1 

Issue Paper #1 

Team I – Program Integrity Issues 

 

Issue: Definition of High School Diploma for the Purpose of 

Establishing Institutional Eligibility to Participate in the 

Title IV Programs, and Student Eligibility to Receive Title 

IV Aid 

Statutory cites: HEA sections 101(a)(1), 101 (b)(2), 102(b)(1)(B) 

102(b)(2), 102(c)(1)(B), 102(c)(2), and 484(d) 

Regulatory cites: 34 CFR 600.2, 600.4(a)(2), 600.5(a)(3), 600.6(a)(2), and 

668.32(e) 

Summary question(s): How can we develop regulations that define a ―high school 

diploma‖ for the purpose of establishing eligibility to participate in the Federal student 

aid programs and to ensure that only eligible students receive Federal student aid; and 

what steps should we take to combat the use of diplomas obtained through diploma mills? 

Summary of issue: The Higher Education Act of 1965, as amended, requires an 

institution of higher education participating in the Federal student aid programs to admit 

as regular students only persons who have obtained a high school diploma or its 

recognized equivalent (or are beyond the age of compulsory school attendance). In order 

to be eligible to receive Title IV aid, a student must 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. Receipt of a high 

school diploma or its recognized equivalent or completion of secondary schooling 

through home schooling provides an indication that the student is qualified to begin study 

at the postsecondary level. There is a regulatory definition of the ―recognized equivalent 

of a high school diploma,‖ but the term ―high school diploma‖ is not defined in 

regulations. 

A student may self-certify on the FAFSA that he has received a high school diploma or 

GED or that he has completed secondary school through homeschooling as defined by 

state law. Basically, if a student does not have a high school diploma or GED and has not 

completed secondary school through home schooling, the student will have to pass an 

Ability-to-Benefit test to qualify for student aid. If a student indicates that he has a 

diploma or GED, the postsecondary institution isn’t required to ask for a copy. If, 

however, the institution requires one for admission, the institution must rely on that copy 

of the diploma or GED and not on the student’s certification alone. Confirming the 

authenticity of a student’s high school experience has become more difficult in part due 

to the proliferation of high school diploma mills. Institutions that have concerns about 

the validity of a diploma from a particular school often check with the department of 

education for the state in which the school is located. If the department has jurisdiction 

over the high school, it can confirm whether a diploma from the school (which does not 
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have to be accredited) is recognized by the state. However, some states do not have a 

means of recognizing even all the legitimate high schools operating in their state, 

particularly private high schools. 

Comments and questions: Institutions of higher education are concerned about several 

issues. One involves the administrative burden related to researching the legitimacy of 

the high school diploma a student presents. An additional concern relates to situations in 

which Title IV participating institutions direct students without high school diplomas to 

high schools with which they appear to have a business relationship. 

The Government Accountability Office, in an August 2009 report, recommends that the 

Department have a clearer, official policy about high school diploma mills. This could 

take the form of revised regulations. Furthermore, GAO recommends that the 

Department use information that is already available, such as lists published by States, to 

provide guidance to institutions of higher education in confirming the validity of high 

school diplomas. 

 How can institutions best confirm the authenticity of a student's high school 

experience whether it be through the receipt of a high school diploma, 

homeschooling credentials, diplomas obtained from online training or private 

schools? Should a high school’s recognition by a State agency be required? 

Should accreditation play any role? 

 If States are relied upon to determine a school’s legitimacy, how can the 

Department assist colleges in confirming a diploma’s authenticity and the 

school’s approval by a state?

 How can institutions determine the equivalency of high school diplomas received 

at foreign schools to those obtained in the US? 

 Is the FAFSA self certification regarding the receipt of a high school diploma 

adequate or should it be strengthened? 

 Are there certain types of relationships between colleges and high schools that 

should be prohibited, at least as far as diploma recognition is concerned? 

Updated information since November meeting: 

The following is a list of agencies that we have contacted to determine what steps other 

agencies are taking in evaluating the legitimacy of high school diplomas and whether 

those agencies maintain a listing of schools that award valid secondary school credentials 

and a list of schools that do not: 

 The National Collegiate Athletic Association (NCAA) 
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The NCAA maintains a database of approximately 29,000 high schools, but the 

academic credentials of some of those high schools do not meet the NCAA initialeligibility requirements. Although some schools that are not approved under the 

NCAA’s initial eligibility requirements may include schools that are considered 

diploma mills, there is no indicator to identify them from those that didn’t qualify 

for other reasons. 

During the November negotiated rulemaking meetings, we provided the nonFederal negotiators with the NCAA’s high school review process. The following 

NCAA’s websites allows you to search by school name or by State the list of 

schools approved by the NCAA and NCAA’s guidance on how to verify a high 

school diploma: 

List of approved core courses from high schools that meet the NCAA's criteria for 

a core course 

https://web1.ncaa.org/eligibilitycenter/hs/index_hs.html 

The NCAA guidance on how to verify a high school diploma 

http://www.ehow.com/how_5003179_verify-high-school-diploma.html

 The National Center for Education Statistics (NCES) 

The Common Core of Data (CCD), developed in 1986, is the Department of 

Education's primary database on public elementary and secondary education in 

the United States. Most of the data is obtained from administrative records 

maintained by the state education agencies (SEAs). Statistical information is 

collected annually from public elementary and secondary schools (approximately 

97,000) public school districts (approximately 18,000) and the 50 states, the 

District of Columbia, Department of Defense Schools, and the outlying areas. The 

SEAs compile CCD requested data into prescribed formats and transmit the 

information to NCES. The list of public high schools maintained in CCD can be 

found at http://www.nces.ed.gov/ccd/schoolsearch/. 

The Private School Universe Survey (PSS), developed in 1989, consists of 

approximately 33,740 private schools in the U.S. that meet the NCES definition 

(i.e., a private school is not supported primarily by public funds, provides 

classroom instruction for one or more of grades K-12 or comparable ungraded 

levels, and has one or more teachers. Organizations or institutions that provide 

support for home schooling without offering classroom instruction for students 

are not included.) The list is updated periodically by matching it with lists 

provided by nationwide private school associations, state departments of 

education, and other national private school guides and sources. 

The PSS consists of a single survey that is completed biennial by administrative 

personnel in private schools. Some of the information collected includes: religious 
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orientation; level of school; size of school; length of school year, length of school 

day; total enrollment (K-12); number of high school graduates, number of 

teachers employed; program emphasis. The list of private high schools 

maintained in PSS can be found at 

http://www.nces.ed.gov/surveys/pss/privateschoolsearch/. 

 The College Board 

In addition to completing the High School Code Request Form, below are the 

requirements a school must meet to be assigned a Level I or Level II College 

Board High School Code: 

Level I Code – In order to receive SAT®, PSAT/NMSQT® scores and to receive 

SAT publications each school must: 

o Teach at least through the 10th grade or provide evidence that a 10th grade 

will be added within the next 12 months 

o Have a course of study that leads to a diploma or General Educational 

Development (GED) certificate 

o Have a minimum of 10 students enrolled in grades 9-12 

o Accreditation status must be active. Institutions with expired status will 

not be accepted. 

Level II Code – In order to administer the SAT, PSAT/NMSQT and/or AP® 

Exams each school must meet all the eligibility requirements for a Level I Code 

AND:

o Offer classroom instruction of the core curriculum courses on-site during 

the day 

o Hold an active Accreditation by one of the agencies/organizations listed 

on the College Board Approved Accreditation list 

o Ensure there are secure locations for storage of testing materials with 

limited and controlled access to these locations 

A list of high schools with an active Level I or Level II Code is maintained 

through the College Board’s Code List Service. There is a monthly service 

available which updates schools being added or removed. 

 Docufide, Inc. 

Docufide, Inc is an education records management company that manages, orders, 

processes and secure delivery of student transcripts. Approximately 10 States 

currently use Docufide’s services. To find out more about Docufide visit their 

website at http://www.docufide.com/index.jsp. 

 The United States Department of Defense 
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The education requirement to enlist differs based on standards that are set by each 

branch of the military service. A student is classified under the military’s three 

tiered system for education: 

o Tier 1 - High School Graduate (HSG) or Higher. An applicant who has 

attended and completed a 12-year (or grade) program of classroom 

instruction and possesses a locally issued diploma from the school. 

o Tier 2 - Alternate High School Credential Holder: An applicant who 

possesses a GED or other test-based high school equivalency 

certificate or diploma. 

o Tier 3 - Non-HSG. An applicant who holds none of the credentials in Tiers 

1 or 2. This tier includes those who do not complete a high school exit 

exam. 

Based on information obtained from a Marine recruiter in Maryland, recruiters 

are either stationed at the high school or are familiar with the high school 

diplomas issued from Maryland, DC and Virginia. If the recruiter receives a 

diploma that is unfamiliar, the recruiter researches the validity of the diploma 

by looking online, calling the school, visiting the school or obtains a copy of 

the transcript from the school. There is no database listing of high schools 

that is maintained that is available to the public. 

Draft Regulatory Language: 

1 §668.16 Standards of administrative capability. 

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3 To begin and to continue to participate in any Title IV, HEA program, an institution shall 

4 demonstrate to the Secretary that the institution is capable of adequately administering 

5 that program under each of the standards established in this section. The Secretary 

6 considers an institution to have that administrative capability if the institution—

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8 * * * 

9

10 (p) Establishes and maintains listings of secondary schools (or other entities 

11 providing a comparable secondary program of study) in the following three categories--

12 (1) Secondary schools that the institution has determined award high school 

13 diplomas that are acceptable for title IV, HEA program purposes, based upon its prior 

14 experience admitting students from those secondary schools, or based upon its 
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1 independent research that is kept with the institution’s listings. That research may 

2 include determining whether a secondary school--

3 (i) Awards a high school diploma that is fully aligned with the State’s academic 

4 content standards; or

5 (ii) Awards a secondary school credential that requires the completion of an 

6 academic component that prepares a student to pursue postsecondary education 

7 successfully;

8 (2) Secondary schools that the institution has determined award high school 

9 diplomas that are not acceptable for title IV, HEA program purposes; and 

10 (3) Secondary schools identified by students seeking admission to the institution 

11 that the institution has preliminarily determined are acceptable for title IV, HEA program 

12 purposes. Institutions may make preliminary determinations that these secondary schools 

13 are acceptable under the following conditions-- 

14 (i) The institution obtains a copy of the high school diploma and keeps it in the 

15 student’s file;

16 (ii) There is no discrepant information in the student’s documentation that calls 

17 into question the validity of the high school diploma; and 

18 (iii) The institution-—

19 (A) Must complete its independent determination of whether to include the 

20 secondary school on the acceptable list within 90 days from the date the institution made 

21 its preliminary determination; and

22 (B) Cannot admit another student from that source before it completes the 

23 evaluation.

24 (4) In making a determination that a secondary school is not an acceptable source 

25 to award high school diplomas for title IV, HEA program purposes, an institution shall 

26 consider if that school or entity-- 

27 (i) Awards for a fee a secondary school credential that includes little to no 

28 academic component; 

29 (ii) Appears to have awarded a high school diploma to the student applicant from 

30 a location or at a time that is inconsistent with the other information provided by the 

31 student applicant; or
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1 (iii) Appears on a list of questionable secondary schools that the institution has 

2 obtained from an outside source and determined to be reliable.
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Issue Paper #2 

Team I – Program Integrity Issues 

Issue: Ability to Benefit 

Statutory cites: HEA section 484(d) 

Regulatory cites: 34 CFR 668.32(e)(2) and subpart J 

Summary question(s): How do we address concerns raised by the Government 

Accountability Office (GAO) about the analyses ability-to–benefit (ATB) test publishers 

prepare and submit to the Department? What should we consider as we implement a new 

ATB provision included in the Higher Education Opportunity Act (HEOA)? 

Summary of issue: Students who have neither a high school diploma nor its equivalent 

may demonstrate their ability to benefit from the education provided, and receive Federal 

student financial aid funds, by taking a Department-approved ATB test or, as added by 

the HEOA, by satisfactorily completing six credits of college work that are applicable to 

a degree or certificate offered by the institution. 

ATB Test Requirements

The Department is responsible for overseeing the ATB test publishers, who are 

responsible for certifying and monitoring test administrators to ensure the independent 

and proper administration of ATB tests. Test publishers are required to conduct and 

submit an analysis of test scores every three years to identify any test irregularities that 

would suggest ATB tests are not being administered in accordance with test rules. 

In August 2009, GAO issued a report which cited the Department for weak 

oversight of the ATB test requirements and recommended that the ATB regulations be 

revised to strengthen controls over the ATB testing process. GAO identified the 

following problems with the current regulations: 

(1) The 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. 

(2) The 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. 

(3) While the current regulations require that test publishers decertify test 

administrators who fail to administer tests properly, the regulations do not require test 

publishers to report to the Department on implementation of their decertification process. 

This means the Department has no assurance that test administrators who violate test 

rules are decertified. Further, the Department has no way of determining if test 

administrators decertified by one publisher are administering tests for other publishers. 

Unlike ATB tests submitted for approval by test publishers, if a State submits its 

ATB test and the Secretary approves it, the test is approved for use until that approval is 
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revoked. In addition, under current regulations, States are not required to submit 3-year 

test anomaly studies in the same way that test publishers are. 

States also have the option of seeking approval from the Secretary for a State 

process that is an alternative to achieving a passing score on an approved, independently 

administered test. Once a State has had its process approved, there is no requirement that 

the State’s process be reevaluated. 

It has been fourteen years since subpart J was published. In the intervening time, 

some of the terminology used in the subpart has changed, and we are using technology to 

a larger extent. We have also identified some definitions which should be modified to 

reflect statutory changes to other laws, such as the Individuals with Disabilities Education 

Act (IDEA). We plan to incorporate necessary updates to reflect these changes. 

Completion of Six Credit Hours

The HEOA added a second method for students to show that they have the ability 

to benefit. 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 aid. 

For the purpose of implementing this provision, there needs to be a determination 

of the appropriate number of clock hours a student in a clock hour program needs to 

complete that is equivalent to six credit hours. There are at least two ways of 

determining equivalency: 

225 hours: 6 credit hours is one-fourth of the minimum 24 credit hours that 

qualifies as full-time enrollment over one academic year. The minimum clock 

hours for a full academic year is 900. One-fourth of 900 is 225 hours. 

180 hours: Under the clock hour/credit hour conversion formula one semester 

credit equals 30 clock hours. Multiplying six units times 30 yields 180 hours. 

Comments and questions: 

 Should more frequent reports be required of ATB test publishers? 

 Should State ATB tests also be submitted for periodic review instead of being 

approved indefinitely? How frequently? 

 Should the requirement that test publishers submit 3-year test anomaly studies be 

extended to include State ATB tests, as well? 

 Is there adequate assurance that test administrators are sufficiently independent 

from the schools that use their services? 

 In addition to determining the clock-hour conversion, what additional 

clarifications are needed to effectively implement the six-credit provision? 

Updated information since November meeting: 

We have asked the Office of Civil Rights (OCR) and Office of Special Education 

Programs (OSERS/OSEP) to look at the language regarding testing students with 

disabilities. We may be updating that language and modifying references to the 
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Rehabilitation Act, the Americans with Disabilities Act and the Individuals with 

Disabilities Education Act. 

Draft Regulatory Language:

§ 668.32 Student eligibility—general. 

1 A student is eligible to receive title IV, HEA program assistance if the student—

2 * * * * * 

3 (e)(1) Has a high school diploma or its recognized equivalent; 

4 (2) Has obtained a passing score specified by the Secretary on an independently 

5 administered test in accordance with subpart J of this part; 

6 (3) Is enrolled in an eligible institution that participates in a State ―process‖ approved by 

7 the Secretary under subpart J of this part; or

8 (4) Was home-schooled, and either—

9 (i) Obtained a secondary school completion credential for home school (other than a high 

10 school diploma or its recognized equivalent) provided for under State law; or 

11 (ii) If State law does not require a home-schooled student to obtain the credential 

12 described in paragraph (e)(4)(i) of this section, has completed a secondary school 

13 education in a home school setting that qualifies as an exemption from compulsory 

14 attendance requirements under State law; or 

(5) Has been determined by the institution to have the ability to benefit from the 

education or training offered based on the satisfactory completion of 6 semester hours, 6 

quarter hours, or (xxx) clock hours that are applicable toward a degree or certificate 

offered by the institution.
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Subpart J—Approval of Independently Administered Tests; Specification of 

Passing Score; Approval of State Process 

§ 668.141 Scope. 

1 (a) This subpart sets forth the provisions under which a student who has neither a high 

2 school diploma nor its recognized equivalent may become eligible to receive Title IV, 

3 HEA program funds by—

4 (1) Achieving a passing score, specified by the Secretary, on an independently 

5 administered test approved by the Secretary under this subpart; or 

6 (2) Being enrolled in an eligible institution that participates in a State process approved 

7 by the Secretary under this subpart. 

8 (b) Under this subpart, the Secretary sets forth—

9 (1) The procedures and criteria the Secretary uses to approve tests; 

10 (2) The basis on which the Secretary specifies a passing score on each approved test; 

11 (3) The procedures and conditions under which the Secretary determines that an approved 

12 test is independently administered; and

13 (4) The information that a test publisher or a State must submit, as part of its test 

14 submission, to explain the methodology it will use for the required test anomaly studies;

15 (5) The requirement that a test publisher or a State: (i) have a process to identify and 

16 follow up on test score irregularities; (ii) take action to decertify test administrators if the 

17 test publisher or the State determines that tests have been administered improperly; and 

18 (iii) report to the Secretary the names of any test administrators it decertifies and any 

19 other actions taken as a result of test score analyses; and

20 (4) (6) The procedures and conditions under which the Secretary determines that a State 

21 process demonstrates that students in who complete the process have the ability to benefit 

22 from the education and training being offered to them. 

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

24 § 668.142 Special definitions. 

25 The following definitions apply to this subpart: 

26 Assessment center: A center facility that—
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1 (1) Is located at an eligible public or private nonprofit institution of higher education that 

2 provides two-year or four-year degrees, or qualifies as an eligible public vocational 

3 institution, i.e. a ―postsecondary vocational institution;‖

4 (2) Is responsible for gathering and evaluating information about individual students for 

5 multiple purposes, including appropriate course placement; 

6 (3) Is independent of the admissions and financial aid processes at the institution at which 

7 it is located; 

8 (4) Is staffed by professionally trained personnel; and

9 (5) Uses test administrators to administer tests approved by the Secretary under this 

10 subpart; and

11 (5) (6) Does not have as its primary purpose the administration of ability-to-benefit tests. 

12 Computer-based test: A test taken by a student on a computer and scored by a computer. 

13 Disabled student: A student who has a physical or mental impairment that substantially 

14 limits one or more major life activities, has a record of such an impairment, or is regarded 

15 as having such an impairment. 

16 General learned abilities: Cognitive operations, such as deductive reasoning, reading 

17 comprehension, or translation from graphic to numerical representation, that may be 

18 learned in both school and non-school environments. 

19 Independent test administrator. A test administrator who—

20 (i) Has no current or prior financial or ownership interest in the institution, its affiliates, 

21 or its parent corporation, other than the interest obtained through its agreement to 

22 administer the test, and has no controlling interest in any other educational institution;

23 (ii) Is not a current or former employee of or consultant to the institution, its affiliates, or 

24 its parent corporation, a person in control of another institution, or a member of the 

25 family of any of these individuals;

26 (iii) Is not a current or former member of the board of directors, a current or former 

27 employee of or a consultant to a member of the board of directors, chief executive 

28 officer, chief financial officer of the institution or its parent corporation or at any other 

29 institution, or a member of the family of any of the above individuals; and

30 (iv) Is not a current or former student of the institution.
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1 Non-native speaker of English: A person whose first language is not English and who is 

2 not fluent in English. 

3 Secondary school level: As applied to ―content,‖ ―curricula,‖ or ―basic verbal and 

4 quantitative skills,‖ refers to basic knowledge or skills generally learned in the 9th 

5 through 12th grades in United States secondary schools. 

6 Test administrator: An individual who may give tests under this subpart is certified by 

7 the test publisher (or the State, in the case of an approved State test or assessment) to 

8 administer tests approved under this subpart in accordance with the instructions provided 

9 by the test publisher (or the State) and to protect the test and the test results from 

10 improper disclosure or release, and who is not compensated on the basis of test outcomes.

11 Test item: A question on a test. 

12 Test publisher: An individual, organization, or agency that owns a registered copyright of 

13 a test, or is licensed by the copyright holder to sell or distribute a test. 

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

15 § 668.143 Approval of State tests or assessments. 

16 (a) A State that wishes to have its tests or other assessments approved by the Secretary 

17 under this subpart shall submit an application to the Secretary at such time and in such 

18 manner as the Secretary may prescribe. The application shall contain all the information 

19 necessary for the Secretary to determine that the tests or assessments The Secretary 

20 approves tests or other assessments submitted by a State that the State uses to measure a 

21 student's skills and abilities for the purpose of determining whether the student has the 

22 skills and abilities the State expects of a high school graduate in that State. A State shall 

23 submit with its application—

24 (1) Those tests and assessments it wishes to have approved, the passing scores on those 

25 tests and assessments, and the educational standards those tests and assessments measure;

26 (2) An explanation of how the tests, assessments, and passing scores are appropriate in 

27 light of the State’s educational standards;

28 (3) An assurance that the tests and assessments will be administered in an independent, 

29 fair, and secure manner; and

30 (4) A description of retesting procedures and the analysis upon which the criteria for 

31 retesting are based; 
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1 (5) Other evidence establishing the test's compliance with the criteria for approval of 

2 tests as provided in §668.146;

3 (6) A description of its test administrator certification process that provides—

4 (i) How the State will determine that the test administrator has the necessary training, 

5 knowledge, and skill to test students in accordance with the State’s requirements; and

6 (ii) How the State will determine that the test administrator has the ability and facilities 

7 to keep its test secure against disclosure or release; and

8 (7) A description of the test anomaly analysis that will be conducted by the State for 

9 submission to the Secretary that includes—

10 (i) An explanation of how the State will identify potential test irregularities and make a 

11 determination that test irregularities have occurred;

12 (ii) An explanation of the process and procedures for corrective action when the State 

13 determines that test irregularities have occurred, up to and including decertification of a 

14 certified test administrator; and

15 (iii) Information on when and how the State will notify a test administrator, the 

16 Secretary, and the institutions for which the test administrator had previously provided 

17 testing services, that the test administrator has been decertified.

18 (8) The name, address, telephone number, and e-mail address of a contact person to 

19 whom the Secretary may address inquiries.

20 (b) The Secretary approves reviews passing scores or other methods of evaluation 

21 established by the State for each test or assessment described in paragraph (a) of this 

22 section and the other information the State submits with its application.

23 (c) If the Secretary approves a State's tests and assessments and the passing scores on 

24 those tests and assessments under paragraphs (a) and (b) of this section, that test or 

25 assessment may be used, for purposes of section 484(d) of the HEA, only for students 

26 who attend eligible institutions located in that State. 

27 (d) If a State wishes to have the Secretary approve its tests or assessments under this 

28 section, the State shall—

29 (1) Submit to the Secretary those tests and assessments, its passing scores on those tests 

30 and assessments, and the educational standards those tests and assessments measure at 

31 such time and in such manner as the Secretary may prescribe;
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1 (2) Provide the Secretary with an explanation of how the tests, assessments, and passing 

2 scores are appropriate in light of the State's educational standards; and

3 (3) Provide the Secretary with an assurance that the tests and assessments will be 

4 administered in an independent, fair, and secure manner.

5 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

7 § 668.144 Application for test approval. 

8 Except as provided in §668.143—

9 (a) The Secretary only reviews tests under this subpart that are submitted by the publisher 

10 of that test; 

11 (b) A test publisher that wishes to have its test approved by the Secretary under this 

12 subpart must submit an application to the Secretary at such time and in such manner as 

13 the Secretary may prescribe. The application shall contain all the information necessary 

14 for the Secretary to approve the test under this subpart, including but not limited to, the 

15 information contained in this section; and 

16 (c) A test publisher shall include with its application—

17 (1) A summary of the precise editions, forms, levels, and (if applicable) sub-tests and 

18 abbreviated tests for which approval is being sought; 

19 (2) The name, address, and telephone number, and e-mail address of a contact person to 

20 whom the Secretary may address inquiries; 

21 (3) Each edition, and form, level and subtest of the test for which the publisher requests 

22 approval; 

23 (4) The distribution of test scores for each edition, form, level, or sub-test, or partial 

24 battery, for which approval is sought, that allows the Secretary to prescribe the passing 

25 score for each test in accordance with §668.147; 

26 (5) Documentation of test development, including a history of the test's use; 

27 (6) Norming data and other evidence used in determining the distribution of test scores; 

28 (7) Material that defines the content domains addressed by the test; 

29 (8) For tests first published five years or more before the date submitted to the Secretary 

30 for review and approval, dDocumentation of periodic reviews of the content and 
9 

1 specifications of the test to ensure that the test continues to reflects secondary school 

2 level verbal and quantitative skills; 

3 (9) If a test being submitted is a revision of has been revised from the most recent edition 

4 approved by the Secretary, an analysis of the revisions, including the reasons for the 

5 revisions, the implications of the revisions for the comparability of scores on the current 

6 test to scores on the previous test, and data from validity studies of the test undertaken 

7 subsequent to the revisions; 

8 (10) A description of the manner in which test-taking time was determined in relation to 

9 the content representativeness requirements in §668.146(b)(2), and an analysis of the 

10 effects of time on performance; 

11 (11) A technical manual that includes—

12 (i) An explanation of the methodology and procedures for measuring the reliability of the 

13 test; 

14 (ii) Evidence that different forms of the test, including, if applicable, short forms, are 

15 comparable in reliability; 

16 (iii) Other evidence demonstrating that the test permits consistent assessment of 

17 individual skill and ability; 

18 (iv) Evidence that the test was normed using—

19 (A) Groups that were of sufficient size to produce defensible standard errors of the mean 

20 and were not disproportionately composed of any race or gender; and 

21 (B) A contemporary population representative of persons who are beyond the usual age 

22 of compulsory school attendance in the United States; 

23 (v) Documentation of the level of difficulty of the test; 

24 (vi) Unambiguous scales and scale values so that standard errors of measurement can be 

25 used to determine statistically significant differences in performance; and

26 (vii) Additional guidance on the interpretation of scores resulting from any modifications 

27 of the tests for persons with documented disabilities; 

28 (viii) Evidence that the test complies with Section 504 of the Rehabilitation Act, as 

29 amended; and 

30 (ix) Evidence that computerized tests comply with Section 508 of Rehabilitation Act, as 

31 amended. 
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1 (12) The manual provided to test administrators containing procedures and instructions 

2 for test security and administration, and the forwarding of tests to the test publisher; 

3 (13) An analysis of the item-content of each edition, form, level, and (if applicable) sub4 test to demonstrate compliance with the required secondary school level criterion 

5 specified in §668.146(b); 

6 (14) For performance-based tests or tests containing performance-based sections, a 

7 description of the training or certification required of test administrators and scorers by 

8 the test publisher;

9 (15) (14) A description of retesting procedures and the analysis upon which the criteria 

10 for retesting are based; and

11 (16) (15) Other evidence establishing the test's compliance with the criteria for approval 

12 of tests as provided in §668.146.;

13 (16) A description of its test administrator certification process that provides—

14 (i) How the test publisher will determine that the test administrator has the necessary 

15 training, knowledge, and skill to test students in accordance with the test publisher’s 

16 requirements; and

17 (ii) How the test publisher will determine that the test administrator has the ability and 

18 facilities to keep its test secure against disclosure or release; and

19 (17) A description of the test anomaly analysis that will be conducted by the test 

20 publisher for submission to the Secretary that includes—

21 (i) An explanation of how the test publisher will identify potential test irregularities and 

22 make a determination that test irregularities have occurred;

23 (ii) An explanation of the process and procedures for corrective action when the test 

24 publisher determines that test irregularities have occurred, up to and including 

25 decertification of a certified test administrator; and

26 (iii) Information on when and how the test publisher will notify a test administrator, the 

27 Secretary, and the institutions for which the test administrator had previously provided 

28 testing services, that the test administrator has been decertified.

29 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

31 § 668.145 Test approval procedures. 
11 

1 Except as provided in §668.143—

2 (a)(1) When the Secretary receives a complete application from a test publisher or a 

3 State, the Secretary selects one or more experts in the field of educational testing and 

4 assessment, who possess appropriate advanced degrees and experience in test 

5 development or psychometric research, to determine whether the test meets the 

6 requirements for test approval contained in §§668.143, 668.146, 668.147, 668.148, or 

7 668.149, as appropriate, and to advise the Secretary of their determinations; 

8 (2) If the test involves a language other than English, the Secretary selects at least one 

9 individual described in paragraph (a)(1) of this section who is fluent in the language in 

10 which the test is written to collaborate with the testing experts described in paragraph 

11 (a)(1) of this section and advise the Secretary on whether the test meets the additional 

12 criteria, provisions, and conditions for test approval contained in §§668.148 and 668.149; 

13 (3) For test batteries that contain multiple sub-tests measuring content domains other 

14 than verbal and quantitative domains, the Secretary reviews only those sub-tests covering 

15 verbal and quantitative domains.

16 (b) The Secretary determines whether the test publisher's test meets the criteria and 

17 requirements for approval after taking the advice of the experts into account;

18 (c)(b)(1) If the Secretary determines that a test satisfies the criteria and requirements for 

19 test approval, the Secretary notifies the test publisher or the State of the Secretary's 

20 decision, and publishes the name of the test and the passing scores in the Federal 

21 Register. 

22 (2) If the Secretary determines that a test does not satisfy the criteria and requirements for 

23 test approval, the Secretary notifies the test publisher or the State of the Secretary's 

24 decision, and the reasons why the test did not meet those criteria and requirements. 

25 (3) The test publisher or the State may request that the Secretary reevaluate the 

26 Secretary's decision. Such a request must be accompanied by—

27 (i) Documentation and information that address the reasons for the non-approval of the 

28 test; and 

29 (ii) An analysis of why the information and documentation submitted meet the criteria 

30 and requirements for test approval notwithstanding the Secretary's earlier decision to the 

31 contrary. 
12 

1 (d) (c)(1) The Secretary approves a test for a period not to exceed five years from the date 

2 the notice of approval is published in the Federal Register. of the Secretary's written 

3 notice to the test publisher.

4 (2) The Secretary extends the approval period of a test to include the period of review if 

5 the test publisher or the State re-submits the test for review and approval under §668.143

6 or §668.144 at least six months before the date on which the test approval is scheduled to 

7 expire; 

8 (e) (d)(1) The Secretary’s approval of a test may be withdrawn revoked if the Secretary 

9 determines that the test publisher or the State violated any terms of the agreement 

10 described in §668.150, or that the information the test publisher or the State submitted as 

11 a basis for approval of the test was inaccurate; 

12 (f) (2) If the Secretary revokes approval of a previously approved test, the Secretary 

13 publishes a notice of that revocation in the Federal Register. The revocation becomes 

14 effective—

15 (i) One hundred and twenty 120 days from the date the notice of revocation is published 

16 in the Federal Register; or 

17 (ii) An earlier date specified by the Secretary in a notice published in the Federal 

18 Register. ; and

19 (g) For test batteries that contain multiple sub-tests measuring content domains other than 

20 verbal and quantitative domains, the Secretary reviews only those subtests covering 

21 verbal and quantitative domains.

22 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

24 § 668.146 Criteria for approving tests. 

25 Except as provided in §668.143—

26 (a) Except as provided in §668.148, the Secretary approves a test under this subpart if the 

27 test meets the criteria set forth in paragraph (b) of this section and the test publisher or the 

28 State satisfies the requirements set forth in paragraphs (c) and (d) of this section;.

29 (b) To be approved under this subpart, a test shall—

30 (1) Assess secondary school level basic verbal and quantitative skills and general learned 

31 abilities; 
13 

1 (2) Sample the major content domains of secondary school level verbal and quantitative 

2 skills with sufficient numbers of questions to—

3 (i) Adequately represent each domain; and 

4 (ii) Permit meaningful analyses of item-level performance by students who are 

5 representative of the contemporary population beyond the age of compulsory school 

6 attendance and have earned a high school diploma; 

7 (3) Require appropriate test-taking time to permit adequate sampling of the major content 

8 domains described in paragraph (a)(2) of this section; 

9 (4) Have all forms (including short forms) comparable in reliability; 

10 (5) Have, in the case of a If the test that is revised, have new scales, scale values, and 

11 scores that are demonstrably comparable to the old scales, scale values, and scores; and

12 (6) Meet all primary and applicable conditional and secondary standards for test 

13 construction provided in the 1985 edition of the Standards for Educational and 

14 Psychological Testing, with amendments dated June 2, 1989, prepared by a joint 

15 committee of the American Educational Research Association, the American 

16 Psychological Association, and the National Council on Measurement in Education 

[Note: need to check for current version and appropriate citation]117 incorporated by 

18 reference in this section. Incorporation by reference of this document has been approved 

19 by the Director of the Office of the Federal Register pursuant to the Director's authority 

20 under 5 U.S.C. 552(a) and 1 CFR part 51. The incorporated document is on file at the 

21 Department of Education, Office of Postsecondary Education, Room 4318, ROB–3, 600 

22 Independence Avenue, S.W., Washington, D.C. 20202 and at the National Archives and 

23 Records Administration (NARA). For information on the availability of this material at 

24 NARA, call 202–741–6030, or go to: 

25 http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html

26 . The standards may be obtained from the American Psychological Association, Inc., 750 

First Street, N.W., Washington, DC 20026. [Note: need to verify address]227 ; and

 

1

 The latest version of the Standards for Educational and Psychological Testing is from 1999 

(http//www.apa.org/science/standards.html) . 

2

 The address for the APA is correct but the zip code should be 20002-4242. According to the noted 

website, a copy of the publication can be obtained by sending a request to the AERA. 
14 

1 (7) Have the test publisher's or State’s guidelines for retesting, including time between 

2 test-taking, be based on empirical analyses that are part of the studies of test reliability.; 

3 and

4 (c) In order for a test to be approved under this subpart, a test publisher or a State shall—

5 (1) Include in the test booklet or package—

6 (i) Clear, specific, and complete instructions for test administration, including 

7 information for test takers on the purpose, timing, and scoring of the test; and 

8 (ii) Sample questions representative of the content and average difficulty of the test; 

9 (2) Have two or more secure, equated, alternate forms of the test; 

10 (3) Except as provided in §§668.148 and 668.149, provide tables of distributions of test 

11 scores which clearly indicate the mean score and standard deviation for high school 

12 graduates who have taken the test within three years prior to the date on that the test is 

13 submitted to the Secretary for approval under §668.143 or §668.144; 

14 (4) Norm the test with—

15 (i) Groups that were of sufficient size to produce defensible standard errors of the mean 

16 and were not disproportionately composed of any race or gender; and 

17 (ii) A contemporary population representative of persons who are beyond the usual age of 

18 compulsory school attendance in the United States; and 

19 (5) If test batteries include sub-tests assessing different verbal and/or quantitative skills, a 

20 distribution of test scores as described in paragraph (c)(3) of this section that allows the 

21 Secretary to prescribe either—

22 (i) A passing score for each sub-test; or 

23 (ii) One composite passing score for verbal skills and one composite passing score for 

24 quantitative skills. 

25 (d) In addition, for a test to be approved by the Secretary, the Secretary must make a 

26 determination that the information the test publisher or State submitted in accordance 

27 with §668.143(a)(7) or §668.144(c)(17) provides adequate assurance that the test 

28 publisher or State will conduct rigorous test anomaly analyses and take appropriate action 

29 if test administrators do not comply with testing procedures.

30 (Approved by the Office of Management and Budget under control number 1840–0627) 

31 (Authority: 20 U.S.C. 1091(d)) 
15 

1 § 668.147 Passing scores. 

2 Except as provided in §§668.143, 668.148 and 668.149, to demonstrate that a test taker 

3 has the ability to benefit from the education and training offered, the Secretary specifies 

4 that the passing score on each approved test is one standard deviation below the mean for 

5 students with high school diplomas who have taken the test within three years before the 

6 date on which the test is submitted to the Secretary for approval. 

7 (Authority; 20 U.S.C. 1091(d)) 

8 § 668.148 Additional criteria for the approval of certain tests. 

9 Except as provided in §668.143—

10 (a) In addition to satisfying the criteria in §668.146, to be approved by the Secretary, a 

11 test or a test publisher must meet the following criteria, if applicable: 

12 (1) In the case of a test that is performance-based, or includes performance-based 

13 sections, for measuring writing, speaking, listening, or quantitative problem-solving 

14 skills, the test publisher must provide—

15 (i) A minimum of four parallel forms of the test; and

16 (ii) A description of the training provided to test administrators, and the criteria under 

17 which trained individuals are certified to administer and score the test.

18 (2) (1) In the case of a test developed for a non-native speaker of English who is enrolled 

19 in a program that is taught in his or her native language, the test must be—

20 (i) Linguistically accurate and culturally sensitive to the population for which the test is 

21 designed, regardless of the language in which the test is written; 

22 (ii) Supported by documentation detailing the development of normative data; 

23 (iii) If translated from an English version, supported by documentation of procedures to 

24 determine its reliability and validity with reference to the population for which the 

25 translated test was designed; 

26 (iv) Developed in accordance with guidelines provided in the 1985 edition of the 

27 ―Testing Linguistic Minorities‖ section of the Standards for Educational and 

28 Psychological Testing, with amendments dated June 2, 1989, prepared by a joint 

29 committee of the American Educational Research Association, the American 

30 Psychological Association, and the National Council on Measurement in Education 

31 incorporated by reference in this section. Incorporation by reference of this document has 
16 

1 been approved by the Director of the Office of the Federal Register pursuant to the 

2 Director's authority under 5 U.S.C. 552(a) and 1 CFR part 51. The incorporated 

3 document is on file at the Department of Education, Office of Postsecondary Education, 

4 Room 4318, ROB–3, 600 Independence Avenue, S.W., Washington, D.C. 20202 and at 

5 the National Archives and Records Administration (NARA). For information on the 

6 availability of this material at NARA, call 202–741–6030, or go to: 

7 http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html

8 . The standards may be obtained from the American Psychological Association, Inc., 750 

9 First Street, N.W., Washington, DC 20026; and 

10 [Note: need to check for current edition and appropriate citation.] 

11 (v)(A) If the test is in Spanish, accompanied by a distribution of test scores that clearly 

12 indicates the mean score and standard deviation for Spanish-speaking students with high 

13 school diplomas who have taken the test within 5 years before the date on which the test 

14 is submitted to the Secretary for approval; and 

15 (B) If the test is in a language other than Spanish, accompanied by a recommendation for 

16 a provisional passing score based upon performance of a sample of test takers 

17 representative of the intended population and large enough to produce stable norms. 

18 (3) (2) In the case of a test that is modified for use for persons with disabilities, the test 

19 publisher or State must—

20 (i) Follow guidelines provided in the ―Testing People Who Have Handicapping 

21 Conditions‖ section of the Standards for Educational and Psychological Testing; [Note: 

22 need to check for current edition and appropriate citation.]

23 (ii) Provide documentation of the appropriateness and feasibility of the modifications 

24 relevant to test performance; and 

25 (iii) Recommend passing score(s) based on the previous performance of test-takers with 

26 disabilities.

27 (4) (3) In the case of a computer-based test, the test publisher or State must—

28 (i) Provide documentation to the Secretary that the test complies with the basic principles 

29 of test construction and standards of reliability and validity as promulgated in the 

30 Standards for Educational and Psychological Testing, as well as specific guidelines set 

31 forth in the American Psychological Association's Guidelines for Computer-based Tests 
17 

1 and Interpretations (1986); [Note: need to check for current edition and appropriate 

2 citation.]

3 (ii) Provide test administrators with instructions for familiarizing test takers with 

4 computer hardware prior to test-taking; and 

5 (iii) Provide two or more parallel, equated forms of the test, or, if parallel forms are 

6 generated from an item pool, provide documentation of the methods of item selection for 

7 alternate forms; and 

8 (b) If a test is designed solely to measure the English language competence of non-native 

9 speakers of English—

10 (1) The test must meet the criteria set forth in §668.146(b)(6), and §668.146 (c)(1), (c)(2), 

11 and (c)(4); and 

12 (2) The test publisher must recommend a passing score based on the mean score of test 

13 takers beyond the age of compulsory school attendance who entered U.S. high school 

14 equivalency programs, formal training programs, or bilingual vocational programs. 

15 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

17 § 668.149 Special provisions for the approval of assessment procedures for special 

18 populations for whom no tests are reasonably available. 

19 If no test is reasonably available for persons with disabilities or students whose native 

20 language is not English and who are not fluent in English, so that no test can be approved 

21 under §§668.146 or 668.148 for these students, the following procedures apply: 

22 (a) Persons with disabilities. (1) The Secretary considers a modified test or testing 

23 procedure, or instrument that has been scientifically developed specifically for the 

24 purpose of evaluating the ability to benefit from postsecondary training or education of 

25 disabled students to be an approved test for purposes of this subpart provided that the 

26 testing procedure or instrument measures both basic verbal and quantitative skills at the 

27 secondary school level. 

28 (2) The Secretary considers the passing scores for these testing procedures or instruments 

29 to be those recommended by the test developer, provided that the test administrator—

30 (i) Uses those procedures or instruments; 
18 

1 (ii) Maintains appropriate documentation, including a description of the procedures or 

2 instruments, their content domains, technical properties, and scoring procedures; and 

3 (iii) Observes recommended passing scores. 

4 (b) Students whose native language is not English. The Secretary considers a test in a 

5 student's native language for a student whose native language is not English to be an 

6 approved test under this subpart if—

7 (1) The Secretary has not approved any test in that native language; 

8 (2) The test was not previously rejected for approval by the Secretary; 

9 (3) The test measures both basic verbal and quantitative skills at the secondary school 

10 level; and 

11 (4) The passing scores and the methods for determining the passing scores are fully 

12 documented. 

13 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

15 § 668.150 Agreement between the Secretary and a test publisher or a State. 

16 (a) If the Secretary approves a test under this subpart, the test publisher or the State must 

17 enter into an agreement with the Secretary that contains the provisions set forth in 

18 paragraph (b) of this section before an institution may use the test to determine a student's 

19 eligibility for Title IV, HEA program funds. 

20 (b) The agreement between a test publisher or a State and the Secretary provides that the 

21 test publisher or the State shall—

22 (1) Allow only test administrators that it certifies to give its test; 

23 (2) Require each test administrator it certifies to provide the test publisher or the State 

24 with a certification statement that indicates he or she is not currently decertified.

25 (2) (3) Only C certify test administrators who have—

26 (i) Have T the necessary training, knowledge, and skill to test students in accordance with 

27 the test publisher's or the State’s testing requirements; and

28 (ii) Have T the ability and facilities to keep its test secure against disclosure or release; 

29 and
19 

1 (3) (4) Decertify a test administrator for a period of three years that coincides with the 

2 period for which the publisher's test is approved if the test publisher or the State finds that 

3 the test administrator—

4 (i) Has repeatedly failed to give its test in accordance with the test publisher's the State’s

5 instructions; 

6 (ii) Has not kept the test secure; 

7 (iii) Has compromised the integrity of the testing process; or 

8 (iv) Has given the test in violation of the provisions contained in §668.151; 

9 (5) Immediately notify the test administrator, the Secretary and the schools where the 

10 test administrator previously administered approved tests when the test publisher or the 

11 State decertifies a test administrator;

12 (6) Report to the Secretary if the test publisher or the State certifies a previously 

13 decertified test administrator after the three year period specified in paragraph (b)(4) of 

14 this section;

15 (4) (7) Score a test answer sheet that it receives from a test administrator; 

16 (5) (8) If a computer-based test is used, provide the test administrator with software that 

17 will: 

18 (i) Immediately generate a score report for each test taker; 

19 (ii) Allow the test administrator to send to the test publisher or the State a secure write20 protected diskette copy record of the test taker's performance on each test item and the 

21 test taker's test scores using a data transfer method that is encrypted and secure; and 

22 (iii) Prohibit any changes in test taker responses or test scores. 

23 (6) (9) Promptly send to the student and the institution the student indicated he or she is 

24 attending or scheduled to attend a notice stating the student's score for the test and 

25 whether or not the student passed the test; 

26 (7) (10) Keep for a period of three years each test answer sheet or electronic record 

27 forwarded for scoring and all other documents forwarded by the test administrator with 

28 regard to the test for a period of three years from the date the analysis of the tests results, 

29 described in paragraph (b)(11) of this section, was sent to the Secretary; 

30 (11) (8) Three years after the date the Secretary approves the test and for each subsequent 

31 three-year period, a Analyze the test scores of students who take the test to determine 
20 

1 whether the test scores and data produce any irregular pattern that raises an inference that 

2 the tests were not being properly administered, and provide the Secretary with a copy of 

3 this analysis within 15 months after the test was approved and annually thereafter during 

4 the period of test approval; and

5 (9) (12) Upon request, give the Secretary, a guaranty agency State agency, or an 

6 accrediting agency, and law enforcement agencies access to test records or other 

7 documents related to an audit, investigation, or program review of the an institution, the

8 test publisher, or a test administrator; 

9 (13) Immediately report to the Secretary if the test publisher or the State finds any 

10 credible information indicating that a test has been compromised; and

11 (14) Immediately report to the Office of Inspector General of the Department of 

12 Education for investigation if the test publisher or the State finds any credible 

13 information indicating that a test administrator may have engaged in fraud or other 

14 criminal misconduct.

15 (c)(1) The Secretary may terminate an agreement with a test publisher or a State if the 

16 test publisher or the State fails to carry out the terms of the agreement described in 

17 paragraph (b) of this section. 

18 (2) Before terminating the agreement, the Secretary gives the test publisher or the State

19 the opportunity to show that it has not failed to carry out the terms of its agreement. 

20 (3) If the Secretary terminates an agreement with a test publisher or a State under this 

21 section, the Secretary notifies institutions through publication in the Federal Register 

22 when they may no longer use the publisher's or the State’s test(s) for purposes of 

23 determining a student's eligibility for Title IV, HEA program funds. 

24 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

26 § 668.151 Administration of tests. 

27 (a)(1) To establish a student's eligibility for Title IV, HEA program funds under this 

28 subpart, if a student has not passed an approved Sstate test, under §668.143, an institution 

29 must select a certified test administrator to give an approved test. 

30 (2) An institution may use the results of an approved test it received from an approved 

31 test publisher or assessment center to determine a student's eligibility to receive Title IV, 
21 

1 HEA programs funds if the test was independently administered and properly 

2 administered. 

3 (b) The Secretary considers that a test is independently administered if the test is—

4 (1) Given at an assessment center by a test administrator who is an employee of the 

5 center; or 

6 (2) Given by an independent test administrator who submits the test for scoring by the 

7 test publisher or the State within two business days of administering the test. —

8 (i) Has no current or prior financial or ownership interest in the institution, its affiliates, 

9 or its parent corporation, other than the interest obtained through its agreement to 

10 administer the test, and has no controlling interest in any other educational institution;

11 (ii) Is not a current or former employee of or consultant to the institution, its affiliates, or 

12 its parent corporation, a person in control of another institution, or a member of the 

13 family of any of these individuals;

14 (iii) Is not a current or former member of the board of directors, a current or former 

15 employee of or a consultant to a member of the board of directors, chief executive 

16 officer, chief financial officer of the institution or its parent corporation or at any other 

17 institution, or a member of the family of any of the above individuals; and

18 (iv) Is not a current or former student of the institution.

19 (c) The Secretary considers that a test is not independently administered if an 

20 institution—

21 (1) Compromises test security or testing procedures; 

22 (2) Pays a test administrator a bonus, commission, or any other incentive based upon the 

23 test scores or pass rates of its students who take the test; 

24 (3) Otherwise interferes with the test administrator's independence or test administration. 

25 (d) The Secretary considers that a test is properly administered if the test administrator—

26 (1) Is certified by the test publisher or the State to give the publisher's or the State’s test; 

27 (2) Administers the test in accordance with instructions provided by the test publisher or 

28 the State, and in a manner that ensures the integrity and security of the test; 

29 (3) Makes the test available only to a test-taker, and then only during a regularly 

30 scheduled test; 

31 (4) Secures the test against disclosure or release; 
22 

1 (5) Submits the completed test, or a record of test scores, to the test publisher or the State

2 within the time period specified in §668.152(b) or paragraph (b)(2) of this section, as 

3 appropriate, and two business days after test administration in accordance with the test 

4 publisher's or the State’s instructions; and 

5 (6) Upon request, gives the Secretary, guaranty agency, licensing agency, accrediting 

6 agency, and law enforcement agencies access to test records or other documents related 

7 to an audit, investigation, or program review of the institution, or test publisher.

8 (e) Except as provided in §668.152, a certified An independent test administrator may not 

9 score a test. 

10 (f) A student who fails to pass a test approved under this subpart may not retake the same 

11 form of the test for the period prescribed by the test's publisher or the State. 

12 (g) An institution shall maintain a record for each student who took a test under this 

13 subpart of—

14 (1) The test taken by the student; 

15 (2) The date of the test; and

16 (3) The student's scores as reported by the test publisher, an assessment center, or the

17 State; and

18 (4) The name and address of the test administrator who administered the test and any 

19 identifier assigned to the test administrator by the test publisher or the State.

20 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

22 § 668.152 Administration of tests by assessment centers. 

23 (a)(1) If a test is given by an assessment center, the assessment center shall properly 

24 administer the test as described in §668.151(d). 

25 (2) [Reserved]

26 (b)(1) Unless an agreement between a test publisher or a State and an assessment center 

27 indicates otherwise, an assessment center scores the tests it gives and promptly notifies 

28 the institution and the student of the student's score on the test and whether the student 

29 passed the test. 

30 (2) If the assessment center scores the test, it must provide annually weekly to the test 

31 publisher—
23 

1 (i) All copies of completed tests, including the name and address of the test administrator 

2 who administered the tests and any identifier assigned to the test administrator by the test 

3 publisher or the State; or 

4 (ii) A report listing all test-takers' scores and institutions to which the scores were sent 

5 and the name and address of the test administrator who administered the tests and any 

6 identifier assigned to the test administrator by the test publisher or the State.

7 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

9 § 668.153 Administration of tests for students whose native language is not English 

10 or for persons with disabilities. 

11 Except as provided in §668.143—

12 (a) Students whose native language is not English. For a student whose native language is 

13 not English and who is not fluent in English, the institution shall use the following tests, 

14 as applicable: 

15 (1) If the student is enrolled or plans to enroll in a program conducted entirely in his or 

16 her native language, the student must take a test approved under §§668.146 and 

17 668.148(a)(2), or 668.149(b). 

18 (2) If the student is enrolled or plans to enroll in a program that is taught in English with 

19 an ESL component, and the student is enrolled or plans to enroll in that program and the 

20 ESL component, the student must take either an ESL test approved under §668.148(b), or 

21 and a test in the student's native language approved under §§668.146, 668.148 or 

22 668.149, if one is available.

23 (3) If the student is enrolled or plans to enroll in a program that is taught in English 

24 without an ESL component, or the student does not enroll in the any ESL component if 

25 the institution offers such a component offered, the student must take a test in English 

26 approved under §668.146. 

27 (4) If the student enrolls in an ESL program, the student must take an ESL test approved 

28 under §668.148(b); and 

29 (b) Persons with disabilities. (1) An institution shall use a test described in 

30 §668.148(a)(3) or 668.149(a) for a student with a documented impairment who has 
24 

1 neither a high school diploma nor its equivalent and who is applying for Title IV, HEA 

2 program funds. 

3 (2) The test must reflect the student's skills and general learned abilities rather than reflect 

4 the student's impairment. 

5 (3) The institution shall document that a student is disabled and unable to be evaluated by 

6 the use of a conventional test from the list of tests approved by the Secretary. 

7 (4) Documentation of a student's impairment may be satisfied by—

8 (i) A written determination, including a diagnosis and recommended testing 

9 accommodations, by a licensed psychologist or medical physician; or 

10 (ii) A record of such a determination by an elementary or secondary school or a 

11 vocational rehabilitation agency, including a diagnosis and recommended testing 

12 accommodations. 

13 (Approved by the Office of Management and Budget under control number 1840–0627) 

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

15 § 668.154 Institutional accountability. 

16 An institution shall be liable for the Title IV, HEA program funds disbursed to a student 

17 whose eligibility is determined under this subpart only if the institution—

18 (a) The institution used a test that was not administered independently, in accordance 

19 with §668.151(b) Used a test administrator who was not independent of the institution at 

20 the time the test was given;

21 (b) The institution or an employee of the institution Compromises compromised the 

22 testing process in any way; or 

23 (c) The institution is Is unable to document that the student received a passing score on an 

24 approved test. 

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

26 § 668.155 [Reserved] Transitional rule for the 1996–97 award year.

27 (a) Notwithstanding any other provision of this part, an institution may continue to base 

28 an eligibility determination under section 484(d) of the HEA for a student on a test that 

29 was an approved test as of June 30, 1996, and the passing score on that test, until 60 days 

30 after the Secretary publishes in theFederal Registerthe name of an approved test and the 

31 passing score on that test that is appropriate for that student.
25 

1 (b) If an institution properly based a student's eligibility determination for purposes of 

2 section 484(d) of the HEA on a test and passing score that was in effect on June 30, 1996, 

3 the institution does not have to redetermine the student's eligibility based upon a test and 

4 passing score that was approved under §§668.143 through 668.149.

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

6 § 668.156 Approved State process. 

7 (a)(1) A State that wishes the Secretary to consider its State process as an alternative to 

8 achieving a passing score on an approved, independently administered test for the 

9 purpose of determining a student's eligibility for Title IV, HEA program funds must 

10 apply to the Secretary for approval of that process. 

11 (2) To be an approved State process, the State process does not have to include all the 

12 institutions located in that State, but must indicate which institutions are included. 

13 (b) The Secretary approves a State's process if—

14 (1) The State administering the process can demonstrate that the students it admits under 

15 that process without a high school diploma or its equivalent, who enroll in participating 

16 institutions have a success rate as determined under paragraph (h) of this section that is 

17 within 95 percent of the success rate of students with high school diplomas; and 

18 (2) The State's process satisfies the requirements contained in paragraphs (c) and (d) of 

19 this section. 

20 (c) A State process must require institutions participating in the process to provide each 

21 student they admit without a high school diploma or its recognized equivalent with the 

22 following services—

23 (1) Orientation regarding the institution's academic standards and requirements, and 

24 student rights; 

25 (2) Assessment of each student's existing capabilities through means other than a single 

26 standardized test; 

27 (3) Tutoring in basic verbal and quantitative skills, if appropriate; 

28 (4) Assistance in developing educational goals; 

29 (5) Counseling, including counseling regarding the appropriate class level for that student 

30 given the student's individual's capabilities; and 
26 

1 (6) Follow-up by teachers and counselors regarding the student's classroom performance 

2 and satisfactory progress toward program completion. 

3 (d) A State process must—

4 (1) Monitor on an annual basis each participating institution's compliance with the 

5 requirements and standards contained in the State's process; 

6 (2) Require corrective action if an institution is found to be in noncompliance with the 

7 State process requirements; and 

8 (3) Terminate an institution from the State process if the institution refuses or fails to 

9 comply with the State process requirements. 

10 (e)(1) The Secretary responds to a State's request for approval of its State's process within 

11 six months after the Secretary's receipt of that request. If the Secretary does not respond 

12 by the end of six months, the State's process becomes effective is deemed to be approved. 

13 (2) An approved State process becomes effective for purposes of determining student 

14 eligibility for Title IV, HEA program funds under this subpart—

15 (i) on the date the Secretary approves the process; or

16 (ii) six months after the date on which the State submits the process to the Secretary for 

17 approval, if the Secretary neither approves, nor does not disapproves, the process during 

18 that six month period. 

19 (f) The Secretary approves a State process for a period not to exceed five years. 

20 (g)(1) The Secretary withdraws approval of a State process if the Secretary determines 

21 that the State process violated any terms of this section or that the information that the 

22 State submitted as a basis for approval of the State process was inaccurate. 

23 (2) The Secretary provides a State with the opportunity to contest a finding that the State 

24 process violated any terms of this section or that the information that the State submitted 

25 as a basis for approval of the State process was inaccurate. 

26 (h) The State shall calculate the success rates as referenced in paragraph (b) of this 

27 section by—

28 (1) Determining the number of students with high school diplomas who, during the 

29 applicable award year described in paragraph (i) of this section, enrolled in participating 

30 institutions and—

31 (i) Successfully completed education or training programs; 
27 

1 (ii) Remained enrolled in education or training programs at the end of that award year; or 

2 (iii) Successfully transferred to and remained enrolled in another institution at the end of 

3 that award year; 

4 (2) Determining the number of students with high school diplomas who enrolled in 

5 education or training programs in participating institutions during that award year;

6 (3) Determining the number of students calculated in paragraph (h)(2) of this section who 

7 remained enrolled after subtracting the number of students who subsequently withdrew or 

8 were expelled from participating institutions and received a 100 percent refund of their 

9 tuition under the institutions' refund policies; 

10 (4) Dividing the number of students determined in paragraph (h)(1) of this section by the 

11 number of students determined in paragraph (h)(3) of this section; 

12 (5) Making the calculations described in paragraphs (h)(1) through (h)(4) of this section 

13 for students without a high school diploma or its recognized equivalent who enrolled in 

14 participating institutions. 

15 (i) For purposes of paragraph (h) of this section, the applicable award year is the latest 

16 complete award year for which information is available that immediately precedes the 

17 date on which the State requests the Secretary to approve its State process, except that the 

18 award year selected must be one of the latest two completed award years preceding that 

19 application date. 

20 (Approved by the Office of Management and Budget under control number 1840–0627) 

21 (Authority: 20 U.S.C. 1091(d)) 
1 

Issue Paper #3 

Team I – Program Integrity Issues 

 

Issue: Misrepresentation of Information to Students and 

Prospective Students 

Statutory cites: HEA section 487

Regulatory cites: 34 CFR 668.71-75

Summary question(s): Should the Department revise the regulations or provide 

additional guidance about the types of statements and communication that could 

constitute “misrepresentation”? 

Summary of issue: Choosing a college or job training program is increasingly a highstakes decision for consumers. The choice can be costly both in terms of the prospective 

student’s time as well as the tuition, fees and other expenses incurred. Furthermore, the 

student may be taking on debt that will be more burdensome if the education or training 

does not meet the student’s expectations or fails to lead to hoped-for employment. 

ED regulations currently prohibit any “substantial misrepresentation made by [an] 

institution regarding the nature of its educational program, its financial charges or the 

employability of its graduates.” Additional detail in the rule provides further guidance to 

institutions. 

The Federal Trade Commission (FTC) publishes guidelines for consumers to use to avoid 

deceptive advertising and promotional, marketing, and sales practices by vocational 

training providers, at 16 CFR 254. The FTC Guides, which include references to other 

guidelines, such as those regarding the use of endorsements and testimonials, are 

considered administrative interpretations of the statutes that the FTC is charged with 

implementing. Conduct that is inconsistent with the Guides may result in corrective 

action by the FTC if a school is found to be in violation of the law. For example, the 

provisions caution industry members against engaging in any activities such as using any 

name, label, logo, etc. that would mislead a student as to the nature of the school, its 

accreditation, programs, or methods of teaching. The FTC updates its Guides 

periodically. 

The Federal Register notice requesting public comments on the Federal Trade 

Commission Guides is located at 16 CFR Part 245: 

http://www.ftc.gov/os/fedreg/2009/july/090730privatevocationalschool.pdf

While the Guides are helpful, the FTC has jurisdiction over only for-profit entities and it 

does not extend to degree-granting institutions. 
2 

Comments and questions: The Department anticipates that the FTC Guides will be 

included as part of the discussion as it develops a regulatory approach to address 

misrepresentation of consumer information. 

Current regulations describe the parties to whom false, erroneous or misleading 

statements may not be made. The parties include prospective and enrolled students or 

their families, or the Secretary. Should the parties be expanded, to possibly include state 

agencies or accreditors? 

To what extent should the Department’s regulations on misrepresentation be harmonized 

with the FTC’s guidelines?

Are there other clarifications that should be considered? 

1 Draft Regulatory Language: 

2

3 § 668.71 Scope and special definitions. 

4 (a) This subpart establishes establishes the types of activities that constitute 

5 misrepresentation by any certificate or degree-granting institutions and by participating 

6 eligible institutions that have contracts or agreements with non-eligible institutions. the 

7 standards and rules by which the Secretary may initiate a proceeding under subpart G 

8 against an otherwise eligible institution for any substantial Engaging in these activities 

9 including in the misrepresentation made by that the institution regarding of the nature of 

10 its educational program, its financial charges, or the employability of its graduates, as 

11 well as misrepresentation in any advertising, promotional materials, or in the marketing 

12 or sale of courses or programs of instruction offered by the institution, may result in 

13 restrictions or denials of participation applications or a proceeding under subpart G . 

14 (b) The following definitions apply to this subpart: 

15 Misrepresentation: Any false, erroneous or misleading statement an eligible institution 

16 makes to a student enrolled at the institution, to any prospective student, to the family of 

17 an enrolled or prospective student, an accrediting agency, a State agency, or to the 

18 Secretary. Misrepresentation includes the dissemination of endorsements and testimonials 

19 that are given under duress. 
3 

1 Prospective student: Any individual who has contacted an eligible institution for the 

2 purpose of requesting information about enrolling at the institution or who has been 

3 contacted directly by the institution or indirectly through general advertising about 

4 enrolling at the institution. 

5 Substantial misrepresentation: Any misrepresentation on which the person to whom it 

6 was made could reasonably be expected to rely, or has reasonably relied, to that person's 

7 detriment. 

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

9 § 668.72 Nature of educational program. 

10 Misrepresentation by an institution of the nature of its educational program includes, but 

11 is not limited to, false, erroneous or misleading statements concerning—

12 (a)(1) The particular type(s), specific source(s), nature and extent of its accreditation;

13 and

14 (2) Failure to make clear, for any course or program of instruction, that it is not 

15 accredited by an accrediting agency recognized by the U.S. Department of Education in 

16 any advertising or promotional materials pertaining to these courses;

17 (b)(1) Whether a student may transfer course credits earned at the institution to any other 

18 institution; and

19 (2) Whether the institution will accept transfer credits earned at another institution;

20 (c) Whether successful completion of a course of instruction qualifies a student - for—

21 (1) For acceptance to a labor union or similar organization; or 

22 (2) To receive receipt of a local, State, or Federal license, or a non-governmental 

23 certification required as a precondition for employment or to perform certain functions; 
4 

1 (d) The requirements for successfully completing the course or program and the 

2 circumstances that would constitute grounds for terminating the student's enrollment; 

3 (de) Whether its courses are recommended or have been the subject of unsolicited 

4 testimonials or endorsements by —

5 (1) vocational counselors, high schools, or colleges, educational organizations, 

6 employment agencies, members of a particular industry, or former students; or

7 (2) Governmental officials for governmental employment; 

8 (ef) Its size, location, facilities or equipment; 

9 (fg) The availability, frequency and appropriateness of its courses and programs to the 

10 employment objectives that it states its programs are designed to meet; 

11 (gh) The nature, age and availability of its training devices or equipment and their 

12 appropriateness to the employment objectives that it states its programs and courses are 

13 designed to meet; 

14 (hi) The number, availability and qualifications, including the training and experience, of 

15 its faculty and other personnel; 

16 (ij) The availability of part-time employment or other forms of financial assistance; 

17 (jk) The nature and availability of any tutorial or specialized instruction, guidance and 

18 counseling, or other supplementary assistance it will provide its students before, during or 

19 after the completion of a course;

20 (kl) The nature of extent of any prerequisites established for enrollment in any course; 

21 (m) The subject matter, substance, or content of the course of study or any other material 

22 fact related to the degree, diploma, certificate of completion, or any similar document that 

23 the student was awarded; 
5 

1 (n) Whether the academic, professional, or occupational degree that the institution will 

2 confer has been authorized by the appropriate State educational agency, including failing 

3 to disclose, in the case that a degree has not been authorized, that fact in any advertising 

4 or promotion materials that contain a reference to such degree; or 

5 (lo) Any matters required to be disclosed to prospective students under §§668.44 and 

6 668.47 of this part. 

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

8 [51 FR 43324, Dec. 1, 1986, as amended at 54 FR 24118, June 5, 1989; 59 FR 22320, 

9 Apr. 29, 1994] 

10 § 668.73 Nature of financial charges. 

11 Misrepresentation by an institution of the nature of its financial charges includes, but is 

12 not limited to, false, erroneous or misleading statements concerning—

13 (a) Offers of scholarships to pay all or part of a course charge, unless a scholarship is 

14 actually used to reduce tuition charges made known to the student in advance. The 

15 charges made known to the student in advance are the charges applied to all students not 

16 receiving a scholarship; or

17 (b) Whether a particular charge is the customary charge at the institution for a course;.

18 (c) The total cost of the program and the school’s refund policy if the student does not 

19 complete the program; or 

20 (d) The availability or nature of any financial assistance offered to students, including a 

21 student’s responsibility to repay any loans, regardless of whether or not the student is 

22 successful in completing the program and obtaining employment. 

23

24 (Authority: 20 U.S.C. 1094) 
6 

1 § 668.74 Employability of graduates. 

2 Misrepresentation by an institution regarding the employability of its graduates includes, 

3 but is not limited to, false, erroneous or misleading statements—

4 (a) That the institution is connected with any organization or is an employment agency or 

5 other agency providing authorized training leading directly to employment. 

6 (b) That the institution maintains a placement service for graduates or will otherwise 

7 secure or assist its graduates to obtain employment, unless it provides the student with a 

8 clear and accurate description of the extent and nature of this service or assistance; or 

9 (c) That do not accurately reflect the current conditions or employment opportunities in 

10 the industry or occupation for which students are being trained;

11 (d) That suggest, directly or by implication, that employment is being offered or that a 

12 talent hunt or contest is being conducted, including through the use of phrases such as 

13 “Men/women wanted to train for * * *,” “Help Wanted,” “Employment,” “Business 

14 Opportunities,” or words or terms of similar import; or

15 (ce) Concerning government job market statistics in relation to the potential placement of 

16 its graduates.

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

18

19 § 668.75 Relationship with the Department of Education

20 (a) An institution may not describe its participation in the title IV, HEA programs in a 

21 manner that suggests approval or endorsement by the U.S. Department of Education of 

22 the quality of the institution’s educational programs.

23 § 668.75 Procedures.
7 

1 (a) On receipt of a written allegation or compliant from a student enrolled at the 

2 institution, a prospective student, the family of a student or prospective student, or a 

3 governmental official, the designated department official as defined in §688.81 reviews 

4 the allegation or compliant to determine its factual base and seriousness.

5 (b) If the misrepresentation is minor and can be readily corrected, the designated 

6 department official informs the institution and endeavors to obtain an informal, voluntary 

7 correction.

8 (c) If the designated department official finds that the complaint or allegation is a 

9 substantial misrepresentation as to the nature of the educational programs, the financial 

10 charges of the institution or the employability of its graduates, the official—

11 (1) Initiates action to fine or to limit, suspend or terminate the institution's eligibility to 

12 participate in the Title IV, HEA programs according to the procedures set forth in subpart 

13 G, or

14 (2) Take other appropriate action.

15
1 

Issue Paper #4 

Team I – Program Integrity Issues 

Issue: Incentive Compensation

Statutory cites: HEA section 487(a)(20)

Regulatory cites: 34 CFR 668.14(b)(22) 

Summary question(s): Should the “safe harbors” be reexamined? 

Summary of issue: The HEA provides that to be eligible to participate in the Federal student 

financial aid programs authorized under title IV, an institution must enter into a program 

participation agreement with the Secretary. The agreement includes a number of conditions 

with which an institution must comply to be granted initial and continuing eligibility to 

participate. Among those conditions is a prohibition on institutions providing 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. This limitation shall 

not apply to the recruitment of foreign students residing in foreign countries who are not eligible 

to receive Federal student assistance. 

The regulations implementing this provision of the HEA specify 12 types of payment and 

compensation plans that do not violate this statutory prohibition. The first safe harbor explains 

the conditions under which an institution may adjust compensation without that compensation 

being considered an incentive payment. 

The remaining 11 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. 

The payment or compensation plans covered by the safe harbors cover the following subjects: 

1. Adjustments to employee compensation. 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. One cost-ofliving increase that is paid to all or substantially all of the institution‟s full-time 

employees will not be considered an adjustment under this safe harbor. In addition, with 

regard to overtime, if the basic compensation of an employee is not an incentive payment, 

neither is overtime pay required under the Federal Fair Labor Standards Act. 

2. Enrollment in programs that are not eligible for title IV, HEA program funds. An 

institution may provide incentive compensation to recruiters based upon their recruitment 

of students who enroll only in programs that are not eligible for title IV, HEA program 

funds. 
2 

3. Contracts with employers to provide training. 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). As long as there is no direct contact by the 

institution's representative with prospective students, and as long as the employer is 

paying at least 50% of the training costs, incentive payments to recruiters who arrange for 

such contracts are not covered by the incentive payment prohibition, provided that the 

incentive payments are not based on the number of employees who enroll, or the amount 

of revenue generated by those employees. 

4. Profit-sharing bonus plans. Profit-sharing and bonus payments to all or substantially all 

of an institution's full-time employees are not incentive payments based on success in 

securing enrollments or awarding financial aid. 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 fulltime 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. In 

addition, such payments can be limited to all or substantially all of the full-time 

employees at one or more organizational levels at the institution, except that an 

organizational level may not consist predominantly of recruiters, the admissions staff, or 

the financial aid staff. 

5. Compensation based upon program completion. Compensation that is based upon 

students successfully completing their educational programs, or one academic year of 

their educational programs, whichever is shorter, does not violate the incentive 

compensation prohibition. Successful completion of an academic year means that the 

student has earned at least 24 semester or trimester credit hours or 36 quarter credit hours, 

or has successfully completed at least 900 clock hours of instruction at the institution. 

(Time may not be substituted for credits earned.) In addition, the 30 weeks of 

instructional time element of the definition of an academic year does not apply to this 

safe harbor. Therefore, this safe harbor applies when a student earns, for example, 24 

semester credits, no matter how short or long a time that takes. 

6. Pre-enrollment activities. Generally, clerical pre-enrollment activities are not considered 

recruitment or admission activities. Accordingly, an institution may make incentive 

payments to individuals whose responsibilities are limited to pre-enrollment activities 

that are clerical in nature. However, soliciting students for interviews is a recruitment 

activity, not a pre-enrollment activity, and individuals may not receive incentive 

compensation based on their success in soliciting students for interviews. In addition, 

since 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. 

7. Managerial and supervisory employees. This safe harbor recognizes that the incentive 

payment prohibition applies only to individuals who perform activities related to 

recruitment, admissions, enrollment, or the financial aid awarding process and their 

immediate supervisors. Direct supervisors are included in this prohibition because their 

actions generally have a direct and immediate impact on the individuals who carry out 

these covered activities. 
3 

8. Token gifts. Under this safe harbor, the regulations provide that a token gift not to 

exceed $100 may be provided 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. The cost 

basis of a token noncash gift is what the institution paid for it. The value is the fair 

market value of the item. 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 would not be 

considered a token gift. 

9. Profit distributions. Profit distributions to owners are not payments based on success in 

securing enrollments or awarding financial aid. Therefore any owner, whether an 

employee or not, is entitled to a share of the organization‟s profits to the extent they 

represent a proportionate share of the profits based upon the employee‟s ownership 

interest. 

10. Internet-based activities. 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. This safe harbor recognizes that 

the incentive payment prohibition applies only to activities dealing with recruiting, 

admissions, enrollment, and financial aid. Therefore, an institution may make incentive 

payments to third parties for other types of services, including tuition sharing 

arrangements, marketing, and advertising that are not covered by the incentive 

compensation prohibition. 

12. Payments to third parties for recruitment activities. If an institution uses an outside entity 

to perform activities for it, including covered activities, the institution may make 

incentive payments to the third party without violating the incentive payment prohibition 

as long as the individuals performing the covered activities are not compensated in a way 

that is prohibited by the incentive payment compensation rule. For example, if an 

institution established a group of employees who provided the institution with a series of 

services, and one of those services was recruiting, the incentive compensation prohibition 

would preclude only the individuals doing the recruiting from being paid on an incentive 

basis. If that institution hired a contractor to provide these services, the same rules would 

apply. The outside entity could not pay the individuals performing the recruiting services 

on an incentive basis, but it could pay the other employees performing non-recruiting 

activities on an incentive basis. 

Comments and questions 

The Department has received complaints from students and enrollment advisors about the 

high-pressure sales tactics of some postsecondary institutions. Some argue that tying staff 

compensation to the number of students enrolled is an inherent conflict of interest and that 

the safe harbors undermine the statutory ban on incentive compensation. The Department 

has also heard from a number of educational institutions that the lack of clear guidance prior 

to establishment of the safe harbors made it very difficult for institutions to be confident of 

their compliance with the rule. 
4 

Should the safe harbors be maintained, amended, or eliminated in whole or in part from 

the regulations? 

Updated information since November meeting: 

1. Consistent with the majority of the comments made by the participants, the Department 

believes that the specific language of the statute is clear, and that the elimination of all of 

the regulatory “safe harbors” would best serve to effectuate congressional intent. The 

following specific comments are offered regarding each of the currently existing 12 “safe 

harbors.” (Hereinafter, each “safe harbor” is designated by the letter that corresponds to 

the regulatory citation, 34 C.F.R. § 668.14(b)(22)(ii)). 

2. Pursuant to “safe harbor” (A), institutions are permitted to award thrice-annual salary 

adjustments (one based on the cost of living), as long as these adjustments are not based

solely on the number of students recruited. This “safe harbor” has led to allegations in 

which an institution concedes that its compensation structure includes consideration of 

the number of enrolled students, but avers that it is 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. In addition, 

changing the word solely to some other modifier would not ameliorate this concern as the 

evaluation of any alternative arrangement would likely then merely shift to whether the 

compensation was “primarily” or “substantially” based upon enrollments. 

3. “Safe harbor” (B) permits compensation to recruiters based upon enrollment of students 

who enroll in programs that are ineligible for Title IV funds. The statute provides that 

compensation may not be based upon success in securing enrollments whether the 

students receive Title IV funds, or some other form of student financial assistance. The 

statute provides for only one exception, and that addresses foreign students residing in 

foreign countries. 

4. “Safe harbor” (C) exempts compensation to recruiters based upon the arrangement of 

contracts with employers under certain circumstances that result in the enrollment of the 

employer‟s employees in the institution. The compensation provided, however, is 

ultimately based upon success in securing enrollments, and is thus inconsistent with the 

statutory language. 

5. “Safe harbor” (D) addresses compensation paid as part of a profit-sharing or bonus plan 

under certain conditions. 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. 

6. “Safe harbor” (E) permits compensation based upon students successfully completing 

their educational program. Such compensation is “indirectly” based upon securing 

enrollments-- unless the student enrolls, the student cannot successfully complete an 

educational program, and 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. This safe harbor may lead to lowered or 
5 

misrepresented admissions standards and program offerings, lowered academic progress 

standards, altered attendance records, and a lack of meaningful emphasis on retention. 

7. “Safe harbor” (F) states that compensation based upon clerical “pre-enrollment” activities 

is permitted under the statute. 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 “safe harbor” (A), 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. 

8. “Safe harbor” (G) permits compensation to managers and supervisors based upon 

success in securing enrollments as long as the person receiving the compensation does 

not directly manage or supervise employees directly involved in recruitment activities. 

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 are not exempt from the 

ban on receiving incentivized compensation. 

9. Safe harbor” (H) permits the payment of one-time annual non-monetary gifts that do not 

exceed $100 to students or alumni. As at least one participant 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. 

10. “Safe harbor” (I) states that profit distributions proportionately based upon an 

individual‟s ownership interest are permitted. The statute prohibits compensation based 

upon success in securing enrollments, not based upon an individual‟s ownership interest. 

Profit distributions based directly or indirectly upon success in securing enrollments is all 

that is proscribed. 

11. “Safe harbor” (J) permits compensation paid for Internet-based recruitment and 

admission activities. This form of recruitment is not exempt from the statutory ban on 

incentive compensation. Technological advancements and developments in Internetbased activities since this “safe harbor” was adopted, and the frequency with which such 

activities are now relied upon, creates further cause for concern. 

12. “Safe harbors” (K) and (L) address payments made to third parties-- (K), where the third 

party provides no recruiting or admission activities, or the awarding of Title IV funds, 

and (L), where the third party does provide recruiting or admission activities, or the 

awarding of Title IV funds, as long as none of the individuals providing these activities is 

paid in a fashion that violates the law. It should not matter what the third party is doing--

it cannot 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 

a potential “safe harbor.” 
6 

1 Draft Regulatory Language 

2

3 § 668.14(b)(22)(i) It will not provide any commission, bonus, or other incentive payment based 

4 directly or indirectly upon success in securing enrollments or financial aid to any person or entity 

5 engaged in any student recruiting or admission activities or in making decisions regarding the 

6 awarding of student financial assistance,title IV, HEA program funds, except that this 

7 limitationregulation shalldoes not apply to the recruitment of foreign students residing in foreign 

8 countries who are not eligible to receive Federal student assistance.title IV, HEA program funds. 

9 (ii) Activities and arrangements that an institution may carry out without violating the provisions 

10 of paragraph (b)(22)(i) of this section include, but are not limited to:

11 (A) The payment of fixed compensation, such as a fixed annual salary or a fixed hourly wage, as 

12 long as that compensation is not adjusted up or down more than twice during any twelve month 

13 period, and any adjustment is not based solely on the number of students recruited, admitted, 

14 enrolled, or awarded financial aid. For this purpose, an increase in fixed compensation resulting 

15 from a cost of living increase that is paid to all or substantially all full-time employees is not 

16 considered an adjustment.

17 (B) Compensation to recruiters based upon their recruitment of students who enroll only in 

18 programs that are not eligible for title IV, HEA program funds.

19 (C) Compensation to recruiters who arrange contracts between the institution and an employer 

20 under which the employer's employees enroll in the institution, and the employer pays, directly 

21 or by reimbursement, 50 percent or more of the tuition and fees charged to its employees; 

22 provided that the compensation is not based upon the number of employees who enroll in the 

23 institution, or the revenue they generate, and the recruiters have no contact with the employees.

24 (D) Compensation paid as part of a profit-sharing or bonus plan, as long as those payments are 

25 substantially the same amount or the same percentage of salary or wages, and made to all or 

26 substantially all of the institution's full-time professional and administrative staff. Such payments 

27 can be limited to all, or substantially all of the full-time employees at one or more organizational 

28 level at the institution, except that an organizational level may not consist predominantly of 

29 recruiters, admissions staff, or financial aid staff.

30 (E) Compensation that is based upon students successfully completing their educational 

31 programs, or one academic year of their educational programs, whichever is shorter. For this 
7 

1 purpose, successful completion of an academic year means that the student has earned at least 24 

2 semester or trimester credit hours or 36 quarter credit hours, or has successfully completed at 

3 least 900 clock hours of instruction at the institution.

4 (F) Compensation paid to employees who perform clerical “pre-enrollment” activities, such as 

5 answering telephone calls, referring inquiries, or distributing institutional materials.

6 (G) Compensation to managerial or supervisory employees who do not directly manage or 

7 supervise employees who are directly involved in recruiting or admissions activities, or the 

8 awarding of title IV, HEA program funds.

9 (H) The awarding of token gifts to the institution's students or alumni, provided that the gifts are 

10 not in the form of money, no more than one gift is provided annually to an individual, and the 

11 cost of the gift is not more than $100.

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

13 institution.

14 (J) Compensation paid for Internet-based recruitment and admission activities that provide 

15 information about the institution to prospective students, refer prospective students to the 

16 institution, or permit prospective students to apply for admission on-line.

17 (K) Payments to third parties, including tuition sharing arrangements, that deliver various 

18 services to the institution, provided that none of the services involve recruiting or admission 

19 activities, or the awarding of title IV, HEA program funds.

20 (L) Payments to third parties, including tuition sharing arrangements, that deliver various 

21 services to the institution, even if one of the services involves recruiting or admission activities 

22 or the awarding of title IV, HEA program funds, provided that the individuals performing the 

23 recruitment or admission activities, or the awarding of title IV, HEA program funds, are not 

24 compensated in a manner that would be impermissible under paragraph (b)(22) of this section.

25

26
1 

Issue Paper #5 

Team I – Program Integrity Issues 

Issue: State authorization as a component of institutional eligibility

Statutory cites: HEA sections 101(a)(2); 102(b)(1)(B); 102(c)(1)(B) 

Regulatory cites: §600.4(a)(3); §600.5(a)(4); §600.6(a)(3) 

Summary of issue: To begin and continue to participate in the title IV student aid programs, the 

HEA requires an institution (with the exception of a foreign institution) to be legally authorized 

to provide a postsecondary educational program within the State in which it is located. 

The State’s legal authorization is the legal status granted to an institution through a 

charter, license, or other written document issued by an appropriate agency or official of the 

State in which the institution is located. It may be provided by a licensing board or educational 

agency. In some cases, the institution’s charter is its legal authorization. An institution must 

have evidence that it has the authority to operate in a State at the time the institution applies to be 

certified or recertified to participate in the title IV programs. 

State law governs the licensure or authorization of institutions that operate in the State. 

States structure their oversight and regulatory agencies in various ways, and may have 

significantly different requirements that institutions must meet to be legally authorized to provide 

an educational program. (One indicator of this variation in State requirements is the penchant of 

substandard institutions and diploma mills to move from State to State in response to changing 

requirements. These entities set up operation in States that provide very little oversight, and if a 

State strengthens its licensure law, they simply move to another State and begin operation there.) 

Over 35 years ago, the Department determined that institutions were authorized by the 

State by virtue of the State’s decision not to have any oversight over them. This precedent was 

called into play when a situation emerged more recently in California. California's Bureau for 

Private Postsecondary and Vocational Education serves as the State's oversight and regulatory 

agency for private proprietary postsecondary institutions. Disputes led to an impasse over the 

continued existence of the Bureau. Because the Department informed the State that the 

institutions in question would remain eligible for Federal aid even if the Bureau was eliminated 

(based on the earlier precedent), there was no pressure for the State to maintain its role. The 

establishing legislation for the Bureau, the Private Postsecondary and Vocational Education 

Reform Act, became inoperative on June 30, 2007 and was repealed on January 1, 2008. 

Recently, California created a new State bureau with oversight responsibility for private 

postsecondary institutions. During the period when there was no State agency authorizing 

private postsecondary institutions, they continued to participate in the Federal student aid 

programs. 

A second issue is that some States are deferring 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, 

the checks and balances provided by accreditation and State legal authorization are undermined. 

For example, institutions in California that are accredited by the Western Association of Schools 
2 

and Colleges had a complete exemption from the now-expired California law, and proposed 

legislation in California for a new licensing regime contains the same exemption. 

The Veteran's Administration relies upon State Approving Agencies (SAA) to review, 

evaluate and approve quality programs of education and training under State and Federal criteria 

for the veterans' education benefits programs it oversees. The SAAs are funded through the 

Post-9/11 G.I. Bill. Each State approaches this responsibility in its own way. Some States have 

one agency to approve all programs in postsecondary educational institutions, another agency to 

approve all on-the-job training programs, and then possibly a third agency to approve flight 

schools. In general, the VA requires programs offered by institutions of higher education to be 

accredited by an accrediting agency recognized by the Secretary of Education. 

Comments and questions 

 Should institutions be allowed to participate in the title IV programs if a State does not 

license or otherwise authorize an institution to offer postsecondary programs in the State? 

 What should constitute State authorization? Should there be any minimum standards for 

State authorization for purposes of determining institutional eligibility to participate in 

the title IV programs? Is it adequate for title IV purposes for a State agency to rely solely 

on accreditation as the determinant of State authorization? 

1

2 Draft regulatory language 

3 §600.9 State authorization.

4 (a) An institution described under §§600.4, 600.5, and 600.6 may be legally authorized 

5 by a State through—

6 (1) A charter, license, or other document issued by an appropriate State government 

7 agency that affirms or conveys authority to the institution to operate educational programs 

8 beyond secondary education and grant degrees within the jurisdiction of the State;

9 (2) An action, and written documentation, by an appropriate State government agency 

10 that authorizes, licenses, or otherwise approves the institution to establish and operate within the 

11 State nondegree programs that provide education and training beyond secondary education; or

12 (3) A reciprocal agreement, or documented relationship, between or among appropriate 

13 agencies of two or more States that recognizes or approves educational programs or services 
3 

1 beyond secondary education, including the electronic delivery of instruction (such as distance 

2 education programs), if the main campus of the institution is located in another State.

3 (b) The Secretary considers an institution to be legally authorized by a State under 

4 paragraph (a) of this section if the State monitors--

5 (1) The institution and its educational programs to assure academic quality. The State 

6 may rely on accrediting agencies recognized by the Secretary under 34 CFR part 602;

7 (2) The institution’s capacity and continuing financial viability under its current 

8 ownership status and any transfer, or significant change in ownership or legal status; and

9 (3) The institution to assure compliance with applicable State laws with respect to 

10 consumer protection, the maintenance of student records, refunds policies, and other matters 

11 relating to State authority in these areas.

12 Note: Sections 600.4, .5, and .6 would need to be amended to reference this section for State 

13 authorization..

14
1 

1 Issue Paper #6 

Team I – Program Integrity Issues 

Issue: Gainful Employment in a Recognized Occupation 

Statutory cites: HEA sections 101(b)(1); 102(b)(1)(A)(i); 102(c)(1)(A) 

Regulatory cites: §600.2; §600.4(a)(4)(iii); §600.5(a)(5); §600.6(a)(4); §668.8(c)(3); 

 §668.8(c)(3); §668.8(d)(1)(iii); §668.8(d)(2)(iii); §668.8(d)(3)(iii); 

 §668.8(g)(1)(ii); §668.8(g)(2) 

Summary of issue: Some programs and institutions are eligible for Federal financial aid by 

virtue of the fact that they “prepare students for gainful employment in a recognized 

occupation.” The regulations currently define a recognized occupation as an occupation listed in 

the latest edition of the Dictionary of Occupational Titles published by the Department of Labor 

(DOL). This dictionary has been replaced by DOL’s on-line Occupational Information Network 

(O*NET) (http://online.onetcenter.org/) that relies on DOL’s Standard Occupational 

Classification (SOC) system. The Department of Education has not, in the past, worked with the 

DOL to make the link between institutions’ programs and the occupations recognized by the 

Secretary of Labor. 

Furthermore, there is no standard for what constitutes “gainful employment.” 

 To better link programs with occupations, one approach could be to require institutions 

offering occupational training programs to provide the Department and prospective students with 

the occupation names and SOC codes (http://www.bls.gov/oes/current/oes_stru.htm). 

Institutions could link directly to the occupational profile (for example, see the overview of the 

job tasks and salary for energy auditors) at http://online.onetcenter.org/link/summary/13-

1199.01. 

In considering possible definitions for “gainful employment,” the relationship of student 

debt levels of recent graduates of an institution or program to expected earnings could be a 

consideration in determining a program’s eligibility. Alternatively, a reasonable relationship 

between the tuition costs incurred by students and expected earnings could be considered. 

Comments and questions 

 Should the Department require that institutions cite the occupational names and codes for 

occupational training programs, and if so, how should the disclosure be made? 

 Should “gainful employment” be defined? And if so, what should be the relationship 

between tuition and fee charges (and/or loan debt) and expected earnings? For programs 

where this relationship is not reasonable, when and how should the Department no longer 

consider the program to be an eligible program for title IV purposes? 

Draft Regulatory Language 
2 

1 §600.2 Definitions

2 * * * * 

3 Recognized occupation: An occupation that is—

4 (1) Listed in an “occupational division” of the latest edition of the Dictionary of 

5 Occupational Titles, published by the U.S. Department of Labor Identified by a Standard 

6 Occupational Classification (SOC) code established by the Department of Labor and available at 

7 http://online.onetcenter.org; or 

8 (2) Determined by the Secretary in consultation with the Secretary of Labor to be a 

9 recognized occupation. 

10 * * * 

11 Gainful Employment –We are not providing regulatory language at this time. 

12 Option 1: Reasonable relationship between the cost of the program expected earnings:

13 The difference in annual earnings between a high school graduate and a person who 

14 completes a vocational program would represent the “value added by the program.” We would 

15 consider the cost/earnings relationship to be reasonable if the cost of the program is less than 3 

16 times (or some other multiple) the value added. If the cost/earnings relationship is not 

17 reasonable, we would no longer consider the program to be eligible for title IV aid. 

18 Determining the value added. We would use BLS wage data for high school graduates 

19 and for persons completing a vocational program. For 2008, the annual earnings for high school 

20 graduates in the first decile are $17,420. Similarly, we would use BLS wage data for the 

21 job/occupation related to the vocational program. The difference between the wage amounts is 

22 the value added. 
3 

1 For a person completing a Dental Assisting program, the value added would be the first 

2 decile earnings of $22,270 less first decile high school earnings of $17,420, or $4,850. In this 

3 case, the cost/earnings relationship is reasonable if the program costs less than $14,550. 

4 Issues 

5 In some cases there are several jobs a person could get that relate to the program that 

6 person completed (schools identify their program by CIP code, and the O*NET site identifies by 

7 SOC code all the jobs and occupations related to the CIP code). The wage data from those jobs 

8 differs, and in some cases the difference is substantial. Which “job” should we consider in 

9 determining the cost/earnings relationship? 

10 In some cases the value added is negative. For example, the first decile earnings for a job 

11 are $12,690 compared to first decile high school graduate earnings of $17,420 (a negative 

12 difference of $4,730). What should we do in these cases? 

13 Option 2: Debt/Income ratio 

14 Another approach would be to look at whether a student’s starting annual income is 

15 adequate to repay the average debt service obligation for someone completing a specific 

16 program, while still having an adequate amount available to meet living expenses. For example, 

17 in a particular field the average debt for a student completing a certificate program is $9000. 

18 That student would have annual loan repayments totaling $1250. For a debt-to-income ratio of 5 

19 percent, a minimum qualifying income of at least $25,000 would be required to satisfy a “gainful 

20 employment” standard. For the qualifying income, we could use BLS data or wage data reliably 

21 obtained by institutions. 

22 Using the SOC codes--We are not providing regulatory language at this time 

23 An institution now provides to the Department a CIP code (Classification of Instruction 

24 Program) for each program it offers. The institution would be required to associate the CIP code 

25 for each of its programs to the appropriate SOC codes identified on the Department of Labor’s 

26 O*NET site and provide that information to prospective students. 
1 

Issue Paper #7 

Proposed Regulatory Language 

 Team I – Program Integrity Issues 

Issue: Definition of a credit hour 

Statutory cites: HEA Sec. 481(a)(2) - definition of academic year; 481(b) - 

definition of eligible program; 484(b)(3) and (4) and 

401requirement to be enrolled half-time for loan eligibility; 

496(a)(5)(H) - accreditation standards

Regulatory cites: 34 CFR 668.2(b) - definition of full-time student and definition of 

 half-time student; 668.4 Payment period; 686.22 Calculation of a 

 TEACH Grant for payment period; 690.63 Calculation of a 

 Federal Pell Grant for a payment period; 691.63 Calculation of an 

 ACG or National SMART Grant for payment period; 668.8(k) and 

 (l) Clock hour/credit hour conversions

Summary of issue: Credit hours are used to measure degree completion and to award 

title IV aid, but there is no commonly accepted definition of a 

credit hour 

A credit hour is a unit that gives weighting to the value, level or time requirements of an 

academic course taken at an educational institution. At its most basic, a credit hour is a proxy 

measure of student learning. A credit hour is not consistently related to time or workload within 

institutions or between different types of institutions. Most postsecondary institutions do not 

have policies or even criteria that explain the basis for assigning credit hours to course work. 

When the measure is defined, it is usually as a measure combining a student's seat time in the 

classroom and outside-of-class work. Commonly used definitions are: one hour per week in 

class plus another two hours of study outside of class for 15 weeks equals one semester hours of 

credit; 12 hours per week in class equals a minimum full-time load; 120 credit hours equals a 

baccalaureate degree at an institution that uses semester hours. Although the metric purports to 

gauge faculty effort and student accomplishment, it does not measure learning based on specific 

goals or results.

The United States does not currently have any common frameworks for defining student 

outcomes for various degree levels (e.g., the associate, baccalaureate, masters and doctorate). 

Accrediting agencies and States, to varying extents, establish standards and criteria for degree 

levels. The HEA and implementing regulations require 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." The Department has 

relied on accrediting agencies 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 there is 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. Without a definition of a credit hour, may be the 

basis for abuse by institutions in determining sufficient course content for a credit hour. Such 

abuse is likely to be encouraged by the availability to a student of two Federal Pell Grants in an 

award year. 
2 

Over the last seven years, the Department's Office of the Inspector General (OIG) has 

conducted a number of reviews of accrediting agencies' standards for program length. These 

reviews have led the OIG to be concerned about the Department's total reliance on accrediting 

agencies for assessment of a factor that is a component of Title IV. On the other hand, if the 

Department does decide to define a credit hour for the purposes of Title IV, the definition cannot 

involve determinations of academic quality, as that is an area in which the relevant statutes look 

to accrediting agencies and exclude the Department. 

The credit hour is used for Title IV purposes to define an eligible program, and academic 

year; and to determine enrollment status and the amount of student financial aid that may be 

disbursed per payment period. Neither the HEA nor implementing regulations include a 

definition of credit hour, though there are numerous references to credit hours and program 

length in both the statute and regulations. The HEA and regulations define "academic year" and 

"eligible program" in relation to credit hours or clock hours. 

Section 481 of the HEA defines an academic year as requiring a minimum of 30 weeks of 

instructional time for a course of study that measures its program length in credit hours; or a 

minimum of 26 weeks of instructional time for a course of study that measures its program 

length in clock hours; and an undergraduate course of study must contain an amount of 

instructional time whereby a full-time student is expected to complete at least 24 semester or 

trimester hours or 36 quarter credit hours in a course of study that measures its program length in 

credit hours; or 900 clock hours in a course of study that measures its program length in clock 

hours. For most student financial aid programs, section 481 of the HEA defines an eligible 

program, as a program of at least 

 600 clock hours of instruction, 16 semester hours, or 24 quarter hours, offered during a 

minimum of 15 weeks, in the case of a program that—

o provides a program of training to prepare students for gainful employment in a 

recognized profession; and 

o admits students who have not completed the equivalent of an associate degree; or 

 300 clock hours of instruction, 8 semester hours, or 12 hours, offered during a minimum 

of 10 weeks, in the case of an undergraduate program that requires the equivalent of an 

associate degree for admissions; or a graduate or professional program. 

The regulations do provide formulas for the conversion of clock hours to credit hours. A 

school must determine if an undergraduate program qualifies as an eligible program after using 

the required formulas unless the school offers an undergraduate program in credit hours, and the 

program is at least two academic years in length and provides an associate degree, a bachelor’s 

degree, a professional degree; or each course within the program is acceptable for full credit 

toward that institution’s associate degree, bachelor’s degree, professional degree, and the degree 

offered by the school requires at least two academic years of study. These formulas reflect the 

fact that clock hour programs, unlike credit hour programs, require little, if any, out-of-class 

work. The regulations were adopted prior to change in the definition of an academic year for 

clock-hour programs to provide for only 26 weeks of instructional time in the definition as 

opposed to the 30 weeks of instructional time required for credit-hour programs. 

Many American colleges and universities have developed weekend programs, accelerated 

programs and other innovative ways to serve students for whom the more traditional calendar is 
3 

not convenient. Distance education and other non-traditional modes of instruction, such as 

competency-based learning, are increasingly prevalent across postsecondary education. These 

ways of structuring and delivering education challenge the concept of "seat time" measures 

associated with credit hours. 

In contrast to the United States, the Europeans have a way of awarding credits which is 

linked to student learning and is worth examining. The European Credit Transfer and 

Accumulation System (ECTS) is a standard for comparing the study attainment and performance 

of students of higher education across the European Union and other collaborating European 

countries. For successfully completed studies, ECTS credits are awarded. One academic year 

corresponds to 60 ECTS-credits that are equivalent to 1500–1800 hours of study in all countries 

irrespective of standard or qualification type and is used to facilitate transfer and progression 

toward a degree throughout the Union. 

The ECTS must be placed within the context of the ongoing Bologna Process, which is 

the process of creating the European Higher Education Area (EHEA) and is based on 

cooperation between ministries, higher education institutions, students and staff from 46 

countries, with the participation of international organizations. A key component of the effort is 

the establishment of qualifications frameworks at two levels. National qualifications frameworks 

describe what learners should know, understand and be able to do on the basis of a given 

qualification as well as how learners can move from one qualification to another within a system. 

National qualifications frameworks are developed to be compatible with the overarching 

framework of qualifications of the European Higher Education Area, which was adopted in 2005 

and consists of three cycles (e.g. bachelor, master, doctorate). The overarching framework 

makes recognition of qualifications easier since specific qualifications can be related to a 

common framework. 

Comments and Questions

Several commenters urged the Department to establish minimum standards to define a 

credit hour for title IV purposes. Some expressed concern that the definition not be so narrow as 

to stem the tide of important innovations such as weekend courses, distance learning, and a 

variety of alternative schedules. Others strongly argued that accrediting agencies can best 

determine whether academic outcomes are being achieved and that they should be relied upon 

for determining whether an institution is appropriately awarding credits. 

Should there be a regulatory definition of a credit hour for title IV purposes? Would a 

different definition be needed for postsecondary vocational education, for undergraduate 

education, and for graduate study? What about for distance education and other nontraditional 

programs? What relationship would such a title IV definition have to accrediting agencies 

standards for program length? 
4 

1 Draft regulatory language

2 PART 600—INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT OF 

3 1965, AS AMENDED 

4 §600.2 Definitions. 

5 * * * * * 

6 Credit hour: (1) Except as provided in 34 CFR 668.8(k) and (l)—

7 (i) A Carnegie unit consisting of one hour of classroom or direct faculty instruction and a 

8 minimum of two hours of out of class student work for approximately fifteen weeks for one 

9 semester or trimester hour of credit, or ten to twelve weeks for one quarter hour of credit; or 

10 (ii) Academic work comparable to a Carnegie unit as established by the institution for 

11 laboratory work, internships, and practica.

12 (2) If the institution offers courses or programs for which the Carnegie unit is not 

13 meaningful or cannot be applied, the institution is responsible for establishing equivalencies in 

14 credit hours for the amount of academic work, as represented in intended learning outcomes and 

15 verified by evidence of their achievement, and for ensuring the equivalencies are in accordance 

16 with accrediting agency standards and State agency requirements. 

17 PART 602—THE SECRETARY’S RECOGNITION OF ACCREDITING AGENCIES 

18 §602.24 Additional procedures certain institutional accreditors must have. 
5 

19 * * * * * 

20 (c) Credit-hour policies. (1) The accrediting agency must confirm as part of its review 

21 for initial accreditation or preaccreditation, or renewal of accreditation, that an institution has 

22 policies and procedures for determining the credit hours awarded for all courses and programs 

23 offered in credit hours including credit hours based on equivalencies established for variations 

24 from the Carnegie unit under the definition of a credit hour in 34 CFR 600.2. 

25 (2) The accrediting agency must evaluate and approve an institution’s policies and 

26 procedures for determining credit hours awarded for courses and programs and the application of 

27 those policies and procedures by the institution in determining the credit hours awarded for 

28 courses and programs including equivalencies for variations from the definition of a Carnegie 

29 unit credit hour in 34 CFR 600.2.

30 PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS 

31 Subpart A—General 

32 §668.8 Eligible program. 

33 * * * * * 

34 (k) Undergraduate educational program in credit hours. (1) Except as provided in 

35 paragraph (k)(2) of this section, Iif an institution offers an undergraduate educational program in 

36 credit hours, the institution must use the formula contained in paragraph (l) of this section to 

37 determine whether that program satisfies the requirements contained in paragraph (c)(3) or (d) of 
6 

38 this section, and the number of credit hours in that educational program for purposes of the Title 

39 IV, HEA programs, unless—

40 (1i) The program is at least two academic years in length and provides an associate 

41 degree, a bachelor's degree, a professional degree, or an equivalent degree as determined by the 

42 Secretary; or 

43 (2ii) Each course within the program is acceptable for full credit toward that institution's 

44 associate degree, bachelor's degree, professional degree, or equivalent degree as determined by 

45 the Secretary, provided that--

46 (A) Tthe institution's degree requires at least two academic years of study.; and

47 (B) For each of the three award years prior to the current award year, students have 

48 enrolled in, and graduated from, that program. 

49 (2) Notwithstanding paragraph (k)(1) of this section, a program is considered to be a 

50 clock-hour program for purposes of the title IV, HEA programs if--

51 (i) The program must be measured in clock hours for any purpose including, but not 

52 limit to--

53 (A) Receiving State approval or licensure to offer the program; or 

54 (B) Determining that a graduate of the program qualifies to sit for a licensure 

55 examination or otherwise qualifies for licensure in or the authorization to practice the occupation 

56 that the graduate is intended to pursue; or 
7 

57 (ii) The institution does not continue to provide the clock hours that are the basis for the 

58 credit hours awarded for each course in the program and, except as provided in 668.4(e), to 

59 require attendance in those hours.

60 (l) Formula. For purposes of determining whether a program described in paragraph (k) 

61 of this section satisfies the requirements contained in paragraph (c)(3) or (d) of this section, and 

62 the number of credit hours in that educational program with regard to the Title IV, HEA 

63 programs—

64 (1) A semester hour must include at least 3037.5 clock hours of instruction; 

65 (2) A trimester hour must include at least 3037.5 clock hours of instruction; and 

66 (3) A quarter hour must include at least 2025 hours of instruction. 
1 

Issue Paper #8 

Team I – Program Integrity Issues 

Issue: Agreements between Institutions of Higher Education 

Statutory cites: N/A 

Regulatory cites: 34 CFR 668.5 

Summary question(s): Should the provisions on agreements between two eligible 

institutions of higher education be changed to limit the amount of instruction that may be 

offered away from the “home” institution? Should additional limitations be placed on 

such agreements involving an ineligible institution? 

Summary of issue: Two or more institutions may enter into a consortium or contractual 

agreement so that a student can continue to receive title IV funds while studying at an 

institution or organization other than his or her “home” institution, or while enrolled in a 

program that is offered in part by another institution at the student's "home" institution. 

The current regulations cover written agreements between institutions in three 

different situations: (1) consortium agreements, which are written arrangements between 

eligible institutions; (2) contractual agreements, which are written arrangements between 

an eligible institution and an ineligible institution or organization; and (3) study abroad 

arrangements, which involve either a written contractual or consortium agreement 

between two or more institutions. The underlying assumption of all these agreements is 

that the home institution has found the other institution’s or organization’s academic 

standards to be equivalent to its own, and an acceptable substitute for its own instruction. 

For institutions that enter into a contractual agreement, i.e., an agreement between 

an eligible institution and an ineligible institution or organization, there is a limit on the 

portion of the program that can be provided by the ineligible entity. If both the “home” 

institution and the ineligible institution or organization are owned or controlled by the 

same individual, partnership, or corporation, no more than 25% of the educational 

program may be provided by the ineligible entity. If the eligible institution and ineligible 

entity are separately owned or controlled, the ineligible institution or organization may 

provide up to 50 percent of the educational program. However, the “home” institution’s

accrediting agency or state agency (in the case of a public postsecondary vocational 

institution) must determine and confirm in writing that the agreement meets its standards 

for contracting out educational services. 

In a consortium agreement, i.e., a written arrangement between eligible 

institutions, there is no limit on the portion of the educational program that may be 

provided by eligible institutions other than the “home” institution. The current 

regulations provide that under a consortium agreement, eligible institutions other than the 

“home” institution may provide all or part of the educational program, and the Secretary 

considers that educational program to be an eligible program as long as it satisfies the 

definition of an eligible program under §668.8. 
2 

Comments and questions: 

 Should an institution be permitted to confer a degree or certificate bearing its 

name when it has provided none of the instruction and conducted none of the 

evaluations to determine if the student has satisfied the requirements of the 

program? 

 Should institutions be required to provide a least a minimum portion of a program 

if they are to award the degree or certificate? 

 Should accrediting agencies be required to review consortium agreements if all or 

a majority of an educational program is being provided by institutions other than 

the “home” institution? 

 If the arrangement is between an institution that has not been approved by its 

accrediting agency to offer distance education programs and one that has been 

approved for distance education, should the first institution be allowed to offer a 

distance education program? 

 Should different limitations be imposed when both institutions are under the same 

ownership? 

1  New Item for discussion: Should different limitations be imposed when both 

2 institutions are under the same ownership, such as requiring the institution that 

3 enrolls a student to offer at least 25% of a program?

Draft Regulatory Language: 

4 § 602.22 Substantive change. 

5 (a) If the agency accredits institutions, it must maintain adequate substantive change 

6 policies that ensure that any substantive change to the educational mission, program, or 

7 programs of an institution after the agency has accredited or preaccredited the institution 

8 does not adversely affect the capacity of the institution to continue to meet the agency’s 

9 standards. The agency meets this requirement if—

10 (1) * * * 

11 (2) The agency’s definition of substantive change includes at least the following types of 

12 change: 

13 * * * 

14 (vii) If the agency's accreditation of an institution enables the institution to seek eligibility 

15 to participate in the title IV, HEA programs--
3 

1 , (A) the entering into a contract under which an institution or organization not 

2 certified to participate in the title IV, HEA programs offers provides more than 25 

3 percent of one or more of the accredited institution's educational programs. or

4 (B) the entering into a written arrangement with another eligible institution, or 

5 with a consortium of eligible institutions, under which the other institution or consortium 

6 of eligible institutions provides more than 50 percent of one or more of the accredited 

7 institution’s educational programs.

[Note: §602.22 was amended in the final Accreditation Regulations published on 

October 27, 2009. §602.22(a)(2)(vii) as provided above, without the changes 

proposed, will be effective on July 1, 2010.] 

8 § 668.5 Written arrangements to provide educational programs. 

9 (a) Written arrangements between eligible institutions. If an eligible institution enters into 

10 a written arrangement with another eligible institution, or with a consortium of eligible 

11 institutions, under which the other eligible institution or consortium provides all or part of 

12 the educational program of students enrolled in the former institution, the Secretary 

13 considers that educational program to be an eligible program if—

14 (1) it The educational program otherwise satisfies the requirements of §668.8; and

15 (2) (i) The portion of the educational program provided under a written arrangement with

16 another eligible institution, or with a consortium of eligible institutions, is 50 percent or 

17 less; or. 

18 (ii) If the portion of the educational program provided under a written arrangement with

19 another eligible institution, or with a consortium of eligible institutions, is more than 50 

20 percent, the institution's accrediting agency, or if the institution is a public postsecondary 

21 vocational educational institution, the State agency listed in the Federal Register in 

22 accordance with 34 CFR part 603, has specifically determined that the institution's 

23 arrangement meets the agency's standards for written arrangements to provide 

24 educational programs.

25 (b) Written arrangements for study-abroad. Under a study abroad program, if an eligible 

26 institution enters into a written arrangement with a foreign institution, or an organization 

27 acting on behalf of a foreign institution, under which the foreign institution provides part 
4 

1 of the educational program of students enrolled in the eligible institution, the Secretary 

2 considers that educational program to be an eligible program if it otherwise satisfies the 

3 requirements of paragraphs (c)(1) through (c)(3) of this section. 

4 (c) Written arrangements between an eligible institution and an ineligible institution or 

5 organization. If an eligible institution enters into a written arrangement with an 

6 institution or organization that is not an eligible institution under which the ineligible 

7 institution or organization provides part of the educational program of students enrolled 

8 in the eligible institution, the Secretary considers that educational program to be an 

9 eligible program if—

10 (1) The ineligible institution or organization has not had its eligibility to participate in the 

11 title IV, HEA programs terminated by the Secretary, or has not voluntarily withdrawn 

12 from participation in those programs under a termination, show-cause, suspension, or 

13 similar type proceeding initiated by the institution's State licensing agency, accrediting 

14 agency, guarantor, or by the Secretary; 

15 (2) The educational program otherwise satisfies the requirements of §668.8; and 

16 (3)(i) The ineligible institution or organization provides not more than 25 percent of the 

17 educational program; or 

18 (ii)(A) The ineligible institution or organization provides more than 25 percent but not 

19 more than 50 percent of the educational program; 

20 (B) The eligible institution and the ineligible institution or organization are not owned or 

21 controlled by the same individual, partnership, or corporation; and 

22 (C) The eligible institution's accrediting agency, or if the institution is a public 

23 postsecondary vocational educational institution, the State agency listed in the Federal 

24 Register in accordance with 34 CFR part 603, has specifically determined that the 

25 institution's arrangement meets the agency's standards for the contracting out of 

26 educational services. 

27 (d) Administration of title IV, HEA programs. (1) If an institution enters into a written 

28 arrangement as described in paragraph (a), (b), or (c) of this section, except as provided 

29 in paragraph (d)(2) of this section, the institution at which the student is enrolled as a 

30 regular student must determine the student's eligibility for title IV, HEA program funds, 

31 and must calculate and disburse those funds to that student. 
5 

1 (2) In the case of a written arrangement between eligible institutions, the institutions may 

2 agree in writing to have any eligible institution in the written arrangement make those 

3 calculations and disbursements, and the Secretary does not consider that institution to be 

4 a third-party servicer for that arrangement. 

5 (3) The institution that calculates and disburses a student's title IV, HEA program 

6 assistance under paragraph (d)(1) or (d)(2) of this section must—

7 (i) Take into account all the hours in which the student enrolls at each institution that 

8 apply to the student's degree or certificate when determining the student's enrollment 

9 status and cost of attendance; and (ii) Maintain all records regarding the student's 

10 eligibility for and receipt of title IV, HEA program funds.

11 (e) Information made available to students. If an institution enters into a written 

12 arrangement as described in paragraph (a), (b) or (c) of this section, the institution must 

13 provide adequate information to ensure that students enrolled in a program covered by 

14 the written arrangement understand—

15 (1) The portion of the program that the institution is not providing;

16 (2) The name or names of the institutions or organizations that are providing the portion 

17 of the program that the institution is not providing; 

18 (3) The method of delivery of the portion of the program that the institution is not 

19 providing; and

20 (4) The authorization of the institution to offer the program in the format being provided.
1 

Issue Paper #9 

Team I – Program Integrity Issues 

 

Issue: Verification of Information Included on Student Aid Applications 

Statutory cites: HEA, Title IV, Part F 

Regulatory cites: 34 CFR 668, Subpart E (§§668.51 through 668.61) 

Summary question(s): How can the current verification regulations be modified to align them 

with recent changes to the need analysis provisions in the statute and with operational 

improvements in the application processing system. 

Under current regulations, an institution is required to verify the application information 

of no more than 30 percent of its total number of applicants for assistance under the Federal Pell 

Grant, ACG, National SMART Grant, Federal Direct Stafford/Ford Loan, campus-based, and 

Federal Stafford Loan programs in an award year that are selected by the Secretary based on 

edits specified by the Secretary to ensure that Federal aid applicants have accurately submitted 

the information used to determine their eligibility for financial aid. An institution may only 

include those applicants selected for verification by the Secretary in its calculation of 30 percent 

of total applicants. Complying with the verification provisions does not reduce or remove the 

requirement that an institution resolve conflicting information before it disburses aid. An 

institution may choose to verify more than 30 percent of its applicants. 

An institution must require an applicant selected for verification to submit acceptable 

documentation that will verify or update the following information used to determine the 

applicant's EFC: 

(1) Adjusted gross income (AGI) for the base year if base year data was used in determining 

eligibility, or income earned from work, for a non-tax filer. 

(2) U.S. income tax paid for the base year if base year data was used in determining eligibility. 

(3) The aggregate number of family members in the household. 

(4) The number of family members in the household who are enrolled as at least half-time 

students in postsecondary educational institutions if that number is greater than one. 

(5) Untaxed income and benefits for the base year if base year data was used in determining 

eligibility. 

An institution or the Secretary may require an applicant to verify any data elements that 

the institution or the Secretary specifies. 
2 

The Department believes that simplifying the FAFSA and permitting data importation 

from the IRS make a comprehensive review of the verification process advisable at this time. 

Because it will take some time for some changes to be effective and for some systems changes to 

be made, it makes sense, in revising the verification regulations, to write them so they are 

flexible enough to accommodate ongoing changes and yet also provide an acceptable level of 

assurance that the students who are receiving Federal funds are eligible to receive them. 

Although many changes on the horizon may permit a reduction in items verified, Department 

experience with inappropriate designations of dependency status and other concerns suggests 

that perhaps there should be additions to the verification requirements in addition to possible 

deletions or restructuring of requirements. 

Comments and questions: During the public hearings held last summer, and in written 

comments submitted to the Department, some in the financial aid community expressed concern 

that the verification process is complicated, difficult to understand and invasive for many 

families. One area that poses particular challenges to the successful completion of the 

verification process is the level of expertise relating to the federal tax code that financial aid 

officers are expected to have in order to resolve discrepancies such as determining whether the 

student and his or her family filed their income taxes properly if required to file. Many of the 

financial aid administrators who testified or provided comments said that tax filing status, and 

appropriate reporting of income pose particular problems. If the applicant needs to file or amend 

a tax return before verification can proceed, it can be a very lengthy process. 

There was also concern expressed that requiring large numbers of students to go through 

an extensive verification process can reduce the odds of the students completing the process and 

receiving aid in a timely manner. Low income students are frequently chosen for verification 

because they have more difficultly completing the application; to the extent that they do not 

complete the process and do not enroll, the aid programs are not serving their intended purpose. 

It was pointed out that simplification of the FAFSA is one important way to reduce the 

number of items that require verification. In simplifying the FAFSA, the Department can 

carefully examine each data element to determine whether it is really necessary in order to 

determine eligibility for student financial aid funds. 

Another commenter stated that the Higher Education Opportunity Act (HEOA) of 2008 

authorizes the Secretary to pre-populate the FAFSA with tax data from the Internal Revenue 

Service (IRS) with the applicant’s consent. This would relieve applicants of the burden of 

reviewing, correcting and resubmitting much of the most error-prone information on the FAFSA, 

while reducing and simplifying the verification process for schools. Beginning in January 2010, 

applicants will have the ability to import IRS tax data into their electronic FAFSA which 

eliminates the need to verify those data elements imported. 

Clearly, setting appropriate verification policy means addressing conflicting goals: ensuring 

that the right students receive the right amount of money at the right time while reducing 

improper payments to ineligible students. In consideration of these multiple, sometimes 

conflicting goals, and building on the comments received during the hearings and comment 

process, the following questions are offered as a starting point for discussion. 
3 

 Instead of specifying that five items, as applicable, must be verified for each applicant, 

should the regulations be revised to say that the Secretary will specify the items that must 

be verified for an applicant on the applicant’s ISIR? The five items in current regulations 

might be listed, but wording changed to allow for the following changes in policy and 

procedures: 

o The AGI and income taxes need not be verified for those applicants who have 

imported IRS data without modification. 

o At such time as the Department is able to isolate the particular item or 

combination of items that suggested a potential problem and triggered a 

verification request, such as number in household or number in postsecondary 

education, the verification requirement could be limited to one or two items. 

o If assets are eliminated from the computation, but students and families above a 

certain net worth threshold are ineligible for Federal need-based aid, it may be 

necessary to leave a door open for some kind of verification. Until there is a 

statute to implement, this provision is necessarily nebulous. But it speaks to the 

need to allow for flexibility in tailoring items to be verified. 

 Should additional potential verification items, such as dependency status, which has 

generated some concern since it was eliminated as a verification item, be added to the 

list? 

 Should some general language be added requiring verification of other items, as 

identified by the Secretary? 

 Should all first time applicants be verified? This might help first time students through 

the process and reduce the need for verifying their applications in future years. 

 The provision that institutions are required to verify no more than 30% of applicants was 

originally based on a statutory provision that has since been removed. Should the 30% 

limitation be revisited? 

 If the regulations are restructured so that institutions are required to verify fewer data 

elements, should institutions be required to verify a higher percentage of applicants? 

Updated information since November 2-6, 2009 meetings:

Draft Regulatory Language: 

 
4 

1 Subpart E_Verification and Updating of Student Aid Application Information 

2

3 §668.51 General. 

4 (a) Scope and purpose. The regulations in this subpart govern the verification by institutions of 

5 information submitted by applicants for student financial assistance in connection with the 

6 calculation of their expected family contributions (EFC) for under the Federal Pell Grant, 

7 ACG,National SMART Grant, campus-basedFederal Supplemental Educational Opportunity 

8 Grant (FSEOG), Federal Work-Study (FWS), Federal Perkins Loan, Federal Stafford Loan, and 

9 Federal Direct Stafford/Ford Loan programs. 

10 (b) Applicant responsibility. If the Secretary or the institution requests documents or 

11 information from an applicant under this subpart, the applicant shall provide the specified 

12 documents or information. 

13 (c) Foreign schools. The Secretary exempts from the provisions of this subpart participating 

14 institutions participating in the Federal Stafford Loan Program that are not located in a State. 

15

16 §668.52 Definitions. 

17 The following definitions apply to this subpart: 

18 Base year means the calendar year proceeding the first calendar year of an award year. 

19 Edits means a set of pre-established factors for identifying--

20 (a) Student aid applications that may contain incorrect, missing, illogical, or inconsistent 

21 information; and

22 (b) Randomly selected student aid applications.

23 Institutional student information record as defined in 34 CFR 690.2 and 691.2 for purposes of 

24 the Federal Pell Grant, ACG, National SMART Grant, Federal Perkins Loan, FWS, FSEOG, 

25 Federal Stafford Loan, and William D. Ford Federal Direct Loan programs.

26 Expected Family Contribution (EFC): The amount which a student and the student’s 

27 family is expected to contribute towards the student’s postsecondary education determined in 

28 accordance with section 473 of the HEA.

29 Free Application for Federal Student Aid (FAFSA): The student aid application 

30 provided for under section 483 of the HEA which is used to determine eligibility for the title IV, 

31 HEA programs.
5 

1 Institutional Student Information Record (ISIR): An electronic record that the Secretary 

2 transmits to an institution, for purposes of the title IV, HEA programs, that includes an 

3 applicant's—

4 (1) Personal identification information;

5 (2) Application data used to determine eligibility for title IV aid calculate the applicant's 

6 EFC; and

7 (3) EFC.

8 Student aid application means an application approved by the Secretary and submitted 

9 by a person to have his or her EFC determined under the Federal Pell Grant, ACG, National 

10 SMART Grant, Federal Perkins Loan, FWS, FSEOG, Federal Stafford Loan, or William D. Ford 

11 Federal Direct Loan programs. 

12 Specified year means the:

13 (1) Base year which is the calendar year preceding the first calendar year of an award 

14 year; or

15 (2) A year preceding the base year. 

16 Subsidized student financial assistance programs are title IV, HEA programs for 

17 which eligibility is determined on the basis of a student’s EFC. 

18 Unsubsidized student financial assistance programs are title IV, HEA programs for 

19 which eligibility is not based on a student’s EFC.

20

21 §668.53 Policies and procedures. 

22 (a) An institution shall establish and use written policies and procedures for verifying 

23 information contained in a student aid applicationFAFSA in accordance with the provisions of 

24 this subpart. These policies and procedures must include--

25 (1) The time period within which an applicant shall provide the documentation; 

26 (2) The consequences of an applicant's failure to provide required documentation within the 

27 specified time period; 
6 

1 (3) The method by which the institution notifies an applicant of the results of verification if, as 

2 a result of verification, the applicant's EFC changes and results in a change in the applicant's 

3 award or loan; 

4 (4) The procedures the institution requires an applicant to follow to correct application FAFSA 

5 information determined to be in error; and 

6 (5) The procedures for making referrals under §668.16(g). 

7 (b) The institution's procedures must provide that it shall furnish, in a timely manner, to each 

8 applicant selected for verification a clear explanation of--

9 (1) The documentation needed to satisfy the verification 

10 requirements; and 

11 (2) The applicant's responsibilities with respect to the 

12 verification of application FAFSA information, including the deadlines for completing any 

13 actions required under this subpart and the consequences of failing to complete any required 

14 action.

15 (c) An institution’s procedures must provide that an applicant whose FAFSA is selected 

16 for verification by the Secretary, is required to update and verify the information the Secretary 

17 specifies before the institution exercises any authority under section 479A(a) of the HEA to 

18 make changes to the applicant’s cost of attendance or to the values of the data items required to 

19 calculate the EFC.

20

21 §668.54 Selection of applicationsFAFSA information for verification. 

22

23 (a) General requirements. (1) Except as provided in paragraph (b) of this section, an institution 

24 shall require an applicant to verify application FAFSA information as specified in this paragraph. 

25 (2)(i) An institution shall require each applicant whose application FAFSA information is 

26 selected for verification on the basis of edits specified by the Secretary, to verify all of the 

27 applicable items information the Secretary specifies pursuant specify to §668.56, except that no 

28 institution is required to verify the applications of more than 30 percent of its total number of 

29 applicants for assistance under the Federal Pell Grant, ACG, National SMART Grant, Federal 

30 Direct Stafford/Ford Loan, campus-based, and Federal Stafford Loan programs in an award year. 
7 

1 (ii) An institution may only include those applicants selected for verification by the Secretary 

2 in its calculation of 30 percent of total applicants.

3 (3) If an institution has reason to believe that any information on an applicationFAFSA used to 

4 determine eligibility for the Title IV HEA rogramscalculate an EFC is inaccurate, it shall require 

5 the applicant to verify the that information. that it has reason to believe is inaccurate.

6 (4) If an applicant is selected to verify the information on his or her application under 

7 paragraph (a)(2) of this section, the institution shall require the applicant to verify the 

8 information as specified in §668.56 on each additional application he or she submits for that

9 award year, except for information already verified under a previous application submitted for 

10 the applicable award year.

11 (54) An institution or the Secretary may require an applicant to verify any information data 

12 elements that the institution or the Secretary it specifies.

13 (b) Exclusions from verification. (1) An institution need not verify an application FAFSA

14 information submitted for an award year if the applicant dies during the award year. 

15 (2) Unless the institution has reason to believe that the information reported by the applicant is 

16 incorrect, it need not verify applications FAFSA information of the following applicants: 

17 (i) An applicant who is--

18 (A) A legal resident of and, in the case of a dependent student, whose parents are also legal 

19 residents of, the Commonwealth of the Northern Mariana Islands, Guam, or American Samoa; or

20 (B) A citizen of and, in the case of a dependent student, whose parents are also citizens of, the 

21 Republic of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau.

22 (ii) An applicant who is incarcerated at the time at which

23 verification would occur.

24 (iii) An applicant who is a dependent student, whose parents are residing in a country other 

25 than the United States and cannot be contacted by normal means of communication, as 

26 documented by the institution. 

27 (iv) An applicant who is an immigrant and who arrived in the United States during either 

28 calendar year of the award year. Put something over in the documentation side.

29 (vii) An applicant whose parents' contact information address is unknown and cannot be 

30 obtained by the applicant. 
8 

1 (viii) An applicant who is a dependent student, both of whose parents are deceased or are

2 physically or mentally incapacitated. 

3 (viiiv) An applicant who does not receive assistance for reasons other than his or her failure to 

4 verify the information on the applicationFAFSA or who receives only unsubsidized student 

5 financial assistance. 

6 (viii) An applicant who transfers to the institution, had previously completed the verification 

7 process at the institution from which he or she transferred, and applies for assistance on the same 

8 application FAFSA used at the previous institution, if the current institution obtains a letter from 

9 the previous institution stating that it has verified the applicant's information, the transaction 

10 number of the verified applicationFAFSA., and, if relevant, the provision used in §668.59 for not 

11 recalculating the applicant's EFC.

12 (3) An institution need not require an applicant to document a spouse's information or provide 

13 a spouse's signature if--

14 (i) The spouse is deceased;

15 (ii) The spouse is mentally or physically incapacitated; 

16 (iii) The spouse is residing in a country other than the United States and cannot be contacted 

17 by normal means of communication, as documented by the institution; or 

18 (iiiv) The spouse cannot be located because his or her address contact information is unknown 

19 and cannot be obtained by the applicant. 

20

21 §668.55 Updating information. 

22

23 (a)(1) Unless the provisions of paragraph (a)(2) or (a)(3) of this section apply, an applicant is 

24 required to update--

25 (i) The number of family members in the applicant's household and the number of those 

26 household members attending postsecondary educational institutions, in accordance with 

27 provisions of paragraph (b)of this section; and 

28 (ii) His or her dependency status in accordance with the provisions of paragraph (dc) of this 

29 section. 

30 (2) An institution need not require an applicant to verify the information contained in his or 

31 her application FAFSA for assistance in an award year if--
9 

1 (i) The applicant previously submitted an application FAFSA for assistance for that award 

2 year; 

3 (ii) The applicant updated and verified the information contained in that applicationFAFSA; 

4 and 

5 (iii) No change in the information to be updated has taken place since the last update. 

6 (3) If, as a result of a change in the applicant's marital status, the number of family members in 

7 the applicant's household, the number of those household members attending postsecondary 

8 education institutions, or the applicant's dependency status changes, the applicant shall not

9 update those factors or that status.

10 (b) If the number of family members in the applicant's household or the number of those 

11 household members attending postsecondary educational institutions changes for a reason other 

12 than a change in the applicant's marital status, an applicant who is selected for verification shall 

13 update the information contained in his or her FAFSAapplication regarding those factors so that 

14 the information is correct as of the day the applicant verifies the information.

15 (c) If an applicant has received Federal Pell Grant, ACG, National SMART Grant, campus16 based, Federal Stafford Loan, or Federal Direct Stafford/Ford Loan program assistance for an 

17 award year, and the applicant subsequently submits another application for assistance under any 

18 of those programs for that award year, and the applicant is required to update household size and 

19 number attending postsecondary educational institutions on the subsequent application, the 

20 institution--

21 (1) Is required to take that newly updated information into account when awarding for that 

22 award year further Federal Pell Grant, ACG, National SMART Grant, or campus-based, 

23 assistance or certifying a Federal Stafford Loan application, or originating a Direct Subsidized

24 Loan; and

25 (2) Is not required to adjust the Federal Pell Grant, ACG, National SMART Grant, or campus26 based assistance previously awarded to the applicant for that award year, or any previously 

27 certified Federal Stafford Loan application or previously originated Direct Subsidized Loan for 

28 that award year, to reflect the newly updated information unless the applicant would otherwise 

29 receive an overaward.

30 (dc)(1)Except as provided in paragraphs (a)(3) and (d)(2) of thissection, iIf an applicant's 

31 dependency status changes after the applicant applies to have his or her EFC calculated for an the 
10 

1 award year, the applicant must file update the information a new application for that award to 

2 year reflecting the applicant's new dependency status regardless of whether the applicant is 

3 selected for verification. 

4 (2) If the institution has previously certified a Federal Stafford Loan application for an 

5 applicant, the applicant shall not update his or her dependency status on the Federal Stafford 

6 Loan application. If the institution has previously originated a Direct Subsidized Loan for a

7 borrower, the school shall not update the borrower's dependence status on the loan origination 

8 record.

9

10 §668.56 Items Information to be verified. 

11

12 (a) For each award year the Secretary shall publish in the Federal Register the 

13 information that is subject to verification.

14 (b) For each applicant whose application is selected for verification by the Secretary, 

15 the Secretary shall specify the information to be verified.

16 (a) Except as provided in paragraphs (b), (c), (d), and (e) of this section, an institution shall 

17 require an applicant selected for verification under §668.54(a)(2) or (3) to submit acceptable

18 documentation described in §668.57 that will verify or update the following information used to 

19 determine the applicant's EFC:

20 (1) Adjusted gross income (AGI) for the base year if base year data was used in determining 

21 eligibility, or income earned from work, for a non-tax filer.

22 (2) U.S. income tax paid for the base year if base year data was used in determining eligibility.

23 (3)(i) For an applicant who is a dependent student, the aggregate number of family members in 

24 the household or households of the applicant's parents if--

25 (A) The applicant's parent is single, divorced, separated or widowedand the aggregate number 

26 of family members is greater than two; or

27 (B) The applicant's parents are married to each other and not separated and the aggregate 

28 number of family members is greater than three.

29 (ii) For an applicant who is an independent student, the number of family members in the 

30 household of the applicant if--
11 

1 (A) The applicant is single, divorced, separated, or widowed and the number of family 

2 members is greater than one; or

3 (B) The applicant is married and not separated and the number of family members is greater 

4 than two.

5 (4) The number of family members in the household who are enrolled as at least half-time 

6 students in postsecondary educational institutions if that number is greater than one.

7 (5) The following untaxed income and benefits for the base year if base year data was used in 

8 determining eligibility--

9 (i) Social Security benefits if the institution has reason to believe that those benefits were 

10 received and were not reported or were incorrectly reported;

11 (ii) Child support if the institution has reason to believe that child support was received;

12 (iii) U.S. income tax deduction for a payment made to an individual retirement account (IRA) 

13 or Keogh account;

14 (iv) Interest on tax-free bond;

15 (v) Foreign income excluded from U.S. income taxation if the

16 institution has reason to believe that foreign income was received; (vi) The earned income 

17 credit taken on the applicant's tax return;

18 and

19 (vii) All other untaxed income subject to U.S. income tax reportingrequirements in the base 

20 year which is included on the tax return form, excluding information contained on schedules 

21 appended to such forms.

22 (b) If an applicant selected for verification submits an SAR or output document to the 

23 institution or the institution receives the applicant's ISIR, within 90 days of the date the applicant 

24 signed his or her application, or if an applicant is selected for verification under §668.54(a)(2), 

25 the institution need not require the applicant to

26 verify--

27 (1) The number of family members in the household; or

28 (2) The number of family members in the household, who are enrolled as at least half-time 

29 students in postsecondary educational institutions.
12 

1 (c) If the number of family members in the household or the amount of child support reported 

2 by an applicant selected for verification is the same as that verified by the institution in the 

3 previous award year, the institution need not require the applicant to verify that information.

4 (d) If the family members who are enrolled as at least half-time students in postsecondary 

5 educational institutions are enrolled at the same institution as the applicant, and the institution 

6 verifies their enrollment status from its own records, the institution need not require the applicant 

7 to verify that information.

8 (e) If the applicant or the applicant's spouse or, in the case of a dependent student, the 

9 applicant's parents receive untaxed income or benefits from a Federal, State, or local government 

10 agency determining their eligibility for that income or those benefits by means of a financial 

11 needs test, the institution need not require the untaxed income and benefits to be verified.

12

13 § 668.57 Acceptable documentation.

14

15 If an applicant is selected to verify any of the following information, an institution must obtain 

16 the documentation indicated.

17

18 (a) Adjusted Gross Income (AGI), income earned from work, and U.S. income tax paid. (1) 

19 Except as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section, an institution shall 

20 require an applicant selected for verification ofto verify AGI, income earned from work and/or

21 U.S. income tax paid toby submitting to it, if relevant—

22 (i) A copy of the income tax return or an IRS form which lists tax account information of the 

23 applicant, his or her spouse, and his or her parents. The copy of the return must be signed by 

24 include the signature (which need not be an original) of the filer of the return or ofby one of the 

25 filers of a joint return;

26 (ii) For a dependent student, a copy of each Internal Revenue Service (IRS) Form W-2 

27 received by the parent whose income is being taken into account if--

28 (A) The parents filed a joint return; and 

29 (B) The parents are divorced or separated or one of the parents has died; and 

30 (iii) For an independent student, a copy of each IRS Form W-2 he or she received if the 

31 independent student--
13 

1 (A) Filed a joint return; and 

2 (B) Is a widow or widower, or is divorced or separated.

3 (2) An institution may accept, in lieu of an income tax return or an IRS form which lists tax 

4 account information, the information reported for an item on the applicant’s ISIR if the Secretary 

5 has identified that item as having been obtained from the IRS.

6 (2) If an individual who filed a U.S. tax return and who is required by paragraph (a)(1) of this 

7 section to provide a copy of his or her tax return does not have a copy of that return, the 

8 institution may require that individual to submit, in lieu of a copy of the tax return, a copy of an 

9 IRS form which lists tax account information.

10 (3) An institution shall accept, in lieu of an income tax return or an IRS form which listsing of 

11 tax account information of an individual whose income information was used in determining an 

12 applicant’s eligibility for the title IV, HEA programs calculating the EFC of an applicant, the 

13 documentation set forth in paragraph (a)(4) of this section if the individual for the base specified

14 year--

15 (i) Has not filed and is not required to file an income tax return; 

16 (ii) Is required to file a U.S. tax return and has been granted a filing extension by the IRS; or 

17 (iii) Has requested a copy of the tax return or an IRS form which lists tax account 

18 informationListing of Tax Account Information, and the IRS or a government of a U.S. territory 

19 or commonwealth or a foreign central government cannot locate the return or provide an IRS 

20 form which lists tax account informationListing of Tax Account Information. 

21 (4) An institution shall accept--

22 (i) For an individual described in paragraph (a)(3)(i) of this section, a statement signed by that 

23 individual certifying that he or she has not filed nor is required to file an income tax return for 

24 the base specified year and certifying for that year that individual's--

25 (A) Sources of income earned from work as stated on the application; and 

26 (B) Amounts of income from each source; 

27 (ii) For an individual described in paragraph (a)(3)(ii) of this section--

28 (A) A copy of the IRS Form 4868, ``Application for Automatic 

29 Extension of Time to File U.S. Individual Income Tax Return,'' that the individual filed with the 

30 IRS for the base specified year, or a copy of the IRS's approval of an extension beyond the 
14 

1 automatic four-month extension if the individual requested an additional extension of the filing 

2 time; and 

3 (B) A copy of each IRS Form W-2 that the individual received for the base specified year, or 

4 for a self-employed individual, a statement signed by the individual certifying the amount of 

5 adjusted gross income the AGI for the base specified year; and 

6 (iii) For an individual described in paragraph (a)(3)(iii) of this section--

7 (A) A copy of each IRS Form W-2 that the individual received for the base specified year; or 

8 (B) For an individual who is self-employed or has filed an income tax return with a 

9 government of a U. S. territory or commonwealth, or a foreign central government, a statement 

10 signed by the individual certifying the amount of adjusted gross income the AGI for the base 

11 specified year. 

12 (5) An institution shall require an individual described in paragraph (a)(3)(ii) of this section to 

13 provide to it a copy of his or her completed income tax return when filed. When an institution 

14 receives the copy of the return, it may shall re-verify the adjusted gross income and taxes paid by 

15 the applicant and his or her spouse or parents. 

16 (6) If an individual who is required to submit an IRS Form W-2 under this paragraph is unable 

17 to obtain one in a timely manner, the institution may permit that individual to set forth, in a 

18 statement signed by the individual, the amount of income earned from work, the source of that 

19 income, and the reason that the IRS Form W-2 is not available in a timely manner. 

20 (7) For the purpose of this section, an institution may accept in lieu of a copy of an income tax 

21 return signed by the filer of the return or one of the filers of a joint return, a copy of the filer's 

22 return that has been signed by the preparer of the return or stamped with the name and address of 

23 the preparer of the return.

24 (b) Number of family members in household. An institution shall require an applicant selected 

25 for verification to verify the number of family members in the household by submitting to it a 

26 statement signed by the applicant and one of the applicant's parents if the applicant is a 

27 dependent student, or the applicant if the applicant is an independent student, listing the name 

28 and age of each family member in the household and the relationship of that household member 

29 to the applicant. 

30 (c) Number of family household members enrolled in eligible postsecondary institutions. (1) 

31 Except as provided in §668.56(b), (c), (d), and (e), aAn institution shall require an applicant 
15 

1 selected for verification to verify annually information included on the application regarding the 

2 number of household members in the applicant's family enrolled on at least a half-time basis in 

3 eligible postsecondary institutions. The institution shall require the applicant to verify the 

4 information by submitting a statement signed by the applicant and one of the applicant's parents, 

5 if the applicant is a dependent student, or by the applicant if the applicant is an independent 

6 student, listing--

7 (i) The name of each family member who is or will be attending an eligible postsecondary 

8 educational institution as at least a half-time student in the award year; 

9 (ii) The age of each student; and 

10 (iii) The name of the institution attended by each student. 

11 (2) If the institution has reason to believe that the information included on the application 

12 regarding the number of family household members enrolled in postsecondary institutions is 

13 inaccurate, the institution shall require--

14 (i) The statement required in paragraph (c)(1) of this section from the individuals described in 

15 paragraph (c)(1) of this section; and

16 (ii) Aa statement from each institution named by the applicant in response to the requirement 

17 of paragraph (c)(1)(iii) of this section that the household member in question is or will be 

18 attending the institution on at least a half-time basis, unless —

19 (i) Tthe institution the student is attending determines that such a statement is not 

20 available because the household member in question has not yet registered at the 

21 institution he or she plans to attend; or 

22 (ii) Tthe institution has information itself that the student will be attending the same 

23 school as the applicant.

24 (d) Untaxed income and benefits. An institution shall require an applicant selected for 

25 verification to verify--

26 (1) Untaxed income and benefits described in §668.56(a)(5)(iii), (iv), (v), (vi), and (vii) by 

27 submitting to it--

28 (i) A copy of the U.S. income tax return signed by the filer or one of the filers if a joint return, 

29 if collected under paragraph (a) of this section, or the IRS listing of tax account information if 

30 collected by the institution to verify adjusted gross income; or
16 

1 (ii) If no tax return was filed or is required to be filed, a statement signed by the relevant 

2 individuals certifying that no tax return was filed or is required to be filed and providing the 

3 sources and amount of untaxed income and benefits specified in Sec.668.56(a)(5) (iii), (iv), (v), 

4 and (vi);

5 (2) Social Security benefits if the institution has reason to believe that those benefits were 

6 received and were not reported, or that the applicant has incorrectly reported Social Security 

7 benefits received by the applicant, the applicant's parents, or any other children of the applicant's 

8 parents who are members of the applicant's household, in the case of a dependent student, or by 

9 the applicant, the applicant's spouse, or the applicant's children in the case of an independent 

10 student. The applicant shall verify Social Security benefits by submitting a document from the 

11 Social Security Administration showing the amount of benefits received in the appropriate 

12 calendar year for the appropriate individuals listed above or, at the institution's option, a 

13 statement signed by both the applicant and the applicant's parent, in the case of a dependent 

14 student, or by the applicant, in the case of an independent student, certifying that the amount 

15 listed on the applicant's aid application is correct; and

16 (3) Child support received by submitting to it--

17 (i) A statement signed by the applicant and one of the applicant's parents in the case of a 

18 dependent student, or by the applicant in the case of an independent student, certifying the 

19 amount of child support received; and

20 (ii) If the institution has reason to believe that the information provided is inaccurate, the 

21 applicant must verify the amount of child support received by providing a document such as--

22 (A) a copy of the separation agreement or divorce decree showing the amount of child support 

23 to be provided;

24 (B) A statement from the parent providing the child support showing the amount provided; or

25 (C) Copies of the child support checks or money order receipts.

26 (d) If an applicant is selected to verify other information specified in the annual 

27 Federal Register notice, the applicant must provide the documentation specified in that Federal 

28 Register notice.

29

30 §668.58 Interim disbursements. 

31
17 

1 (a)(1) If an institution has reason to believe that the information included on the application is 

2 inaccurate, until the applicant verifies or corrects the information included on his or her 

3 application, the institution may not--

4 (i) Disburse any Federal Pell Grant, ACG, National SMART Grant, or campus-based FSEOG

5 or Federal Perkins Loan program funds to the applicant; 

6 (ii) Employ the applicant in its FWSederal Work-Study Program; 

7 (iii) Certify the applicant's Federal Stafford Loan application or process disburse Federal 

8 Stafford Loan proceeds for any previously certified Federal Stafford Loan application; or

9 (iv) Originate the applicant's Federal Direct Stafford Loan application or disburse Federal 

10 Direct Stafford Loan proceeds for any previously originated Federal Direct Stafford Loan; or

11 (2) If an institution does not have reason to believe that the information included on an 

12 application is inaccurate prior to verification, the institution--

13 (i) May withhold payment of Federal Pell Grant, ACG, National SMART Grant, or campus14 based FSEOG or Federal Perkins Loan funds; or 

15 (ii)(A) May make one disbursement ofrom each of the any combination of Federal Pell Grant, 

16 ACG, National SMART Grant, Federal Perkins Loan, or FSEOG or Federal Direct Stafford Loan 

17 programsfunds for the applicant's first payment period; and 

18 (B) May employ or allow an employer to employ an eligible student under the FWSederal 

19 Work-Study Program for the first 60 consecutive days after the student's enrollment in that 

20 award year; and 

21 (iii)(A) May withhold certification of the applicant's Federal Stafford Loan application or 

22 origination of the applicant's Direct Subsidized Loan; or 

23 (B) May certify the Federal Stafford Loan application or originate the Federal Direct Stafford 

24 Subsidized Loan provided that the institution does not deliver Federal Stafford Loan proceeds or 

25 disburse Direct Subsidized Loan proceeds. 

26 (b) If an institution chooses to make disbursement under paragraph (a)(2)(ii)(A) or (B) of this 

27 section, it is liable for any overpayment discovered that as a results from of the verification 

28 process to the extent that the overpayment is not recovered from the student. 

29 (c) An institution may not withhold any Federal Stafford Loan or Direct Loan proceeds from a 

30 student under paragraph (a)(2) of this section for more than 45 days. If the applicant does not 
18 

1 complete the verification process within the 45 day period, the institution shall return the 

2 proceeds to the lender.

3 (d)(1) If the institution receives Federal Stafford Loan or Direct Loan proceeds in an amount 

4 which exceeds the student's need for the loan based upon the verified information and the excess 

5 funds can be eliminated by reducing subsequent disbursements for the applicable loan period, the 

6 institution shall process the proceeds and advise the lender to reduce the subsequent 

7 disbursements.

8 (2) If the institution receives Federal Stafford Loan or Direct Loan proceeds in an amount 

9 which exceed the student's need for the loan based upon the verified information and the excess 

10 funds cannot be eliminated in subsequent disbursements for the applicable loan period, the 

11 institution shall return the excess proceeds to the lender.

12

13 §668.59 Consequences of a change in application information. 

14

15 (a) For the subsidized student financial assistance Federal Pell Grant, ACG, and National 

16 SMART Grant programs,--

17 (1) Except as provided in paragraph (a)(2) of this section, if the information on an application 

18 changes as a result of the verification process, the institution shall make the changes or require 

19 the applicant to resubmit his or her application information to the Secretary for corrections. if--

20 (i) The institution recalculates the applicant's EFC, determines that the applicant's EFC 

21 changes, and determines that the change in the EFC changes the applicant's Federal Pell Grant

22 , ACG, or National SMART Grant award; or

23 (ii) The institution does not recalculate the applicant's EFC.

24 (2) An institution need not require an applicant to resubmit his or her application information 

25 to the Secretary, recalculate an applicant's EFC, or adjust an applicant's Federal Pell Grant

26 , ACG, or National SMART Grant award if, as a result of the verification process, the institution 

27 finds--

28 (i) No errors in nondollar items used to calculate the applicant's EFC;

29 (ii) No dollar amount in excess of $400 as calculated by the net difference between the 

30 corrected sum of Adjusted Gross Income (AGI) plus untaxed income minus U.S. taxes paid and 

31 the uncorrected sum of Adjusted Gross Income (AGI) plus untaxed income minus U.S. taxes 
19 

1 paid. If no Federal Income Tax Return was filed, income earned from work may be used in lieu 

2 of Adjusted Gross Income (AGI).

3 (b) For the Federal Pell Grant, ACG, and National SMART Grant Pprograms--

4 (1) If an institution does not recalculate an applicant's EFC under the provisions of paragraph 

5 (a)(2) of this section, the institution shall calculate and disburse the applicant's Federal Pell 

6 Grant, ACG, or National SMART Grant award on the basis of the applicant's original EFC.

7 (2)(i) Except as provided under paragraph (b)(2)(ii) of this

8 section, if an institution recalculates an applicant's EFC because of a change in application 

9 information resulting from the verification process, the institution shall--

10 (A) Require the applicant to resubmit his or her application to the Secretary;

11 (B) Recalculate the applicant's Federal Pell Grant, ACG, or National SMART Grant award on 

12 the basis of the EFC on the corrected SAR or ISIR; and

13 (C) Disburse any additional funds under that award only if the applicant provides the 

14 institution with the corrected SAR or ISIR and only to the extent that additional funds are 

15 payable based on the recalculation.

16 (ii) If an institution recalculates an applicant's EFC because of a change in application 

17 information resulting from the verification process and determines that the change in the EFC 

18 increases the applicant's award, the institution--

19 (A) May disburse the applicant's Federal Pell, ACG, or National SMART Grant Grant award 

20 on the basis of the original EFC without requiring the applicant to resubmit his or her application 

21 information to the Secretary; and

22 (B) Except as provided in §668.60(b), shall disburse any

23 additional funds under the increased award reflecting the new EFC if the institution receives the 

24 corrected SAR or ISIR.

25 (db)(1) If the institution selects an applicant for verification for an award year who previously 

26 received a Federal Direct Subsidized Loan for that award year, and as a result of verification the 

27 loan amount is reduced, the institution shall comply with the procedures specified in 

28 §668.61(b)(2). 

29 (2) If the institution selects an applicant for verification for an award year who previously 

30 received a loan under the Federal Stafford Loan Program for that award year, and as a result of 
20 

1 verification the loan amount is reduced, the institution shall comply with the procedures for 

2 notifying the borrower and lender specified in §668.61(b) and §682.604(h). 

3 (ec) If the applicant has received funds based on information which may be incorrect and the 

4 institution has made a reasonable effort to resolve the alleged discrepancy, but cannot do so, the 

5 institution shall forward the applicant's name, social security number, and other relevant 

6 information to the Secretary. 

7

8 §668.60 Deadlines for submitting documentation and the consequences of failing to provide 

9 documentation. 

10

11 (a) An institution shall require an applicant selected for verification to submit to it, within the 

12 period of time it or the Secretary specifies, the documentations set forth in §668.57 that are 

13 requested by the institution or the Secretary. 

14 (b) For purposes of the Subsidized student financial assistance programs, excluding the 

15 Federal Pell Grant Program campus-based, Federal Stafford Loan, Federal Direct Stafford/Ford 

16 Loan programs--

17 (1) If an applicant fails to provide the requested documentation within a reasonable time 

18 period established by the institution or by the Secretary--

19 (i) The institution may not--

20 (A) Disburse any additional Federal Perkins Loan, or FSEOG or funds to the applicant; 

21 (B) Continue to employ or allow an employer to employ the applicant under FWS; 

22 (C) Certify the applicant's Federal Stafford Loan application or originate the applicant's 

23 Federal Direct Subsidized Loan; or 

24 (D) Process Disburse any additional Federal Stafford Loan or Federal Direct Subsidized Loan 

25 Direct Loan proceeds for the applicant; 

26 (ii) The institution shall return to the lender, or to the Secretary, in the case of a Direct 

27 Subsidized Loan, any Federal Stafford Loan or Direct Subsidized Loan proceeds that otherwise 

28 would be payable to the applicant; and

29 (iii) The applicant shall repay to the institution any Federal Perkins Loan, FSEOG, or 

30 payments received for that award year; 
21 

1 (2) If the applicant provides the requested documentation after the time period established by 

2 the institution, the institution may, at its option, award aid to the applicant notwithstanding 

3 paragraph (b)(1)(i) of this section.; and

4 (3) An institution may not withhold any Federal Stafford Loan proceeds from an applicant 

5 under paragraph (b)(1)(i)(D) of this section for more than 45 days. If the applicant does not 

6 complete verification within the 45-day period, the institution shall return the Federal Stafford 

7 Loan proceeds to the lender.

8 (c) For purposes of the Federal Pell Grant , ACG, and National SMART Grant Pprograms--

9 (1) An applicant may submit a verified SAR to the institution or the institution may receive a 

10 verified ISIR after the applicable deadline specified in 34 CFR 690.61 and 691.61 but within an 

11 established additional time period set by the Secretary through publication of a notice in the 

12 Federal Register. If the institution receives a verified SAR or ISIR during the established 

13 additional time period, and the EFC on the two SARs or ISIRs are different, payment must be 

14 based on the higher of the two EFCs.

15 (2) If the applicant does not provide to the institution the requested documentation and, if 

16 necessary, a verified SAR or the institution does not receive a verified ISIR, within the additional 

17 time period referenced in paragraph (c)(1) of this section, the applicant--

18 (i) Forfeits the Federal Pell Grant, ACG, or National SMART Grant for the award year; and 

19 (ii) Shall return any Federal Pell Grant, ACG, or National SMART Grant payments previously 

20 received for that award year to the Secretary. 

21 (d) The Secretary may determine not to process any subsequent application for Federal Pell 

22 Grant, ACG, or National SMART Grant Pprogram assistance, and an institution, if directed by 

23 the Secretary, may not process any subsequent application for campus-based FSEOG, FWS, 

24 Federal Perkins Loan, Federal Direct Stafford/Ford Loan, or Federal Stafford Loan program 

25 assistance of an applicant who has been requested to provide documentation until the applicant 

26 provides the documentation or the Secretary decides that there is no longer a need for the 

27 documentation.

28 (ed) If an applicant selected for verification for an award year dies before the deadline for 

29 completing the verification process without completing that process, and the deadline is in the 

30 subsequent award year, the institution may not--

31 (1) Make any further disbursements on behalf of that applicant; 
22 

1 (2) Certify that applicant's Federal Stafford Loan application, originate that applicant's Federal 

2 Direct Subsidized Loan, or process disburse that applicant's Federal Stafford Loan or Federal 

3 Direct Subsidized Loan proceeds; or 

4 (3) Consider any funds it disbursed to that applicant under §668.58(a)(2) as an overpayment. 

5

6 §668.61 Recovery of funds. 

7

8 (a) If an institution discovers, as a result of the verification process, that an applicant received 

9 under §668.58(a)(2)(ii)(A) more financial aid than the applicant was eligible to receive, the 

10 institution shall eliminate the overpayment by--

11 (1) Adjusting subsequent financial aid payments in the award year in which the overpayment 

12 occurred; or 

13 (2) Reimbursing the appropriate program account by--

14 (i) Requiring the applicant to return the overpayment to the 

15 institution if the institution cannot correct the overpayment under paragraph (a)(1) of this 

16 section; or 

17 (ii) Making restitution from its own funds, by the earlier of the following dates, if the applicant 

18 does not return the overpayment: 

19 (A) Sixty days after the applicant's last day of attendance. 

20 (B) The last day of the award year in which the institution 

21 disbursed Federal Pell Grant, ACG, National SMART Grant, Federal Perkins Loan, or FSEOG 

22 funds to the applicant. 

23 (b) 

24 (1) If the institution determines as a result of the verification process that an applicant received 

25 Stafford Loan or proceeds for an award year in excess of the student's financial need for the loan, 

26 the institution shall withhold and promptly return to the lender or escrow agent any disbursement 

27 not yet delivered to the student that exceeds the amount of assistance for which the student is 

28 eligible, taking into account other financial aid received by the student. However, instead of

29 returning the entire undelivered disbursement, the school may choose to return promptly to the 

30 lender only the portion of the disbursement for which the student is ineligible. In either case, the 
23 

1 institution shall provide the lender with a written statement describing the reason for the returned 

2 loan funds.

3 (2) If the institution determines as a result of the verification process that a student received 

4 Federal Direct Subsidized Loan proceeds for an award year in excess of the student's need for the 

5 loan, the institution shall reduce or cancel one or more subsequent disbursements to eliminate the 

6 amount in excess of the student's need. 
1 

Issue Paper #10 

Team I – Program Integrity Issues 

 

Issue: Satisfactory Academic Progress 

Statutory cites: HEA sections 484(a)(2), 484(c)

Regulatory cites: 34 CFR 668.16(e), 668.32(f), and 668.34 

Summary question(s): Should we modify and strengthen the satisfactory academic 

progress (SAP) regulations to ensure that students who are receiving Title IV aid are truly 

progressing in their academic program in a reasonable time period? 

Summary of issue: To be eligible for Federal financial aid, a student must make 

satisfactory academic progress, and the school must have a published policy for 

monitoring that progress. A SAP policy is considered reasonable if it contains both 

qualitative (grade-based) and quantitative (time-related) standards. It must apply the 

policy consistently to all educational programs and to all students within categories e.g., 

full-time, part-time, undergraduate, and graduate students. The policy must be at least as 

strict as the school’s standard for students enrolled in the same educational program who 

are not receiving Title IV aid. It must provide for schools to check qualitative and 

quantitative components of the standards at the end of increments that cannot be longer 

than half the program or one academic year, whichever is less. Increments generally 

coincide with payment periods. The policy must provide specific procedures under 

which a student may appeal a determination that the student is not making satisfactory 

progress. This is not to say that a school must provide for appeals; a school’s policy may 

be that it does not entertain appeals. The policy must also provide specific procedures for 

a student to re-establish that the student is making satisfactory progress. Review of 

institutional policies shows that an institution can have a policy that meets all of our 

criteria, but due to automatic probationary periods, a student may receive aid for as long 

as 24 months without further review of his progress. 

Comments and questions

Effect of retaking courses on meeting qualitative standards. Under current regulations, 

the school’s written policy must explain how it handles course repetitions, such as 

whether only the highest or most recent grade counts. While the school can exclude 

grades for prior attempts (repeat/delete) when calculating a student’s GPA, the school 

must include the credits from all attempts when assessing if the student meets the 

quantitative SAP standard. Should this provision be reconsidered? Should students be 

permitted to use title IV funds to retake courses to get a better grade? 

Increments. Some schools monitor SAP on an annual basis. Many of the individuals 

who provided public comments on SAP recommended that regulations governing SAP be 

changed to require SAP reviews more frequently than once each year. 
2 

Cumulative completion and GPA requirements. We need to make it clear that the 

standards must lead to successful completion of the program in the timeframe. 

Requiring a “C” average of all students. The only reference to a “C” average in 

regulations is in §668.34(c). The requirement currently applies only to students enrolled 

in programs of two years or longer. If there is a change made in the frequency of SAP 

review, should this provision be revisited as well? 

Probationary periods. The current regulations do not require a school’s SAP policy to 

specify if and how probationary periods will be accommodated. As a result, some 

students are permitted to remain on probation continuously even if their cumulative GPA 

and/or completion rate does not meet standards. One question for consideration is 

whether to add some specificity to the regulations regarding probationary periods. 

Appeals. Under current regulations, a school enrolled in programs of less than two years 

may have an appeal process under which an appeal is granted for any reason as long as 

the student completed the process. Should §668.16(e) be amended to require schools’ 

appeal policies comport with §668.34(c)? 

Graduate programs. The current regulations are written primarily for undergraduate 

programs. What changes are needed to ensure that SAP standards for graduate programs 

are sufficient? 

Updated information since November meeting: 

The Department felt that it would be helpful to start with some definitions for terms to be 

used in constructing new regulations for Satisfactory Academic progress. The following 

are intended to start that discussion. 
3 

1 Draft definitions 

2 Qualitative Component: Consists of grades, work projects completed, or comparable 

3 factors that are measurable against a norm. 

4 For programs longer than two academic years in length, the qualitative component must 

5 also provide that a student must have a grade point average of at least a “C” or its 

6 equivalent, or have academic standing consistent with the institution's requirements for 

7 graduation, at the end of the second year. 

8 Quantitative Component: Consists of a maximum timeframe in which a student must 

9 complete his or her educational program. 

10 Maximum Timeframe: For an undergraduate program, is no longer than 150 percent of 

11 the published length of the educational program. 

12 For a graduate program, is defined by the institution in accordance with the length of the 

13 academic program. 

14 Increments: A discrete period of time, not to exceed the lesser of one academic year or 

15 one-half the published length of the educational program whichever is shorter, that is 

16 used to monitor the student’s progression towards completion of the program. Each 

17 increment must include a schedule, established by the institution, which designates the 

18 minimum percentage or amount of work that a student must successfully complete in that 

19 increment in order to complete his or her educational program within the maximum 

20 timeframe. 

21 Warning Period: A period during which a student may continue to receive Title IV 

22 funds despite not making satisfactory progress. A warning period may be applied when 

23 the increment reviewed is shorter than the regulatory minimum. 

24 Appeal: The process by which a student who is determined not to meet the institution’s 

25 standards, petitions the institution for reconsideration. A student must submit 

26 information regarding why the student failed to maintain satisfactory academic progress, 
4 

1 and what has changed in the student’s situation that will allow the student to demonstrate 

2 satisfactory progress at the end of the next increment. The student may appeal based 

3 upon the death of a relative, an injury or illness of the student, or other special 

4 circumstances. 

5 Probationary Period: A period during which a student who has successfully appealed 

6 and has had eligibility for aid reinstated receives aid under special terms and conditions. 

7 A probationary period allows the student to prove the ability to be academically 

8 successful while receiving Title IV funds. At the end of the probationary period, the 

9 student must be meeting the satisfactory academic progress standards. 
1 

Issue Paper #11 

Team I – Program Integrity Issues 

Issue: Retaking Coursework 

Statutory cites: N/A 

Regulatory cites: §668.4(f) 

Summary of issue: There are no program regulations that specifically govern retaking 

coursework but the Department is examining inconsistencies in this area as they relate to the 

treatment of students who are enrolled in certain clock-hour or nonterm credit-hour programs. 

The provisions of the payment period definition in §668.4(f) relate to retaking coursework in a 

clock-hour or nonterm credit-hour program in the case of readmissions and transfer students. 

Students in term-based credit-hour programs may retake courses that they fail and get 

paid for retaking those courses as long as: 

 The credits are in addition to, not as a replacement for previously earned credits, e.g., 

repeating a failed course, and 

 The students meet the institution’s overall satisfactory academic progress standards. 

Students in other programs (e.g., clock-hour programs and nonterm credit-hour 

programs) generally must successfully complete (i.e., pass) the coursework for which they are 

paid before becoming eligible for a subsequent payment. Students are generally not allowed to 

be paid for retaking courses that they have already passed – for example for retaking courses for 

which they have received a passing grade, but for which they wish to retake to get a higher 

grade. Under the payment period definition, in some instances, a student may be paid for 

repeating coursework. 

Although students cannot be paid to retake part of a clock-hour or nonterm credit-hour 

program that they have already successfully completed, they are allowed to be paid for retaking 

an entire program that has already been successfully completed. This circumstance might occur 

when a student needs to retake an entire program after having been out of the field for a number 

of years during which the knowledge base of the program has changed. However, we have not 

established any minimum length of time that must transpire between the completion of the 

program and the retaking of the program. 

Comments and questions: Should the Department harmonize the treatment for retaking 

coursework between term-based credit hour programs and other programs? If so, we should 

consider not paying for repeating coursework for any program. This approach may affect the 

payment period definition. As an alternative, we could codify current guidance. 

Should the Department require schools to assess a student before the student is allowed to 

repeat coursework after an extended absence? 

How should the Department treat a student enrolled in a term-based program that is 

treated as a nonterm program for purposes of FFEL and Direct Loans? 

What is the impact on nonterm programs of the reenrollment requirements for clock-hour 

and nonterm credit-hour programs in the payment period definition? 
2 

1 Draft Regulatory Language: 

2

3 Section 668.2 General Definitions 

4

5 Full-time student: An enrolled student who is carrying a full-time academic workload, as 

6 determined by the institution, under a standard applicable to all students enrolled in a particular 

7 educational program. The student's workload may include any combination of courses, work, 

8 research, or special studies that the institution considers sufficient to classify the student as a full9 time student, including for a term-based program, repeating any coursework previously taken in 

10 the program. However, for an undergraduate student, an institution's minimum standard must 

11 equal or exceed one of the following minimum requirements: 

12 (1) For a program that measures progress in credit hours and uses standard terms 

13 (semesters, trimesters, or quarters), 12 semester hours or 12 quarter hours per academic term. 

14 (2) For a program that measures progress in credit hours and does not use terms, 24 

15 semester hours or 36 quarter hours over the weeks of instructional time in the academic year, or 

16 the prorated equivalent if the program is less than one academic year. 

17 (3) For a program that measures progress in credit hours and uses nonstandard terms 

18 (terms other than semesters, trimesters or quarters) the number of credits determined by--

19 (i) Dividing the number of weeks of instructional time in the term by the number of 

20 weeks of instructional time in the program's academic year; and 

21 (ii) Multiplying the fraction determined under paragraph (3)(i) of this definition by the 

22 number of credit hours in the program's academic year. 

23 (4) For a program that measures progress in clock hours, 24 clock hours per week. 

24 (5) A series of courses or seminars that equals 12 semester hours or 12 quarter hours in a 

25 maximum of 18 weeks. 
3 

1 (6) The work portion of a cooperative education program in which the amount of work 

2 performed is equivalent to the academic workload of a full-time student. 

3 (7) For correspondence coursework, a full-time courseload must be--

4 (i) Commensurate with the full-time definitions listed in paragraphs (1) through (6) of 

5 this definition; and 

6 (ii) At least one-half of the coursework must be made up of non-correspondence 

7 coursework that meets one-half of the institution's requirement for full-time students.
1 

Issue Paper #12

Team I – Program Integrity Issues 

Issue: Return of title IV: Term-based programs with modules or 

 compressed courses 

Statutory cites: None 

Regulatory cites: The regulations do not specifically address the treatment of term-based 

module programs under the return of title IV Funds calculation. However, Dear Colleague Letter 

Gen-00-24 addresses the issue of whether a student is considered to have withdrawn from a 

standard term-based module program for purposes of the return calculation in §668.22.

Summary of issue: Should we modify our policy that a student who completes only one module 

or compressed course, within in 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? 

When a recipient of title IV aid withdraws from an institution, the institution must 

determine the amount of title IV aid that the student earned for the period the student has 

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 how much aid the student has earned for attendance 

for the part of the term attended prior to withdrawal. Typically in a term-based program, a 

student takes several courses concurrently throughout each term and, thus, can drop all courses 

but one and not be considered to have withdrawn from the term. 

However, in some programs with modules or compressed coursework, courses are less 

than the length of the term. The courses may be taken in a consecutive fashion where each 

course is taken and completed in a module before a subsequent course is taken in a subsequent 

module or in overlapping timeframes. In some of these programs the institution will group 

several modules or courses together to make up a term. In these term-based programs with 

modules or compressed courses, we have established a policy that equates the completion of one 

course or module to the completion of one course taken over an entire term in a “traditional” 

term program where courses are taken concurrently over the span of the term. In other words, 

when a student is scheduled to take several courses in one of these programs and drops out 

before the term has ended (for example after 5 weeks of a 15 week term) but has completed one 

course, we have not traditionally viewed that student as having withdrawn from the term. Thus, 

while we require the school to recalculate the student’s enrollment status under §690.80(b)(2)(ii) 

for his or her Pell Grant payment when he or she does not begin courses in subsequent modules, 

we have not required that there be a return calculation for that student under §668.22 when the 

student has completed at least one course. We have viewed the completion of one course taken 

in a term-based program with courses offered as modules or compressed courses to be equivalent 

to completing one course in a “traditional” term-based program based on the fact that a student 

has completed the same amount of education in each instance in the term in which the student 

was enrolled. We have taken this position despite the fact that the student in the term-based 

module program may have attended only 5 weeks (or less) out of the 15- week term, while the 

student in the “traditional” term-based program has attended for the full 15 weeks of the term. 
2 

Comments and questions: For a number of reasons, we might want to reconsider this position. 

First, a student’s aid for a term 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. Second, a student in 

a module-based term who only attends one module and then ceases to be enrolled without 

attending other modules or courses he or she is expected to attend in the term really is 

withdrawing before the term is completed. And third, there is more than the potential for some 

abuse as a number of institutions have structured module-based term programs where the first 

module is very short, with perhaps only a one credit course taken in it. 

The result of this policy is that a student who attends only a week or two of a 15-week 

term and then withdraws from the term can end up with a completed (one-credit) course for the 

term. This position then, under our current withdrawal policy, translates into a determination 

that the student has not withdrawn from the term, and allows the institution and/or student to 

keep aid intended for a 15-week period of time when (s)he has only attended school for as little 

as one week. 

1 Draft regulatory language

2

3 §668.22 Treatment of title IV funds when a student withdraws. 

4 (a) General. (1) When a recipient of title IV grant or loan assistance withdraws from an 

5 institution during a payment period or period of enrollment in which the recipient began 

6 attendance, the institution must determine the amount of title IV grant or loan assistance that the 

7 student earned as of the student's withdrawal date in accordance with paragraph (e) of this 

8 section.

9 (2) In a term-based, credit-hour program, a student is considered to have withdrawn from

10 a term if--

11 (i) The student is enrolled in a term that includes courses within the term that are less 

12 than the length of the term and are taken consecutively or are taken in overlapping time periods 

13 within the term; and
3 

14 (ii) The student withdraws without completing the courses for which the student is 

15 enrolled or expected to attend in the term, regardless of whether the student has completed any 

16 courses. 

17 (23) For purposes of this section, “title IV grant or loan assistance” includes only 

18 assistance from the Federal Perkins Loan, Direct Loan, FFEL, Federal Pell Grant, Academic 

19 Competitiveness Grant, National SMART Grant, TEACH Grant, and FSEOG programs, not 

20 including the non-Federal share of FSEOG awards if an institution meets its FSEOG matching 

21 share by the individual recipient method or the aggregate method.

22 Note: The rest of paragraph (a) would need to be renumbered.
1 

Issue Paper #13

Team I – Program Integrity Issues 

Issue: Return of Title IV: taking attendance 

Statutory cites: HEA section 484B(c)(1) 

Regulatory cites: §668.22(b) and (c) 

Summary question(s): Are modifications needed to the requirements for return of title IV 

related to taking attendance? 

Summary of issue: Generally, the HEA requires institutions and students to return unearned 

portions of title IV grant or loan assistance (other than funds received under the Federal WorkStudy Program) when a student withdraws during a payment period or period of enrollment. The 

statute defines the term “the day the student withdrew” to be the date the institution determines:

(A)(i) The student began the withdrawal process prescribed by the institution; 

(ii) The student otherwise provided official notification to the institution of the intent to 

withdraw; or 

(iii) 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 mid-point of the payment 

period for which assistance under this title was disbursed or a later date documented by the 

institution; or 

(B) For institutions required to take attendance, is determined by the institution from such 

attendance records. 

The regulations further specify the distinction between (1) the withdrawal date for a 

student attending an institution that is required to take attendance and (2) the withdrawal date of 

a student attending an institution that is not required to take attendance. 

Under the current regulations, 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. If this is the case, the student’s withdrawal date is the last date of academic 

attendance, as determined by the institution from its attendance records. 

By contrast, at institutions not required to take attendance, the student’s withdrawal date 

may be: 

- The date, as determined by the institution, that the student began the institutionally 

prescribed withdrawal process; 

- The date, as determined by the institution, that the student otherwise provided official 

notification to the institution of his or her intent to withdraw; 

- If the student failed to provide official notification to the institution of an intent to 

withdraw, the mid-point of the payment period of period of enrollment; 

- If a circumstance beyond the student’s control (such as an illness or accident) precludes a 

student or an individual acting on the student’s behalf from initiating the institution’s 
2 

withdrawal process or otherwise providing official notification of the student’s intent to 

withdraw, the date, as determined by the institution, that is related to that circumstance; 

- If the student does not return from an approved leave of absence, the date, as determined 

by the institution, that the student began the leave of absence; or 

- If the student takes a leave of absence that does not meet the requirements of §668.22(d), 

the date that the student began the leave of absence. 

In lieu of any of the above, the institution may use the student’s last date of attendance at 

an academically-related activity, if the institution documents both that the activity is 

academically related and the student’s attendance at the activity.

Comments and questions: The withdrawal date for institutions that are not required to take 

attendance can be much less precise than the withdrawal date at an institution that is required to 

take attendance, potentially leading to an abuse of Federal funds. For example, at an institution 

that is not required to take attendance, for a student who withdraws without providing 

notification, the withdrawal date may be assumed to be the 50% point, even if the institution has 

attendance records and knows exactly when the student last attended. Thus, a student could earn 

50% of his or her aid when the school knows that there was only one day of attendance. It would 

be more equitable to require schools that have attendance records to use them, rather than 

allowing institutions to choose a different date, despite having these records. Pursuant to the 

statute, we cannot require the school to use its attendance records if it is not “required to take 

attendance.” However, we can remove from the regulations the provision that an institution must 

take attendance only if it is required to by an outside entity. 

1 Draft regulatory language

2 §668.22 Treatment of title IV funds when a student withdraws. 

3 (b) Withdrawal date for a student who withdraws from an institution that is required to 

4 take attendance. (1) For purposes of this section, for a student who ceases attendance at an 

5 institution that is required to take attendance, including a student who does not return from an 

6 approved leave of absence, as defined in paragraph (d) of this section, or a student who takes a 

7 leave of absence that does not meet the requirements of paragraph (d) of this section, the 

8 student's withdrawal date is the last date of academic attendance as determined by the institution 

9 from its attendance records. 
3 

10 (2) An institution must document a student's withdrawal date determined in accordance 

11 with paragraph (b)(1) of this section and maintain the documentation as of the date of the 

12 institution's determination that the student withdrew, as defined in paragraph (l)(3) of this 

13 section. 

14 (3)(i) An institution is required to take attendance if--

15 (A) an An outside entity (such as the institution's accrediting agency or a State agency) 

16 has a requirement, as determined by the entity, that the institution take attendance.;

17 (B) The institution itself has a requirement that its instructors take attendance; or

18 (C) The institution or an outside entity has a requirement, including but not limited to, 

19 requiring that students in a program demonstrate attendance in the classes of that program, or a 

20 portion of that program, and compliance with that requirement can only be determined by taking 

21 of attendance or a comparable process.

22 (ii) If an outside entity requires anthere is a determination that an institution is required to 

23 take attendance in accordance with paragraph (b) (3)(i) of this section for only some students, 

24 the institution must use its attendance records to determine a withdrawal date in accordance with 

25 paragraph (b)(1) of this section for those students. 
Issue Paper #14 

 Team I – Program Integrity Issues 

Issue: Disbursements of Title IV funds 

Statutory cites: HEA sections: 401(a); 420M(b); 428G; 452(c) 

Regulatory cites: §668.164; §668.165; §685.301(e); §686.37(b); §690.76 

Summary of issue: Should we establish disbursement procedures that limit how long an 

institution may delay disbursing Federal Pell Grant funds? 

 Should we revise the disbursement reporting requirements of the Direct Loan and 

TEACH Grant programs?

Delayed Federal Pell Grant disbursements

Although the regulations permit an institution to disburse Federal Pell Grant funds in a manner 

that best meets the needs of the student, we have identified situations where institutions delay 

disbursing funds for an extended time (some wait until the student has earned all the Federal Pell 

Grant funds for the payment period), make partial disbursements that cover specific costs, or 

condition the timely receipt of funds. In these instances, because students do not have the benefit 

of those funds in a timely manner, they may have to pay for educational costs with loans or 

personal funds that would otherwise be paid by Federal Pell Grant funds, or do without needed 

items (for example, books and supplies) or services until the institution makes the funds 

available. The delay in disbursing Federal Pell Grant funds has resulted in students withdrawing, 

receiving only loans after the calculation of the return of title IV, and not being eligible for any 

postwithdrawal disbursement of their Federal Pell Grants. These practices do not comport with 

either the intent of the program or with the intent of the regulations that allow an institution to 

budget a student’s funds to best meet the needs of the student. 

COD reporting requirement

The Direct Loan and TEACH Grant regulations currently require institutions to submit a 

record to the Common Origination and Disbursement system (COD) no later than 30 days after 

making a disbursement, adjustment, or cancellation of a Direct Loan or TEACH Grant. We 

could replace this requirement with a provision to publish the COD reporting requirements in a 

Federal Register notice. Changing this provision would bring the Direct Loan and TEACH 

Grant programs in line with the other title IV programs that report student-level disbursement 

data. This change would give the Department administrative flexibility in adjusting the reporting 

requirements to take advantage of changing technology and to improve funds management. 

Comments and questions 

Delayed Federal Pell Grant disbursements

● Should the regulations provide that an initial Federal Pell Grant disbursement to an 

eligible student must be made no later than the first week of a term or payment period? For, 

example, the initial disbursement amount could be, at a minimum, the amount of the allowance 
included in the student’s cost of attendance for books and supplies. Subsequently, the remaining 

funds could be paid no later than, for example, the end of the drop/add period for all students in a 

term-based program with a drop/add period no greater than 14 calendar days after the start of 

classes or 14 calendar days after the start of classes for other programs including clock-hour or 

nonterm credit-hour programs. 

● Should the regulations establish time points during a payment period where a 

minimum or pro rata portion of a Federal Pell Grant must be paid to a student? For example, an 

institution could be required to pay not less than one-third of the Federal Pell Grant funds at the 

beginning of a payment period, one-third no later than the end of the first 25 percent of the 

calendar time of the payment period, and the remaining third no later than the 50 percent of the 

calendar time in the payment period. 

● Should the regulations provide that an institution must disburse all of the title IV funds 

a student is eligible to receive at or before the beginning of a payment period? Of course, this 

requirement would not include disbursements that the student is not yet eligible to receive. 

COD reporting requirement

Should the Direct Loan and TEACH Grant programs be subject to the same requirements 

as other title IV programs reporting student-level data? 

Draft Language

1 §668.164 Disbursing funds. 

2 * * * 

3 (b) Disbursements by payment period. (1) Except as provided in paragraph (b)(2) of this 

4 section, an institution must disburse title IV, HEA program funds on a payment period basis. An

5 The institution must disburse all of the title IV, HEA program funds that a student or parent is 

6 eligible to receive for a payment period on or before the first day of class of the payment period 

7 once each payment period unless—

8 (i) For FFEL and Direct Loan funds, 34 CFR 682.604(c)(6)(ii) or 34 CFR 685.301(b)(3) 

9 applies; 

10 (ii) For Federal Perkins Loan, FSEOG, Federal Pell Grant, TEACH, ACG, and National 

11 SMART Grant funds, an the institution chooses to makes multiple more than one disbursements

12 in each payment period in accordance with 34 CFR 674.16(b)(3), 34 CFR 676.16(a)(3), 34 CFR 
1 690.76, or 34 CFR 691.76, as applicable during the payment period. The initial disbursement 

2 must be a direct payment to the student for at least the amount needed by the student to pay for 

3 books and supplies; or 

4 (iii) Other program regulations allow or require otherwise.

5 (2) The provisions of paragraph (b)(1) of this section do not apply to the disbursement of 

6 FWS Program funds. 

7 (3) Except as provided in paragraph (g) of this section, an institution may disburse title 

8 IV, HEA program funds to a student or parent for a payment period only if the student is enrolled 

9 for classes for that payment period and is eligible to receive those funds. 

10 Note: the provision allowing an institution to disburse funds in a manner that best meet the 

11 needs of the student would be eliminated from the campus-based, Pell Grant, and TEACH 

12 program regulations.

13 §685.301 Origination of a loan by a Direct Loan Program school. 

14 * * *

15 (e) Reporting to the Secretary. (1 ) The Secretary accepts a student's Payment Data that is 

16 submitted in accordance with procedures established through publication in the Federal 

17 Register,and that contains information the Secretary considers to be accurate in light of other 

18 available information including that previously provided by the student and the institution. A 

19 school that participates under school origination option 2 must submit the promissory note, loan 

20 origination record, and initial disbursement record for a loan to the Secretary no later than 30 
1 days following the date of the initial disbursement. The school must submit subsequent 

2 disbursement records, including adjustment and cancellation records, to the Secretary no later 

3 than 30 days following the date the disbursement, adjustment, or cancellation is made.

4 (2) A school that participates under school origination option 1 or standard origination 

5 must submit the initial disbursement record for a loan to the Secretary no later than 30 days 

6 following the date of the initial disbursement. The school must submit subsequent disbursement 

7 records, including adjustment and cancellation records, to the Secretary no later than 30 days 

8 following the date the disbursement, adjustment, or cancellation is made. 

9 (Approved by the Office of Management and Budget under control number 1845–0021) 

10 (Authority: 20 U.S.C. 1087a et seq. ) 

11 § 686.37 Institutional reporting requirements. 

12 (a) An institution must provide to the Secretary information about each TEACH Grant 

13 recipient that includes but is not limited to—

14 (1) The student's eligibility for a TEACH Grant, as determined in accordance with 

15 §§686.11 and 686.31; 

16 (2) The student's TEACH Grant amounts; and 

17 (3) The anticipated and actual disbursement date or dates and disbursement amounts of 

18 the TEACH Grant funds. 
1 (b) The Secretary accepts a student's Payment Data that is submitted in accordance with 

2 procedures established through publication in theFederal Register ,and that contains information 

3 the Secretary considers to be accurate in light of other available information including that 

4 previously provided by the student and the institution.An institution must submit the initial 

5 disbursement record for a TEACH Grant to the Secretary no later than 30 days following the date 

6 of the initial disbursement. The institution must submit subsequent disbursement records, 

7 including adjustment and cancellation records, to the Secretary no later than 30 days following 

8 the date the disbursement, adjustment, or cancellation is made.

9 (Authority: 20 U.S.C. 1070g, et seq. )