and 
is unable to be evaluated by the use of an approved ATB test, or the 
individual requested or required a testing accommodation, the 
institution would be required, under proposed Sec.  668.151(g)(5), to 
maintain documentation of the individual's disability and of the 
testing arrangements provided. Census data indicate that 12 percent of 
the U.S. population is severely disabled. We estimate that 12 percent 
of the ATB test population (481,763 ATB test takers) or 57,812 of the 
ATB test takers would be individuals with disabilities that would need 
accommodations for the ATB test. We estimate that it would take 5 
minutes (.08 hours) to collect and maintain documentation of the 
individual's disability and of the testing accommodations provided to 
the test taker. We estimate that proprietary institutions will provide 
36 percent or 20,812 tests times 5 minutes (.08 hours), increasing 
burden by 1,665 hours. We estimate that private non-profit institutions 
will provide 31 percent or 17,922 tests times 5 minutes (.08 hours), 
increasing burden by 1,434 hours. We estimate that public institutions 
will provide 33 percent or 19,078 tests times 5 minutes (.08 hours), 
increasing burden by 1,526 hours. Collectively, the proposed regulatory 
changes reflected in Sec.  668.151 would increase burden by 43,166 
hours in OMB Control Number 1845-0049.

Section 668.152--Administration of Tests by Assessment Centers

    Proposed Sec.  668.152(a) would clarify that assessment centers are 
also required to comply with the provisions of Sec.  688.153 
(Administration of tests for individuals whose native language is not 
English or for individuals with disabilities), if applicable.
    Under proposed Sec.  668.152(b)(2), assessment centers that score 
tests would be required to provide copies of completed tests or lists 
of test-takers' scores to the test publisher or the State, as 
applicable, on a weekly basis. Under proposed Sec.  668.152(b)(2)(i) 
and (b)(2)(ii), copies of completed tests or reports listing test-
takers' scores would be required to include the name and address of the 
test administrator who administered the test and any identifier 
assigned to the test administrator by the test publisher or the State.
    We estimate that of the 3,774 ATB test administrators approximately 
one-third (.3328 times 3,774) or 1,256 of the ATB test administrators 
are at test assessment centers. Of the 1,256 test assessment centers, 
we estimate that 18 percent or 226 test assessment centers are at 
private non-profit institutions and 82 percent or 1,030 test assessment 
centers are at public institutions. We estimate that 92 percent of the 
ATB tests provided at test assessment centers are scored by the test 
administrators and therefore, under the proposed regulations, the 
institution would be required to maintain the scored ATB

[[Page 34869]]

tests, to collect and submit copies of the completed ATB tests or a 
listing to the test publisher or State on a weekly basis, while the 
other 8 percent will not be impacted by these proposed regulations. We 
estimate that, on average, it would take 5 minutes (.08 hours) per week 
for the test assessment center (institution) to collect and submit the 
proposed information on a weekly basis. For 226 test assessment centers 
at private non-profit institutions times 5 minutes (.08 hours) times 52 
weeks per year equals 940 hours of increased burden. For the 1,030 test 
assessment centers at public institutions times 5 minutes (.08 hours) 
times 52 weeks per year equals 4,285 hours of increased burden.
    Collectively, the proposed regulatory changes reflected in Sec.  
668.152 would increase burden by 5,225 hours in OMB Control Number 
1845-0049.

Section 668.164--Disbursing Funds

    Under proposed Sec.  668.164(i), an institution would provide a way 
for a Federal Pell Grant eligible student to obtain or purchase 
required books and supplies by the seventh day of a payment period 
under certain conditions. An institution would have to comply with this 
requirement only if, 10 days before the beginning of the payment 
period, the institution could disburse the title IV, HEA program funds 
for which the student is eligible, and presuming that those funds were 
disbursed, the student would have a title IV, HEA credit balance under 
Sec.  668.164(e). The amount the institution would provide to the 
student for books and supplies would be the lesser of the presumed 
credit balance or the amount needed by the student, as determined by 
the institution. In determining the amount needed by the student, the 
institution could use the actual costs of books and supplies or the 
allowance for books and supplies used in the student's cost of 
attendance for the payment period.
    We estimate that of the 6,321,678 Federal Pell Grant recipients in 
the 2008-2009 award year, that approximately 30 percent or 1,896,503 
would have or did have a title IV, HEA credit balance. Of that number 
of Federal Pell Grant recipients, we estimate that 25 percent or 
474,126 Federal Pell Grant recipients would have a presumed credit 
balance 10 days prior to the beginning of the payment period, and as 
proposed, that the institution would have to provide a way for those 
recipients to either obtain or purchase their books and supplies within 
7 days of the beginning of the payment period. We estimate that the 
2,063 proprietary institutions participating in the Federal Pell Grant 
program would take, on average 3 hours per institution to analyze and 
make programming change needed to identify these recipients with 
presumed credit balances, increasing burden by 6,189 hours. 
Additionally, we estimate that proprietary institutions would be 
required to disburse the presumed credit balance to 38 percent of the 
474,126 at proprietary institutions (180,168 recipients) which on 
average, would take 5 minutes (.08 hours) per recipient, increasing 
burden by 14,414 hours. We estimate that the 1,523 private non-profit 
institutions participating in the Federal Pell Grant program would 
take, on average 3 hours per institution to analyze and make 
programming change needed to identify these recipients with presumed 
credit balances, increasing burden by 4,569 hours. Additionally, we 
estimate that private non-profit institutions would be required to 
disburse the presumed credit balance to 28 percent of the 474,126 at 
proprietary institutions (132,755 recipients) which on average, would 
take 5 minutes (.08 hours) per recipient, increasing burden by 10,620 
hours. We estimate that the 1,883 public institutions participating in 
the Federal Pell Grant program would take, on average 3 hours per 
institution to analyze and make programming change needed to identify 
these recipients with presumed credit balances, increasing burden by 
5,469 hours. Additionally, we estimate that proprietary institutions 
would be required to disburse the presumed credit balance to 34 percent 
of the 474,126 at proprietary institutions (161,203 recipients) which 
on average, would take 5 minutes (.08 hours) per recipient, increasing 
burden by 12,896 hours.
    Collectively, the proposed regulatory changes reflected in Sec.  
668.164 would increase burden by 54,337 hours in OMB Control Number 
1845-NEW3.

Collection of Information

----------------------------------------------------------------------------------------------------------------
     Regulatory section          Information collection                           Collection
----------------------------------------------------------------------------------------------------------------
668.6......................  This proposed regulatory        OMB 1845-NEW1. This would be a new collection. A
                              section would require           separate 60-day Federal Register notice will be
                              institutions to submit          published to solicit comment. The burden increases
                              annually information that       by 105,377 hours.
                              would include identifying
                              information about each
                              student who completed a
                              program that prepares a
                              student for gainful
                              employment, the CIP code for
                              that program, the date the
                              student completed the
                              program, and the amounts the
                              student received from private
                              educational loans and
                              institutional financing
                              programs. Institutions would
                              have to disclose on their Web
                              site information about the
                              occupations that its programs
                              prepare students to enter,
                              information from DOL's O-Net
                              data about the job tasks and
                              expected salaries. In
                              addition, the institution
                              would also have to report the
                              costs for tuition and fees,
                              room and board, and other
                              associated institutional
                              costs typically incurred by
                              students enrolling in these
                              programs; graduation rates;
                              placement rates; and median
                              debt rate information about
                              title IV, HEA loans and
                              private loan as provided by
                              the Department to the
                              institution.
668.8......................  This proposed regulatory        OMB 1845-0022. The burden increases by 18,349
                              section provides for a new      hours.
                              conversion ratio when
                              converting clock hours to
                              credit hours. As proposed,
                              this section would include an
                              exemption for affected
                              institutions if the
                              accrediting agency, or the
                              State approval agency finds
                              that there are no
                              deficiencies in the
                              institutions policies and
                              procedures for these
                              conversions. Under the
                              exception, the institution
                              would use a lower ratio and
                              could consider student's
                              outside work in the total
                              hours being converted to
                              credit hours. Burden would
                              increase for proprietary, not-
                              for profit and public
                              institutions when they
                              measure whether certain
                              programs when converted from
                              clock hours to credit hours
                              have sufficient credit hours
                              to receive title VI, HEA
                              funds.

[[Page 34870]]

668.16.....................  This proposed regulatory        OMB 1845-0022 and OMB 1845-NEW2. The burden hours
                              section would be streamlined    attributable to SAP in OMB 1845-0022 would be
                              by moving most of the           administratively transferred to OMB 1845-NEW2.
                              elements of satisfactory        Additionally, the burden increases by 21,982 hours
                              academic progress (SAP) from    in OMB 1845-0022.
                              this section to proposed Sec.
                                668.34. Under this
                              proposal, the required
                              elements of SAP would be
                              expanded to provide greater
                              institutional flexibility
                              Burden would increase for
                              proprietary, not-for profit
                              and public institutions to
                              develop a high school diploma
                              validity process and would
                              increase when certain
                              diplomas are verified.
668.22.....................  This proposed regulatory        OMB 1845-0022. The burden increases by 743,881
                              section would consider a        hours.
                              student to have withdrawn if
                              the student does not complete
                              all the days in the payment
                              period or period of
                              enrollment that the student
                              was scheduled to complete
                              prior to withdrawing. Burden
                              would increase for
                              individuals, proprietary, not-
                              for profit and public
                              institutions when students in
                              term-based programs with
                              modules or compressed courses
                              withdraw before completing
                              more than 60 percent of the
                              payment period or period of
                              enrollment for which a
                              calculation would be
                              performed to determine the
                              earned and unearned portions
                              of title IV, HEA program
                              assistance.
668.34.....................  This proposed regulatory        OMB 1845-NEW2. This would be a new collection. A
                              section would restructure and   separate 60-day Federal Register notice will be
                              expand the satisfactory         published to solicit comment. The burden increases
                              academic progress               by 976,855 hours.
                              requirements by allowing for
                              more frequent measuring of
                              SAP. Burden would increase
                              for individuals and
                              proprietary, not-for profit
                              and public institutions for
                              institutions to measure
                              academic progress and when
                              academic plans or
                              alternatives would be
                              provided to students who do
                              not meet the institution's
                              academic standards.
668.43.....................  This proposed regulatory        OMB 1845-0022. The burden increases by 67,870
                              section would require that      hours.
                              for institutions that enter
                              into written arrangements
                              with other institutions to
                              provide for a portion of its
                              programs' training by the
                              institution that is not
                              providing the degree or
                              certificate, the institution
                              providing the degree or
                              certificate must provide a
                              variety of disclosures to
                              enrolled and prospective
                              students about the written
                              arrangements. Burden would
                              increase for proprietary, not-
                              for profit and public
                              institutions for reporting
                              the details of written
                              arrangements with other
                              institutions offering a
                              portion of a student's
                              program of study.
668.55.....................  This proposed regulatory        OMB 1845-0041. The burden increases by 425,005
                              provision would require that    hours.
                              all updated applicant data
                              information as a result of
                              verification be reported to
                              the Secretary via the Central
                              Processing System. This also
                              would cover changes made as a
                              result of a dependent student
                              becoming married during the
                              award year, such change in
                              status due to marriage had
                              previously been prohibited.
668.56.....................  This proposed regulation        OMB 1845-0041. The burden increases by 612,000
                              changes from the current five   hours.
                              mandatory items included in
                              the verification process to a
                              more flexible list of items
                              that will be selected on an
                              individualized basis. For
                              example, there is no need to
                              verify data that can be
                              obtained directly from the
                              IRS. Burden would increase
                              for individuals; however, the
                              average number of data
                              elements to be verified is
                              expected to be reduced.
668.57.....................  This proposed regulatory        OMB 1845-0041. The burden increases by 612,000
                              provision would modify the      hours.
                              requirements related to
                              acceptable documentation
                              required as a part of the
                              verification process. It
                              would allow for the
                              importation of data obtained
                              directly from the IRS that
                              has been unchanged and would
                              provide other flexibilities
                              that would reduce burden;
                              however, due to the large
                              increase in applicants, there
                              would be an overall increase
                              in burden.
668.59.....................  This proposed provision would   OMB 1845-0041. The burden increases by 2,080,800
                              eliminate all allowable         hours.
                              tolerances and require an
                              institution to submit to the
                              Department all changes to an
                              applicant's FAFSA as a result
                              of verification. Burden would
                              increase for proprietary, not-
                              for profit and public
                              institutions that would
                              recalculate title IV, HEA
                              awards as a result of data
                              changes due to verification.
668.144....................  This proposed regulatory        OMB 1845-0049. The burden increases by 628 hours.
                              section would amend and
                              expand the required elements
                              that a test publisher or a
                              State must submit to the
                              Secretary for approval.
668.150....................  This proposed provision would   OMB 1845-0049. The burden increases by 10,031
                              amend and expand the            hours.
                              provisions of the agreement
                              between the Secretary and the
                              ability to benefit test (ATB)
                              publishers or a State. The
                              expanded requirements would
                              include requiring test
                              administrators to certify
                              that they have not been
                              decertified, notification
                              requirements when a test
                              administrator is decertified,
                              and providing test anomaly
                              studies every eighteen months
                              rather than every 36 months.
                              Burden would increase for
                              individuals, proprietary, not-
                              for profit and public
                              institutions for the
                              collection and maintenance of
                              certifications, for required
                              notifications, and for
                              submission of test anomaly
                              studies.
668.151....................  This proposed provision would   OMB 1845-0049. The burden increases by 43,166
                              require independent test        hours.
                              administrators to submit
                              completed tests for scoring
                              to the test publisher or the
                              State in no more than two
                              business days following the
                              test. Institutions would be
                              required to maintain a record
                              of each individual who takes
                              an ATB test and information
                              about the test administrator.
                              When the test taker has a
                              disability, it would be the
                              institution's responsibility
                              to maintain documentation of
                              the individual's disability
                              and any accommodation
                              provided the individual.
668.152....................  This proposed provision would   OMB 1845-0049. The burden increases by 5,225 hours.
                              require that test assessment
                              centers provide either copies
                              of the completed tests or
                              lists of the test takers'
                              scores, including the test
                              administrator's name,
                              address, and any other test
                              administrator identifier to
                              the test publisher or State,
                              as applicable, on a weekly
                              basis.

[[Page 34871]]

668.164....................  This proposed provision would   OMB 1845-NEW3. This would be a new collection. A
                              require that institutions       separate 60-day Federal Register notice will be
                              provide a way for Federal       published to solicit comment. The burden increases
                              Pell Grant program recipients   by 54,337 hours.
                              to obtain or purchase books
                              and supplies by the seventh
                              day of the payment period if
                              certain conditions are met
                              and a credit balance or
                              projected credit balance
                              exists. Burden would increase
                              for proprietary, not-for
                              profit and public
                              institutions to identify and
                              notify Pell recipients with a
                              presumed credit balance about
                              ways to obtain or purchase
                              books and supplies.
----------------------------------------------------------------------------------------------------------------

    If you want to comment on the proposed information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. 
Department of Education. Send these comments by e-mail to OIRA_DOCKET@omb.eop.gov or by fax to (202) 395-6974. You may also send a 
copy of these comments to the Department contact named in the ADDRESSES 
section of this preamble.
    We consider your comments on these proposed collections of 
information in--
     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarify of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collections of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Electronic Access to This Document

    You can view this document, as well as all other documents of this 
Department published in the Federal Register, in text or Adobe Portable 
Document Format (PDF) on the Internet at the following site: http://www.ed.gov/news/fedregister. To use PDF, you must have Adobe Acrobat 
Reader, which is available free at this site.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index/html.

(Catalog of Federal Domestic Assistance: 84.007 FSEOG; 84.032 
Federal Family Education Loan Program; 84.033 Federal Work-Study 
Program; 84.037 Federal Perkins Loan Program; 84.063 Federal Pell 
Grant Program; 84.069 LEAP; 84.268 William D. Ford Federal Direct 
Loan Program; 84.376 ACG/SMART; 84.379 TEACH Grant Program)

List of Subjects

34 CFR Part 600

    Colleges and universities, Foreign relations, Grant programs-
education, Loan programs-education, Reporting and recordkeeping 
requirements, Selective Service System, Student aid, Vocational 
education.

34 CFR Part 602

    Colleges and universities, Reporting and recordkeeping 
requirements.

34 CFR Part 603

    Colleges and universities, Vocational education.

34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs--education, Loan 
programs--education, Reporting and recordkeeping requirements, 
Selective Service System, Student aid, Vocational education.

34 CFR Part 682

    Administrative practice and procedure, Colleges and universities, 
Loan programs--education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

34 CFR Part 685

    Administrative practice and procedure, Colleges and universities, 
Loan programs--education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

34 CFR Part 686

    Administrative practice and procedure, Colleges and universities, 
Education, Elementary and secondary education, Grant programs--
education, Reporting and recordkeeping requirements, Student aid.

34 CFR Part 690

    Colleges and universities, Education of disadvantaged, Grant 
programs--education, Reporting and recordkeeping requirements, Student 
aid.

34 CFR Part 691

    Colleges and universities, Elementary and secondary education, 
Grant programs--education, Student aid.

    Dated: June 8, 2010.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary proposes 
to amend parts 600, 602, 603, 668, 682, 685, 686, 690, and 691 of title 
34 of the Code of Federal Regulations as previously amended in the 
Federal Register on October 27, 2009 (74 FR 55414) and October 29, 2009 
(74 FR 55902) as follows:

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

    1. The authority citation for part 600 continues to read as 
follows:

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

    2. Section 600.2 is amended by:
    A. Adding, in alphabetical order, the definition of a Credit hour.

[[Page 34872]]

    B. Revising the definition of Recognized occupation.
    The addition and revision read as follows:

Sec.  600.2  Definitions.

* * * * *
    Credit hour: Except as provided in 34 CFR 668.8(k) and (l), a 
credit hour is--
    (1) One hour of classroom or direct faculty instruction and a 
minimum of two hours of out of class student work each week for 
approximately fifteen weeks for one semester or trimester hour of 
credit, or ten to twelve weeks for one quarter hour of credit, or the 
equivalent amount of work over a different amount of time;
    (2) At least an equivalent amount of work as required in paragraph 
(1) of this definition for other academic activities as established by 
the institution including laboratory work, internships, practica, 
studio work, and other academic work leading to the award of credit 
hours; or
    (3) Institutionally established reasonable equivalencies for the 
amount of work required in paragraph (1) of this definition for the 
credit hours awarded, including as represented in intended learning 
outcomes and verified by evidence of student achievement.
* * * * *
    Recognized occupation: An occupation that is--
    (1) Identified by a Standard Occupational Classification (SOC) code 
established by the Office of Management and Budget or an Occupational 
Information Network O* NET-SOC code established by the Department of 
Labor and available at http://online.onetcenter.org or its successor 
site; or
    (2) Determined by the Secretary in consultation with the Secretary 
of Labor to be a recognized occupation.
* * * * *
    3. Section 600.4 is amended by:
    A. In paragraph (a)(3), adding the words, ``in accordance with 
Sec.  600.9'' immediately after the word ``located''.
    B. In paragraph (a)(4)(i)(C), removing the word ``and'' that 
appears after the punctuation ``;''.
    C. Adding paragraph (a)(4)(iii).
    The addition reads as follows:

Sec.  600.4  Institution of higher education.

    (a) * * *
    (4) * * *
    (iii) That is at least a one academic year training program that 
leads to a certificate, or other nondegree recognized credential, and 
prepares students for gainful employment in a recognized occupation; 
and
* * * * *

Sec.  600.5  [Amended]

    4. Section 600.5(a)(4) is amended by adding the words, ``in 
accordance with Sec.  600.9'' immediately after the word ``located''.

Sec.  600.6  [Amended]

    5. Section 600.6(a)(3) is amended by adding the words, ``in 
accordance with Sec.  600.9'' immediately after the word ``located''.
    6. Section 600.9 is added to subpart A to read as follows:

Sec.  600.9  State authorization.

    (a)(1) An institution described under Sec. Sec.  600.4, 600.5, and 
600.6 is legally authorized by a State through a charter, license, 
approval, or other document issued by an appropriate State government 
agency or State entity that affirms or conveys the authority to the 
institution to operate educational programs beyond secondary education, 
including programs leading to a degree or certificate.
    (2) An institution is considered to meet the provisions of 
paragraph (a)(1) of this section if the institution is authorized to 
offer educational programs beyond secondary education by the Federal 
Government or, as defined in 25 U.S.C. 1802(2), an Indian tribe.
    (3) An institution is considered to be legally authorized to offer 
educational programs beyond secondary education if it is exempt from 
State authorization as a religious institution under the State 
constitution.
    (b) The Secretary considers an institution to be legally authorized 
by a State under paragraph (a)(1) of this section if--
    (1) The authorization is given to the institution specifically to 
offer programs beyond secondary education but not if the authorization 
is merely of the type required to do business in the State or to 
operate as an eleemosynary organization;
    (2) The authorization provided to the institution is subject to 
adverse action by the State; and
    (3) The State has a process to review and appropriately act on 
complaints concerning an institution and enforces applicable State 
laws.

(Authority: 20 U.S.C. 1001 and 1002)

PART 602--THE SECRETARY'S RECOGNITION OF ACCREDITING AGENCIES

    7. The authority citation for part 602 continues to read as 
follows:

    Authority:  20 U.S.C. 1099b, unless otherwise noted.

    8. Section 602.24 is amended by adding a new paragraph (f) to read 
as follows:

Sec.  602.24  Additional procedures certain institutional accreditors 
must have.

* * * * *
    (f) Credit-hour policies. The accrediting agency, as part of its 
review of an institution for initial accreditation or preaccreditation 
or renewal of accreditation, must conduct an effective review and 
evaluation of the reliability and accuracy of the institution's 
assignment of credit hours.
    (1) The accrediting agency meets this requirement if--
    (i) It reviews the institution's--
    (A) Policies and procedures for determining the credit hours, as 
defined in 34 CFR 600.2, that the institution awards for courses and 
programs; and
    (B) The application of the institution's policies and procedures to 
its programs and coursework; and
    (ii) Makes a reasonable determination of whether the institution's 
assignment of credit hours conforms to commonly accepted practice in 
higher education.
    (2) In reviewing and evaluating an institution's policies and 
procedures for determining credit hour assignments, an accrediting 
agency may use sampling or other methods in the evaluation, sufficient 
to comply with paragraph (f)(1)(i)(B) of this section.
    (3) The accrediting agency must take such actions that it deems 
appropriate to address any deficiencies that it identifies at an 
institution as part of its reviews and evaluations under paragraph 
(f)(1)(i) and (ii) of this section, as it does in relation to other 
deficiencies it may identify, subject to the requirements of this part.
    (4) If, following the institutional review process under this 
paragraph (f), the agency finds systemic noncompliance with the 
agency's policies or significant noncompliance regarding one or more 
programs at the institution, the agency must promptly notify the 
Secretary.
* * * * *

PART 603--SECRETARY'S RECOGNITION PROCEDURES FOR STATE AGENCIES

    9. The authority citation for part 603 is revised to read as 
follows:

    Authority: 20 U.S.C. 1001, 1002, 1094(c)(4); 42 U.S.C. 293a(b), 
38 U.S.C. 3675, unless otherwise noted.

    10. Section 603.24 is amended by redesignating paragraph (c) as 
paragraph (d) and adding a new paragraph (c) to read as follows:

[[Page 34873]]

Sec.  603.24  Criteria for State agencies.

* * * * *
    (c) Credit-hour policies. The State agency, as part of its review 
of an institution for initial approval or renewal of approval, must 
conduct an effective review and evaluation of the reliability and 
accuracy of the institution's assignment of credit hours.
    (1) The State agency meets this requirement if--
    (i) It reviews the institution's--
    (A) Policies and procedures for determining the credit hours, as 
defined in 34 CFR 600.2, that the institution awards for courses and 
programs; and
    (B) The application of the institution's policies and procedures to 
its programs and coursework; and
    (ii) Makes a reasonable determination of whether the institution's 
assignment of credit hours conforms to commonly accepted practice in 
higher education.
    (2) In reviewing and evaluating an institution's policies and 
procedures for determining credit hour assignments, a State agency may 
use sampling or other methods in the evaluation, sufficient to comply 
with paragraph (c)(1)(i)(B) of this section.
    (3) The State agency must take such actions that it deems 
appropriate to address any deficiencies that it identifies at an 
institution as part of its reviews and evaluations under paragraph 
(c)(1)(i) and (ii) of this section, as it does in relation to other 
deficiencies it may identify, subject to the requirements of this part.
    (4) If, following the institutional review process under this 
paragraph (c), the agency finds systemic noncompliance with the 
agency's policies or significant noncompliance regarding one or more 
programs at the institution, the agency must promptly notify the 
Secretary.
* * * * *

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

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

    Authority:  20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091, 
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.

Sec.  668.2  [Amended]

    12. Section 668.2 is amended by:
    A. In paragraph (a), adding, in alphabetical order, the term 
``Credit hour''.
    B. In paragraph (b), in the definition of Full-time student, adding 
the words, ``including for a term-based program, repeating any 
coursework previously taken in the program'' immediately before the 
period in the second sentence.
    13. Section 668.5 is amended by:
    A. Revising paragraph (a).
    B. Revising paragraph (c)(1).
    C. In paragraph (c)(2), adding the words ``offered by the 
institution that grants the degree or certificate'' after the word 
``program''.
    D. In paragraph (c)(3)(i), removing the words ``not more than'' and 
adding the words ``or less'' after the word ``percent''.
    E. In paragraph (c)(3)(ii)(A), removing the words ``not more'' and 
adding, in their place, the word ``less''.
    F. Adding new paragraph (e).
    The addition and revisions read as follows:

Sec.  668.5  Written arrangements to provide educational programs.

    (a) Written arrangements between eligible institutions. (1) Except 
as provided in paragraph (a)(2) of this section, if an eligible 
institution enters into a written arrangement with another eligible 
institution, or with a consortium of eligible institutions, under which 
the other eligible institution or consortium provides part of the 
educational program to students enrolled in the first institution, the 
Secretary considers that educational program to be an eligible program 
if the educational program offered by the institution that grants the 
degree or certificate otherwise satisfies the requirements of Sec.  
668.8.
    (2) If the written arrangement is between two or more eligible 
institutions that are owned or controlled by the same individual, 
partnership, or corporation, the Secretary considers the educational 
program to be an eligible program if--
    (i) The educational program offered by the institution that grants 
the degree or certificate otherwise satisfies the requirements of Sec.  
668.8; and
    (ii) The institution that grants the degree or certificate provides 
more than 50 percent of the educational program.
* * * * *
    (c) * * *
    (1) The ineligible institution or organization has not--
    (i) Had its eligibility to participate in the title IV, HEA 
programs terminated by the Secretary;
    (ii) Voluntarily withdrawn from participation in the title IV, HEA 
programs under a termination, show-cause, suspension, or similar type 
proceeding initiated by the institution's State licensing agency, 
accrediting agency, guarantor, or by the Secretary;
    (iii) Had its certification to participate in the title IV, HEA 
programs revoked by the Secretary;
    (iv) Had its application for re-certification to participate in the 
title IV, HEA programs denied by the Secretary; or
    (v) Had its application for certification to participate in the 
title IV, HEA programs denied by the Secretary;
* * * * *
    (e) Information made available to students. If an institution 
enters into a written arrangement described in paragraph (a), (b), or 
(c) of this section, the institution must provide the information 
described in Sec.  668.43(a)(12) to enrolled and prospective students.
* * * * *
    14. Section 668.6 is added to subpart A to read as follows:

Sec.  668.6  Reporting and disclosure requirements for programs that 
prepare students for gainful employment in a recognized occupation.

    (a) Reporting requirements. In accordance with procedures 
established by the Secretary, an institution must report annually for 
each student who completes a program under Sec.  668.8(c)(3) or (d), 
information that includes--
    (1) Information needed to identify the student;
    (2) The Classification of Instructional Program (CIP) code of the 
program the student completed;
    (3) The date the student completed the program; and
    (4) The amounts the student received from private educational loans 
and institutional financing plans.
    (b) Disclosures. For each program offered by an institution under 
this section, on its Web site the institution must provide prospective 
students with--
    (1) The occupations (by names and SOC codes) that the program 
prepares students to enter, along with links to occupational profiles 
on O*NET or its successor site;
    (2) The on-time graduation rate for students entering the program;
    (3) The cost of the program, including tuition and fees, room and 
board, and other institutional costs that a typical student would incur 
for enrolling in the program;
    (4) Beginning no later than June 30, 2013, the placement rate for 
students completing the program, as determined under Sec.  668.8(g) or 
a State-sponsored workforce data system; and
    (5) The median loan debt incurred by students who completed the 
program during the preceding three years. The institution must identify 
separately the median loan debt from title IV, HEA program loans, and 
the median loan debt from private educational loans and institutional 
financing plans.

(Approved by the Office of Management and Budget under control 
number 1845-NEW1)

(Authority: 20 U.S.C 1001(b), 1002(b) and (c))

[[Page 34874]]

    15. Section 668.8 is amended by:
    A. Revising paragraph (c)(3).
    B. In paragraph (d)(2)(iii), adding the words, ``as provided under 
Sec.  668.6'' immediately after the word ``occupation.''
    C. In paragraph (d)(3)(iii), adding the words, ``as provided under 
Sec.  668.6'' immediately after the word ``occupation.''
    D. Revising paragraphs (k) and (l).
    The revisions read as follows:

Sec.  668.8  Eligible program.

* * * * *
    (c) * * *
    (3) Be at least a one-academic-year training program that leads to 
a certificate, or other nondegree recognized credential, and prepares 
students for gainful employment in a recognized occupation.
* * * * *
    (k) Undergraduate educational program in credit hours. (1) Except 
as provided in paragraph (k)(2) of this section, if an institution 
offers an undergraduate educational program in credit hours, the 
institution must use the formula contained in paragraph (l) of this 
section to determine whether that program satisfies the requirements 
contained in paragraph (c)(3) or (d) of this section, and the number of 
credit hours in that educational program for purposes of the title IV, 
HEA programs, unless--
    (i) The program is at least two academic years in length and 
provides an associate degree, a bachelor's degree, a professional 
degree, or an equivalent degree as determined by the Secretary; or
    (ii) Each course within the program is acceptable for full credit 
toward that institution's associate degree, bachelor's degree, 
professional degree, or equivalent degree as determined by the 
Secretary provided that--
    (A) The institution's degree requires at least two academic years 
of study; and
    (B) The institution demonstrates that students enroll in, and 
graduate from, the degree program.
    (2) A program is considered to be a clock-hour program for purposes 
of the title IV, HEA programs if--
    (i) Except as provided in paragraph (k)(3) of this section, a 
program is required to measure student progress in clock hours when--
    (A) Receiving Federal or State approval or licensure to offer the 
program; or
    (B) Completing clock hours is a requirement for graduates to apply 
for licensure or the authorization to practice the occupation that the 
student is intending to pursue;
    (ii) The credit hours awarded for the program are not in compliance 
with the definition of a credit hour in 34 CFR 600.2; or
    (iii) The institution does not provide the clock hours that are the 
basis for the credit hours awarded for the program or each course in 
the program and, except as provided in Sec.  668.4(e), requires 
attendance in the clock hours that are the basis for the credit hours 
awarded.
    (3) The requirements of paragraph (k)(2)(i) of this section do not 
apply to a program if there is a State or Federal approval or licensure 
requirement that a limited component of the program must include a 
practicum, internship, or clinical experience component of the program 
that must include a minimum number of clock hours.
    (l) Formula. (1) Except as provided in paragraph (l)(2) of this 
section, for purposes of determining whether a program described in 
paragraph (k) of this section satisfies the requirements contained in 
paragraph (c)(3) or (d) of this section, and of determining the number 
of credit hours in that educational program with regard to the title 
IV, HEA programs--
    (i) A semester hour must include at least 37.5 clock hours of 
instruction;
    (ii) A trimester hour must include at least 37.5 clock hours of 
instruction; and
    (iii) A quarter hour must include at least 25 clock hours of 
instruction.
    (2) The institution's conversions to establish a minimum number of 
clock hours of instruction per credit may be less than those specified 
in paragraph (l)(1) of this section, if neither the institution's 
designated accrediting agency nor the relevant State licensing 
authority for participation in the title IV, HEA programs has 
identified any deficiencies with the institution's policies and 
procedures, or their implementation, for determining the credit hours, 
as defined in 34 CFR 600.2, that the institution awards for programs 
and courses, in accordance with 34 CFR 602.24(f), or, if applicable, 34 
CFR 603.24(c), so long as--
    (i) The institution's student work outside of class combined with 
the clock-hours of instruction meet or exceed the numeric requirements 
in paragraph (l)(1) of this section; and
    (ii)(A) A semester hour must include at least 30 clock hours of 
instruction;
    (B) A trimester hour must include at least 30 clock hours of 
instruction; and
    (C) A quarter hour must include at least 20 hours of instruction.
* * * * *
    16. Section 668.14 is amended by revising paragraph (b)(22) to read 
as follows:

Sec.  668.14  Program participation agreement.

* * * * *
    (b) * * *
    (22)(i)(A) It will not provide any commission, bonus, or other 
incentive payment based directly or indirectly upon success in securing 
enrollments or the award of financial aid, to any person or entity who 
is engaged in any student recruitment or admission activity, or in 
making decisions regarding the awarding of title IV, HEA program funds.
    (B) The restrictions in paragraph (b)(22) of this section do not 
apply to the recruitment of foreign students residing in foreign 
countries who are not eligible to receive Federal student assistance.
    (ii) Eligible institutions, organizations that are contractors to 
eligible institutions, and other entities may make merit-based 
adjustments to employee compensation provided that such adjustments are 
not based directly or indirectly upon success in securing enrollments 
or the award of financial aid.
    (iii) As used in paragraph (b)(22) of this section,
    (A) Commission, bonus, or other incentive payment means a sum of 
money or something of value paid to or given to a person or an entity 
for services rendered.
    (B) Securing enrollments or the awards of financial aid means 
activities that a person or entity engages in for the purpose of the 
admission or matriculation of students for any period of time or the 
award of financial aid to students.
    (1) These activities include recruitment contact in any form with a 
prospective student, such as preadmission or advising activities, 
scheduling an appointment to visit the enrollment office, attendance at 
such appointment, or signing an enrollment agreement or financial aid 
application.
    (2) These activities do not include making a payment to a third 
party for the provision of student contact information for prospective 
students provided that such payment is not based on the number of 
students who apply or enroll.
    (C) Enrollment means the admission or matriculation of a student 
into an eligible institution.
* * * * *
    17. Section 668.16 is amended by:
    A. Revising paragraph (e).
    B. In paragraph (n) introductory text, removing the word ``and'' 
that appears after the punctuation'';''.
    C. In paragraph (o)(2), removing the punctuation ``.'' and adding, 
in its place, the punctuation and word ``; and''.

[[Page 34875]]

    D. Adding paragraph (p).
    E. Revising the OMB control number at the end of the section.
    The revisions and addition read as follows:

Sec.  668.16  Standards of administrative capability.

* * * * *
    (e) For purposes of determining student eligibility for assistance 
under a title IV, HEA program, establishes, publishes, and applies 
reasonable standards for measuring whether an otherwise eligible 
student is maintaining satisfactory academic progress in his or her 
educational program. The Secretary considers an institution's standards 
to be reasonable if the standards are in accordance with the provisions 
specified in Sec.  668.34.
* * * * *
    (p) Develops and follows procedures to evaluate the validity of a 
student's high school completion if the institution or the Secretary 
has reason to believe that the high school diploma is not valid or was 
not obtained from an entity that provides secondary school education.

(Approved by the Office of Management and Budget under control 
number 1845-0022)
* * * * *
    18. Section 668.22 is amended by:
    A. Redesignating paragraphs (a)(2) through (a)(5) as paragraphs 
(a)(3) through (a)(6), respectively.
    B. Adding new paragraph (a)(2).
    C. In newly redesignated paragraph (a)(5), removing the citation 
``(a)(5)'' and adding, in its place, the citation ``(a)(6)''.
    D. In newly redesignated paragraph (a)(6)(ii)(A)(2), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
    E. In newly redesignated paragraph (a)(6)(ii)(B)(2), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
    F. In newly redesignated paragraph (a)(6)(ii)(B)(3), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
    G. In newly redesignated paragraph (a)(6)(iii)(A)(1), removing the 
citation ``(a)(5)(ii)(A)(2)'' and adding, in its place, the citation 
``(a)(6)(ii)(A)(2)''.
    H. In newly redesignated paragraph (a)(6)(iii)(A)(5), removing the 
citation ``(a)(5)(iii)(C)'' and adding, in its place, the citation 
``(a)(6)(iii)(C)''.
    I. In newly redesignated paragraph (a)(6)(iii)(B), removing the 
citation ``(a)(5)(iii)(A)'' and adding, in its place, the citation 
``(a)(6)(iii)(A)''.
    J. In newly redesignated paragraph (a)(6)(iv), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
    K. Revising paragraph (b)(3).
    L. In paragraph (f)(2)(i), adding the words ``that the student, 
prior to withdrawing, was scheduled to complete'' after the words 
``within the period''.
    The addition and revision read as follows:

Sec.  668.22  Treatment of title IV funds when a student withdraws.

* * * * *
    (a) * * *
    (2) A student is considered to have withdrawn from a payment period 
or period of enrollment if, prior to withdrawing--
    (i) In the case of a program that is measured in credit hours, the 
student does not complete all the days in the payment period or period 
of enrollment that the student was scheduled to complete; and
    (ii) In the case of a program that is measured in clock hours, the 
student does not complete all of the clock hours in the payment period 
or period of enrollment that the student was scheduled to complete.
* * * * *
    (b) * * *
    (3)(i) An institution is required to take attendance if--
    (A) An outside entity (such as the institution's accrediting agency 
or a State agency) has a requirement that the institution take 
attendance;
    (B) The institution itself has a requirement that its instructors 
take attendance; or
    (C) The institution or an outside entity has a requirement that can 
only be met by taking attendance or a comparable process, including, 
but not limited to, requiring that students in a program demonstrate 
attendance in the classes of that program, or a portion of that 
program.
    (ii) If, in accordance with paragraph (b)(3)(i) of this section, an 
institution is required to take attendance or requires that attendance 
be taken 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)(A) If, in accordance with paragraph (b)(3)(i) of this 
section, an institution is required to take attendance, or requires 
that attendance be taken, for a limited period, the institution must 
use its attendance records to determine a withdrawal date in accordance 
with paragraph (b)(3)(i) of this section for that limited period.
    (B) A student in attendance at the end of the limited period 
identified in paragraph (b)(3)(iii)(A) of this section who subsequently 
stops attending during the payment period will be treated as a student 
for whom the institution was not required to take attendance.
    (iv) If an institution is required to take attendance or requires 
that attendance be taken, on only one specified day to meet a census 
reporting requirement, the institution is not considered to take 
attendance.
* * * * *
    19. Section 668.32 is amended by:
    A. In paragraph (e)(3), removing the word ``or'' that appears after 
the punctuation ``;''.
    B. In paragraph (e)(4)(ii), removing the punctuation ``.'' and 
adding, in its place, the punctuation and word ``; or''.
    C. Adding new paragraph (e)(5).
    D. Revising paragraph (f).
    The addition and revision read as follows:

Sec.  668.32  Student eligibility--general.

* * * * *
    (e) * * *
    (5) Has been determined by the institution to have the ability to 
benefit from the education or training offered by the institution based 
on the satisfactory completion of 6 semester hours, 6 trimester hours, 
6 quarter hours, or 225 clock hours that are applicable toward a degree 
or certificate offered by the institution.
    (f) Maintains satisfactory academic progress in his or her course 
of study according to the institution's published standards of 
satisfactory academic progress that meet the requirements of Sec.  
668.34.
* * * * *
    20. Section 668.34 is revised to read as follows:

Sec.  668.34  Satisfactory academic progress.

    (a) Satisfactory academic progress policy. An institution must 
establish a reasonable satisfactory academic progress policy for 
determining whether an otherwise eligible student is making 
satisfactory academic progress in his or her educational program and 
may receive assistance under the title IV, HEA programs. The Secretary 
considers the institution's policy to be reasonable if--
    (1) The policy is at least as strict as the policy the institution 
applies to a student who is not receiving assistance under the title 
IV, HEA programs;
    (2) The policy provides for consistent application of standards to 
all students within categories of students, e.g., full-time, part-time, 
undergraduate, and graduate students, and educational programs 
established by the institution;

[[Page 34876]]

    (3) The policy provides that a student's academic progress is 
evaluated--
    (i) At the end of each payment period if the educational program is 
either one academic year in length or shorter than an academic year; or
    (ii) At the end of each payment period or at least annually for all 
other educational programs;
    (4)(i) The policy specifies the grade point average (GPA) that a 
student must achieve at each evaluation, or if a GPA is not an 
appropriate qualitative measure, a comparable assessment measured 
against a norm; and
    (ii) If a student is enrolled in an educational program of more 
than two academic years, the policy specifies that at the end of the 
second academic year, the student must have a GPA of at least a ``C'' 
or its equivalent, or have academic standing consistent with the 
institution's requirements for graduation;
    (5)(i) The policy specifies the pace at which a student must 
progress through his or her educational program to ensure that the 
student will complete the program within the maximum timeframe, as 
defined in paragraph (b) of this section, and provides for measurement 
of the student's progress at each evaluation; and
    (ii) An institution calculates the pace at which the student is 
progressing by dividing the cumulative number of hours the student has 
successfully completed by the cumulative number of hours the student 
has attempted. In making this calculation, the institution is not 
required to include remedial courses;
    (6) The policy describes how a student's GPA and pace of completion 
are affected by course incompletes, withdrawals, or repetitions, or 
transfers of credit from other institutions. Credit hours from another 
institution that are accepted toward the student's educational program 
must count as both attempted and completed hours;
    (7) Except as provided in paragraphs (c) and (d) of this section, 
the policy provides that, at the time of each evaluation, a student who 
has not achieved the required GPA, or who is not successfully 
completing his or her educational program at the required pace, is no 
longer eligible to receive assistance under the title IV, HEA programs;
    (8) If the institution places students on financial aid warning, or 
on financial aid probation, as defined in paragraph (b) of this 
section, the policy describes these statuses and that--
    (i) A student on financial aid warning may continue to receive 
assistance under the title IV, HEA programs for one payment period 
despite a determination that the student is not making satisfactory 
academic progress. Financial aid warning status may be assigned without 
an appeal or other action by the student; and
    (ii) A student on financial aid probation may receive title IV, HEA 
program funds for one payment period. While a student is on financial 
aid probation, the institution may require the student to fulfill 
specific terms and conditions such as taking a reduced course load or 
enrolling in specific courses. At the end of one payment period on 
financial aid probation, the student must meet the institution's 
satisfactory academic progress standards or meet the requirements of 
the academic plan developed by the institution and the student to 
qualify for further title IV, HEA program funds;
    (9) If the institution permits a student to appeal a determination 
by the institution that he or she is not making satisfactory academic 
progress, the policy describes--
    (i) How the student may re-establish his or her eligibility to 
receive assistance under the title IV, HEA programs;
    (ii) The basis on which a student may file an appeal: The death of 
a relative, an injury or illness of the student, or other special 
circumstances; and
    (iii) Information the student must submit regarding why the student 
failed to make satisfactory academic progress, and what has changed in 
the student's situation that will allow the student to demonstrate 
satisfactory academic progress at the next evaluation;
    (10) If the institution does not permit a student to appeal a 
determination by the institution that he or she is not making 
satisfactory academic progress, the policy must describe how the 
student may re-establish his or her eligibility to receive assistance 
under the title IV, HEA programs; and
    (11) The policy provides for notification to students of the 
results of an evaluation that impacts the student's eligibility for 
title IV, HEA program funds.
    (b) Definitions. The following definitions apply to the terms used 
in this section:
    Appeal. Appeal means a process by which a student who is not 
meeting the institution's satisfactory academic progress standards 
petitions the institution for reconsideration of the student's 
eligibility for title IV, HEA program assistance.
    Financial aid probation. Financial aid probation means a status 
assigned by an institution to a student who fails to make satisfactory 
academic progress and who has appealed and has had eligibility for aid 
reinstated.
    Financial aid warning. Financial aid warning means a status 
assigned to a student who fails to make satisfactory academic progress 
at an institution that evaluates academic progress at the end of each 
payment period.
    Maximum time frame. Maximum timeframe means--
    (1) For an undergraduate program measured in credit hours, a period 
that is no longer than 150 percent of the published length of the 
educational program, as measured in credit hours;
    (2) For an undergraduate program measured in clock hours, a period 
that is no longer than 150 percent of the published length of the 
educational program, as measured by the cumulative number of clock 
hours the student is required to complete and expressed in calendar 
time; and
    (3) For a graduate program, a period defined by the institution 
that is based on the length of the educational program.
    (c) Institutions that evaluate satisfactory academic progress at 
the end of each payment period. (1) An institution that evaluates 
satisfactory academic progress at the end of each payment period and 
determines that a student is not making progress under its policy may 
nevertheless disburse title IV, HEA program funds to the student under 
the provisions of paragraph (c)(2), (c)(3), or (c)(4) of this section.
    (2) For the payment period following the payment period in which 
the student did not make satisfactory academic progress, the 
institution may--
    (i) Place the student on financial aid warning, and disburse title 
IV, HEA program funds to the student; or
    (ii) Place a student directly on financial aid probation, following 
the procedures outlined in paragraph (d)(2) of this section and 
disburse title IV, HEA program funds to the student.
    (3) For the payment period following a payment period during which 
a student was on financial aid warning, the institution may place the 
student on financial aid probation, and disburse title IV, HEA program 
funds to the student if--
    (i) The institution evaluates the student's progress and determines 
that student did not make satisfactory academic progress during the 
payment period the student was on financial aid warning;
    (ii) The student appeals the determination; and
    (iii)(A) The institution determines that the student should be able 
to meet

[[Page 34877]]

the institution's satisfactory academic progress standards by the end 
of the subsequent payment period; or
    (B) The institution develops an academic plan for the student that, 
if followed, will ensure that the student is able to meet the 
institution's satisfactory academic progress standards by a specific 
point in time.
    (4) A student on financial aid probation for a payment period may 
not receive title IV, HEA program funds for the subsequent payment 
period unless the student makes satisfactory academic progress or the 
institution determines that the student met the requirements specified 
by the institution in the academic plan for the student.
    (d) Institutions that evaluate satisfactory academic progress 
annually or less frequently than at the end of each payment period. (1) 
An institution that evaluates satisfactory academic progress annually 
or less frequently than at the end of each payment period and 
determines that a student is not making progress under its policy may 
nevertheless disburse title IV, HEA program funds to the student under 
the provisions of paragraph (d)(2) or (d)(3) of this section.
    (2) The institution may place the student on financial aid 
probation and may disburse title IV, HEA program funds to the student 
for the subsequent payment period if--
    (i) The institution evaluates the student and determines that the 
student is not making satisfactory academic progress;
    (ii) The student appeals the determination; and
    (iii) (A) The institution determines that the student should be 
able to make satisfactory academic progress during the subsequent 
payment period and meet the institution's satisfactory academic 
progress standards at the end of that payment period; or
    (B) The institution develops an academic plan for the student that, 
if followed, will ensure that the student is able to meet the 
institution's satisfactory academic progress standards by a specific 
point in time.
    (3) A student on financial aid probation for a payment period may 
not receive title IV, HEA program funds for the subsequent payment 
period unless the student makes satisfactory academic progress or the 
institution determines that the student met the requirements specified 
by the institution in the academic plan for the student.

(Authority: 20 U.S.C. 1091(d))

    21. Section 668.43 is amended by:
    A. In paragraph (a)(10)(ii), removing the word ``and'' that appears 
after the punctuation ``;''.
    B. In paragraph (a)(11)(ii), removing the punctuation ``.'' and 
adding, in its place, the punctuation and word ``; and''.
    C. Adding paragraph (a)(12).
    D. Revising paragraph (b).
    The addition and revision read as follows:

Sec.  668.43  Institutional information.

    (a) * * *
    (12) A description of written arrangements the institution has 
entered into in accordance with Sec.  668.5, including, but not limited 
to, information on--
    (i) The portion of the educational program that the institution 
that grants the degree or certificate is not providing;
    (ii) The name and location of the other institutions or 
organizations that are providing the portion of the educational program 
that the institution that grants the degree or certificate is not 
providing;
    (iii) The method of delivery of the portion of the educational 
program that the institution that grants the degree or certificate is 
not providing; and
    (iv) Estimated additional costs students may incur as the result of 
enrolling in an educational program that is provided, in part, under 
the written arrangement.
    (b) The institution must make available for review to any enrolled 
or prospective student upon request, a copy of the documents describing 
the institution's accreditation and its State, Federal, or tribal 
approval or licensing. The institution must also provide its students 
or prospective students with contact information for filing complaints 
with its accreditor and State approval or licensing entity.
* * * * *
    22. Subpart E of part 668 is revised to read as follows:

Subpart E--Verification and Updating of Student Aid Application 
Information
Sec.
668.51 General.
668.52 Definitions.
668.53 Policies and procedures.
668.54 Selection of an applicant's FAFSA information for 
verification.
668.55 Updating information.
668.56 Information to be verified.
668.57 Acceptable documentation.
668.58 Interim disbursements.
668.59 Consequences of a change in an applicant's FAFSA information.
668.60 Deadlines for submitting documentation and the consequences 
of failing to provide documentation.
668.61 Recovery of funds.

Subpart E--Verification and Updating of Student Aid Application 
Information

Sec.  668.51  General.

    (a) Scope and purpose. The regulations in this subpart govern the 
verification by institutions of information submitted by applicants for 
student financial assistance under the subsidized student financial 
assistance programs.
    (b) Applicant responsibility. If the Secretary or the institution 
requests documents or information from an applicant under this subpart, 
the applicant must provide the specified documents or information.
    (c) Foreign schools. The Secretary exempts from the provisions of 
this subpart participating institutions that are not located in a 
State.

(Authority: 20 U.S.C. 1094)

Sec.  668.52  Definitions.

    The following definitions apply to this subpart:
    Free Application for Federal Student Aid (FAFSA): The student aid 
application provided for under section 483, of the HEA, which is used 
to determine a student's eligibility for the title IV, HEA programs.
    Institutional Student Information Record (ISIR): An electronic 
record the Secretary transmits to an institution, for purposes of the 
title IV, HEA programs, that includes an applicant's--
    (1) Personal identification information;
    (2) FAFSA information used to determine eligibility for title IV, 
HEA program aid; and
    (3) EFC.
    Specified year: (1) The calendar year preceding the first calendar 
year of an award year, i.e., the base year; or
    (2) The year preceding the year described in paragraph (1) of this 
definition.
    Student Aid Report (SAR): A report provided to an applicant by the 
Secretary showing the amount of his or her EFC.
    Subsidized student financial assistance programs: Title IV, HEA 
programs for which eligibility is determined on the basis of a 
student's EFC. These programs include the Federal Pell Grant, Federal 
Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study 
(FWS), Federal Perkins Loan, Subsidized Stafford Loan and Direct 
Subsidized Loan programs.
    Unsubsidized student financial assistance programs: Title IV, HEA 
programs for which eligibility is not based on a student's EFC. These 
programs include the Teacher Education

[[Page 34878]]

Assistance for College and Higher Education (TEACH) Grant, Unsubsidized 
Stafford Loan, Direct Unsubsidized Loan, Federal PLUS Loan, and Direct 
Parent Loan for Undergraduate Students (Direct PLUS Loan) programs.

(Authority: 20 U.S.C. 1094)

Sec.  668.53  Policies and procedures.

    (a) An institution must establish and use written policies and 
procedures for verifying an applicant's FAFSA information in accordance 
with the provisions of this subpart. These policies and procedures must 
include--
    (1) The time period within which an applicant must provide any 
documentation requested by the institution in accordance with Sec.  
668.57;
    (2) The consequences of an applicant's failure to provide the 
requested documentation within the specified time period;
    (3) The method by which the institution notifies an applicant of 
the results of its verification if, as a result of verification, the 
applicant's EFC changes and results in a change in the amount of the 
applicant's assistance under the title IV, HEA programs;
    (4) The procedures the institution will take itself or the 
procedures the institution will require an applicant to follow to 
correct his or her FAFSA information determined to be in error; and
    (5)(a) The procedures for making referrals under Sec.  668.16(g).
    (b) An institution's procedures must provide that it will furnish, 
in a timely manner, to each applicant whose FAFSA information is 
selected for verification a clear explanation of--
    (1) The documentation needed to satisfy the verification 
requirements; and
    (2) The applicant's responsibilities with respect to the 
verification of his or her FAFSA information, including the deadlines 
for completing any actions required under this subpart and the 
consequences of failing to complete any required action.
    (c) An institution's procedures must provide that an applicant 
whose FAFSA information is selected for verification by the Secretary 
is required to complete verification before the institution exercises 
any authority under section 479A(a) of the HEA to make changes to the 
applicant's cost of attendance or to the values of the data items 
required to calculate the EFC.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094)

Sec.  668.54  Selection of an applicant's FAFSA information for 
verification.

    (a) General requirements. (1) Except as provided in paragraph (b) 
of this section, an institution must require an applicant whose FAFSA 
information is selected for verification by the Secretary, to verify 
the information specified by the Secretary pursuant to Sec.  668.56.
    (2) If an institution has reason to believe that an applicant's 
FAFSA information is inaccurate, it must verify the accuracy of that 
information.
    (3) An institution may require an applicant to verify any FAFSA 
information that it specifies.
    (b) Exclusions from verification. (1) An institution need not 
verify an applicant's FAFSA information if--
    (i) The applicant dies;
    (ii) The applicant does not receive assistance under the title IV, 
HEA programs for reasons other than failure to verify his or her FAFSA 
information;
    (iii) The applicant receives only unsubsidized student financial 
assistance; or
    (iv) The applicant who transfers to the institution, had previously 
completed verification at the institution from which he or she 
transferred, and applies for assistance based on the same FAFSA 
information used at the previous institution, if the current 
institution obtains a letter from the previous institution--
    (A) Stating that it has verified the applicant's information; and
    (B) Providing the transaction number of the applicable ISIR.
    (2) Unless the institution has reason to believe that the 
information reported by a dependent applicant is incorrect, it need not 
verify the applicant's parents' FAFSA information if--
    (i) The parents are residing in a country other than the United 
States and cannot be contacted by normal means of communication;
    (ii) The parents cannot be located because their contact 
information is unknown and cannot be obtained by the applicant; or
    (iii) Both of the applicant's parents are mentally incapacitated.
    (3) Unless the institution has reason to believe that the 
information reported by an independent applicant is incorrect, it need 
not verify the applicant's spouse's information if--
    (i) The spouse is deceased;
    (ii) The spouse is mentally incapacitated;
    (iii) The spouse is residing in a country other than the United 
States and cannot be contacted by normal means of communication; or
    (iv) The spouse cannot be located because his or her contact 
information is unknown and cannot be obtained by the applicant.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1091, 1094)

Sec.  668.55  Updating information.

    (a)(1) Unless the provisions of paragraph (a)(2) of this section 
apply, an applicant is required to update--
    (i) The number of family members in the applicant's household and 
the number of those household members attending postsecondary 
educational institutions, in accordance with provisions of paragraph 
(b) of this section; and
    (ii) The applicant's dependency status in accordance with the 
provisions of paragraph (c) of this section.
    (2) An institution need not require an applicant to verify the 
information contained in his or her FAFSA for an award year if--
    (i) The applicant updated and verified the FAFSA information on an 
earlier transaction; and
    (ii) No change in the information to be updated has taken place 
since the last update.
    (b) If the number of family members in the applicant's household or 
the number of those household members attending postsecondary 
educational institutions changes, an applicant who is selected for 
verification must update his or her FAFSA information regarding those 
data items so that the information is correct as of the date the 
applicant verifies the information.
    (c) If an applicant's dependency status changes during an award 
year, the applicant must update his or her FAFSA information so that 
the information is correct regardless of whether the applicant is 
selected for verification.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094)

Sec.  668.56  Information to be verified.

    (a) For each award year the Secretary publishes in the Federal 
Register notice the FAFSA information that an institution and an 
applicant may be required to verify.
    (b) For each applicant whose FAFSA information is selected for 
verification by the Secretary, the Secretary specifies the specific 
information under paragraph (a) of this section that the applicant must 
verify.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094, 1095)

[[Page 34879]]

Sec.  668.57  Acceptable documentation.

    If an applicant is selected to verify any of the following 
information, an institution must obtain the specified documentation.
    (a) Adjusted Gross Income (AGI), income earned from work, or U.S. 
income tax paid. (1) Except as provided in paragraphs (a)(2), (a)(3), 
and (a)(4) of this section, an institution must require an applicant 
selected for verification of AGI, income earned from work or U.S. 
income tax paid to submit to it--
    (i) A copy of the income tax return or an Internal Revenue Service 
(IRS) form which that lists tax account information of the applicant, 
his or her spouse, or his or her parents, as applicable. The copy of 
the return must include the signature (which need not be an original) 
of the filer of the return or of one of the filers of a joint return;
    (ii) For a dependent student, a copy of each IRS Form W-2 received 
by the parent whose income is being taken into account if--
    (A) The parents filed a joint return; and
    (B) The parents are divorced or separated or one of the parents has 
died; and
    (iii) For an independent student, a copy of each IRS Form W-2 he or 
she received if the independent student--
    (A) Filed a joint return; and
    (B) Is a widow or widower, or is divorced or separated.
    (2) An institution may accept, in lieu of an income tax return or 
an IRS form that lists tax account information, the information 
reported for an item on the applicant's FAFSA if the Secretary has 
identified that item as having been obtained from the IRS.
    (3) An institution must accept, in lieu of an income tax return or 
an IRS form that lists tax account information, the documentation set 
forth in paragraph (a)(4) of this section if the individual for the 
specified year--
    (i) Has not filed and, under IRS rules, or other applicable 
government agency rules, is not required to file an income tax return;
    (ii) Is required to file a U.S. tax return and has been granted a 
filing extension by the IRS; or
    (iii) Has requested a copy of the tax return or an IRS form that 
lists tax account information, and the IRS or a government of a U.S. 
territory or commonwealth or a foreign central government cannot locate 
the return or provide an IRS form that lists tax account information.
    (4) An institution must accept--
    (i) For an individual described in paragraph (a)(3)(i) of this 
section, a statement signed by that individual certifying that he or 
she has not filed and is not required to file an income tax return for 
the specified year and certifying for that year that individual's--
    (A) Sources of income earned from work as stated on the FAFSA; and
    (B) Amounts of income from each source. In lieu of a certification 
of these amounts of income, the student may provide a copy of his or 
her IRS Form W-2 for each source listed under paragraph (a)(4)(i)(A) of 
this section;
    (ii) For an individual described in paragraph (a)(3)(ii) of this 
section--
    (A) A copy of the IRS Form 4868, ``Application for Automatic 
Extension of Time to File U.S. Individual Income Tax Return,'' that the 
individual filed with the IRS for the specified year, or a copy of the 
IRS's approval of an extension beyond the automatic six-month extension 
if the individual requested an additional extension of the filing time; 
and
    (B) A copy of each IRS Form W-2 that the individual received for 
the specified year, or for a self-employed individual, a statement 
signed by the individual certifying the amount of the AGI for the 
specified year; and
    (iii) For an individual described in paragraph (a)(3)(iii) of this 
section--
    (A) A copy of each IRS Form W-2 that the individual received for 
the specified year; or
    (B) For an individual who is self-employed or has filed an income 
tax return with a government of a U.S. territory or commonwealth, or a 
foreign central government, a statement signed by the individual 
certifying the amount of AGI for the specified year.
    (5) An institution may require an individual described in paragraph 
(a)(3)(ii) of this section to provide to it a copy of his or her 
completed and signed income tax return when filed. If an institution 
receives the copy of the return, it must reverify the AGI and taxes 
paid by the applicant and his or her spouse or parents.
    (6) If an individual who is required to submit an IRS Form W-2, 
under paragraph (a) of this section, is unable to obtain one in a 
timely manner, the institution may permit that individual to set forth, 
in a statement signed by the individual, the amount of income earned 
from work, the source of that income, and the reason that the IRS Form 
W-2 is not available in a timely manner.
    (7) For the purpose of this section, an institution may accept in 
lieu of a copy of an income tax return signed by the filer of the 
return or one of the filers of a joint return, a copy of the filer's 
return that includes the preparer's Social Security Number, Employer 
Identification Number or the Preparer Tax Identification Number and has 
been signed by the preparer of the return or stamped with the name and 
address of the preparer of the return.
    (b) Number of family members in household. An institution must 
require an applicant selected for verification of the number of family 
members in the household to submit to it a statement signed by both the 
applicant and one of the applicant's parents if the applicant is a 
dependent student, or only the applicant if the applicant is an 
independent student, listing the name and age of each family member in 
the household and the relationship of that household member to the 
applicant.
    (c) Number of family household members enrolled in eligible 
postsecondary institutions. (1) An institution must require an 
applicant selected for verification of the number of household members 
in the applicant's family enrolled on at least a half-time basis in 
eligible postsecondary institutions to submit a statement signed by 
both the applicant and one of the applicant's parents, if the applicant 
is a dependent student, or by only the applicant if the applicant is an 
independent student, listing--
    (i) The name of each family member who is or will be attending an 
eligible postsecondary educational institution as at least a half-time 
student in the award year;
    (ii) The age of each student; and
    (iii) The name of the institution that each student is or will be 
attending.
    (2) If the institution has reason to believe that an applicant's 
FAFSA information or the statement provided under paragraph (c)(1) of 
this section regarding the number of family household members enrolled 
in eligible postsecondary institutions is inaccurate, the institution 
must obtain a statement from each institution named by the applicant in 
response to the requirement of paragraph (c)(1)(iii) of this section 
that the household member in question is or will be attending the 
institution on at least a half-time basis, unless--
    (i) The institution the student is attending determines that such a 
statement is not available because the household member in question has 
not yet registered at the institution he or she plans to attend; or
    (ii) The institution has information indicating that the student 
will be attending the same institution as the applicant.
    (d) Other information. If an applicant is selected to verify other 
information specified in the annual Federal Register notice, the 
applicant must provide the

[[Page 34880]]

documentation specified for that information in the Federal Register 
notice.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094)

Sec.  668.58  Interim disbursements.

    (a)(1) If an institution has reason to believe that an applicant's 
FAFSA information is inaccurate, until the information is verified and 
any corrections are made, the institution may not--
    (i) Disburse any Federal Pell Grant, FSEOG, or Federal Perkins Loan 
Program funds to the applicant;
    (ii) Employ or allow an employer to employ the applicant in its FWS 
Program; or
    (iii) Certify a Subsidized Stafford Loan or originate a Direct 
Subsidized Loan, or disburse any such loan proceeds for any previously 
certified Subsidized Stafford Loan or originated Direct Subsidized Loan 
to the applicant.
    (2) If an institution does not have reason to believe that an 
applicant's FAFSA information is inaccurate prior to verification, the 
institution may--
    (i)(A) Withhold payment of Federal Pell Grant, Federal Perkins 
Loan, or FSEOG Program funds for the applicant; or
    (B) Make one disbursement from each of the Federal Pell Grant, 
Federal Perkins Loan, or FSEOG Program funds for the applicant's first 
payment period of the award year;
    (ii) Employ or allow an employer to employ that applicant, once he 
or she is an eligible student, under the FWS Program for the first 60 
consecutive days after the student's enrollment in that award year; or
    (iii)(A) Withhold certification of the applicant's Subsidized 
Stafford Loan application or origination of the applicant's Direct 
Subsidized Loan; or
    (B) Certify the Subsidized Stafford Loan application or originate 
the Direct Subsidized Loan provided that the institution does not 
disburse Subsidized Stafford Loan or Direct Subsidized Loan proceeds.
    (3) If, after verification, an institution determines that changes 
to an applicant's information will not change the amount the applicant 
would receive under a title IV, HEA program, the institution--
    (i) Must ensure corrections are made; and
    (ii) May--
    (A) Make one disbursement from each of the Federal Pell Grant, 
Federal Perkins Loan, or FSEOG Program funds for the applicant's first 
payment period of the award year;
    (B) Employ or allow an employer to employ the applicant, once he or 
she is an eligible student, under the FWS Program for the first 60 
consecutive days after the student's enrollment in that award year; or
    (C) Certify the Subsidized Stafford Loan application or originate 
the Direct Subsidized Loan and disburse the Subsidized Stafford Loan or 
Direct Subsidized Loan proceeds for the applicant.
    (b) If an institution chooses to make a disbursement under 
paragraph (a)(2)(i)(B) or (a)(2)(iii)(B) of this section, it is liable 
for any overpayment discovered resulting from verification to the 
extent that the overpayment is not recovered through reducing 
subsequent disbursements in the award year.

(Authority: 20 U.S.C. 1094)

Sec.  668.59  Consequences of a change in an applicant's FAFSA 
information.

    (a) For the subsidized student financial assistance programs, if an 
applicant's FAFSA information changes as a result of verification, the 
applicant or the institution must submit the changes to the Secretary.
    (b) For the Federal Pell Grant Program an institution must--
    (1) Recalculate the applicant's Federal Pell Grant on the basis of 
the EFC on the corrected SAR or ISIR; and
    (2)(i) Disburse any additional funds under that award only if the 
institution receives a corrected SAR or ISIR for the student and only 
to the extent that additional funds are payable based on the 
recalculation; or
    (ii) Comply with the procedures specified in Sec.  668.61(a) if, as 
a result of verification, the Federal Pell Grant award is reduced.
    (c) For the subsidized student financial assistance programs, 
excluding the Federal Pell Grant Program, if an applicant's FAFSA 
information changes as a result of verification, the institution must--
    (1) Recalculate the applicant's EFC; and
    (2) Adjust the applicant's financial aid package on the basis of 
the EFC on the corrected SAR or ISIR.
    (d)(1) If an applicant is selected for verification for an award 
year for which the applicant previously received a Direct Subsidized 
Loan, and as a result of verification the loan amount is reduced, the 
institution must comply with the procedures specified in Sec. Sec.  
668.61(b)(2) and 34 CFR 685.303(e).
    (2) If an applicant is selected for verification for an award year 
for which the applicant previously received a Subsidized Stafford Loan, 
and as a result of verification the loan amount is reduced, the 
institution must comply with the procedures for notifying the borrower 
and lender specified in Sec. Sec.  668.61(b)(1) and 34 CFR 682.604(h).

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094)

Sec.  668.60  Deadlines for submitting documentation and the 
consequences of failing to provide documentation.

    (a) An institution must require an applicant selected for 
verification to submit to it, within the period of time it or the 
Secretary specifies, the documentation set forth in Sec.  668.57 that 
is requested by the institution.
    (b) For purposes of the subsidized student financial assistance 
programs, excluding the Federal Pell Grant Program--
    (1) If an applicant fails to provide the requested documentation 
within a reasonable time period established by the institution--
    (i) The institution may not--
    (A) Disburse any additional Federal Perkins Loan or FSEOG Program 
funds to the applicant;
    (B) Employ, continue to employ or allow an employer to employ the 
applicant under FWS; or
    (C) Certify the applicant's Subsidized Stafford Loan application or 
originate the applicant's Direct Subsidized Loan or disburse any 
additional Subsidized Stafford Loan or Direct Subsidized Loan proceeds 
for the applicant; and
    (ii) The applicant must repay to the institution any Federal 
Perkins Loan or FSEOG received for that award year;
    (2) If the applicant provides the requested documentation after the 
time period established by the institution, the institution may, at its 
option, disburse aid to the applicant notwithstanding paragraph (b)(1) 
of this section; and
    (3) If an institution has received proceeds for a Subsidized 
Stafford Loan or Direct Subsidized Loan on behalf of an applicant, the 
institution must follow the cash management procedures provided in 
Sec. Sec.  668.166(a), (b), or 668.167(c), respectively, and return the 
proceeds to the lender, or to the Secretary, in the case of a Direct 
Subsidized Loan, if the applicant does not complete verification within 
the time period specified.
    (c) For purposes of the Federal Pell Grant Program--
    (1) An applicant may submit a valid SAR to the institution or the 
institution may receive a valid ISIR after the applicable deadline 
specified in 34 CFR 690.61 but within an established additional time 
period set by the Secretary through publication of a notice in the 
Federal Register; and

[[Page 34881]]

    (2) If the applicant does not provide to the institution the 
requested documentation and, if necessary, a valid SAR or the 
institution does not receive a valid ISIR, within the additional time 
period referenced in paragraph (c)(1) of this section, the applicant--
    (i) Forfeits the Federal Pell Grant for the award year; and
    (ii) Must return any Federal Pell Grant payments previously 
received for that award year.
    (d) The Secretary may determine not to process FAFSA information of 
an applicant who has been requested to provide documentation until the 
applicant provides the documentation or the Secretary decides that 
there is no longer a need for the documentation.
    (e) If an applicant selected for verification for an award year 
dies before the deadline for completing verification without completing 
that process, the institution may not--
    (1) Make any further disbursements on behalf of that applicant;
    (2) Certify that applicant's Subsidized Stafford Loan application, 
originate that applicant's Direct Subsidized Loan, or disburse that 
applicant's Subsidized Stafford Loan or Direct Subsidized Loan 
proceeds; or
    (3) Consider any funds it disbursed to that applicant under Sec.  
668.58(a)(2) as an overpayment.

(Authority: 20 U.S.C. 1094)

Sec.  668.61  Recovery of funds.

    (a) If an institution discovers, as a result of verification, that 
an applicant received more financial aid than the applicant was 
eligible to receive, including an interim disbursement under Sec.  
668.58(a)(2)(ii)(A) and (a)(2)(ii)(B), the institution must eliminate 
the overpayment by--
    (1) Adjusting subsequent disbursements in the award year in which 
the overpayment occurred; or
    (2) Reimbursing the appropriate program account by--
    (i) Requiring the applicant to return the overpayment to the 
institution if the institution cannot correct the overpayment under 
paragraph (a)(1) of this section; or
    (ii) Making restitution from its own funds, by the earlier of the 
following dates, if the applicant does not return the overpayment:
    (A) Sixty days after the applicant's last day of attendance.
    (B) The last day of the award year in which the institution 
disbursed Federal Pell Grant, Federal Perkins Loan, or FSEOG Program 
funds to the applicant.
    (b)(1) If the institution determines as a result of verification 
that an applicant received Subsidized Stafford Loan proceeds for an 
award year in excess of the student's financial need for the loan, the 
institution must withhold and promptly return to the lender any 
disbursement not yet delivered to the student that exceeds the amount 
of assistance for which the student is eligible, taking into account 
other financial aid received by the student. However, instead of 
returning the entire undelivered disbursement, the school may choose to 
return promptly to the lender only the portion of the disbursement for 
which the student is ineligible. In either case, the institution must 
provide the lender with a written statement describing the reason for 
the returned loan funds.
    (2) If the institution determines as a result of verification that 
a student received Direct Subsidized Loan proceeds for an award year in 
excess of the student's need for the loan, the institution must reduce 
or cancel one or more subsequent disbursements to eliminate the amount 
in excess of the student's need.
    (c) If an institution disbursed subsidized student financial 
assistance to an applicant under Sec.  668.58(a)(3), and did not 
receive the SAR or ISIR reflecting corrections within the deadlines 
established under Sec.  668.60, the institution must reimburse the 
program account by making restitution from its own funds.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094)

    23. Subpart F of part 668 is revised to read as follows:
Subpart F--Misrepresentation
Sec.
668.71 Scope and special definitions.
668.72 Nature of educational program.
668.73 Nature of financial charges.
668.74 Employability of graduates.
668.75 Relationship with the Department of Education.

Subpart F--Misrepresentation

Sec.  668.71  Scope and special definitions.

    (a) If the Secretary determines that an eligible institution has 
engaged in substantial misrepresentation, the Secretary may--
    (1) Revoke the eligible institution's program participation 
agreement;
    (2) Impose limitations on the institution's participation in the 
title IV, HEA programs;
    (3) Deny participation applications made on behalf of the 
institution; or
    (4) Initiate a proceeding against the eligible institution under 
subpart G of this part.
    (b) This subpart establishes the types of activities that 
constitute substantial misrepresentation by an eligible institution. An 
eligible institution is deemed to have engaged in substantial 
misrepresentation when the institution itself, one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement, makes a 
substantial misrepresentation regarding the eligible institution, 
including about the nature of its educational program, its financial 
charges, or the employability of its graduates. Substantial 
misrepresentations are prohibited in all forms, including those made in 
any advertising, promotional materials, or in the marketing or sale of 
courses or programs of instruction offered by the institution.
    (c) The following definitions apply to this subpart:
    Misrepresentation: Any false, erroneous or misleading statement an 
eligible institution, one of its representatives, or any ineligible 
institution, organization, or person with whom the eligible institution 
has an agreement makes directly or indirectly to a student, prospective 
student or any member of the public, or to an accrediting agency, to a 
State agency, or to the Secretary. A misleading statement includes any 
statement that has the capacity, likelihood or tendency to deceive or 
confuse. A statement is any communication made in writing, visually, 
orally, or through other means. Misrepresentation includes the 
dissemination of a student endorsement or testimonial that a student 
gives either under duress or because the institution required the 
student to make such an endorsement or testimonial to participate in a 
program.
    Prospective student: Any individual who has contacted an eligible 
institution for the purpose of requesting information about enrolling 
at the institution or who has been contacted directly by the 
institution or indirectly through advertising about enrolling at the 
institution.
    Substantial misrepresentation: Any misrepresentation on which the 
person to whom it was made could reasonably be expected to rely, or has 
reasonably relied, to that person's detriment.

(Authority: 20 U.S.C. 1094)

Sec.  668.72  Nature of educational program.

    Misrepresentation concerning the nature of an eligible 
institution's educational program includes, but is not limited to, 
false, erroneous or misleading statements concerning--
    (a) The particular type(s), specific source(s), nature and extent 
of its institutional, programmatic, or specialized accreditation;

[[Page 34882]]

    (b)(1) Whether a student may transfer course credits earned at the 
institution to any other institution;
    (2) Conditions under which the institution will accept transfer 
credits earned at another institution;
    (c) Whether successful completion of a course of instruction 
qualifies a student--
    (1) For acceptance to a labor union or similar organization; or
    (2) To receive, to apply to take or to take the examination 
required to receive, a local, State, or Federal license, or a non-
governmental certification required as a precondition for employment, 
or to perform certain functions in the State in which the program or 
institution is located, or to meet additional conditions that the 
institution knows or reasonably should know are generally needed to 
secure employment in a recognized occupation for which the program is 
represented to prepare students;
    (d) The requirements for successfully completing the course of 
study or program and the circumstances that would constitute grounds 
for terminating the student's enrollment;
    (e) Whether its courses are recommended or have been the subject of 
unsolicited testimonials or endorsements by--
    (1) Vocational counselors, high schools, colleges, educational 
organizations, employment agencies, members of a particular industry, 
students, former students, or others; or
    (2) Governmental officials for governmental employment;
    (f) Its size, location, facilities, or equipment;
    (g) The availability, frequency, and appropriateness of its courses 
and programs to the employment objectives that it states its programs 
are designed to meet;
    (h) The nature, age, and availability of its training devices or 
equipment and their appropriateness to the employment objectives that 
it states its programs and courses are designed to meet;
    (i) The number, availability, and qualifications, including the 
training and experience, of its faculty and other personnel;
    (j) The availability of part-time employment or other forms of 
financial assistance;
    (k) The nature and availability of any tutorial or specialized 
instruction, guidance and counseling, or other supplementary assistance 
it will provide its students before, during or after the completion of 
a course;
    (l) The nature or extent of any prerequisites established for 
enrollment in any course;
    (m) The subject matter, content of the course of study, or any 
other fact related to the degree, diploma, certificate of completion, 
or any similar document that the student is to be, or is, awarded upon 
completion of the course of study;
    (n) Whether the academic, professional, or occupational degree that 
the institution will confer upon completion of the course of study has 
been authorized by the appropriate State educational agency. This type 
of misrepresentation includes, in the case of a degree that has not 
been authorized by the appropriate State educational agency, any 
failure by an eligible institution to disclose this fact in any 
advertising or promotional materials that reference such degree; or
    (o) Any matters required to be disclosed to prospective students 
under Sec. Sec.  668.42 and 668.43 of this part.

(Authority: 20 U.S.C. 1094)

Sec.  668.73  Nature of financial charges.

    Misrepresentation concerning the nature of an eligible 
institution's financial charges includes, but is not limited to, false, 
erroneous, or misleading statements concerning--
    (a) Offers of scholarships to pay all or part of a course charge;
    (b) Whether a particular charge is the customary charge at the 
institution for a course;
    (c) The cost of the program and the institution's refund policy if 
the student does not complete the program;
    (d) The availability or nature of any financial assistance offered 
to students, including a student's responsibility to repay any loans, 
regardless of whether the student is successful in completing the 
program and obtaining employment; or
    (e) The student's right to reject any particular type of financial 
aid or other assistance, or whether the student must apply for a 
particular type of financial aid, such as financing offered by the 
institution.

(Authority: 20 U.S.C. 1094)

Sec.  668.74  Employability of graduates.

    Misrepresentation regarding the employability of an eligible 
institution's graduates includes, but is not limited to, false, 
erroneous, or misleading statements concerning--
    (a) The institution's relationship with any organization, 
employment agency, or other agency providing authorized training 
leading directly to employment;
    (b) The institution's plans to maintain a placement service for 
graduates or otherwise assist its graduates to obtain employment;
    (c) The institution's knowledge about the current or likely future 
conditions, compensation, or employment opportunities in the industry 
or occupation for which the students are being prepared;
    (d) Whether employment is being offered by the institution or that 
a talent hunt or contest is being conducted, including, but not limited 
to, through the use of phrases such as ``Men/women wanted to train for 
* * *,'' ``Help Wanted,'' ``Employment,'' ``Business Opportunities'';
    (e) Government job market statistics in relation to the potential 
placement of its graduates; or
    (f) Other requirements that are generally needed to be employed in 
the fields for which the training is provided, such as requirements 
related to commercial driving licenses or permits to carry firearms, 
and failing to disclose factors that would prevent an applicant from 
qualifying for such requirements, such as prior criminal records or 
pre-existing medical conditions.

(Authority: 20 U.S.C. 1094)

Sec.  668.75  Relationship with the Department of Education.

    An eligible institution, its representatives, or any ineligible 
institution, organization, or person with whom the eligible institution 
has an agreement may not describe the eligible institution's 
participation in the title IV, HEA programs in a manner that suggests 
approval or endorsement by the U.S. Department of Education of the 
quality of its educational programs.

(Authority: 20 U.S.C. 1094)

    24. Subpart J of part 668 is revised to read as follows:

Subpart J--Approval of Independently Administered Tests; 
Specification of Passing Score; Approval of State Process

Sec.
668.141 Scope.
668.142 Special definitions.
668.143 [Reserved]
668.144 Application for test approval.
668.145 Test approval procedures.
668.146 Criteria for approving tests.
668.147 Passing scores.
668.148 Additional criteria for the approval of certain tests.
668.149 Special provisions for the approval of assessment procedures 
for individuals with disabilities.
668.150 Agreement between the Secretary and a test publisher or a 
State.
668.151 Administration of tests.
668.152 Administration of tests by assessment centers.

[[Page 34883]]

668.153 Administration of tests for individuals whose native 
language is not English or for individuals with disabilities.
668.154 Institutional accountability.
668.155 [Reserved]
668.156 Approved State process.

Subpart J--Approval of Independently Administered Tests; 
Specification of Passing Score; Approval of State Process

Sec.  668.141  Scope.

    (a) This subpart sets forth the provisions under which a student 
who has neither a high school diploma nor its recognized equivalent may 
become eligible to receive title IV, HEA program funds by--
    (1) Achieving a passing score, specified by the Secretary, on an 
independently administered test approved by the Secretary under this 
subpart; or
    (2) Being enrolled in an eligible institution that participates in 
a State process approved by the Secretary under this subpart.
    (b) Under this subpart, the Secretary sets forth--
    (1) The procedures and criteria the Secretary uses to approve 
tests;
    (2) The basis on which the Secretary specifies a passing score on 
each approved test;
    (3) The procedures and conditions under which the Secretary 
determines that an approved test is independently administered;
    (4) The information that a test publisher or a State must submit, 
as part of its test submission, to explain the methodology it will use 
for the test anomaly studies as described in Sec.  668.144(c)(17) and 
(d)(8), as appropriate;
    (5) The requirements that a test publisher or a State, as 
appropriate--
    (i) Have a process to identify and follow up on test score 
irregularities;
    (ii) Take corrective action--up to and including decertification of 
test administrators--if the test publisher or the State determines that 
test score irregularities have occurred; and
    (iii) Report to the Secretary the names of any test administrators 
it decertifies and any other action taken as a result of test score 
analyses; and
    (6) The procedures and conditions under which the Secretary 
determines that a State process demonstrates that students in the 
process have the ability to benefit from the education and training 
being offered to them.

(Authority: 20 U.S.C. 1091(d))

Sec.  668.142  Special definitions.

    The following definitions apply to this subpart:
    Assessment center: A facility that--
    (1) Is located at an eligible institution that provides two-year or 
four-year degrees or is a postsecondary vocational institution;
    (2) Is responsible for gathering and evaluating information about 
individual students for multiple purposes, including appropriate course 
placement;
    (3) Is independent of the admissions and financial aid processes at 
the institution at which it is located;
    (4) Is staffed by professionally trained personnel;
    (5) Uses test administrators to administer tests approved by the 
Secretary under this subpart; and
    (6) Does not have as its primary purpose the administration of 
ability to benefit tests.
    Computer-based test: A test taken by a student on a computer and 
scored by a computer.
    General learned abilities: Cognitive operations, such as deductive 
reasoning, reading comprehension, or translation from graphic to 
numerical representation, that may be learned in both school and non-
school environments.
    Independent test administrator: A test administrator who 
administers tests at a location other than an assessment center and 
who--
    (1) Has no current or prior financial or ownership interest in the 
institution, its affiliates, or its parent corporation, other than the 
interest obtained through its agreement to administer the test, and has 
no controlling interest in any other institution;
    (2) Is not a current or former employee of or consultant to the 
institution, its affiliates, or its parent corporation, a person in 
control of another institution, or a member of the family of any of 
these individuals;
    (3) Is not a current or former member of the board of directors, a 
current or former employee of or a consultant to a member of the board 
of directors, chief executive officer, chief financial officer of the 
institution, its affiliates, or its parent corporation or of any other 
institution, or a member of the family of any of these individuals; and
    (4) Is not a current or former student of the institution.
    Individual with a disability: A person who has a physical or mental 
impairment which substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as 
having such an impairment.
    Non-native speaker of English: A person whose first language is not 
English and who is not fluent in English.
    Secondary school level: As applied to ``content,'' ``curricula,'' 
or ``basic verbal and quantitative skills,'' the basic knowledge or 
skills generally learned in the 9th through 12th grades in United 
States secondary schools.
    Test: A standardized test, assessment or instrument that has formal 
protocols on how it is to be administered in order to be valid. These 
protocols include, for example, the use of parallel, equated forms; 
testing conditions; time allowed for the test; and standardized 
scoring. Tests are not limited to traditional paper and pencil (or 
computer-administered) instruments for which forms are constructed 
prior to administration to examinees. Tests may also include adaptive 
instruments that use computerized algorithms for selecting and 
administering items in real time; however, for such instruments, the 
size of the item pool and the method of item selection must ensure 
negligible overlap in items across retests.
    Test administrator: An individual who is certified by the test 
publisher (or the State, in the case of an approved State test or 
assessment) to administer tests approved under this subpart in 
accordance with the instructions provided by the test publisher or the 
State, as applicable, which includes protecting the test and the test 
results from improper disclosure or release, and who is not compensated 
on the basis of test outcomes.
    Test item: A question on a test.
    Test publisher: An individual, organization, or agency that owns a 
registered copyright of a test, or has been authorized by the copyright 
holder to represent the copyright holder's interests regarding the 
test.

(Authority: 20 U.S.C. 1091(d))

Sec.  668.143  [Reserved]

Sec.  668.144  Application for test approval.

    (a) The Secretary only reviews tests under this subpart that are 
submitted by the publisher of that test or by a State.
    (b) A test publisher or a State that wishes to have its test 
approved by the Secretary under this subpart must submit an application 
to the Secretary at such time and in such manner as the Secretary may 
prescribe. The application must contain all the information necessary 
for the Secretary to approve the test under this subpart, including but 
not limited to, the information contained in paragraph (c) or (d) of 
this section, as applicable.
    (c) A test publisher must include with its application--

[[Page 34884]]

    (1) A summary of the precise editions, forms, levels, and (if 
applicable) sub-tests for which approval is being sought;
    (2) The name, address, telephone number, and e-mail address of a 
contact person to whom the Secretary may address inquiries;
    (3) Each edition, form, level, and sub-test of the test for which 
the test publisher requests approval;
    (4) The distribution of test scores for each edition, form, level, 
or subtest for which approval is sought, that allows the Secretary to 
prescribe the passing score for each test in accordance with Sec.  
668.147;
    (5) Documentation of test development, including a history of the 
test's use;
    (6) Norming data and other evidence used in determining the 
distribution of test scores;
    (7) Material that defines the content domains addressed by the 
test;
    (8) Documentation of periodic reviews of the content and 
specifications of the test to ensure that the test reflects secondary 
school level verbal and quantitative skills;
    (9) If a test being submitted is a revision of the most recent 
edition approved by the Secretary, an analysis of the revisions, 
including the reasons for the revisions, the implications of the 
revisions for the comparability of scores on the current test to scores 
on the previous test, and data from validity studies of the test 
undertaken subsequent to the revisions;
    (10) A description of the manner in which test-taking time was 
determined in relation to the content representativeness requirements 
in Sec.  668.146(b)(2), and an analysis of the effects of time on 
performance;
    (11) A technical manual that includes--
    (i) An explanation of the methodology and procedures for measuring 
the reliability of the test;
    (ii) Evidence that different forms of the test, including, if 
applicable, short forms, are comparable in reliability;
    (iii) Other evidence demonstrating that the test permits consistent 
assessment of individual skill and ability;
    (iv) Evidence that the test was normed using--
    (A) Groups that were of sufficient size to produce defensible 
standard errors of the mean and were not disproportionately composed of 
any race or gender; and
    (B) A contemporary sample that is representative of the population 
of persons who have earned a high school diploma in the United States;
    (v) Documentation of the level of difficulty of the test;
    (vi) Unambiguous scales and scale values so that standard errors of 
measurement can be used to determine statistically significant 
differences in performance; and
    (vii) Additional guidance on the interpretation of scores resulting 
from any modifications of the test for individuals with disabilities;
    (12) The manual provided to test administrators containing 
procedures and instructions for test security and administration, and 
the forwarding of tests to the test publisher;
    (13) An analysis of the item-content of each edition, form, level, 
and (if applicable) subtest to demonstrate compliance with the required 
secondary school level criterion specified in Sec.  668.146(b);
    (14) A description of retesting procedures and the analysis upon 
which the criteria for retesting are based;
    (15) Other evidence establishing the test's compliance with the 
criteria for approval of tests as provided in Sec.  668.146;
    (16) A description of its test administrator certification process 
that provides--
    (i) How the test publisher will determine that the test 
administrator has the necessary training, knowledge, skill, and 
integrity to test students in accordance with the test publisher's 
requirements; and
    (ii) How the test publisher will determine that the test 
administrator has the ability and facilities to keep its test secure 
against disclosure or release;
    (17) A description of the test anomaly analysis the test publisher 
will conduct and submit to the Secretary that includes--
    (i) An explanation of how the test publisher will identify 
potential test irregularities and make a determination that test 
irregularities have occurred;
    (ii) An explanation of the process and procedures for corrective 
action (up to and including decertification of a certified test 
administrator) when the test publisher determines that test 
irregularities have occurred; and
    (iii) Information on when and how the test publisher will notify a 
test administrator, the Secretary, and the institutions for which the 
test administrator had previously provided testing services for that 
test publisher, that the test administrator has been decertified; and
    (18)(i) An explanation of any accessible technologies that are 
available to accommodate individuals with disabilities, and
    (ii) A description of the process for a test administrator to 
identify and report to the test publisher when accommodations for 
individuals with disabilities were provided, for scoring and norming 
purposes.
    (d) A State must include with its application--
    (1) The information necessary for the Secretary to determine that 
the test the State uses measures a student's skills and abilities for 
the purpose of determining whether the student has the skills and 
abilities the State expects of a high school graduate in that State;
    (2) The passing scores on that test;
    (3) Any guidance on the interpretation of scores resulting from any 
modifications of the test for individuals with disabilities;
    (4) A statement regarding how the test will be kept secure;
    (5) A description of retesting procedures and the analysis upon 
which the criteria for retesting are based;
    (6) Other evidence establishing the test's compliance with the 
criteria for approval of tests as provided in Sec.  668.146;
    (7) A description of its test administrator certification process 
that provides--
    (i) How the State will determine that the test administrator has 
the necessary training, knowledge, skill, and integrity to test 
students in accordance with the State's requirements; and
    (ii) How the State will determine that the test administrator has 
the ability and facilities to keep its test secure against disclosure 
or release;
    (8) A description of the test anomaly analysis that the State will 
conduct and submit to the Secretary that includes--
    (i) An explanation of how the State will identify potential test 
irregularities and make a determination that test irregularities have 
occurred;
    (ii) An explanation of the process and procedures for corrective 
action (up to and including decertification of a test administrator) 
when the State determines that test irregularities have occurred; and
    (iii) Information on when and how the State will notify a test 
administrator, the Secretary, and the institutions for which the test 
administrator had previously provided testing services for that State, 
that the test administrator has been decertified;
    (9)(i) An explanation of any accessible technologies that are 
available to accommodate individuals with disabilities; and
    (ii) A description of the process for a test administrator to 
identify and report to the test publisher when accommodations for 
individuals with disabilities were provided, for scoring and norming 
purposes; and
    (10) The name, address, telephone number, and e-mail address of a 
contact

[[Page 34885]]

person to whom the Secretary may address inquiries.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.145  Test approval procedures.

    (a)(1) When the Secretary receives a complete application from a 
test publisher or a State, the Secretary selects one or more experts in 
the field of educational testing and assessment, who possess 
appropriate advanced degrees and experience in test development or 
psychometric research, to determine whether the test meets the 
requirements for test approval contained in Sec. Sec.  668.146, 
668.147, 668.148, or 668.149, as appropriate, and to advise the 
Secretary of their determinations.
    (2) If the test involves a language other than English, the 
Secretary selects at least one individual who is fluent in the language 
in which the test is written to collaborate with the testing expert or 
experts described in paragraph (a)(1) of this section and to advise the 
Secretary on whether the test meets the additional criteria, 
provisions, and conditions for test approval contained in Sec. Sec.  
668.148 and 668.149.
    (3) For test batteries that contain multiple subtests measuring 
content domains other than verbal and quantitative domains, the 
Secretary reviews only those subtests covering the verbal and 
quantitative domains.
    (b)(1) If the Secretary determines that a test satisfies the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher or the State, as applicable, of the Secretary's 
decision, and publishes the name of the test and the passing scores in 
the Federal Register.
    (2) If the Secretary determines that a test does not satisfy the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher or the State, as applicable, of the Secretary's 
decision, and the reasons why the test did not meet those criteria and 
requirements.
    (3) If the Secretary determines that a test does not satisfy the 
criteria and requirements for test approval, the test publisher or the 
State that submitted the test for approval may request that the 
Secretary reevaluate the Secretary's decision. Such a request must be 
accompanied by--
    (i) Documentation and information that address the reasons for the 
non-approval of the test; and
    (ii) An analysis of why the information and documentation submitted 
meet the criteria and requirements for test approval notwithstanding 
the Secretary's earlier decision to the contrary.
    (c)(1) The Secretary approves a test for a period not to exceed 
five years from the date the notice of approval of the test is 
published in the Federal Register.
    (2) The Secretary extends the approval period of a test to include 
the period of review if the test publisher or the State, as applicable, 
re-submits the test for review and approval under Sec.  668.144 at 
least six months before the date on which the test approval is 
scheduled to expire.
    (d)(1) The Secretary's approval of a test may be revoked if the 
Secretary determines that the test publisher or the State violated any 
terms of the agreement described in Sec.  668.150, that the information 
the test publisher or the State submitted as a basis for approval of 
the test was inaccurate, or that the test publisher or the State 
substantially changed the test and did not resubmit the test, as 
revised, for approval.
    (2) If the Secretary revokes approval of a previously approved 
test, the Secretary publishes a notice of that revocation in the 
Federal Register. The revocation becomes effective--
    (i) One hundred and twenty days from the date the notice of 
revocation is published in the Federal Register; or
    (ii) An earlier date specified by the Secretary in a notice 
published in the Federal Register.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.146  Criteria for approving tests.

    (a) Except as provided in Sec.  668.148, the Secretary approves a 
test under this subpart if--
    (1) The test meets the criteria set forth in paragraph (b) of this 
section;
    (2) The test publisher or the State satisfies the requirements set 
forth in paragraph (c) of this section; and
    (3) The Secretary makes a determination that the information the 
test publisher or State submitted in accordance with Sec.  
668.144(c)(17) or (d)(8), as applicable, provides adequate assurance 
that the test publisher or State will conduct rigorous test anomaly 
analyses and take appropriate action if test administrators do not 
comply with testing procedures.
    (b) To be approved under this subpart, a test must--
    (1) Assess secondary school level basic verbal and quantitative 
skills and general learned abilities;
    (2) Sample the major content domains of secondary school level 
verbal and quantitative skills with sufficient numbers of questions 
to--
    (i) Adequately represent each domain; and
    (ii) Permit meaningful analyses of item-level performance by 
students who are representative of the contemporary population beyond 
the age of compulsory school attendance and have earned a high school 
diploma;
    (3) Require appropriate test-taking time to permit adequate 
sampling of the major content domains described in paragraph (b)(2) of 
this section;
    (4) Have all forms (including short forms) comparable in 
reliability;
    (5) Have, in the case of a test that is revised, new scales, scale 
values, and scores that are demonstrably comparable to the old scales, 
scale values, and scores;
    (6) Meet all primary and applicable conditional and secondary 
standards for test construction provided in the 1999 edition of the 
Standards for Educational and Psychological Testing, prepared by a 
joint committee of the American Educational Research Association, the 
American Psychological Association, and the National Council on 
Measurement in Education incorporated by reference in this section. 
Incorporation by reference of this document has been approved by the 
Director of the Office of the Federal Register pursuant to the 
Director's authority under 5 U.S.C. 552(a) and 1 CFR part 51. The 
incorporated document is on file at the Department of Education, 
Federal Student Aid, room 113E2, 830 First Street, NE., Washington, DC 
20002 and at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 1-
866-272-6272, or go to: http://www.archives.gov/Federal_register/code_of_Federal_regulations/ibr_locations.html. The document also 
may be obtained from the American Educational Research Association at: 
http://www.aera.net; and
    (7) Have the test publisher's or the State's guidelines for 
retesting, including time between test-taking, be based on empirical 
analyses that are part of the studies of test reliability.
    (c) In order for a test to be approved under this subpart, a test 
publisher or a State must--
    (1) Include in the test booklet or package--
    (i) Clear, specific, and complete instructions for test 
administration, including information for test takers on the purpose, 
timing, and scoring of the test; and
    (ii) Sample questions representative of the content and average 
difficulty of the test;

[[Page 34886]]

    (2) Have two or more secure, equated, alternate forms of the test;
    (3) Except as provided in Sec. Sec.  668.148 and 668.149, provide 
tables of distributions of test scores which clearly indicate the mean 
score and standard deviation for high school graduates who have taken 
the test within three years prior to the date that the test is 
submitted to the Secretary for approval under Sec.  668.144;
    (4) Norm the test with--
    (i) Groups that are of sufficient size to produce defensible 
standard errors of the mean and are not disproportionately composed of 
any race or gender; and
    (ii) A contemporary sample that is representative of the population 
of persons who have earned a high school diploma in the United States; 
and
    (5) If test batteries include sub-tests assessing different verbal 
and/or quantitative skills, a distribution of test scores as described 
in paragraph (c)(3) of this section that allows the Secretary to 
prescribe either--
    (i) A passing score for each sub-test; or
    (ii) One composite passing score for verbal skills and one 
composite passing score for quantitative skills.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.147  Passing scores.

    Except as provided in Sec. Sec.  668.144(d), 668.148, and 668.149, 
to demonstrate that a test taker has the ability to benefit from the 
education and training offered by the institution, the Secretary 
specifies that the passing score on each approved test is one standard 
deviation below the mean score of a sample of individuals who have 
taken the test within the three years before the test is submitted to 
the Secretary for approval. The sample must be representative of the 
population of high school graduates in the United States.

(Authority: 20 U.S.C. 1091(d))

Sec.  668.148  Additional criteria for the approval of certain tests.

    (a) In addition to satisfying the criteria in Sec.  668.146, to be 
approved by the Secretary, a test must meet the following criteria, if 
applicable:
    (1) In the case of a test developed for a non-native speaker of 
English who is enrolled in a program that is taught in his or her 
native language, the test must be--
    (i) Linguistically accurate and culturally sensitive to the 
population for which the test is designed, regardless of the language 
in which the test is written;
    (ii) Supported by documentation detailing the development of 
normative data;
    (iii) If translated from an English version, supported by 
documentation of procedures to determine its reliability and validity 
with reference to the population for which the translated test was 
designed;
    (iv) Developed in accordance with guidelines provided in the 1999 
edition of the ``Testing Individuals of Diverse Linguistic 
Backgrounds'' section of the Standards for Educational and 
Psychological Testing prepared by a joint committee of the American 
Educational Research Association, the American Psychological 
Association, and the National Council on Measurement in Education 
incorporated by reference in this section. Incorporation by reference 
of this document has been approved by the Director of the Office of the 
Federal Register pursuant to the Director's authority under 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporated document is on file at the 
Department of Education, Federal Student Aid, room 113E2, 830 First 
Street, NE., Washington, DC 20002 and at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 1-866-272-6272, or go to: http://www.archives.gov/Federal_register/code_of_Federal_regulations/ibr_locations.html. The document also may be obtained from the American 
Educational Research Association at: http://www.aera.net; and
    (v)(A) If the test is in Spanish, accompanied by a distribution of 
test scores that clearly indicates the mean score and standard 
deviation for Spanish-speaking students with high school diplomas who 
have taken the test within five years before the date on which the test 
is submitted to the Secretary for approval.
    (B) If the test is in a language other than Spanish, accompanied by 
a recommendation for a provisional passing score based upon performance 
of a sample of test takers representative of non-English speaking 
individuals who speak a language other than Spanish and who have a high 
school diploma. The sample upon which the recommended provisional 
passing score is based must be large enough to produce stable norms.
    (2) In the case of a test that is modified for use for individuals 
with disabilities, the test publisher or State must--
    (i) Follow guidelines provided in the ``Testing Individuals With 
Disabilities'' section of the Standards for Educational and 
Psychological Testing; and
    (ii) Provide documentation of the appropriateness and feasibility 
of the modifications relevant to test performance.
    (3) In the case of a computer-based test, the test publisher or 
State, as applicable, must--
    (i) Provide documentation to the Secretary that the test complies 
with the basic principles of test construction and standards of 
reliability and validity as promulgated in the Standards for 
Educational and Psychological Testing;
    (ii) Provide test administrators with instructions for 
familiarizing test takers with computer hardware prior to test-taking; 
and
    (iii) Provide two or more parallel, equated forms of the test, or, 
if parallel forms are generated from an item pool, provide 
documentation of the methods of item selection for alternate forms.
    (b) If a test is designed solely to measure the English language 
competence of non-native speakers of English--
    (1) The test must meet the criteria set forth in Sec.  
668.146(b)(6), (c)(1), (c)(2), and (c)(4); and
    (2) The test publisher must recommend a passing score based on the 
mean score of test takers beyond the age of compulsory school 
attendance who completed U.S. high school equivalency programs, formal 
training programs, or bilingual vocational programs.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.149  Special provisions for the approval of assessment 
procedures for individuals with disabilities.

    If no test is reasonably available for individuals with 
disabilities so that no test can be approved under Sec. Sec.  668.146 
or 668.148 for these individuals, the following procedures apply:
    (a) The Secretary considers a modified test or testing procedure, 
or instrument that has been scientifically developed specifically for 
the purpose of evaluating the ability to benefit from postsecondary 
training or education of individuals with disabilities to be an 
approved test for purposes of this subpart provided that the testing 
procedure or instrument measures both basic verbal and quantitative 
skills at the secondary school level.
    (b) The Secretary considers the passing scores for these testing 
procedures or instruments to be those recommended by the test publisher 
or State, as applicable.
    (c) The test publisher or State, as applicable, must--

[[Page 34887]]

    (1) Maintain appropriate documentation, including a description of 
the procedures or instruments, their content domains, technical 
properties, and scoring procedures; and
    (2) Require the test administrator to--
    (i) Use the procedures or instruments in accordance with 
instructions provided by the test publisher or State, as applicable; 
and
    (ii) Use the passing scores recommended by the test publisher or 
State, as applicable.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.150  Agreement between the Secretary and a test publisher or 
a State.

    (a) If the Secretary approves a test under this subpart, the test 
publisher or the State that submitted the test must enter into an 
agreement with the Secretary that contains the provisions set forth in 
paragraph (b) of this section before an institution may use the test to 
determine a student's eligibility for title IV, HEA program funds.
    (b) The agreement between a test publisher or a State, as 
applicable, and the Secretary provides that the test publisher or the 
State, as applicable, must--
    (1) Allow only test administrators that it certifies to give its 
test;
    (2) Require each test administrator it certifies to--
    (i) Provide the test publisher or the State, as applicable, with a 
certification statement that indicates he or she is not currently 
decertified; and
    (ii) Notify the test publisher or the State, as applicable, 
immediately if any other test publisher or State decertifies the test 
administrator;
    (3) Only certify test administrators who--
    (i) Have the necessary training, knowledge, and skill to test 
students in accordance with the test publisher's or the State's testing 
requirements;
    (ii) Have the ability and facilities to keep its test secure 
against disclosure or release; and
    (iii) Have not been decertified within the last three years by any 
test publisher or State;
    (4) Decertify a test administrator for a period of three years if 
the test publisher or the State finds that the test administrator--
    (i) Has failed to give its test in accordance with the test 
publisher's or the State's instructions;
    (ii) Has not kept the test secure;
    (iii) Has compromised the integrity of the testing process; or
    (iv) Has given the test in violation of the provisions contained in 
Sec.  668.151;
    (5) Reevaluate the qualifications of a test administrator who has 
been decertified by another test publisher or State and determine 
whether to continue the test administrator's certification or to 
decertify the test administrator;
    (6) Immediately notify the test administrator, the Secretary, and 
the institutions where the test administrator previously administered 
approved tests when the test publisher or the State decertifies a test 
administrator;
    (7)(i) Review the test results of the tests administered by a 
decertified test administrator and determine which tests may have been 
improperly administered;
    (ii) Immediately notify the affected institutions and students or 
prospective students; and
    (iii) Provide a report to the Secretary on the results of the 
review and the notifications provided to institutions and students or 
prospective students;
    (8) Report to the Secretary if the test publisher or the State 
certifies a previously decertified test administrator after the three-
year period specified in paragraph (b)(4) of this section;
    (9) Score a test answer sheet that it receives from a test 
administrator;
    (10) If a computer-based test is used, provide the test 
administrator with software that will--
    (i) Immediately generate a score report for each test taker;
    (ii) Allow the test administrator to send to the test publisher or 
the State, as applicable, a record of the test taker's performance on 
each test item and the test taker's test scores using a data transfer 
method that is encrypted and secure; and
    (iii) Prohibit any changes in test taker responses or test scores;
    (11) Promptly send to the student and the institution the student 
indicated he or she is attending or scheduled to attend a notice 
stating the student's score for the test and whether or not the student 
passed the test;
    (12) Keep each test answer sheet or electronic record forwarded for 
scoring and all other documents forwarded by the test administrator 
with regard to the test for a period of three years from the date the 
analysis of the tests results, described in paragraph (b)(13) of this 
section, was sent to the Secretary;
    (13) Analyze the test scores of students who take the test to 
determine whether the test scores and data produce any irregular 
pattern that raises an inference that the tests were not being properly 
administered, and provide the Secretary with a copy of this analysis 
within 18 months after the test was approved and every 18 months 
thereafter during the period of test approval;
    (14) Upon request, give the Secretary, a State agency, an 
accrediting agency, and law enforcement agencies access to test records 
or other documents related to an audit, investigation, or program 
review of an institution, the test publisher, or a test administrator;
    (15) Immediately report to the Secretary if the test publisher or 
the State finds any credible information indicating that a test has 
been compromised;
    (16) Immediately report to the Office of Inspector General of the 
Department of Education for investigation if the test publisher or the 
State finds any credible information indicating that a test 
administrator or institution may have engaged in fraud or other 
criminal misconduct; and
    (17) Require a test administrator who provides a test to an 
individual with a disability who requires an accommodation in the 
test's administration to report to the test publisher or the State 
within the time period specified in Sec.  668.151(b)(2) or Sec.  
668.152(b)(2), as applicable, the nature of the disability and the 
accommodations that were provided.
    (c)(1) The Secretary may terminate an agreement with a test 
publisher or a State, as applicable, if the test publisher or the State 
fails to carry out the terms of the agreement described in paragraph 
(b) of this section.
    (2) Before terminating the agreement, the Secretary gives the test 
publisher or the State, as applicable, the opportunity to show that it 
has not failed to carry out the terms of its agreement.
    (3) If the Secretary terminates an agreement with a test publisher 
or a State under this section, the Secretary publishes a notice in the 
Federal Register specifying when institutions may no longer use the 
test publisher's or the State's test(s) for purposes of determining a 
student's eligibility for title IV, HEA program funds.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.151  Administration of tests.

    (a)(1) To establish a student's eligibility for title IV, HEA 
program funds under this subpart, an institution must select a test 
administrator to give an approved test.
    (2) An institution may use the results of an approved test it 
received from an approved test publisher or assessment center to 
determine a student's eligibility to receive title IV, HEA program 
funds if the test was

[[Page 34888]]

independently administered and properly administered in accordance with 
this subpart.
    (b) The Secretary considers that a test is independently 
administered if the test is--
    (1) Given at an assessment center by a test administrator who is an 
employee of the center; or
    (2) Given by an independent test administrator who maintains the 
test at a secure location and submits the test for scoring by the test 
publisher or the State or, for a computer-based test, a record of the 
test scores, within two business days of administering the test.
    (c) The Secretary considers that a test is not independently 
administered if an institution--
    (1) Compromises test security or testing procedures;
    (2) Pays a test administrator a bonus, commission, or any other 
incentive based upon the test scores or pass rates of its students who 
take the test; or
    (3) Otherwise interferes with the test administrator's independence 
or test administration.
    (d) The Secretary considers that a test is properly administered if 
the test administrator--
    (1) Is certified by the test publisher or the State, as applicable, 
to give the test publisher's or the State's test;
    (2) Administers the test in accordance with instructions provided 
by the test publisher or the State, as applicable, and in a manner that 
ensures the integrity and security of the test;
    (3) Makes the test available only to a test-taker, and then only 
during a regularly scheduled test;
    (4) Secures the test against disclosure or release; and
    (5) Submits the completed test or, for a computer-based test, a 
record of test scores, to the test publisher or the State, as 
applicable, within the time period specified in Sec.  668.152(b) or 
paragraph (b)(2) of this section, as appropriate, and in accordance 
with the test publisher's or the State's instructions.
    (e) An independent test administrator may not score a test.
    (f) An individual who fails to pass a test approved under this 
subpart may not retake the same form of the test for the period 
prescribed by the test publisher or the State responsible for the test.
    (g) An institution must maintain a record for each individual who 
took a test under this subpart. The record must include--
    (1) The test taken by the individual;
    (2) The date of the test;
    (3) The individual's scores as reported by the test publisher, an 
assessment center, or the State;
    (4) The name and address of the test administrator who administered 
the test and any identifier assigned to the test administrator by the 
test publisher or the State; and
    (5) If the individual who took the test is an individual with a 
disability and was unable to be evaluated by the use of an approved ATB 
test or the individual requested or required testing accommodations, 
documentation of the individual's disability and of the testing 
arrangements provided in accordance with Sec.  668.153(b).

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.152  Administration of tests by assessment centers.

    (a) If a test is given by an assessment center, the assessment 
center must properly administer the test as described in Sec.  
668.151(d), and Sec.  668.153, if applicable.
    (b)(1) Unless an agreement between a test publisher or a State, as 
applicable, and an assessment center indicates otherwise, an assessment 
center scores the tests it gives and promptly notifies the institution 
and the student of the student's score on the test and whether the 
student passed the test.
    (2) If the assessment center scores the test, it must provide 
weekly to the test publisher or the State, as applicable--
    (i) All copies of the completed test, including the name and 
address of the test administrator who administered the test and any 
identifier assigned to the test administrator by the test publisher or 
the State, as applicable; or
    (ii) A report listing all test-takers' scores and institutions to 
which the scores were sent and the name and address of the test 
administrator who administered the test and any identifier assigned to 
the test administrator by the test publisher or the State, as 
applicable.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.153  Administration of tests for individuals whose native 
language is not English or for individuals with disabilities.

    (a) Individuals whose native language is not English. For an 
individual whose native language is not English and who is not fluent 
in English, the institution must use the following tests, as 
applicable:
    (1) If the individual is enrolled or plans to enroll in a program 
conducted entirely in his or her native language, the individual must 
take a test approved under Sec. Sec.  668.146 and 668.148(a)(1).
    (2) If the individual is enrolled or plans to enroll in a program 
that is taught in English with an ESL component, the individual must 
take an English language proficiency assessment approved under Sec.  
668.148(b) and, before beginning the portion of the program taught in 
English, a test approved under Sec.  668.146.
    (3) If the individual is enrolled or plans to enroll in a program 
that is taught in English without an ESL component, or the individual 
does not enroll in any ESL component offered, the individual must take 
a test in English approved under Sec.  668.146.
    (4) If the individual enrolls in an ESL program, the individual 
must take an ESL test approved under Sec.  668.148(b).
    (b) Individuals with disabilities. (1) For an individual with a 
disability who has neither a high school diploma nor its equivalent and 
who is applying for title IV, HEA program funds and seeks to show his 
or her ability to benefit through the testing procedures in this 
subpart, an institution must use a test described in Sec.  
668.148(a)(3) or Sec.  668.149(a).
    (2) The test must reflect the individual's skills and general 
learned abilities.
    (3) The test administrator must ensure that there is documentation 
to support the determination that the individual is an individual with 
a disability and requires accommodations--such as extra time or a quiet 
room--for taking an approved test, or is unable to be evaluated by the 
use of an approved ATB test.
    (4) Documentation of an individual's disability may be satisfied 
by--
    (i) A written determination, including a diagnosis and recommended 
testing accommodations, by a licensed psychologist or medical 
physician; or
    (ii) A record of the disability from a local or State educational 
agency, or other government agency, such as the Social Security 
Administration or a vocational rehabilitation agency, that identifies 
the individual's disability. This record may, but is not required to, 
include a diagnosis and recommended testing accommodations.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

Sec.  668.154  Institutional accountability.

    An institution is liable for the title IV, HEA program funds 
disbursed to a student whose eligibility is determined under this 
subpart only if--
    (a) The institution used a test that was not administered 
independently, in accordance with Sec.  668.151(b);
    (b) The institution or an employee of the institution compromised 
the testing process in any way; or

[[Page 34889]]

    (c) The institution is unable to document that the student received 
a passing score on an approved test.

(Authority: 20 U.S.C. 1091(d))

Sec.  668.155  [Reserved]

Sec.  668.156  Approved State process.

    (a)(1) A State that wishes the Secretary to consider its State 
process as an alternative to achieving a passing score on an approved, 
independently administered test for the purpose of determining a 
student's eligibility for title IV, HEA program funds must apply to the 
Secretary for approval of that process.
    (2) To be an approved State process, the State process does not 
have to include all the institutions located in that State, but must 
indicate which institutions are included.
    (b) The Secretary approves a State's process if--
    (1) The State administering the process can demonstrate that the 
students it admits under that process without a high school diploma or 
its equivalent, who enroll in participating institutions have a success 
rate as determined under paragraph (h) of this section that is within 
95 percent of the success rate of students with high school diplomas; 
and
    (2) The State's process satisfies the requirements contained in 
paragraphs (c) and (d) of this section.
    (c) A State process must require institutions participating in the 
process to provide each student they admit without a high school 
diploma or its recognized equivalent with the following services:
    (1) Orientation regarding the institution's academic standards and 
requirements, and student rights.
    (2) Assessment of each student's existing capabilities through 
means other than a single standardized test.
    (3) Tutoring in basic verbal and quantitative skills, if 
appropriate.
    (4) Assistance in developing educational goals.
    (5) Counseling, including counseling regarding the appropriate 
class level for that student given the student's individual's 
capabilities.
    (6) Follow-up by teachers and counselors regarding the student's 
classroom performance and satisfactory progress toward program 
completion.
    (d) A State process must--
    (1) Monitor on an annual basis each participating institution's 
compliance with the requirements and standards contained in the State's 
process;
    (2) Require corrective action if an institution is found to be in 
noncompliance with the State process requirements; and
    (3) Terminate an institution from the State process if the 
institution refuses or fails to comply with the State process 
requirements.
    (e)(1) The Secretary responds to a State's request for approval of 
its State's process within six months after the Secretary's receipt of 
that request. If the Secretary does not respond by the end of six 
months, the State's process is deemed to be approved.
    (2) An approved State process becomes effective for purposes of 
determining student eligibility for title IV, HEA program funds under 
this subpart--
    (i) On the date the Secretary approves the process; or
    (ii) Six months after the date on which the State submits the 
process to the Secretary for approval, if the Secretary neither 
approves nor disapproves the process during that six month period.
    (f) The Secretary approves a State process for a period not to 
exceed five years.
    (g)(1) The Secretary withdraws approval of a State process if the 
Secretary determines that the State process violated any terms of this 
section or that the information that the State submitted as a basis for 
approval of the State process was inaccurate.
    (2) The Secretary provides a State with the opportunity to contest 
a finding that the State process violated any terms of this section or 
that the information that the State submitted as a basis for approval 
of the State process was inaccurate.
    (h) The State must calculate the success rates as referenced in 
paragraph (b) of this section by--
    (1) Determining the number of students with high school diplomas 
who, during the applicable award year described in paragraph (i) of 
this section, enrolled in participating institutions and--
    (i) Successfully completed education or training programs;
    (ii) Remained enrolled in education or training programs at the end 
of that award year; or
    (iii) Successfully transferred to and remained enrolled in another 
institution at the end of that award year;
    (2) Determining the number of students with high school diplomas 
who enrolled in education or training programs in participating 
institutions during that award year;
    (3) Determining the number of students calculated in paragraph 
(h)(2) of this section who remained enrolled after subtracting the 
number of students who subsequently withdrew or were expelled from 
participating institutions and received a 100 percent refund of their 
tuition under the institutions' refund policies;
    (4) Dividing the number of students determined in paragraph (h)(1) 
of this section by the number of students determined in paragraph 
(h)(3) of this section;
    (5) Making the calculations described in paragraphs (h)(1) through 
(h)(4) of this section for students without a high school diploma or 
its recognized equivalent who enrolled in participating institutions.
    (i) For purposes of paragraph (h) of this section, the applicable 
award year is the latest complete award year for which information is 
available that immediately precedes the date on which the State 
requests the Secretary to approve its State process, except that the 
award year selected must be one of the latest two completed award years 
preceding that application date.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

(Authority: 20 U.S.C. 1091(d))

    25. Section 668.164 is amended by adding paragraph (i) to read as 
follows:

Sec.  668.164  Disbursing funds.

* * * * *
    (i) Provisions for books and supplies. (1) An institution must 
provide a way for a Federal Pell Grant eligible student to obtain or 
purchase, by the seventh day of a payment period, the books and 
supplies required for the payment period if, 10 days before the 
beginning of the payment period--
    (i) The institution could disburse the title IV, HEA program funds 
for which the student is eligible; and
    (ii) Presuming the funds were disbursed, the student would have a 
credit balance under paragraph (e) of this section.
    (2) The amount the institution provides to the student to obtain or 
purchase books and supplies is the lesser of the presumed credit 
balance under this paragraph or the amount needed by the student, as 
determined by the institution.
* * * * *

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

    26. The authority citation for part 682 is revised to read as 
follows:

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

Sec.  682.200  [Amended]

    27. Section 682.200(a)(2) is amended by adding, in alphabetical 
order, the term ``Credit hour''.

[[Page 34890]]

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

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

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.

    29. Section 685.102 is amended by:
    A. In paragraph (a)(2), adding, in alphabetical order, the term 
``Credit hour''.
    B. In paragraph (b), adding, in alphabetical order, the definition 
of Payment data to read as follows:

Sec.  685.102  Definitions.

* * * * *
    (b) * * *
    Payment data: An electronic record that is provided to the 
Secretary by an institution showing student disbursement information.
* * * * *
    30. Section 685.301 is amended by revising paragraph (e)(1) to read 
as follows:

Sec.  685.301  Origination of a loan by a Direct Loan Program school.

* * * * *
    (e) * * *
    (1) The Secretary accepts a student's Payment Data that is 
submitted in accordance with procedures established through publication 
in the Federal Register, and that contains information the Secretary 
considers to be accurate in light of other available information 
including that previously provided by the student and the institution.
* * * * *

PART 686--TEACHER EDUCATION ASSISTANCE FOR COLLEGE AND HIGHER 
EDUCATION (TEACH) GRANT PROGRAM

    31. The authority citation for part 686 continues to read as 
follows:

    Authority:  20 U.S.C. 1070g, et seq., unless otherwise noted.

    32. Section 686.2 is amended by:
    A. In paragraph (a), adding, in alphabetical order, the term 
``Credit hour''.
    B. In paragraph (d), revising the definition of Payment Data to 
read as follows:

Sec.  686.2  Definitions.

* * * * *
    (d) * * *
    Payment Data: An electronic record that is provided to the 
Secretary by an institution showing student disbursement information.
* * * * *
    33. Section 686.37 is amended by revising paragraph (b) to read as 
follows:

Sec.  686.37  Institutional reporting requirements.

* * * * *
    (b) The Secretary accepts a student's Payment Data that is 
submitted in accordance with procedures established through publication 
in the Federal Register, and that contains information the Secretary 
considers to be accurate in light of other available information 
including that previously provided by the student and the institution.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

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

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

Sec.  690.2  [Amended]

    35. Section 690.2(a) is amended by adding, in alphabetical order, 
the term ``Credit hour''.

PART 691--ACADEMIC COMPETITIVENESS GRANT (ACG) AND NATIONAL SCIENCE 
AND MATHEMATICS ACCESS TO RETAIN TALENT GRANT (NATIONAL SMART 
GRANT) PROGRAMS

    36. The authority citation for part 691 continues to read as 
follows:

    Authority: 20 U.S.C. 1070a-1, unless otherwise noted.

Sec.  691.2  [Amended]

    37. Section 691.2(a) is amended by adding, in alphabetical order, 
the term ``Credit hour''.
[FR Doc. 2010-14107 Filed 6-17-10; 8:45 am]
BILLING CODE 4000-01-P
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