**DRAFT Proposed Modifications to Existing Regulation04/23/2015**

# Issue Paper 4: Participation Rate Index Appeals 

**Session 3:**April 28 - 30, 2015

**Statutory cites:**§§435(a)(8), 435(a)(2)(A)(iii), and 435(m) of the Higher Education Act of 1965, as amended

**Regulatory cites:**§§668.16, 668.204, 668.208, and 668.214 

**Summary of Changes:**

· Amends §668.16 to reference the expanded circumstances under which an institution may challenge or appeal a draft or official cohort default rate based on the institution’s participation rate index.

· Amends §668.204 to permit an institution to bring a timely participation rate index challenge in any year the institution’s draft or official cohort default rate is less than or equal to 40 percent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years (counting the draft rate as the most recent rate), provided that the institution has not brought a participation rate challenge or appeal from that rate before, and that the institution has not previously lost eligibility or been placed on provisional certification based on that rate. 

· Amends §668.208 to incorporate references to participation rate index challenges in existing  provisions relating to the effect of, and limitations on, appeals.

· Amends §668.214 to provide that an institution will not lose eligibility based on three years of official cohort default rates that are less than or equal to 40 percent, but greater than or equal to 30 percent, and will not be placed on provisional certification based on two such rates, if it timely brings an appeal from any of the relevant rates and demonstrates a participation rate index less than or equal to 0.0625, provided that the institution has not brought a participation rate challenge or appeal from that rate before, and that the institution has not previously lost eligibility or been placed on provisional certification based on that rate.  The rule would retain the existing provision for an institution to appeal from loss of eligibility if its most recent official cohort default rate exceeds 40 percent, where the participation rate index is less than or equal to 0.0832.  The time for appealing runs from the date of receipt of notice of the rate or, if the most recent official rate exceeds 40 percent, the date of receipt of notice of loss of eligibility.

**§668.16   Standards of administrative capability.**

To begin and to continue to participate in any Title IV, HEA program, an institution shall demonstrate to the Secretary that the institution is capable of adequately administering that program under each of the standards established in this section. The Secretary considers an institution to have that administrative capability if the institution—

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(m)(1) Has a cohort default rate—

(i) That is less than 25 percent for each of the three most recent fiscal years during which rates have been issued, to the extent those rates are calculated under subpart M of this part;

(ii) On or after 2014, that is less than 30 percent for at least two of the three most recent fiscal years during which the Secretary has issued rates for the institution under subpart N of this part; and

(iii) As defined in 34 CFR 674.5, on loans made under the Federal Perkins Loan Program to students for attendance at that institution that does not exceed 15 percent.

(2)(i) However, if the Secretary determines that an institution's administrative capability is impaired solely because the institution fails to comply with paragraph (m)(1) of this section, and the institution is not subject to a loss of eligibility under §§668.187(a) or 668.206(a), the Secretary allows the institution to continue to participate in the Title IV, HEA programs. In such a case, the Secretary may provisionally certify the institution in accordance with §668.13(c) except as provided in paragraphs (m)(2)(ii), (m)(2)(iii), (m)(2)(iv), and (m)(2)(v) of this section.

(ii) An institution that fails to meet the standard of administrative capability under paragraph (m)(1)(ii) based on two cohort default rates that are greater than or equal to 30 percent but less than or equal to 40 percent is not placed on provisional certification under paragraph (m)(2)(i) of this section—

(A) If it has timely filed a request for adjustment or appeal under §§668.209, 668.210, or 668.212 with respect to the second such rate, and the request for adjustment or appeal is either pending or succeeds in reducing the rate below 30 percent; 

(B) If it has timely filed an appeal under §668.213 after receiving the second such rate, and the appeal is either pending or successful; or

(C) (1) If it has timely filed a participation rate challenge or appeal under §668.204(c) or §668.214 from either or both of the two rates, and the challenge or appeal is either pending or successful; or

(2) If the second rate is the most recent draft rate, and the institution has timely filed a participation rate challenge to that draft rate that is either pending or successful.

(iii) The institution may appeal the loss of full participation in a Title IV, HEA program under paragraph (m)(2)(i) of this section by submitting an erroneous data appeal in writing to the Secretary in accordance with and on the grounds specified in §§668.192 or 668.211 as applicable;

(iv) If the institution has 30 or fewer borrowers in the three most recent cohorts of borrowers used to calculate its cohort default rate under subpart N of this part, we will not provisionally certify it solely based on cohort default rates;

(v) If a rate that would otherwise potentially subject the institution to provisional certification under paragraph (m)(1)(ii) and (m)(2)(i) of this section is calculated as an average rate, we will not provisionally certify it solely based on cohort default rates;

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**§668.204   Draft cohort default rates and your ability to challenge before official cohort default rates are issued.**

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(c) *Participation rate index challenges.* (1)(i) You may challenge an anticipated loss of eligibility under §668.206(a)(1), based on one cohort default rate over 40 percent, if your participation rate index for that cohort's fiscal year is equal to or less than 0.0832.

(ii) Subject to §668.208(b), you may challenge a potential loss of eligibility under §668.206(a)(2), based on any cohort default rate that is less than or equal to 40 percent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years, if your participation rate index is equal to or less than 0.0625 for that cohort’s fiscal year.

(iii) You may challenge a potential placement on provisional certification under §668.16(m)(2)(i), based on any cohort default rate that fails to satisfy the standard of administrative capability in §668.16(m)(1)(ii), if your participation rate index is equal to or less than 0.0625 for that cohort’s fiscal year.

(2) For a participation rate index challenge, your participation rate index is calculated as described in §668.214(b), except that—

(i) The draft cohort default rate is considered to be your most recent cohort default rate; and

(ii) If the cohort used to calculate your draft cohort default rate included fewer than 30 borrowers, you may calculate your participation rate index for that fiscal year using either your most recent draft cohort default rate or the average rate that would be calculated for that fiscal year, using the method described in §668.202(d)(2).

(3) You must send your participation rate index challenge, including all supporting documentation, to us within 45 days after you receive your draft cohort default rate.

(4) We notify you of our determination on your participation rate index challenge before your official cohort default rate is published.

(5) If we determine that you qualify for continued eligibility or full certification based on your participation rate index challenge, you will not lose eligibility under §668.206 or be placed on provisional certification under §668.16(m)(2)(i) when your next official cohort default rate is published. Unless that next official cohort default rate is less than or equal to your draft cohort default rate, a successful challenge that is based on your draft cohort default rate does not excuse you from any other loss of eligibility or placement on provisional certification. However, if your successful challenge under paragraph (c)(1)(ii) or (c)(1)(iii) of this section is based on a prior, official cohort default rate, and not on your draft cohort default rate, or if the next official cohort default rate published is less than or equal to the draft rate you successfully challenged, we also excuse you from any subsequent loss of eligibility, under §668.206(a)(2), or placement on provisional certification, under §668.16(m)(2)(i), that would be based on that official cohort default rate.

**§668.208  General requirements for adjusting official cohort default rates and for appealing their consequences.**

(a) *Remaining eligible.* You do not lose eligibility under §668.206 if—

(1) We recalculate your cohort default rate, and it is below the percentage threshold for the loss of eligibility as the result of—

(i) An uncorrected data adjustment submitted under this section and §668.209;

(ii) A new data adjustment submitted under this section and §668.210;

(iii) An erroneous data appeal submitted under this section and §668.211; or

(iv) A loan servicing appeal submitted under this section and §668.212; or

(2) You meet the requirements for—

(i) An economically disadvantaged appeal submitted under this section and §668.213;

(ii) A participation rate index challenge or appeal submitted under this section and §668.204 or §668.214;

(iii) An average rates appeal submitted under this section and §668.215; or

(iv) A thirty-or-fewer borrowers appeal submitted under this section and §668.216.

(b) *Limitations on your ability to dispute your cohort default rate.* (1) You may not dispute the calculation of a cohort default rate except as described in this subpart or in §668.16(m)(2).

(2) You may not challenge, request an adjustment to, or appeal a draft or official cohort default rate, under §668.204, §668.209, §668.210, §668.211, §668.212, or §668.214, more than once on that cohort default rate. 

(3) You may not challenge, request an adjustment to, or appeal a draft or official cohort default rate, under §668.204, §668.209, §668.210, §668.211,  §668.212, or §668.214, if you previously lost your eligibility to participate in a Title IV, HEA program, under §668.206, or were placed on provisional certification under §668.16(m)(2)(i), based entirely or partially on that cohort default rate.

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**§668.214  Participation rate index appeals.**

(a) *Eligibility.* (1) You do not lose eligibility under §668.206(a)(1), based on one cohort default rate over 40 percent, if you bring an appeal in accordance with this section that demonstrates that your participation rate index for that cohort's fiscal year is equal to or less than 0.0832.

(2) Subject to §668.208(b), you do not lose eligibility under §668.206(a)(2) if you bring an appeal in accordance with this section that demonstrates your participation rate for any of the three most recent cohorts’ fiscal years  is equal to or less than 0.0625.

(3) Subject to §668.208(b), you are not placed on provisional certification under §668.16(m)(2)(i) based on two cohort default rates that fail to satisfy the standard of administrative capability in §668.16(m)(1)(ii) if you bring an appeal in accordance with this section that demonstrates that your participation rate index for either of those two cohorts’ fiscal years is equal to or less than 0.0625. 

(b) *Calculating your participation rate index.* (1) Except as provided in paragraph (b)(2) of this section, your participation rate index for a fiscal year is determined by multiplying your cohort default rate for that fiscal year by the percentage that is derived by dividing—

(i) The number of students who received an FFELP or a Direct Loan Program loan to attend your institution during a period of enrollment, as defined in 34 CFR 682.200 or 685.102, that overlaps any part of a 12-month period that ended during the 6 months immediately preceding the cohort's fiscal year, by

(ii) The number of regular students who were enrolled at your institution on at least a half-time basis during any part of the same 12-month period.

(2) If your cohort default rate for a fiscal year is calculated as an average rate under §668.202(d)(2), you may calculate your participation rate index for that fiscal year using either that average rate or the cohort default rate that would be calculated for the fiscal year alone using the method described in §668.202(d)(1).

(c) *Deadline for submitting an appeal.* You must send us your appeal under this section, including all supporting documentation, within 30 days after you receive—

(1) Notice of your loss of eligibility; or

(2) Notice under §668.205 of a cohort default rate that equals or exceeds 30 percent but is less than or equal to 40 percent.

(d) *Determination.* (1) You do not lose eligibility under §668.206 and we do not place you on provisional certification, if we determine that you meet the requirements for a participation rate index appeal.

(2) If we determine that your participation rate index for a fiscal year is equal to or less than 0.0832 or 0.0625, as applicable, under paragraph (d)(1) of this section, we also excuse you from any subsequent loss of eligibility under §668.206(a)(2) or placement on provisional certification under §668.16(m)(2)(i) that would be based on the official cohort default rate for that fiscal year.

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