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                                                                               August 10, 2000

                                                                               Part IV

                                                                               Department of
                                                                               34 CFR Part 600, et al.
                                                                               Institutional Eligibility; Student Assistance
                                                                               General Provisions; Federal Work-Study
                                                                               Programs; Federal Family Education Loan
                                                                               Program; William D. Ford Federal Direct
                                                                               Loan Program; and the Federal Pell Grant
                                                                               Program; Proposed Rule

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49134             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

DEPARTMENT OF EDUCATION                             DC 20026–3272. If you prefer to send                    Assistance to Individuals With
                                                    your comments through the Internet                      Disabilities in Reviewing the
34 CFR Parts 600, 668, 675, 682, 685,               please use the following address:                       Rulemaking Record
and 690                                                                                On request, we will supply an
RIN 1845–AA19                                         You must use the term, ‘‘Team 2—                      appropriate aid, such as a reader or
                                                    General Provisions’’ in the subject line                print magnifier, to an individual with a
Institutional Eligibility; Student                  of your electronic mail message.                        disability who needs assistance to
Assistance General Provisions;                                                                              review the comments or other
                                                      If you want to comment on the
Federal Work-Study Programs; Federal                                                                        documents in the public rulemaking
Family Education Loan Program;                      information collection requirements,
                                                                                                            record for these proposed regulations. If
William D. Ford Federal Direct Loan                 you must send your comments to the
                                                                                                            you want to schedule an appointment
Program; and the Federal Pell Grant                 Office of Management and Budget at the
                                                                                                            for this type of aid, you may call (202)–
Program                                             address listed in the Paperwork
                                                                                                            205–8113 or (202)–260–9895. If you use
                                                    Reduction Act section of this preamble.                 a TDD, you may call the Federal
AGENCY: Office of Postsecondary                     You may also send a copy of these                       Information Relay Service at 1–800–
Education, Department of Education.                 comments to the Department                              877–8339.
ACTION: Notice of proposed rulemaking.              representative named in this section.
                                                                                                            Negotiated Rulemaking
SUMMARY:    The Secretary proposes to               FOR FURTHER INFORMATION CONTACT:
                                                    Mark Washington, U.S. Department of                       Section 492 of the HEA requires that,
amend the Institutional Eligibility, the                                                                    before publishing any proposed
Student Assistance General Provisions,              Education, 400 Maryland Avenue, SW,
                                                    Room 3045, ROB–3, Washington, DC                        regulations to implement programs
the Federal Work-Study, the William D.                                                                      under title IV of the HEA, the Secretary
Ford Federal Direct Loan, the Federal               20202–5447. Telephone: (202)–260–
                                                                                                            obtain public involvement in the
Family Education Loan, and the Federal              9321.
                                                                                                            development of the proposed
Pell Grant regulations. These proposed                If you use a telecommunications                       regulations. After obtaining advice and
regulations implement changes                       device for the deaf (TDD), you may call                 recommendations, the Secretary must
negotiated with the financial aid, higher           the Federal Information Relay Service                   conduct a negotiated rulemaking
education, and other related community              (FIRS) at 1–800–877–8339. Individuals                   process to develop the proposed
members in the negotiated rulemaking                with disabilities may obtain this                       regulations. To the extent that
process mandated by Congress under                  document in an alternate format (e.g.,                  agreements are reached during that
section 492 of the Higher Education Act             Braille, large print, audiotape, or                     process, all published proposed
of 1965, as amended, (HEA). These                   computer diskette) on request to the                    regulations must conform to those
changes would streamline the                        contact person listed above.                            agreements unless the Secretary reopens
application, reapplication and                                                                              the negotiated rulemaking process or
certification processes for institutions            SUPPLEMENTARY INFORMATION:
                                                                                                            provides a written explanation to the
that wish to participate in the title IV,                                                                   participants in that process outlining
                                                    Invitation To Comment
HEA programs; reduce burden, under                                                                          the reasons why the Secretary has
specific circumstances, for the reporting             We invite you to submit comments                      decided to depart from the agreements.
of additional locations; clarify the                regarding these proposed regulations.                     To obtain public involvement in the
reporting responsibilities for institutions         To ensure that your comments have                       development of the proposed
that experience a change in ownership               maximum effect in developing the final                  regulations, we held listening sessions
that results in a change of control;                regulations, we urge you to identify                    in Washington, DC, Atlanta, Chicago
expand the possibilities for institutions           clearly the specific section or sections of             and San Francisco. Four half-day
to create written agreements with                   the proposed regulations that each of                   sessions were held on September 13 and
certain other entities to have part or all          your comments addresses, and to                         14, 1999, in Washington, DC. In
of their eligible programs provided by              arrange your comments in the same                       addition, we held three regional
those entities; revise the process for              order as the proposed regulations.                      sessions in Atlanta on September 17, in
determining a transfer student’s                                                                            Chicago on September 24, and in San
financial aid history; recognize                      We invite you to assist us in
                                                    complying with the specific                             Francisco on September 27, 1999. The
electronic certification and record                                                                         Office of Student Financial Assistance’s
retention options for FWS program                   requirements of Executive Order 12866
                                                    and its overall requirement of reducing                 Customer Service Task Force also
administration; add flexibility to the                                                                      conducted listening sessions to obtain
training requirements for institutional             regulatory burden that might result from
                                                    these proposed regulations. Please let us               public involvement in the development
certification; change loan proceeds                                                                         of our regulations.
disbursement rules for programs using               know of any further opportunities we
                                                                                                              We then published a notice in the
non-standard terms; clarify notification            should take to reduce potential costs or
                                                                                                            Federal Register (64 FR 73458,
requirements when title IV loan                     increase potential benefits while
                                                                                                            December 30, 1999) to announce our
proceeds are credited to a student’s                preserving the effective and efficient
                                                                                                            intention to establish two negotiated
institutional account; and add flexibility          administration of the programs.
                                                                                                            rulemaking committees to draft
to lender disbursement requirements                   During and after the comment period,                  proposed regulations affecting title IV of
and eligibility determinations for                  you may inspect all public comments                     the HEA. The notice requested
students receiving loan proceeds.                   about these proposed regulations in                     nominations for participants from
DATES: We must receive your comments                Room 3045, Regional Office Building 3,                  anyone who believed that his or her
on or before September 25, 2000.                    7th & D Streets, SW, Washington, DC,                    organization or group should participate
ADDRESSES: Address all comments about               between the hours of 8:30 a.m. and 4:00                 in this negotiated rulemaking process.
these proposed regulations to: Mark                 p.m., Eastern time, Monday through                      The notice announced that we would
Washington, U.S. Department of                      Friday of each week except Federal                      select participants for the process from
Education, P.O. Box 23272, Washington,              holidays.                                               the nominees of those organizations or

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                   Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49135

groups. The notice also announced a                  National Accrediting Commission of                      not address regulatory provisions that
tentative list of issues each committee                   Cosmetology Arts and Sciences, Inc.                are technical or otherwise minor in
was likely to address.                               National Association of College and                     effect. The following paragraphs are
   Once the two committees were                           University Business Officers
                                                     National Association of Independent Colleges
                                                                                                             organized by topic, and in some cases
established they met to develop                           and Universities                                   divided further into subtopics, with
proposed regulations over the course of              National Association of Student Financial               appropriate headings. Statutory
several months, beginning in February.                    Aid Administrators                                 provisions that apply to a particular
   Committee I—This notice of proposed               National Association for State Student Grant            topic may not be restated after the
rulemaking (NPRM) includes two                            and Aid Programs                                   subtopical categories.
proposed provisions that were                        National Association of State Universities
discussed as part of negotiated                           and Land-Grant Colleges                            Section 600.10(b)—Additional Locations
rulemaking by Committee I (Loan                      National Council of Higher Education Loan                  Statute: Section 498 of the HEA
Issues). They would make changes to                                                                          authorizes the Secretary to determine
                                                     National Direct Student Loan Coalition
the Federal Family Education Loan                    Sallie Mae, Inc.                                        whether an institution meets the
(FFEL) Program regulations by                        Student Loan Servicing Alliance                         qualifications to be designated as an
providing flexibility to schools and                 The College Fund/United Negro College                   eligible institution for purposes of the
lenders in the disbursement of loan                       Fund                                               programs authorized by the HEA. This
funds. Since the proposed changes                    United States Department of Education                   section also outlines the procedures the
would affect both schools and lenders,               United States Student Association                       Secretary uses to certify an institution to
they have been included in this NPRM.                United States Public Interest Research Group            participate in the title IV, HEA
                                                     University Continuing Education
Including these proposed changes in                                                                          programs.
this NPRM will allow all affected parties                                                                       Current Regulations: As provided in
a better opportunity to review and                      Consensus was reached on all of the                  § 600.10(b)(3)(i) and (ii), when a
provide comment on these issues. For a               proposed regulations in this document                   participating institution wishes to add a
listing of the members of Committee I                that were discussed by Committee II,                    location that was not previously eligible
please see the NPRM published in the                 except for three issues, two of which                   where it offers fifty percent or more of
Federal Register (65 FR 46316) on July               allow certain exemptions for public                     an eligible program, it must notify us
27, 2000 that relates to guaranty agency             institutions. The other addressed                       about the new additional location, and
and other FFEL issues.                               incentive compensation related to                       may be required to submit an
   As stated in the committee protocols,             securing student enrollments.                           application for eligibility of the new
consensus means that there must be no                   The first item in Committee II where
                                                                                                             location. We consider such a location to
dissent by any member in order for the               consensus was not reached is proposed
                                                                                                             be eligible to participate only as of the
committee to be considered to have                   § 600.20(d)(1) which exempts public
                                                                                                             date we certify it to participate.
reached agreement. Consensus was not                 institutions from the requirement to                       Proposed Regulations: The proposed
achieved on the proposed changes that                apply for approval of their additional                  regulations revise the provisions that
would provide flexibility to schools and             locations, if those locations are licensed              currently exist in § 600.10(b)(3)(i) and
lenders in the disbursement of loan                  and accredited, and are in the same                     (ii).
funds during the negotiated rulemaking               State as the main campus. The second                       The revisions clarify that an
process for Committee I.                             item where consensus was not reached                    institution’s eligibility does not extend
   A full discussion of these proposed               is in proposed § 600.31(c)(7), which                    to an additional location it establishes
provisions are included in the section of            states that we do not consider a change                 after the institution is designated as
this document titled ‘‘SIGNIFICANT                   in governance at a public institution to                eligible if that location provides at least
PROPOSED REGULATIONS’’ under the                     be a change in ownership resulting in a                 50 percent of an educational program,
discussion of changes to §§ 682.207 and              change of control, if the institution                   unless we approve the location under
682.604.                                             remains a public institution after that                 proposed § 600.20(f)(5) or if the
   Committee II—Except as noted, the                 change in governance. These two issues                  institution is not required to report it to
proposed regulations contained in this               will be examined more fully in the                      us under proposed § 600.20(d).
notice of proposed rulemaking (NPRM)                 following section. Since the committee                     Reasons: This section clarifies that an
reflect the final consensus of Committee             did not reach consensus on these two                    institution must apply for approval to
II, which was made up of the following               provisions, any references to them                      have its eligibility extended to
members:                                             which may be contained within topics                    additional locations that are not
                                                     where the committee reached agreement                   included in its most recent certification
American Association of Collegiate Registrars        do not represent agreement by the non-
    and Admissions Officers                                                                                  if the institution will offer 50% or more
American Association of Cosmetology
                                                     federal negotiators with the two                        of an education program at those
    Schools                                          regulatory provisions where consensus                   locations. Such additional locations are
American Association of State Colleges and           was not reached. Finally, no consensus                  not considered eligible until the
    Universities (in coalition with American         was reached regarding whether, or to                    Secretary has approved them as eligible
    Association of Community Colleges)               what extent, we should modify the                       or they meet the exemptions provided
American Council on Education                        regulations in § 668.14(b)(22) governing
Association of Jesuit Colleges and                                                                           in proposed § 600.20(d).
                                                     incentive compensation payments made
    Universities                                     by institutions, related to securing                    Section 600.20—Application Procedures
Career College Association                           student enrollments. Subsequent to the                  for Establishing, Reestablishing,
Coalition of Higher Education Assistance
                                                     negotiations, we have decided not to                    Maintaining, or Expanding Institutional
Coalition of Publicly Traded Educational             propose regulatory changes in this area.                Eligibility and Certification
    Institutions                                     Significant Proposed Regulations                        Initial Eligibility Application
Consumer Bankers Association
Legal Services                                         We discuss substantive issues under                     Statute: Section 498(b) of the HEA
NAFSA: Association of International                  the sections of the proposed regulations                states that the Secretary shall prepare a
    Educators                                        to which they pertain. Generally, we do                 single application for institutions to

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49136              Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

request eligibility, and specifies the               the title IV HEA programs or not, must                  any changes in its status as a
information that must be collected from              reapply if they want to continue their                  proprietary, nonprofit, or public
applicant institutions.                              eligibility, and certification to                       institution (e.g., changed its status from
   Current Regulations: Section 600.20               participate if applicable, under                        for-profit to nonprofit).
establishes the procedures for an                    conditions specified in the regulation                    Reasons: In order to clarify and to
institution to apply for participation in            (e.g., adding a new location or change of               make easier for institutions to comply
any title IV, HEA program. Initially, the            ownership).                                             with the rules, we propose to
institution must apply to us to be                      Proposed Regulations: We propose in                  consolidate the regulatory requirements
designated as an eligible institution.               § 600.20(b)(1) that a currently                         for the reapplication process into one
Additional requirements for                          designated eligible institution that is not             section, § 600.20(b).
certification to participate in the title IV,        participating in the title IV, HEA                        We initially proposed to continue the
HEA programs are described in part 668,              programs, is only required to apply to us               current requirements that prescribe
subpart B. However, the requirements in              for a determination that it continues to                when a participating institution must
the regulations related to eligibility and           be eligible, if we request the institution              reapply for a determination that it
those related to certification, found in             to reapply.                                             continues to meet the standards
§ 600.20(a) and § 668.13, respectively do               Reasons: In discussions regarding the                necessary to participate in the title IV,
not make clear that (1) determination of             reapplication process, we proposed to                   HEA programs. One of these
eligibility and certification are separate           continue the current requirement in                     requirements was when the Secretary, at
processes, and (2) an institution may                § 600.20(b) that all institutions would be              his discretion, required reapplication.
apply for both determinations at the                 required to reapply if we so requested.                 Although this proposed regulation was
same time by using the Department’s                  However, we suggested that eligible but                 substantially equivalent to the existing
application for approval to participate.             non-participating institutions would not                regulation found at § 600.20(b)(1),
   Proposed Regulations: These                       need to automatically reapply for any of                several members of the committee
proposed regulations set forth the                   the current reasons provided in                         objected to what they believed was an
administrative procedures necessary for              § 600.20. These institutions may qualify                overly broad extension of the Secretary’s
submitting the eligibility application, as           to participate in certain non-title IV,                 authority to regulate, beyond the scope
well as obtaining certification for                  HEA programs, and their students may                    of authority expressly granted or
participation in the title IV, HEA                   qualify for loan deferments. Since they                 intended by the HEA.
programs.                                            are not administering federal student                     While affirming that we would not
   Section 600.20(a), as proposed, also              aid, they are only required to reapply for              use this authority to require
clearly indicates that eligibility and               their eligibility determination upon our                reapplication in a capricious or arbitrary
certification are separate distinguishable           request, otherwise their eligibility status             manner, we explained that the Secretary
processes, requiring specific actions for            continues indefinitely.                                 must reserve the right to require a
successful completion.                                                                                       review of any institution that gives
                                                     Participating Institutions                              cause for concern. We indicated that the
   This revision also clarifies that we
determine whether an applicant                          Current Regulations: As noted above,                 reapplication process affords us an
institution meets the participation                  § 600.20 provides that all participating                opportunity for such a review. Various
standards (in part 668, subpart B) and               institutions must apply if they want to                 committee members believed we
the financial responsibility standards (in           continue their eligibility and                          already have that authority under other
part 668, subpart L), of the current                 certification to participate. Included                  existing regulations.
regulations, before we certify the                   among the reasons why a participating                     The committee ultimately agreed that
institution. As required under current               institution must reapply is where we                    a narrower regulatory approach that
regulations, our internal administrative             request it to do so (§ 600.20(b)(1)).                   differentiated application requirements
processes already include these                      Additionally, § 600.20(c) includes a                    between eligible, non-participating
standards, but the proposed regulation               number of other conditions under                        institutions and eligible participating
clarifies that the review is based upon              which an institution must reapply.                      institutions, would accommodate
the regulatory requirements.                            Proposed Regulations: Proposed                       concerns regarding fair and consistent
   Reasons: We are consolidating related             § 600.20(b)(2) would require a currently                application of our authority to review.
provisions for eligibility and                       eligible institution that participates in               The proposed regulation makes clear
certification mandated by the HEA and                title IV, HEA programs to apply for a                   that the Secretary may request
current regulations. We believe a more               determination that it continues to meet                 reapplication from eligible non-
uniform construction will make these                 the requirements of 34 CFR parts 600                    participating institutions at any time,
regulations easier to understand and to              and 668 as provided in paragraphs                       because they are not subject to the
implement.                                           (b)(2)(i) through (iii) of § 600.20.                    ordinary reapplication cycle.
                                                        Section 600.20(b)(2)(i) of the proposed                In proposed § 600.20(b)(2)(ii), we
Reapplication Process                                regulations would apply when a                          would not require a public institution to
  Statute: Section 498(g) of the HEA                 participating institution wishes to                     reapply for approval if its governance
addresses issues regarding the renewal               continue its participation beyond the                   changed and that change included an
of institutional eligibility. Section 498(i)         expiration of the current eligibility and               acknowledgment by the new governing
outlines the requirements that must be               certification. Section 600.20(b)(2)(ii)                 entity, on behalf of the institution, of the
met when an institution experiences a                would require a participating institution               institution’s continuing responsibilities
change in ownership that results in a                to reapply to reestablish its eligibility               under its program participation
change of control.                                   and certification as a private nonprofit                agreement. Other changes in governance
                                                     or private for-profit institution, after a              that do not acknowledge the public
Eligible But Not Participating                       change in ownership that results in a                   institution’s ongoing responsibilities
Institutions                                         change of control, as described in                      under its program participation
  Current Regulations: Section                       § 600.31. Section 600.20(b)(2)(iii) would               agreement would be changes of
600.20(b) provides that all eligible                 require a reapplication if the                          ownership that require reapplication.
institutions, whether they participate in            participating institution experienced                   Additional information on the effect of

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                  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49137

the change of governance for public                 eligibility and certification to include                   Reasons: As noted earlier, the
institutions can be found under the                 additional locations and programs.                      committee did not reach consensus on
discussion of § 600.31(c)(7).                          Proposed Regulations: Proposed                       this issue. During the negotiated
   Finally, several of the non-federal              § 600.20(b)(2) lists the events that                    rulemaking sessions, we noted that we
negotiators expressed concern about the             require an institution to submit a new                  are not aware of any problems that
corporate and legal interpretations of              application. Proposed § 600.20(c)                       placed federal funds at risk when a
‘‘ownership’’, and whether such terms               describes the events that require an                    public institution has added additional
or phrases as ‘‘a change of ownership’’             application to expand eligibility. Except               locations. The public entities that
even apply to certain types of                      for two new provisions under proposed                   govern these institutions generally
educational institutions.                           § 600.20(c), the proposed regulations are               apply responsible oversight and systems
   Several non-federal negotiators                  very similar to current regulations.                    of control over these institutions,
contested the notion that a ‘‘change in                First, at § 600.20(c)(2), we would                   especially with regard to the
ownership’’ applies to a nonprofit                  require an institution to report any                    establishment of additional locations.
entity. They felt strongly that those in            increase in the level of program                        The additional level of planning,
the nonprofit sector do not identify with           offerings it adds. Second, § 600.20(c)(5)               approval, and review generally required
the concept of ‘‘ownership.’’ Moreover,             clarifies that an institution must apply                by public entities helps to limit rapid
one committee member suggested that                 for approval if it wishes to convert an                 growth that could adversely impact
many nonprofit institutions might fail to           existing location to a branch campus.                   educational quality or cause fiscal
comply with the change in ownership                    Reasons: We believe the proposed                     instability in the administration of title
regulations, because those institutions             regulations offer greater clarity on this               IV funds. Moreover, we believe that the
may not believe that the regulations                topic by consolidating all of the related               extent of fiscal resources generally made
apply to them, by virtue of their                   regulations into one section. The current               available to public institutions by the
nonprofit status. We note that the HEA              regulations that address expansion of an                public entities that govern them are
does not exempt non-profit institutions             institution’s designated eligibility status             likely to be substantial enough to
from the change of ownership                        are within §§ 600.20 and 600.30, and are                safeguard the taxpayers from any
provisions. However, we understand                  not as detailed.                                        potential losses in title IV, HEA program
that clarity in this matter is needed.                 The expansion of an institution’s                    funds.
   To resolve any confusion on this issue           eligibility through the increase of the                    This exemption only applies to
the committee evaluated various terms               level of program offerings in § 600.20                  additional locations that are in the same
to convey the unique nature and                     (c)(2) was added as one of the                          State as the main campus of the public
organization of nonprofit entities. One             requirements for reapplication because                  institution, because those locations
proposal sought to uniformly replace                this type of change often requires an                   share the same oversight entities. These
the existing phrase, ‘‘change of                    institution to modify its financial aid                 additional locations must, of course, be
ownership’’ with ‘‘change in structure,             and other administrative processes. For                 licensed and accredited.
governance, or ownership.’’ Although                example, a change in level of program                      We believe these proposed regulations
we appreciate that nonprofit entities               offerings could affect the institution’s                will enhance efficiency and provide
may not consider the existing regulatory            determination of program length                         administrative relief for a sizable
language as properly describing their               because of the requirements for ‘‘credit                segment of the population of eligible
legal structure and operations, we                  hour conversions’’. Similarly, such a                   institutions, by not requiring them to
cautioned that adopting a new phrase                change could impact the institution’s                   report locations they add until the next
for one sector might actually be                    ability to use the multi-year features of               scheduled recertification.
confused with other commonly                        the new master promissory notes in the                     Some members of the committee saw
accepted terms used in other sectors.               FFEL and Direct Loan programs.                          this proposed exemption as a benefit
Using the phrase ‘‘change of                           Finally, the non-federal negotiators                 unfairly and unduly afforded to a select
governance’’, for example, could                    suggested that the conversion of an                     segment of eligible institutions. One
possibly indicate something totally                 otherwise eligible location to a branch                 committee member considered the
different for public institutions.                  campus be added as § 600.20(c)(5) to                    sector-based distinction to be
   Ultimately, the committee agreed to              address this type of expansion of                       discriminatory, and questioned the
use the phrase ‘‘changes its status’’ in            institutional eligibility.                              legality of the proposed regulations on
§ 600.20(b)(2)(iii), signaling an                                                                           this basis.
organizational change so substantial that           Exemptions From Applying for                               A few committee members suggested
it would be a change of ownership                   Additional Locations                                    that any institution, regardless of its
resulting in a change in control under                 Exemption for public institutions:                   structure or control, that meets the
the HEA.                                               Current Regulations: Under                           licensing and accreditation standards,
                                                    § 600.20(c)(3) an institution must apply                and whose additional location was in
Application to Expand Eligibility                   to add a location not currently a part of               the same State as the main campus,
  Statute: Sections 498(b) and (j) of the           its eligibility designation. Those rules                should receive the same exemption as
HEA outline the application                         do not distinguish among the types of                   that being proposed for public
requirements when an institution                    institutions that must apply.                           institutions.
wishes to expand its eligibility,                      Proposed Regulations: We have                           Several non-federal negotiators added
particularly to branch campuses.                    proposed in § 600.20(d)(1) that public                  that many private nonprofit and private
  Current Regulations: Section                      institutions do not have to apply to the                for-profit institutions have maintained
600.30(a) requires an institution to                Secretary for approval of an additional                 stellar performance records in their
notify the Secretary of any significant             location under § 600.20(c)(1), if the                   administration of the title IV, HEA
changes it has experienced since its                additional location is properly licensed                programs. They also believed that many
most recent eligibility application.                and accredited, and is located within                   of these institutions were subject to
Section 600.20 lists various instances              the same State as the main campus of                    reasonable oversight from States,
where an institution must make an                   the currently designated eligible                       accrediting agencies, and industry
application to expand its designated                institution.                                            associations. They argued that any

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49138             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

school that demonstrated consistent                 was not reached by the negotiated                          We especially request comment on
compliance with our regulations, and                rulemaking committee. Consistent with                   whether an institution that has provided
had sufficient systems to meet                      the committee’s protocols addressing                    notification to us that it intends to
administrative and financial capability             the issuance of proposed rules when                     remain at an additional location for
standards should be entitled to the same            consensus is not reached, we are                        more than one year should immediately
exemption being offered to the public               including in these proposed rules the                   stop making title IV disbursements until
institutions.                                       full exemption for public institutions.                 it receives our approval of that location,
   We maintained that it was neither                However, in addition to soliciting                      as would be the case with any other
novel nor extraordinary for a federal               general comments on the issue of the                    notification of a permanent additional
agency to rely upon the oversight and               proposed exemption for public                           location.
financial backing provided to public                institutions, we especially wish to                        Reasons: An institution may provide
institutions. We believe that this                  receive comment on whether the                          training on a temporary basis at off-
governmental oversight over public                  proposal should be modified to require                  campus sites, in order to be responsive
institutions limits risks to federal funds.         public institutions to notify the                       to the needs of its community. The
   While it is true that some non-public            Secretary of a new additional location,                 negotiators agreed that allowing
institutions administer their programs              but exempt them from the requirement                    institutions to open a limited number of
in a way that does not pose any fiscal              to wait for our approval before making                  temporary training locations without
risk to the federal taxpayers, that is not          disbursements of title IV aid to students               reapplication assists the community in
the case for all such institutions. On the          enrolled at the new location.                           meeting its goal of partnering with
other hand, all public institutions have              Exemptions for temporary additional                   institutions to accommodate the
considerable financial support available            locations:                                              workforce training requirements of
to help them meet their title IV, HEA                 Proposed Regulations: The proposed                    business and industry. We believe that
program obligations.                                § 600.20(d)(2) would exempt non-public                  the specific conditions in the proposed
   Non-public institutions operate in               institutions from applying for approval                 rule provide assurance that temporary
environments that pose significantly                of licensed and accredited temporary                    additional locations will not adversely
higher financial risks than do public               locations if the following specific                     affect the institution.
institutions. Our experience includes               conditions are met: (1) The institution                    When discussing this issue of
situations where some non-public                    intends to use the location for not more                providing a limited exemption to the
institutions grew so rapidly that the               than 12 months; (2) the institution has                 reporting of temporary additional
integrity of their educational and                  not added more than six locations                       locations for non-public institutions, the
student aid programs was compromised.               offering at least fifty percent of an                   committee considered several options.
The level of growth and expansion                   educational program since it was last                   We ultimately agreed upon language
strained those institutions’ financial              certified; (3) the institution does not                 that provides that a non-public
resources and administrative capability             have any outstanding title IV, HEA                      institution does not have to apply to the
and, ultimately, they failed, causing               program liabilities; (4) the institution                Secretary for approval of a licensed and
great harm to students and losses to                did not acquire the assets of another                   accredited temporary additional
taxpayers of title IV student assistance            institution that formerly provided                      location under certain conditions.
funds.                                              educational programs at that location                   Among those conditions is that the
   During the discussion on this                    (and that participated in title IV, HEA                 institution has not added more than six
exemption for public institutions, the              programs at that location) within the                   locations at which it offered more than
amount of burden associated with                    preceding year; (5) the institution                     50 percent of an educational program
reporting additional locations was                  would, if it adds that location, not be                 since it was last certified to participate
considered. While the actual reporting              subject to a loss of eligibility under                  in the title IV, HEA programs.
of proposed additional locations does               proposed § 668.188 (Proposed § 668.188                     We are interested in receiving specific
not involve much burden (the school                 would apply a loss of eligibility, due to               comment on whether the six locations
simply uses our web-based application               high loan cohort default rates, that was                proposed is the proper number. Also,
screens), the school representatives on             previously imposed against one                          since the period between certifications
the committee pointed out that the need             institution to another institution                      could be up to six years, we also wish
to wait for our approval of the new                 following a change in status.); and (6)                 to receive comment on whether there
location before title IV aid could be               we do not currently prohibit the                        should be a limit on the number of such
disbursed could create an unnecessary               institution from adding locations                       locations added during any one year.
delay. Even though we generally                     without advance notice.                                    While we are proposing this limited
provide our response within about 35                  Paragraph (d)(3) of § 600.20 explains                 exception to the requirement that
days, the representatives of public                 what happens when an institution that                   institutions report and get our approval
institutions noted that, since we have              did not apply for approval of a new                     of new additional locations before they
virtually always approved such sites,               location because it did not intend to                   disburse title IV aid, we do have some
there is no need for a public institution           conduct business longer than twelve                     concerns about the impact this
to report its addition of new locations.            months realizes that it will continue for               exception might have on our oversight
Conversely, it was noted by some other              more than one year at that location. The                responsibility. One issue is whether we,
members of the committee that, since                institution must apply as soon as it                    as the agency responsible for
the burden to report is not significant,            determines it will be at a location for                 administering title IV funds, should
all institutions should be required to              more than 12 months, but not later than                 know about all locations at which these
report so that the Secretary has                    35 days before the end of the initial                   funds are being disbursed. Another
knowledge of all locations where                    twelve-month period. In any case, the                   concern is whether all non-public
students are receiving title IV funds.              institution may not disburse title IV,                  institutions should be able to add
   Again, this specific provision—an                HEA program funds for attendance at                     temporary locations without prior
exemption for public institutions from              that location beyond the twelve-month                   approval, including institutions that
the requirement to report additional                period without our approval of that                     may not meet the standards of
locations—was one where consensus                   location.                                               administrative capability or financial

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                   Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                   49139

responsibility. An additional concern is            institution’s period of participation                   impact from an abrupt disruption of
that the proposed temporary location                under § 668.13 expires, or if the                       programs, services, or financial
exception could be used by schools that             institution’s provisional certification is              assistance, caused by an institution’s
would otherwise be unable to obtain our             revoked under § 668.26. However, the                    temporary loss of eligibility to
approval to establish new permanent                 current regulations provide certain                     participate in our programs. We also
locations or that had been denied such              exemptions and timeframes that allow                    want to limit such impact from the
approval in the past.                               an ineligible institution to continue to                expiration of an institution’s program
   While the proposed exception                     make disbursements of title IV aid                      participation agreement if a new
requires that the new location be                   funds.                                                  application is being reviewed.
accredited and licensed, some                          Proposed Regulations: These                          Acceptance of a timely submitted,
institutions are licensed or accredited             proposed regulations restate and clarify                materially complete application assures
by agencies that do not require                     the existing regulations in § 600.40 and                a consistent flow of funds and program
affirmative prior approval to add new               § 668.13 that address the impact of a                   services for the students who depend
locations. In such cases, therefore, a              loss of eligibility and certification on an             upon them.
school would be able to disburse title IV           institution’s ability to disburse student
                                                    financial assistance.                                   Section 600.21—Updating Application
funds to students enrolled at a location
                                                       Generally, if an institution’s eligibility           Information
that had not received approval from any
of the three entities that normally                 lapses the institution may not continue                    Current Regulations: Section 600.30
provide oversight—the Department of                 to disburse title IV, HEA program funds                 requires an institution to notify us no
Education, the State licensing agency,              until it receives our notification that it              later than 10 days after changes occur in
and the accreditation agency. In such               is eligible to participate in the programs              the information it provided to us in its
cases there would be no external record             again. However, an institution may                      last eligibility application.
that the temporary location existed.                make lawful disbursements if it has                        Proposed Regulations: The proposed
   In light of the concerns, we are                 submitted a materially complete                         regulations would remove § 600.30, but
interested in receiving comment on                  renewal application to us at least ninety               keep most of its core elements, and
whether requiring notice to the                     days prior to the expiration of its                     expand them in a newly revised
Department, but not prior approval,                 current program participation                           § 600.21. The expanded section would
would create an undue burden, and                   agreement, and is awaiting our                          require additional information about
whether there are certain categories of             determination of eligibility on its                     changes relating to an institution’s other
institutions that should not be able to             reapplication.                                          locations, as well as, the main campus
take advantage of the proposed                         Likewise, a private nonprofit or                     itself. Included in the proposed
exception due to problems with their                private for-profit institution may not                  language is a requirement that a
past performance. In addition, we are               continue to make lawful disbursements                   decrease in the level of program offered
considering obtaining information on                if it experiences a change in ownership                 requires the institution to notify the
temporary locations through the annual              or change in status that causes a change                Secretary.
compliance audit and invite comment                 in control. But, such an institution may                   Reasons: While much of proposed
on such an approach.                                continue to make disbursements                          § 600.21 remains unchanged from the
                                                    lawfully, if it has submitted a materially              current regulations in § 600.30, the
Secretary’s Responses to Applications               complete renewal application, received                  proposed regulations slightly alter a
  Current Regulations: Under                        a temporary program participation                       number of things. For instance, the
§ 600.21(a), (b) and (c), we notify the             agreement, and is awaiting our final                    proposed regulation would amend the
institution in writing as to its eligibility        determination.                                          list of positions or persons that are now
status.                                                Also, when an institution is required                deemed to substantially affect the
  Proposed Regulations: Proposed                    to make application to add a program or                 actions of the institution, eliminating
§ 600.20(f) discusses our various                   location, or increase the level of                      members of an institution’s board of
responses to an institution’s application           program offering, it may not make any                   directors or trustees. However, those
(or reapplication) for eligibility or               disbursements for that program or                       regulations would now clearly identify
certification. It describes the range of            location until it receives our notification             the chief executive officer, chief
notifications that we will send in                  that the program or location is eligible                financial officer, and the individual
response to an institution’s application,           to participate.                                         designated as the lead program
based upon the type or reason of the                   An institution would be permitted to                 administrator for title IV, HEA programs
application.                                        continue making title IV, HEA program                   at the institution. We believe that this
  Reasons: While the existing                       disbursements when the institution is                   approach more effectively identifies
§ 600.21(a), (b), and (c) address the               simply applying to convert an eligible                  those individuals that have the ability to
notifications we provide, the level of              location to a branch, as permitted under                substantially affect an institution’s
specificity is more precise in the                  the proposed § 600.20(c)(5).                            administration of the title IV, HEA
proposed regulations. We believe that a                Finally, if an institution is required to            programs.
clearer connection between the specific             submit an application or reapplication                     Discussion occurred regarding when
reason for the institution’s application            or certification and participation and                  an institution owned by a publicly-
and the related notification from the               does not, or has a program that is not                  traded corporation could be expected to
Secretary responding to that application            determined to be an eligible program, or                know about and report changes that
will be very useful and practical for               has added a location that is not                        occur, particularly related to change of
applicant institutions.                             approved, the institution is liable for all             ownership issues. Currently, a publicly-
                                                    title IV, HEA program funds disbursed                   traded institution is required to notify
Disbursement Rules                                  to students enrolled at that institution,               us when it notifies its accrediting
  Current Regulations: Under § 600.40               in that program, or at that location or                 agency, but no later than 10 days after
an institution becomes ineligible to                branch.                                                 the corporation learns of the change.
continue to participate in any title IV,               Reasons: We do not want students or                  Some committee members questioned
HEA program as of the day the                       institutions to experience any adverse                  how these institutions could be held

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49140             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

responsible to notify us within ten days            shareholders whose sole stock                           traded corporation. See, Accounting
after a change occurs, since the                    ownership is held in mutual funds,                      Practices Board Opinion 18, ¶17.
institution’s administration might not              profit-sharing plans, or Employee Stock                    Using that standard, a reduction in
always have current information to                  Option Plans (ESOPs).                                   ownership interest to less than 20
identify changes in the position of the                Reasons: Although changes in                         percent would also create a
major shareholders. Others contended                ownership and control that occur when                   presumption of loss of control.
that it was likely that the institutions            a person acquires a controlling interest                However, this accounting benchmark
would be aware of material changes to               in the corporate owner of an institution                would be used to create a rebuttable
the corporations that owned them.                   seem to be readily identified, other                    presumption that a change of control
   Ultimately, we decided to require in             transactions may cause a change                         had occurred; more analysis would
§ 600.21(b) that the institution must               impacting which person holds a                          sometimes be needed to tell whether
notify us of the material changes                   controlling interest, without that person               control had actually been lost at the
described in § 600.21 (a)(5) when it                having acquired new stock that would                    point when ownership interest fell
notifies its accrediting agency, but no             have triggered a Form 8–K filing with                   below that threshold.
later than 10 days after the change is              the SEC.                                                   As a result of the negotiated
known to the institution.                              For example, stock sales by other                    rulemaking meetings, we listened to
   Section 600.21(d) clarifies the                  shareholders or stock repurchases by the                representatives from the institutions
consequences of an institution’s failure            parent corporation may alter the                        who argued that the 20 percent
to notify the Secretary as required.                currently largest shareholder’s majority                threshold might be too low for a ‘‘bright
                                                    position so that that person is no longer               line’’ test, and agreed to simplify the
Section 600.31—Change in Ownership                                                                          measure by raising the threshold to 25
Resulting in a Change in Control for                the largest shareholder. Other corporate
                                                                                                            and changing it to be a ‘‘bright line’’
Private Nonprofit and Private for-Profit            actions, such as the spin-off of a
Institutions                                        subsidiary corporation, may cause a
                                                                                                               Therefore, since our current
                                                    significant change in the identity of the               regulations already associate controlling
  Statute: Section 498(i) of the HEA
                                                    persons who can control the                             interests with ownership of at least 25
provides that an institution that
                                                    corporation, even if the transaction                    percent of a publicly-traded corporation,
undergoes a change in ownership
                                                    results in no single person holding                     the proposed rule will treat a 25 percent
resulting in a change in control ceases
                                                    enough of an interest to be easily                      interest as giving rise to a conclusive
to qualify as an eligible institution after
                                                    identified as a controlling shareholder.                presumption of control, for purposes of
the change in control until it establishes
                                                       We continue to believe that the                      analyzing reductions in control, if that
that it meets eligibility and certification
                                                    eligibility of institutions must be                     holding is also the largest ownership
                                                    reassessed when these changes occur,                    interest in the corporation.
Publicly-Traded Corporations                        just as current regulations require for                    Under the proposed rule, any
   Current Regulations: Section                     those institutions owned by closely held                transaction that causes the holder of at
600.31(c)(2) treats a change in                     and other corporations. However, for                    least a 25 percent ownership interest
ownership and control of a publicly-                institutions owned by publicly-traded                   that is also the largest interest in the
traded corporation as occurring when a              corporations, identifying the                           corporation to reduce that interest to
transaction takes place that causes the             circumstances in which a reduction in                   less than 25 percent, or less than the
filing of a Form 8–K with the Securities            an ownership interest actually causes a                 interest of any other shareholder,
and Exchange Commission (SEC).                      change in ownership and control to                      constitutes a change in ownership and
   Proposed Regulations: The proposed               occur poses significant practical                       control within the meaning of section
rule at § 600.31(c)(2) would clarify the            difficulties. The change proposed here                  498(i) of the HEA.
circumstances in which a reduction in               would adopt a ‘‘bright line’’ test to                      In addition, we recognize that when
an ownership interest in a publicly-                identify those ownership interests that                 an institution undergoes a complete or
traded corporation results in a change of           are large enough to be considered                       partial change in ownership and
control within the meaning of section               controlling interests in a publicly-traded              control, it must apply to reestablish its
498(i) of the HEA.                                  corporate owner of an institution. This                 eligibility and certification to participate
   Currently, those changes are                     proposed change will only apply to                      in the title IV, HEA programs, and if
predicated upon an event that requires              situations where a change in controlling                approved, may remain provisionally
a publicly-traded corporation to file a             interests does not arise through the                    certified for not more than three years.
Form 8–K with the SEC. The proposed                 traditional stock acquisition that would                In that application, the institution must
regulations would augment that                      trigger a Form 8–K filing with the SEC.                 identify those shareholders with
condition with another, which would                 The changes in control arising from the                 substantial interests in the institution.
consider such a change to have occurred             acquisition of an ownership interest that               The provisional certification gives us an
if one who was a controlling                        trigger the Form 8–K filing will continue               opportunity to conduct some
shareholder of the corporation ceases to            to be identified by the facts specific to               assessment of the potential influence of
be a controlling shareholder.                       that corporation. Current rules regarding               those shareholders on institutional
   For these purposes, we would                     acquisition of an ownership interest,                   affairs.
consider a controlling shareholder to be            except as specifically noted here, are not                 Therefore, if a reduction in ownership
a person who holds or controls twenty-              affected by these changes.                              interest of the controlling shareholder
five percent or more of the total                      The proposed ‘‘bright line’’ test only               causes a change in ownership to occur
outstanding voting stock of the                     applies to controlling shareholders that                within the term of this provisional
corporation. This proposed regulation               own or control at least 25 percent of the               certification, the institution must
would use that percentage as a ‘‘bright             corporation. We considered that some                    reapply for certification, but the term of
line’’ in determining whether a person              generally accepted accounting                           the following provisional certification
is in fact a controlling shareholder. This          principles (GAAP) treat a 20 percent                    will not extend beyond the term of the
definition would not apply to                       ownership interest as sufficient to create              initial provisional certification, if the
‘‘institutional investors’’ or to                   a presumption of control of a publicly-                 person who thereby becomes the

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                  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49141

controlling shareholder was identified              bound by its program participation                      referendum, or through a contractual
on the prior application.                           agreement. Under such circumstances,                    agreement between two governmental
   Recognizing that publicly traded                 we believe the possibilities for fiscal or              entities. The proposed regulation does
corporations currently file financial               administrative instability to occur are                 not require the governing bodies or the
reports with the SEC, a publicly-traded             remote, and there is virtually no threat                institution to notify us of a change in
institution that undergoes a change in              to taxpayers’ funds.                                    governance, so long as the conditions
ownership due to a reduction in                       A change in ownership resulting in a                  set out in the regulation are satisfied.
ownership interest may submit its most              change of control would occur,                            The regulation requires the new
recent quarterly financial statement                however, if a public institution’s                      governing body to have acknowledged
filed with the SEC, together with copies            governance changes, and that new                        the institution’s continuing
of all other SEC filings made since the             governing body is not located in the                    responsibilities under its program
close of the fiscal year for which the              same State identified in the institution’s              participation agreement, but does not
institution last submitted a compliance             program participation agreement or the                  specify any particular format for the
audit, when the prospects of obtaining              new governing body has not                              acknowledgment. The acknowledgment
a ‘‘same day’’ balance sheet are                    acknowledged the institution’s                          that the institution continues to be
impractical.                                        continuing obligations under the terms                  responsible for meeting its obligations
                                                    of the institution’s program                            in its program participation agreement
Public Institutions
                                                    participation agreement. In such cases,                 must be written, and must be a part of
   Current Regulations: Section                     the institution would be required to                    the documents that transfer control to
600.31(c)(7) provides that an institution           comply with the change of ownership                     the new governing body.
that is owned by a public entity changes            provisions of § 600.20(b)(2)(iii).                        Where the formal transfer of
ownership and control when that entity                Several non-federal negotiators felt                  governing authority did not
is transferred to another governmental              that our position was biased in favor of                acknowledge this requirement, the
entity or other person.                             public institutions. One committee                      institution under its new governance
   Proposed Regulations: The proposed               member suggested that as more State                     could submit a written notice to us
regulation provides that a change in                and municipal governments create                        advising that it was acknowledging its
governance at a public institution is not           partnerships with corporate or non-                     continuing responsibilities under its
a change in ownership, if the                       profit entities, the traditional attributes             program participation agreement. This
institution’s new governing body is in              of public governance are often lost, and                separate notice to us would also satisfy
the same State included in the public               therefore, the stabilizing factors that we              the requirement. We invite comment on
institution’s program participation                 rely upon for our position will be                      whether a particular form of
agreement and the new governing body                undermined.                                             acknowledgment should be required
has acknowledged the institution’s                    Another non-federal negotiator                        under any of these situations.
continuing responsibilities under its               suggested that the trend of privatization
program participation agreement.                    and divestiture of public units and                     Section 668.2—General Definitions
   Reasons: Our original position on this           institutions should give us reason for                  (Academic Year); and Section 668.8—
issue was met with significant                      caution, in terms of the reliance we have               Eligible Program
opposition from some of the non-federal             placed on the history of compliance of                     Statute: Section 481 of the HEA
negotiators, as we related earlier in our           such entities. He suggested that some                   requires an academic year to have at
discussions on proposed § 600.20(d)(1),             schools might actually decrease the                     least 30 weeks of instructional time. For
and the committee did not reach                     level or extent of compliance, based                    certain program eligibility purposes, the
consensus on this point. We are                     upon its governance by a different entity               HEA requires a minimum of ten or
including in these proposed rules,                  that might have lower thresholds or                     fifteen weeks of instructional time.
substantially the same proposal we                  standards for compliance.                                  Current Regulations: Sections 668.2(b)
submitted to the negotiating committee.               We considered these arguments, but                    and 668.8 reflect the statutory
The only difference is the inclusion of             noted that the situations described by                  requirement that, in order for an
a provision that makes it clear that we             the negotiators would not result from                   educational program to meet the
would not consider a change in                      the proposed exception. The provision                   definition of both an academic year and
governance at a public institution to be            does not apply to a change in                           an eligible program, it has to include a
a change of ownership only if the new               governance in a public entity that                      minimum number of weeks of
governing authority is in the same State            involves the transfer of the institution to             instructional time. The existing
included in the public institution’s                any hybrid entity, such as a special                    regulations provide criteria that address
program participation agreement and                 corporation with limited liability, a                   what activity, and what amount of that
the new governing body has                          public-private partnership, or that                     activity, is needed to determine a week
acknowledged the institution’s                      results in joint ownership with any out-                of instructional time.
continuing responsibilities under its               of-state entities. Also, the exemption is                  An educational program that uses a
program participation agreement.                    not available if the new governing body                 semester, trimester, or quarter system,
   As we stated there, we believe the               does not, in the process of gaining                     (or one that measures academic progress
fiscal resources available to public                control of the public institution,                      in clock hours) must have at least one
institutions and their history of                   acknowledge the institution’s                           day of instructional time in a week for
compliance allows us to provide this                continuing responsibilities under its                   that week to count as a week of
limited regulatory relief.                          program participation agreement with                    instructional time. This requirement is
   A change of governance at a public               us.                                                     often referred to as the ‘‘one-day rule’’.
institution is not a change in ownership              We understand that a change in                        Full-time students at schools with
if the institution’s new governing body             governance at a public institution could                programs offered in semesters,
is in the same State included in the                arise in many different ways. Such a                    trimesters and quarters are generally
program participation agreement and                 change could come from a directive by                   presumed to be in class for 12 hours
the new governance has acknowledged                 an executive agency, a change in law by                 each week. For purposes of consistency,
that the institution continues to be                a State legislature, through a voter                    an educational program that measures

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49142             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

academic progress in credit hours but               quantify the in-class component of an                   considered to be a third-party servicer
does not use a semester, trimester, or              academic program. For that reason, the                  for the institution at which the student
quarter system, must have at least 12               only time spent in ‘‘preparation for                    is enrolled as a regular student.
hours of instructional time in a week for           exams’’ that could count as instructional                  Reasons: One reason for proposing the
that week to count as a week of                     time was the preparation time that some                 consolidation of the provisions covering
instructional time. This requirement is             institutions schedule as study days in                  these arrangements is to simplify the
generally referred to as the ‘‘twelve-hour          lieu of scheduled classes between the                   title IV, HEA program regulations. This
rule’’.                                             end of formal class work and the                        consolidation, in addition to making the
   Proposed Regulations: The proposed               beginning of final exams.                               regulations easier to use, will also make
regulations would amend                                                                                     it clear that the provisions apply to all
§ 668.2(b)(2)(ii) in the definition of an           Section 668.5—Written Arrangements                      of the title IV student assistance
academic year, and § 668.8(b) (3) and (4)           To Provide Educational Programs                         programs and not just to the Federal Pell
to clarify that homework does not count                Statute: Section 484(a) of the HEA                   Grant Program which is regulated in
as instructional time, and that, in terms           provides that a recipient of title IV                   part 690.
of ‘‘preparation for examinations’’, only           program funds must be enrolled in an                       The main reason for proposing that
study for final examinations that occurs            eligible academic program leading to a                  institutions may enter into written
after the last scheduled day of classes             degree or certificate at an eligible                    agreements with study abroad
for a payment period would count as                 institution.                                            organizations instead of directly with a
instructional time.                                    Current Regulations: Read literally,                 foreign institution is to provide more
   Reasons: Several negotiators pointed             the statutory language could suggest that               flexibility to institutions in structuring
out that the current regulatory approach            a student may only receive title IV                     their study abroad programs.
does not adequately address newer,                  funding for academic work offered by                       Currently, if an eligible institution
non-traditional approaches to the                   the eligible institution that has accepted              wants to enter into a written
delivery of postsecondary education to              the student into a degree or certificate                arrangement with one or more foreign
students, such as distance education.               program. However, in order to provide                   institutions under which those foreign
They urged us to eliminate or                       flexibility to both students and                        institutions provide part of the
substantially modify our current                    institutions and to allow for the benefits              educational program for students
regulations in this area, especially the            that can accrue when a student takes                    enrolled in the eligible institution, the
so-called ‘‘twelve-hour rule.’’ While we            classes at different institutions, the                  eligible institution must have a written
understood and appreciated the                      regulations include provisions whereby                  agreement directly with each foreign
comments of the non-federal                         students may receive title IV aid while                 institution its students will be
negotiators, we remained concerned                  taking a part of their academic program                 attending. However, in many cases
about possible abuse if institutions that           outside of the institution that admitted                study abroad organizations represent
did not use semester, trimester or                  them.                                                   foreign institutions by facilitating
quarter systems were, without any other                Section 600.9 of the Institutional                   enrollment arrangements, including
controlling factor, able to construct               Eligibility regulations and § 690.9 of the              managing required student payments to
academic programs that included only a              Federal Pell Grant Program regulations                  the foreign institution.
minimal amount of instructional time                govern written agreements between an                       Under proposed § 668.5(b), if an
each week. Thus, after considerable                 eligible institution and another                        eligible institution has a written
discussion during the negotiations we               institution or organization when all or                 agreement with a study abroad
decided that we did not have enough                 part of a student’s educational program                 organization that represents one or more
information on alternative measures to              is provided by the other school or                      foreign institutions that provide part of
responsively propose substantive                    organization. These agreements are                      the educational program of students
changes in these regulations at this time.          commonly referred to as consortium and                  enrolled in the eligible institution, the
No changes were proposed to the                     contractual agreements.                                 eligible institution would no longer be
current regulatory requirement. We                     Proposed Regulations: We propose to                  required to have an agreement directly
invited the negotiators and other                   delete §§ 600.9 and 690.9 and                           with the foreign institutions. The
interested parties to participate in future         consolidate most of the provisions                      written agreement between the eligible
discussions to address the issues                   currently contained in those sections                   institution and the study abroad
surrounding the one-day and twelve-                 into a new § 668.5 of the Student                       organization would be sufficient for
hour rules, and other related issues. The           Assistance General Provisions                           purposes of the administration of the
efforts of this workgroup may result in             regulations.                                            title IV, HEA programs, provided that
recommended changes to the HEA or                      In addition, we propose a new                        the written agreement between the
our regulations, subject to a future                provision in § 668.5(b) to provide that                 eligible institution and the study abroad
negotiated rulemaking process.                      an eligible institution may have a                      organization, adequately describes the
   Consequently, the only modifications             written arrangement with a study                        duties and responsibilities of each entity
to the definition of an academic year               abroad organization that represents one                 and meets the requirements of the
and an eligible program that are                    or more foreign institutions instead of                 regulations.
proposed here are clarifications of: (1)            separate agreements directly with each                     Consistent with current regulations,
Homework in the determination of                    foreign institution its students are                    proposed § 668.5(d)(2) would allow an
weeks of instructional time; and, (2)               attending.                                              eligible institution that enters into an
study for final examinations that occurs               Finally, we would create a new                       arrangement with one or more other
after the last scheduled day of classes             provision in § 668.5(d) that, in cases of               eligible institutions to choose which of
for a payment period.                               a written arrangement between eligible                  them calculates and disburses title IV,
   It was never intended that homework              institutions, would allow any of the                    HEA aid. However, under existing
should count as instructional time in               institutions participating in the written               regulations the student must be taking
determining whether a program meets                 arrangement to make title IV, HEA                       courses at the institution that calculates
the definition of an academic year, since           program calculations and disbursements                  and disburses the aid. The proposed
the 12-hour rule was designed to                    without that institution being                          regulations would allow any of the

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                  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49143

eligible institutions in the arrangement            institution may request a waiver of the                 required. Thus, institutions that receive
to calculate and disburse the aid, even             training requirement for either the                     FAT requests from other institutions or
if the student is not taking courses at the         financial aid administrator or the chief                from students must complete and return
institution that is calculating and                 administrator.                                          them.
disbursing the aid. This is to allow and               The proposed rules provide that we                      Additionally, current requirements
support the diverse ways in which                   may grant or deny the waiver for the                    distinguish between two types of
institutions are partnering to enable               required individual, require another                    transfer students: a student who
students to have greater access to                  official to take the training, or require               attended another institution in a prior
postsecondary education. We support                 alternative training.                                   award year (prior-year transfer) and a
these arrangements and wish to                         Reasons: We believe that it is                       student who transfers from one
facilitate these partnerships by allowing           unnecessary to require senior                           institution to another institution during
them to choose who best to administer               administrators from institutions that                   the same award year (current-year
their aid programs.                                 already participate in some of our                      transfer). For a prior-year transfer, an
                                                    programs to attend specialized training,                institution may use the Institutional
Section 668.13—Certification                        simply because the institution wishes to                Student Information Record (ISIR)
Procedures [Training Requirements]                  add a title IV, HEA program in which                    information it receives for that student
   Current Regulations: Section                     they do not currently participate.                      or obtain that information by requesting
668.13(a)(4) requires that, under certain              We recognized and agreed with the                    a paper FAT from the other institutions
circumstances (e.g., a new institution or           non-federal negotiators that the current                attended by the prior-year transfer
change of ownership, participation in a             regulations could, in some cases,                       student. Generally, for a current-year
new title IV, HEA program), specified               impose an impractical burden on the                     transfer student an institution must
institutional staff must attend and                 chief administrators of for-profit                      request a paper FAT from the institution
complete title IV, HEA program training.            institutions by requiring their                         the student previously attended during
Under those circumstances, all                      attendance at the title IV certification                the award year.
institutions must send their financial              training. Thus, we now propose to give                     In all cases where an institution or
aid administrator to the training.                  those chief administrators the same                     student requests a paper FAT, the
Additionally, institutions that are                 ability to designate another senior                     regulations require the other institution
nonprofit must send either their chief              institutional official to attend the                    to complete and promptly return the
administrator, or someone he or she                 training, as is now allowed for nonprofit               FAT.
designates to this training. In addition to         institutions.                                              Proposed Regulations: The proposed
the financial aid administrator, for-                  Also, if the chief administrator or his              regulations eliminate the paper FAT
profit institutions are required to send            designee, or the person designated as                   requirement for all students and
the chief administrator of the school for           the title IV administrator has recently                 mandate the use of NSLDS data for
training. The regulations allow for an              completed the required title IV HEA                     purposes of obtaining financial aid
on-site certification review as an                  program certification training, there                   history information. However, the
alternative to meeting the training                 currently is no training alternative for                proposed regulations make a distinction
requirement, if one or more of the                  the participating institution to otherwise              between the two types of transfer
required individuals has previously                 meet the training requirement. As                       students. Thus, for a prior-year transfer,
completed such training.                            proposed, § 668.13(a) allows the                        an institution could continue to rely on
   Proposed Regulations: In addition to a           institution to request a waiver of the                  the ISIR financial aid history
restructuring of paragraph (a) of                   training requirement and provides that                  information it receives for that student.
§ 668.13, the proposed regulations                  we may either grant the waiver or                       But, for a current-year transfer student,
modify and simplify the certification               require alternative training that would                 instead of requesting a paper FAT from
training requirements for chief                     be more beneficial.                                     the other institution, an institution
executive officers and financial aid                                                                        would request updated student
administrators.                                     Section 668.19—Financial Aid History
                                                                                                            eligibility information from NSLDS.
   First, the proposed regulations limit               Statute: Section 484 of the HEA                         In addition, the proposed regulations
the conditions under which this training            contains a number of student eligibility                would replace the various certification,
is required to only when an institution             provisions that a student must satisfy, or              origination, and disbursement
wishes to participate in the title IV, HEA          not violate, to receive aid under any of                provisions in the current rules with only
programs for the first time and when                the title IV, HEA programs. Included are                one requirement: an institution may not
there is a change of ownership. We                  provisions that deny additional title IV,               make a disbursement of title IV, HEA
propose to remove the current                       HEA program assistance to a student                     program funds to a current-year transfer
requirement that training is also                   who is in default on a title IV loan or                 student for seven days after it requests
required when a currently participating             owes an overpayment of title IV aid. In                 updated information from NSLDS. The
institution wishes to participate in a              addition, most of the title IV, HEA                     proposed rules would, however, allow
new title IV, HEA program.                          student aid programs have annual or                     an institution to make a disbursement to
   Second, these proposed regulations               aggregate maximum amounts, or both,                     a student who is otherwise eligible if,
provide that, for all institutions the              that a student may not exceed.                          within the seven-day period, NSLDS
chief executive may elect to send for                  Current Regulations: Section 668.19                  provides the updated information to the
title IV certification training another             requires institutions to obtain student                 institution, or the institution obtains the
executive level officer of the institution          eligibility information for transfer                    information itself directly from NSLDS.
in his or her stead. Both the chief                 students by either requesting a financial                  Finally, the proposed regulations
financial aid administrator and the chief           aid transcript (FAT) from each                          eliminate the requirement that an
executive of the institution, or designee,          institution the student previously                      institution that receives a request for the
must attend the certification training              attended or, under certain conditions,                  completion of a paper FAT, must
within twelve months after the                      obtaining information from the National                 respond to that request.
institution executes its program                    Student Loan Data System (NSLDS). Use                      Reasons: We believe that it is no
participation agreement. In addition, the           of NSLDS, while allowed is not                          longer necessary for an institution to

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49144             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

request student eligibility information             institution’s request, NSLDS would                      institution must maintain a copy of that
from another institution when that                  compare the disbursement data it has at                 confirmation.
information is available from NSLDS,                that time to the most recent ISIR                          Proposed Regulations: Under the
particularly in view of the burden                  generated for the student that contained                proposed regulation, the institution
imposed on an institution in complying              disbursement data. If NSLDS has more                    must confirm receipt by the student or
with the paper FAT requirements.                    recent disbursement data, or later                      parent of the electronic notification and
   During the negotiations we submitted             acquires disbursement data for that                     must maintain documentation of that
a draft proposal to the committee under             student, it would provide that updated                  confirmation. This is a change from the
which an institution would obtain                   information directly to the requesting                  requirement that the institution require
student eligibility information for a               institution. Thus, NSLDS would provide                  the student or parent to confirm receipt.
current-year transfer directly from                 updated disbursement data that was not                     Reasons: During negotiated
NSLDS. However, because institutions                previously provided to the institution                  rulemaking some of the non-federal
and guaranty agencies report student aid            whenever it acquires that data from                     negotiators suggested that the current
disbursement data to NSLDS only                     other institutions or guaranty agencies.                regulations in this area did not support
periodically, we wanted to limit the                We believe that this will greatly reduce                their constituents’ efforts to take
number of instances where NSLDS                     burden on institutions, because once                    advantage of advances in electronics.
could not provide accurate data at the              they submit the identifiers for their                      They specifically objected that, with
time an institution would seek that data            current-year transfers, they will only                  regard to the notice required when loan
for a current-year transfer. Therefore, we          receive NSLDS information for those                     funds are credited to a student’s
proposed than an institution had to                 students that had current year                          account, if the school notified the
query NSLDS no earlier than 30 days                 disbursements not already reported to                   borrower electronically, the school was
before it could disburse aid to a current-          the institution.                                        required to obtain and maintain a copy
year transfer in order to ensure, to the                                                                    of the confirmation of receipt from the
                                                       The proposed rules provide that, after
greatest extent possible, that NSLDS                                                                        student or parent. They pointed out that
                                                    making its request, an institution has to
would have the aid disbursement data                                                                        this level of confirmation and
                                                    wait seven days before it could make a
from prior institutions at that time.                                                                       documentation was not required when
                                                    disbursement of title IV, HEA programs
   Although the non-federal negotiators                                                                     the same notice was sent via the U.S.
                                                    funds to a student. This timeframe was
appreciated our effort to eliminate the                                                                     Postal Service. They asked why they
                                                    established to ensure that NSLDS could                  could not simply send the required
paper FAT requirements, most believed
                                                    process the requests, query its database,               notification electronically, and monitor
that the draft fell short of its intended
                                                    and report back to an institution before                any ‘‘returned mail’’, just as they do
benefits. Several negotiators suggested
                                                    aid is disbursed. However, if the student               with mail sent through the U.S. Postal
that requiring an institution to query
                                                    is otherwise eligible, an institution is                Service.
NSLDS within the 30-day period was
                                                    allowed to make a disbursement within                      We noted the long-standing precedent
too restrictive, particularly in view of
                                                    the seven-day period if it receives the                 that mail deposited with the U.S. Postal
the current rules where an institution
may request an FAT at any time.                     updated information from NSLDS, or                      Service is presumed to have been
Moreover, some negotiators felt the draft           queries NSLDS on-line to obtain that                    delivered unless it is returned to the
plan would create rather than reduce                information.                                            sender. We shared our concern about
burden, because for many institutions                  The negotiators supported this                       the lack of a standard for the handling
the query and subsequent review of the              proposal and agreed that we should                      of undeliverable electronic messages in
NSLDS data would occur at a time                    hold further discussions with                           the different email systems that schools
between terms when a financial aid staff            institutions, outside of the negotiated                 use. Just because a school sends a
is at its busiest. Another negotiator               rulemaking process, over the next                       message electronically does not assure
believed that eliminating the burden                several months regarding the following                  that it was received. For example, some
now imposed on institutions in                      administrative matters:                                 email systems report as ‘‘undeliverable’’
responding to FAT requests outweighed                 • The way or ways an institution would                any message that does not make it all
the burden of query and review of                   request NSLDS to provide it with updated                the way to the intended recipient’s
NSLDS data. The negotiators suggested               data;                                                   email account. However, other systems
                                                      • The types of data changes within NSLDS              may only send an ‘‘undeliverable’’
that the we find a way to provide
                                                    that would generate a record to the school;
student eligibility data directly to an                                                                     message if the transmission does not
                                                      • The way or ways NSLDS would provide
institution that needs it, rather than              the data to institutions and the contents and           make it to the recipient’s email
requiring institutions to request and               format of that data; and                                provider, regardless of whether the
review information for all current-year               • The period for which NSLDS would                    provider is able to deliver the mail to
transfer students within a very specific            continue to provide updated data for a                  the recipient’s account. In other
timeframe.                                          student.                                                instances, an ‘‘undeliverable’’ message
   We adopted the non-federal                                                                               might not be sent to the institution even
                                                    Section 668.165—Notices and
negotiators’ suggestions. Under                                                                             if the message never reaches the email
proposed § 668.19, an institution would,                                                                    provider. Thus, relying only upon the
at any time, request NSLDS to provide                 Current Regulations: Section                          lack of an ‘‘undeliverable’’ message,
it with eligibility data for a current-year         668.165(a)(3)(ii) requires an institution               would not be sufficient to ensure that
transfer. We expect, but do not require,            to provide a notice to a student or                     these important consumer protection
that this request would be made as soon             parent borrower when title IV, HEA                      messages were actually received by the
as the institution determines that a                program loan proceeds are used to                       borrower. Therefore, we declined to
student is interested in transferring               credit the student’s account at the                     make the changes suggested by the non-
during the current year. In making its              institution. The regulation allows this                 federal negotiators.
request, the institution would provide              notice to be sent electronically, but with                 At the last round of the negotiations
information identifying the student,                the requirement that the institution                    we were asked to at least change the
such as name, social security number,               must require the student or parent to                   retention requirement so that all an
and date of birth. After receiving the              confirm receipt of the notice and the                   institution needed to do was to

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                  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49145

demonstrate that it had used a system               other appropriate means. The proposed                      The regulation further indicates that,
that monitored receipt. The presenter of            regulation still allows institutions the                unless the lender determines that
that proposal suggested that, while she             option of continuing to have the FWS                    extenuating circumstances exist, the
would prefer a more drastic relaxation              student’s supervisor sign his or her                    lender must consider that an applicant
of the requirement, at least this                   name on a paper certification.                          has an adverse credit history based on
suggestion would not require schools to                We expect an institution that chooses                several enumerated reasons that may
create and maintain a system that tracks            to use a system that incorporates an                    appear in the applicant’s credit report.
and retains these electronic                        electronic certification to adopt                          If the lender does determine that
transmissions for several years.                    reasonable safeguards against possible                  extenuating circumstances exist, the
   We believe that ensuring that these              fraud and abuse. The institution should                 regulation requires the lender to retain
important messages were actually                    provide a secure electronic certification               documentation demonstrating its basis
delivered to the recipients’ email                  through an electronic payroll system                    for making that determination.
account requires confirming that the                that includes:                                             Proposed Regulations: The proposed
individual messages are sent and                       • Password protection;                               regulation would amend
received, rather than simply monitoring                • Password changes at set intervals;                 § 682.201(b)(1)(vii)(F) to require that the
the presence of a reliable notification                • Access revocation for unsuccessful log-            lender retain a record (instead of
system. Thus, we do not feel that                   ins;                                                    documentation) demonstrating its basis
                                                       • User identification and entry point                for determining that extenuating
changing the current requirement to                 tracking;
simply require documentation of a                                                                           circumstances exist in such a situation.
                                                       • Random audit surveys with supervisors;
school process can be made at this time.            and                                                     Similarly, where the regulation
   However, in reviewing this issue we                 • Security tests of the code access.                 indicates what that documentation may
decided that some clarifications could                Reasons: The current requirement for                  include, the proposed regulation would
be made to reflect policy guidance that             a handwritten signature from the FWS                    indicate what such a record may
has been provided in this area.                     student’s supervisor predates the                       include.
Specifically, the current rule states that          development of electronic alternatives                     Reasons: This change in the two
the institution must require the                    to indicate that the supervisor certified               places noted to the word ‘‘record’’ in
recipient of the message to confirm that            the time record. A number of                            place of the word ‘‘documentation,’’ is
the message has been received. We have              institutions have expressed the desire to               a clarification of the existing regulation.
consistently interpreted that provision                                                                        A lender has never had to maintain
                                                    implement an electronic system that can
to only require confirmation that the                                                                       original documents that showed what
                                                    process time records for all its
notice was received by the student or                                                                       its basis was for determining that
                                                    employees, including FWS students.
parent, that is, that the electronic mail             However, the current requirement of                   extenuating circumstances existed,
was delivered to the correct address.               collecting a handwritten signature from                 although it could do so.
   Therefore, we are proposing that the                                                                        The proposed regulation provides
                                                    an FWS student’s supervisor on a paper
regulation simply require the school to                                                                     some examples of what the record of
                                                    certification often prevents, or at least
confirm receipt by the student or parent                                                                    such a determination may include (an
                                                    diminishes, the effectiveness of an
of the electronic notification and                                                                          updated credit report, a statement from
                                                    automated electronic payroll system.
maintain documentation of that                        The proposed regulatory change does                   the creditor that the borrower has made
confirmation.                                       not remove the certification                            satisfactory arrangements to repay the
                                                    requirement. The certification                          debt, or a satisfactory statement from the
Federal Work-Study Program                                                                                  borrower explaining any delinquencies
                                                    requirement helps ensure that the
Section 675.19—Fiscal Procedures and                supervisor is reviewing the time record                 with outstanding balances of less than
Records                                             prior to paying an FWS student. This is                 $500). This record that demonstrates the
                                                    an important safeguard to help maintain                 lender’s determination that extenuating
   Current Regulations: Section                                                                             circumstances existed could be the
675.19(b)(2)(i) requires an institution to          the integrity of the FWS Program by
                                                    paying only students who worked and                     original applicable document. However,
establish and maintain program and                                                                          it could also be an electronic (or other
fiscal records that include, among other            by paying only the correct amount of
                                                    funds earned by the students.                           type of) copy of such a document.
things, a certification that each FWS
student has worked and earned the                   Federal Family Education Loan                           Section 682.207—Due Diligence in
amount being paid. This certification               Programs and Federal Direct Loan                        Disbursing a loan
must be signed by the FWS student’s                 Program                                                   Statute: Section 428G of the HEA
supervisor, who is either an official of                                                                    establishes the requirements for the
the institution or off-campus agency.               Section 682.201 and 685.200—Eligible                    disbursement of student loans under the
For students paid on an hourly basis,               Borrowers                                               FFEL Program.
this certification must be part of, or                 Statute: Section 428B(a)(1)(A) of the                  Current Regulations: Under
supported by, a time record showing the             HEA states, among other things, that                    § 682.207(b)(1) and (c)(3), a lender is
hours each student worked in clock                  parents of dependent students are                       required to disburse loan proceeds to a
time sequence or the total hours worked             eligible to borrow PLUS loans in the                    school in accordance with the
per day.                                            FFEL and Direct Loan programs, if they                  disbursement schedule provided by the
   Proposed Regulations: These                      do not have an adverse credit history.                  school.
proposed regulations would amend                       Current Regulations: Sections                          Proposed Regulations: Proposed
§ 675.19(b)(2)(i) by removing the                   682.201(b)(1) and 685.200(b)(1) list the                changes to § 682.207(b)(1) and (C)(3)
requirement that the certification must             criteria that a parent borrower must                    would explicitly allow a lender to
have the handwritten signature of the               meet to be eligible to borrow a PLUS                    disburse loan proceeds either in
FWS student’s supervisor. This change               Program loan. One criterion for a                       accordance with the disbursement
provides flexibility to institutions by             Federal PLUS loan made on or after July                 schedule or in accordance with another
allowing the use of an electronic                   1, 1993, is that the parent borrower must               request made by a school that modifies
certification or a certification through            not have an adverse credit history.                     that schedule.

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49146             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

   Reasons: Under proposed                          proceeds are being disbursed by the                        In addition, the proposed change
§ 682.207(b)(1) and (c)(3), a lender could          lender in this situation. Thus, requiring               would eliminate a conflict between the
continue to provide loan proceeds to a              the lender to give notice of that fact is               current provisions in § 682.604(b)(2)
school based solely on the disbursement             not necessary.                                          and the General Provisions regulations
schedule provided by the school on a                                                                        in § 668.164(a). Under § 668.164(a), a
                                                    Section 682.604(b)—Releasing Loan
loan certification. Or, the school and the                                                                  school makes a disbursement of Title IV,
lender could agree that loan proceeds                                                                       HEA program funds whenever it credits
would be provided at the school’s                      Current Regulations: Before a school                 a student’s account, regardless of
request under an alternate process like             may release FFEL Program loan                           whether the school has received
the current ‘‘hold and release’’ process            proceeds to a student, it must determine                program funds from the Secretary or a
used by some FFEL lenders and                       that the student has continuously                       lender. As discussed above, a school
guaranty agencies. Under the hold and               maintained eligibility, as provided in                  must ensure that it only disburses Title
release process, a school instructs the             § 682.201. The current regulations                      IV, HEA program funds to eligible
lender not to provide the loan funds for            specifically require the school to make                 students. However, under current
a borrower according to the                         this determination after it receives the                § 682.604(b)(2) a school that makes a
disbursement schedule provided in the               loan proceeds from the lender.                          disbursement of FFEL Program funds to,
loan certification. Rather, the lender                 Proposed Regulations: Proposed                       or on behalf of, an eligible student by
holds the funds until the school                    § 682.604(b)(2)(i) would not require a                  crediting the student’s account before it
requests the lender to release those                school to determine a student’s                         receives the funds from a lender, must
funds for that borrower.                            eligibility after it receives loan proceeds             make another eligibility determination
   Although the current regulations do              from a lender.                                          after it receives those funds from the
not prohibit schools and lenders from                  Reasons: As part of the negotiations of              lender. We are proposing to modify the
using the hold and release process, we              Committee I, the FFEL industry                          current regulation to make clear that
wish to make explicit in the regulations            recommended that the regulations be                     since the General Provisions regulations
that schools have the flexibility to                revised in several ways to better                       in § 668.164(a) apply to disbursements
request a modification to the original              accommodate the processes under                         of all program funds, the school in the
disbursement schedule, and lenders                  which lenders and the Secretary provide                 example above does not need to make
have the authority to provide FFEL loan             title IV program funds to schools. In                   another eligibility determination.
proceeds, in a manner that best meets               response, we submitted a proposal to
their administrative needs. Thus, the               Committee I describing a new payment                    Section 682.604(c)(6)—Processing the
proposal would allow FFEL lenders to                method that incorporated many of the                    Borrower’s Loan Proceeds and
release loan funds upon the specific                FFEL industry’s recommendations.                        Counseling Borrowers; and Section
request of the school to modify the                    We and the non-federal negotiators                   685.301—Origination of a Loan by a
original schedule, rather than according            reached tentative agreements on many                    Direct Loan Program School
to the disbursement schedule originally             of the provisions of the proposed                          Statute: Section 428G(a)(2) of the HEA
presented in the loan certification.                payment method. However, consensus                      provides that FFELP loans generally
   Current Regulations: Section                     was not reached on our entire proposal,                 must be disbursed in at least two
682.207(f) allows a lender to disburse              nor on alternatives to that proposal that               installments. The second installment
loan proceeds after the student has                 were put forth by some non-federal                      cannot be made any earlier than half-
ceased to be enrolled on at least a half-           negotiators. Under the protocols                        way through the loan period except for
time basis if, among other things, the              adopted by the committee, when                          semester, quarter, or similar term
school certifies the borrower’s loan                consensus is not reached we may                         situations. Then the second installment
eligibility before the date the borrower            publish proposed regulations that may                   is allowed to be made at the beginning
became ineligible and the loan funds                or may not reflect any tentative                        of the second semester, quarter, or
will be used to pay educational costs               agreements, or that address all or some                 similar term. Federal Direct Loan
that the school determines the student              of the issues discussed during the                      Program loans are made under the same
incurred for the period in which the                negotiated rulemaking sessions.                         conditions pursuant to section 455 of
student was enrolled and eligible. The              Consistent with these protocols, we                     the HEA.
regulation requires the lender to give              propose to make a revision to                              Current Regulations: In the FFEL
notice to the school that the loan                  § 682.604(b)(2) of the FFEL Program                     Program, except for the situation in
proceeds are being disbursed based on               regulations.                                            which the date of one or more
the above noted situation.                             Under the General Provisions                         scheduled disbursements has passed
   Proposed Regulations: The proposed               regulations, and in each of the program                 before a lender makes a disbursement,
regulation would amend § 682.207(f) by              regulations, a school may disburse Title                § 682.604(c)(6) requires, among other
dropping the requirement for the lender             IV, HEA program funds only to, or on                    things, that the school deliver loan
to give notice to the school of the reason          behalf of, an eligible student. The                     proceeds at least once in each payment
that the loan proceeds are being                    specific provision in the FFEL Program                  period when a loan period is more than
disbursed in this situation.                        regulation at § 682.604(b)(2) is the only               one payment period. Section
   Reasons: In order for the lender to              one in the regulations that requires a                  682.604(c)(7) states that in cases where
disburse the loan proceeds in this                  school to make an eligibility                           a school uses credit hours and terms
situation, the school must determine                determination after it receives program                 other than semesters, trimesters, or
that there are educational costs (that are          funds. Under all of the other                           quarters, it may not deliver a second
intended to be covered by the loan) that            regulations, a school has the flexibility               loan disbursement until the later of the
the student incurred for the period in              to implement policies and procedures                    calendar midpoint of the loan period or
which the student was enrolled and                  that ensure that a student meets all of                 the date when the student has
eligible. Therefore, since it makes the             the eligibility requirements before it                  completed half of the academic
determination about the student’s                   disburses funds. This proposed change                   coursework in the loan period. Section
incurred educational costs, the school              would extend this flexibility to FFEL                   685.301(b) has similar provisions for the
will know the reason that the loan                  Program funds as well.                                  Direct Loan Program.

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                  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49147

   Proposed Regulations: In the FFEL                have done this because it appears                          We invite comments on how to make
Program, the proposed change to                     reasonable to treat all terms in the same               these proposed regulations easier to
§ 682.604(c)(6) adds § 682.604(c)(7) as             manner, without regard to the number                    understand, including answers to
one exception to the rule that a school             of terms that a school has, as long as all              questions such as the following:
deliver loan proceeds at least once in              of the terms in the loan period are                        • Are the requirements in the
each payment period. In the Direct Loan             substantially equal in length.                          proposed regulations clearly stated?
Program, § 685.301(b)(2) already                       However, for terms that are not                         • Do the proposed regulations contain
includes a reference to a provision                 substantially equal in length, we have                  technical terms or other wording that
corresponding to § 682.604(c)(7).                   retained the current requirement that                   interferes with their clarity?
   In addition, in the FFEL Program and             there be two disbursements, with the                       • Does the format of the proposed
in the Direct Loan Program, the                     second disbursement being made at the                   regulations (grouping and order of
proposed regulations would amend                    later of the calendar midpoint of the                   sections, use of headings, paragraphing,
§§ 682.604(c)(7) and 685.301(b)(5) so               loan period or the date that the student                etc.) aid or reduce their clarity?
that they do not preclude a school from             has completed half of the academic                         • Would the proposed regulations be
delivering loan proceeds in each term in            coursework of the loan period. We have                  easier to understand if we divided them
those situations in which the school                done this to prevent a second or                        into more (but shorter) sections? (A
measures progress in credit hours and               subsequent disbursement from being                      ‘‘section’’ is preceded by the symbol
uses terms other than semesters,                    made too early in a student’s loan                      ‘‘§ ’’ and a numbered heading; for
trimesters, or quarters as long as those            period when the earlier disbursement                    example, § 675.19 Fiscal procedures and
non-standard terms are substantially                would be for an amount that                             records.)
equal in length throughout the loan                 substantially exceeds the amount that                      • Could the description of the
period.                                             would be proportional to the period for                 proposed regulations in the
   Credit hour schools that do not use              which it is made.                                       SUPPLEMENTARY INFORMATION section of
terms, or use terms that are not                       For example, if a school had two                     this preamble be more helpful in
substantially equal in length, would                terms in a 30-week academic year, one                   making the proposed regulations easier
continue to be required to wait until the           of which was 10 weeks and the other                     to understand? If so, how?
later of the calendar midpoint of the               was 20 weeks long, we would not want                       • What else could we do to make the
loan period or the date that the student            the second disbursement (equal to half                  proposed regulations easier to
has completed half of the academic                  of the loan amount) to be made in the                   understand?
coursework in the loan period before                eleventh week, the beginning of the                        Send any comments that concern how
delivering the second disbursement of               second term.                                            the Department could make these
the loan.                                                                                                   proposed regulations easier to
   Terms within a loan period would be              Executive Order 12866                                   understand to the person listed in the
considered to be substantially equal in             1. Potential Costs and Benefits                         ADDRESSES section of the preamble.
length if no term in the period was more               Under Executive Order 12866, we                      Regulatory Flexibility Act Certification
than two weeks shorter than any other               have assessed the potential costs and
term in the period.                                                                                           The Secretary certifies that these
                                                    benefits of this regulatory action.
   Reasons: Since all terms in which a                                                                      proposed regulations would not have a
                                                       The potential costs associated with
school uses credit hours are considered                                                                     significant economic impact on a
                                                    the proposed regulations are those
to be payment periods according to                  resulting from statutory requirements                   substantial number of small entities.
§ 668.4 of the Student Assistance                   and those we have determined as                         Entities affected by these regulations are
General Provisions regulations, there is            necessary for administering these                       institutions of higher education that
an inconsistency in the FFEL Program                programs effectively and efficiently.                   participate in the title IV, HEA
regulations between §§ 682.604(c)(6)                   As more fully described elsewhere in                 programs. The institutions are defined
and (c)(7) in some situations. This                 this preamble, these proposed                           as small entities, according to the U.S.
inconsistency does not exist in the                 regulations, developed through a                        Small Business Administration, if they
Direct Loan Program regulations as                  negotiated rulemaking process with the                  are: for-profit or nonprofit entities with
noted above.                                        higher education community, would                       total revenue of $5,000,000 or less; or
   In the FFEL Program for example, if              implement a variety of streamlining and                 entities controlled by governmental
a school uses credit hours and has five             clarifying provisions to provide                        entities with populations of 50,000 or
terms in its academic year,                         institutions additional flexibility in the              less. These proposed regulations would
§ 682.604(c)(6) indicates that the school           administration of the title IV, HEA                     not impose a significant economic
should deliver loan proceeds at least               programs. In assessing the potential                    impact on a substantial number of small
once each term. But, § 682.604(c)(7)                costs and benefits of this regulatory                   entities. The regulations would benefit
indicates that the school may not                   action—both quantitative and                            both small and large institutions by
deliver a second disbursement until the             qualitative—we have determined that                     providing additional flexibility in the
later of the calendar midpoint of the               the benefits would justify the costs.                   administration of: the Institutional
loan period or the date by which the                   We have also determined that this                    Eligibility requirements; the
student has completed half of the                   regulatory action would not unduly                      certification procedures for institutions;
academic coursework in the loan                     interfere with State, local, and tribal                 the financial aid history verification
period. We have removed that                        governments in the exercise of their                    requirements; the cash management
inconsistency.                                      governmental functions.                                 requirements; the written arrangements
   With regard to the change in the                                                                         requirements; the FFEL Programs; Direct
treatment of terms other than semesters,            2. Clarity of the Regulations                           Loan Program and Federal Work-Study
trimesters, or quarters, that are of                   Executive Order 12866 and the                        Programs, without requiring significant
substantially equal length, we have                 President’s Memorandum of June 1,                       changes to current institutional system
proposed the same treatment for those               1998 on ‘‘Plain Language in Government                  operations.
terms as is currently provided for                  Writing’’ require each agency to write                    These proposed regulations would
semesters, trimesters, or quarters. We              regulations that are easy to understand.                ease administrative burden and augment

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49148             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

student benefits by: consolidating and              significantly altered in these proposed                 Origination of a loan by a Direct Loan
streamlining procedures for                         regulations.                                            Program school. These proposed
establishing, reestablishing, maintaining              Section 600.31—Change in ownership                   changes clarify and eliminate a
or expanding institutional eligibility              resulting in a change in control for                    regulatory contradiction in the loan
and certification; expanding options for            private nonprofit and private for-profit                disbursement rules for nontraditional
institutions that enter contractual                 institutions. These regulations                         programs under the FFEL and Direct
agreements with other entities for the              specifically address procedures and                     Loan programs.
delivery of eligible programs and title             requirements institutions must follow                      Our current estimate is that the
IV, HEA program funds disbursement;                 when they have experienced a change in                  existing total annual recordkeeping and
improving the process to verify the                 ownership, resulting in a change of the                 reporting burden hours for all of the
financial aid history of title IV, HEA              people or entities that govern those                    affected sections listed above will not
program fund recipients; streamlining               institutions. Generally, schools must                   change. We do not anticipate any
the disbursement rules for non-                     reapply when such a change occurs.                      significant changes in these hours as a
traditional programs that participate in            These proposed regulations modify the                   result of the proposed regulations that
either the FFEL or Direct Loan                      criteria an institution must consider to                would result in an increase in the
programs; expanding electronic options              determine if, or to what extent, such a                 current estimates. We believe the
for notifications in cash management;               change occurred.                                        additional flexibilities these regulations
providing flexibility to schools and                   Section 668.13—Certification                         propose may reduce the annual
lenders in the disbursement of loan                 procedures [training requirements]. The                 recordkeeping and burden hours for
funds; and streamlining the collection of           proposed regulations offer alternatives                 many institutions.
hours worked by FWS Program hourly                  to the training requirements for                           We will monitor the impact of the
employees through allowing institutions             institutional certification, and the                    proposed flexibilities to determine the
to implement an automated timekeeper                option to request a waiver from the                     nature and extent of any impact upon
system using electronic signatures to               training.                                               institutions.
                                                       Section 668.19—Financial Aid                            If you want to comment on the
verify hours worked.
                                                    History. The proposed regulations                       information collection requirements,
   We invite comments from small                    amend the process for confirming a
institutions as to whether the proposed                                                                     please send your comments to the Office
                                                    transfer student’s financial aid history,               of Information and Regulatory Affairs,
changes would have a significant                    eliminating the need to use paper forms
economic impact on them.                                                                                    OMB, room 10235, New Executive
                                                    to meet the requirements.                               Office Building, Washington, DC 20503;
Paperwork Reduction Act of 1995                        Federal Work-Study Program—                          Attention: Desk Officer for U.S.
                                                    § 675.19—Fiscal procedures and                          Department of Education. You may also
   Proposed §§ 600.20, 600.21, 600.31,              records. The proposed regulations allow
668.13, 668.19 and 675.19 contain                                                                           send a copy of these comments to the
                                                    a FWS student’s supervisor to certify                   Department representative named in the
information collection requirements.                electronically or through other means,                  ADDRESSES section of this preamble.
Under the Paperwork Reduction Act of                that each student has worked and                           We consider your comments on these
1995 (44 U.S.C. 3507(d)), the                       earned the amount being paid. This                      proposed collections of information in—
Department of Education has submitted               proposed change eliminates the                             • Deciding whether the proposed
a copy of these sections to the Office of           restriction that the FWS certification                  collections are necessary for the proper
Management and Budget (OMB) for its                 must have a handwritten signature and                   performance of our functions, including
review. These sections contain the                  reduces the administrative burden for                   whether the information will have
recordkeeping and reporting provisions              certifying FWS time records.                            practical use;
for various title IV, HEA programs,                    Federal Family Education Loan                           • Evaluating the accuracy of our
detailed in the following paragraph.                Program and William D. Ford Direct                      estimate of the burden of the proposed
   Collection of information: Student               Loan Program—§ 682.201—Eligible                         collections, including the validity of our
Assistance General Provisions—                      borrowers. The proposed regulations                     methodology and assumptions;
§ 600.20—Application procedures for                 revise this section to allow greater                       • Enhancing the quality, usefulness,
establishing, reestablishing,                       flexibility to FFEL Program lenders in                  and clarity of the information we
maintaining, or expanding institutional             record retention regarding the                          collect; and
eligibility and certification. The                  documentation required to establish an                     • Minimizing the burden on those
proposed regulations would streamline               adverse credit history for a parent                     who must respond. This includes
the application and reapplication                   borrower.                                               exploring the use of appropriate
procedures that institutions must follow               Section 682.207—Due diligence in                     automated, electronic, mechanical, or
to obtain eligibility and certification to          disbursing a loan. We propose to change                 other technological collection
participate in the title IV, HEA                    this section to allow a lender in the                   techniques or other forms of information
programs. New flexibility is proposed               FFEL Program to disburse funds to a                     technology; e.g., permitting electronic
regarding the format of the application,            school based upon the school’s                          submission of responses.
the process of adding additional and                modification to the disbursement                           OMB is required to make a decision
temporary locations, and an institution’s           schedule originally provided in the loan                concerning the collections of
ability to make disbursements after its             certification. Another proposed change                  information contained in these
eligibility or certification has expired.           to this section eliminates the                          proposed regulations between 30 and 60
   Section 600.21—Updating application              requirement that a lender in the FFEL                   days after publication of this document
information. The proposed regulations               Program provide notice to the school                    in the Federal Register. Therefore, to
in this section clarify the instances               when it disburses funds to the school                   ensure that OMB gives your comments
requiring notification of updated                   after the student is no longer enrolled                 full consideration, it is important that
information, and the procedures for                 on at least a half-time basis.                          OMB receives the comments within 30
making such notification. The reporting                Section 682.604—Processing the                       days of publication. This does not affect
timeframes for institutions owned by                borrower’s loan proceeds and                            the deadline for your comments to us on
publicly traded corporations are                    counseling borrowers and § 685.301—                     the proposed regulations.

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                   Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49149

Intergovernmental Review                             Reporting and recordkeeping                             § 600.20 Application procedures for
                                                     requirements, Student aid.                              establishing, reestablishing, maintaining, or
  These title IV, HEA program funds are                                                                      expanding institutional eligibility and
not subject to the requirements of                   34 CFR Part 675                                         certification.
Executive Order 12372 and the                                                                                   (a) Initial eligibility application. An
                                                       Colleges and universities,
regulations in 34 CFR part 79.                                                                               institution that wishes to establish its
                                                     Employment, Grant programs—
Assessment of Educational Impact                     education, Reporting and recordkeeping                  eligibility to participate in any HEA
                                                     requirements, Student aid.                              program must submit an application to
  The Secretary particularly requests                                                                        the Secretary for a determination that it
comments on whether the proposed                     34 CFR Part 682                                         qualifies as an eligible institution under
regulations would require transmission                 Administrative practice and                           this part. If the institution also wishes
of information that any other agency or              procedure, College and universities,                    to be certified to participate in the title
authority of the United States gathers or            Loan programs—education, Student aid,                   IV, HEA programs, it must indicate that
makes available.                                     Vocational education, Reporting and                     intent on the application, and submit all
Electronic Access to This Document                   recordkeeping requirements.                             the documents indicated on the
                                                                                                             application to enable the Secretary to
   You may view this document, as                    34 CFR Part 685
                                                                                                             determine that it satisfies the relevant
published in the Federal Register, in                  Administrative practice and                           certification requirements contained in
text or Adobe Portable Document                      procedure, College and universities,                    34 CFR part 668, subparts B and L.
Format (PDF) on the Internet at the                  Loan programs—education, Student aid,                      (b)(1) Reapplication. A currently
following sites:                                     Vocational education, Reporting and                     designated eligible institution that is not                        recordkeeping requirements.                             participating in the title IV, HEA html/                                                                                 programs must apply to the Secretary
      fedlreg.htm                                    34 CFR Part 690
                                                                                                             for a determination that the institution
   To use the PDF you must have the                    Grant programs—education,                             continues to meet the requirements in
Adobe Acrobat Reader Program with                    Reporting and recordkeeping                             this part if the Secretary requests the
Search, which is available free at the               requirements, Student aid.                              institution to reapply.
first of the previous sites. If you have               Dated: August 4, 2000.                                   (2) A currently designated eligible
questions about using the PDF, call the              Richard W. Riley,                                       institution that participates in the title
U.S. Government Printing Office (GPO),               Secretary of Education.
                                                                                                             IV, HEA programs must apply to the
toll free, at 1–888–293–6498; or in the                                                                      Secretary for a determination that the
                                                       For the reasons stated in the
Washington, DC, area at (202)–512–                                                                           institution continues to meet the
                                                     preamble, the Secretary proposes to
1530.                                                                                                        requirements in this part and 34 CFR
                                                     amend title 34 of the Code of Federal
   Note: The official version of this document                                                               part 668 if the institution wishes to—
                                                     Regulations by amending parts 600, 668,
is the document published in the Federal                                                                        (i) Continue to participate in the title
                                                     675, 682, 685 and 690 as follows:
Register. Free Internet access to the official                                                               IV, HEA programs beyond the
edition of the Federal Register and the Code                                                                 scheduled expiration of the institution’s
                                                     PART 600—INSTITUTIONAL
of Federal Regulations is available on GPO                                                                   current eligibility/certification
                                                     EDUCATION ACT OF 1965, AS                               designation;
index.html                                                                                                      (ii) Reestablish eligibility/certification
(Catalog of Federal Domestic Assistance              AMENDED
                                                                                                             as a private nonprofit or private for-
Number: 84.007 Federal Supplemental                    1. The authority citation for part 600                profit institution following a change in
Educational Opportunity Grant Program;               continues to read as follows:                           ownership that results in a change in
84.032 Federal Family Education Loan
Program; 84.032 Consolidation Program;                 Authority: 20 U.S.C. 1001, 1002, 1003,                control as described in § 600.31; or
84.032 Federal PLUS Program; 84.032                  1088, 1091, 1094, 1099b, and 1099c, unless                 (iii) Reestablish eligibility/
Federal Supplemental Loans for Students              otherwise noted.                                        certification after the institution changes
Program; 84.033 Federal Work-Study                                                                           its status as a proprietary, nonprofit, or
Program; 84.037 Federal Perkins Loan                 §§ 609.9 and 600.30       [Removed]                     public institution.
Cancellation Program; 84.038 Federal Perkins           2. Sections 600.9 and 600.30 are                         (c) Application to expand eligibility.
Loan Program; 84.063 Federal Pell Grant              removed.                                                A currently designated eligible
Program; 84.069 Leveraging Educational                 3. Section 600.10 is amended by                       institution that wishes to expand the
Assistance Partnership Program; 84.268               removing and reserving paragraph (a)(2)                 scope of its eligibility/certification and
Federal William D. Ford Federal Direct Loan          and by revising paragraphs (b)(3)(i) and                disburse title IV, HEA Program funds to
                                                     (b)(3)(ii) to read as follows:                          students enrolled in that expanded
List of Subjects                                                                                             scope must apply to the Secretary for
                                                     § 600.10 Date, extent, duration, and
                                                                                                             approval to—
34 CFR Part 600                                      consequence of eligibility.
                                                                                                                (1) Add a location at which the
  Administrative practice and                        *      *    *     *     *                               institution offers 50 percent or more of
procedure, Colleges and universities,                  (b) * * *                                             an educational program, unless the
Consumer protection, Grant programs—                   (3) * * *                                             institution is exempt from this
education, Loan programs—education,                    (i) The Secretary approves that                       requirement under paragraph (d) of this
Reporting and recordkeeping                          location under § 600.20(f)(5); or                       section;
requirements, Student aid.                             (ii) The location is licensed and                        (2) Increase its level of program
                                                     accredited and the institution does not                 offerings (e.g., adding graduate degree
34 CFR Part 668                                      have to notify the Secretary about that                 programs when it previously offered
  Administrative practice and                        location under § 600.20(d).                             only baccalaureate degree programs);
procedure, Colleges and universities,                *      *    *     *     *                                  (3) Add an educational program if the
Consumer protection, Grant programs—                   4. Section 600.20 is revised to read as               institution is required to apply to the
education, Loan programs—education,                  follows:                                                Secretary for approval under § 600.10(c);

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49150             Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

   (4) Add a branch campus at a location            period has expired to students enrolled                    (6) If the Secretary receives an
that is not currently included in the               at that location until the Secretary                    application under paragraph (c)(2) of
institution’s eligibility/certification             approves that location.                                 this section for an increase in the level
designation; or                                        (e) Application format. To satisfy the               of program offerings, or for an
   (5) Convert an eligible location to a            requirements of paragraphs (a), (b), and                additional educational program under
branch campus.                                      (c) of this section, an institution must                § 600.10(c) and paragraph (c)(3) of this
   (d) Exemptions from applying for                 apply in a format prescribed by the                     section, the Secretary notifies the
additional locations—(1) Exemption for              Secretary for that purpose and provide                  institution whether the program
public institutions. A public institution           all the information and documentation                   qualifies as an eligible program, and if
does not have to apply to the Secretary             requested by the Secretary to make a                    the program qualifies, the date of
for approval of a licensed and                      determination of its eligibility and                    eligibility.
accredited additional location under                certification.                                             (g) Disbursement rules related to
paragraph (c)(1) of this section if the                (f) Secretary’s response to                          applications. (1)(i) Except as provided
additional location is in the same State            applications. (1) If the Secretary                      under paragraph (g)(1)(ii) of this section
as the main campus. The institution                 receives an application under paragraph                 and 34 CFR 668.26, if an institution
must report those locations in its next             (a) or (b)(1) of this section, the Secretary            submits an application under paragraph
recertification application.                        notifies an institution—                                (b)(2)(i) of this section because its
   (2) Exemption for temporary                         (i) Whether the applicant institution                participation period is scheduled to
additional locations for non-public                 qualifies in whole or in part as an                     expire, after that expiration date the
institutions. A non-public institution              eligible institution under the                          institution may not disburse title IV,
does not have to apply to the Secretary             appropriate provisions in §§ 600.4                      HEA program funds to students
for approval of a licensed and                      through 600.7; and                                      attending that institution until the
accredited temporary additional                        (ii) The locations and educational                   institution receives the Secretary’s
location under paragraph (c)(1) of this             programs that qualify as the eligible                   notification that the institution is again
section if—                                         institution if only a portion of the                    eligible to participate in those programs.
   (i) The institution intends to use that          applicant qualifies as an eligible                         (ii) An institution described in
location for not more than 12 months                institution;                                            paragraph (g)(1)(i) of this section may
and has not yet used that location for                 (2) If the Secretary receives an                     disburse title IV, HEA program funds to
more than 12 months;                                application under paragraph (a) of this                 its students if the institution submits to
   (ii) The institution has not added               section and that institution applies also               the Secretary a materially complete
more than six locations at which it                 to participate in the title IV, HEA                     renewal application in accordance with
offered more than 50 percent of an                  programs, the Secretary notifies the                    the provisions of 34 CFR 668.13(b)(2),
educational program since it was last               institution—                                            and has not received a final decision
certified to participate in the title IV,                                                                   from the Secretary on that application.
                                                       (i) Whether the institution is certified
HEA programs;
                                                    to participate in those programs;                          (2)(i) Except as provided under
   (iii) The institution does not have any
                                                       (ii) The title IV, HEA programs in                   paragraph (g)(2)(ii) of this section and
outstanding title IV, HEA program
                                                    which it is eligible to participate;                    34 CFR 668.26, if a private nonprofit or
   (iv) The institution did not acquire                (iii) The title IV, HEA programs in                  private for-profit institution submits an
the assets of an institution that provided          which it is eligible to apply for funds;                application under paragraph (b)(2)(ii) or
educational programs at that location                  (iv) The effective date of its eligibility           (b)(2)(iii) of this section because it has
during the preceding year and                       to participate in those programs; and                   undergone or will undergo a change in
participated in the title IV, HEA                      (v) The conditions under which it                    ownership that results in a change of
programs during that year;                          may participate in those programs;                      control or a change in status, the
   (v) The institution would not be                    (3) If the Secretary receives an                     institution may not disburse title IV,
subject to a loss of eligibility under 34           application under paragraph (b)(2) of                   HEA program funds to students
CFR 668.188 if it adds that location; and           this section, the Secretary notifies the                attending that institution after the
   (vi) The Secretary does not currently            institution whether it continues to be                  change of ownership or status until the
preclude the institution from opening               certified, or whether it reestablished its              institution receives the Secretary’s
additional locations without notice to              eligibility/certification, to participate in            notification that the institution is
the Secretary.                                      the title IV, HEA programs.                             eligible to participate in those programs.
   (3) More than one year at a temporary               (4) If the Secretary receives an                        (ii) An institution described in
location. If an institution does not apply          application to have a branch campus                     paragraph (g)(2)(i) of this section may
to the Secretary for approval of a                  certified to participate in the title IV,               disburse title IV, HEA program funds to
temporary additional location under the             HEA programs as a branch campus, the                    its students if the Secretary approves the
provisions of paragraph (c)(1) of this              Secretary notifies the institution                      institution’s materially complete
section because it did not intend to                whether that branch campus is certified                 application under paragraph (i) of this
operate at that location for more than 12           to participate and the date that the                    section, and has not received a final
months, and the institution will stay at            branch campus is eligible to begin                      decision from the Secretary on that
that location for more than 12 months,              participation;                                          application.
the institution—                                       (5) If the Secretary receives an                        (3) If an institution must apply to the
   (i) Must apply to the Secretary for              application under paragraph (c)(1) of                   Secretary under paragraphs (c)(1)
approval of that additional location as             this section for an additional location,                through (c)(4) of this section, the
soon as it determines that it will stay at          the Secretary notifies the institution                  institution may not disburse title IV,
that location for more than 12 months,              whether the location is eligible or                     HEA program funds to students
but not later than 35 days before the end           ineligible to participate in the title IV,              attending the subject location, program,
of that 12-month period; and                        HEA programs, and the date of                           or branch before the institution receives
   (ii) May not disburse title IV, HEA              eligibility if the location is determined               the Secretary’s notification that the
program funds after the 12-month                    eligible; and                                           location, program, or branch is eligible

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                   Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                    49151

to participate in the title IV, HEA                     (6) The individual the institution                   change in control, the Secretary may,
programs.                                            designates under 34 CFR 668.16(b)(1) as                 under the provisions of § 600.20(h) and
  (4) If an institution applies to the               its title IV, HEA Program administrator.                (i), continue the institution’s
Secretary under paragraph (c)(5) of this                (b) Institution’s notice to the                      participation in the title IV, HEA
section to convert an eligible location to           Secretary. An institution that is owned                 programs on a provisional basis,
a branch campus, the institution may                 by a publicly traded corporation must                   provided that the institution submits
continue to disburse title IV, HEA                   notify the Secretary of any change in the               under the provisions of § 600.20(h) a
program funds to students attending                  information described in paragraph                      materially complete application—
that eligible location.                              (a)(5) of this section when it notifies its                (i) No later than 10 business days after
  (5) If an institution does not apply to            accrediting agency, but no later than 10                the change occurs; or
the Secretary to obtain the Secretary’s              days after the institution learns of the                   (ii) For an institution owned by a
approval of a new location, program,                 change.                                                 publicly traded corporation, no later
increased level of program, or branch,                  (c) Secretary’s response to notice. The              than 10 business days after the
and the location, program, or branch                 Secretary notifies an institution if any                institution knew, or should have known
does not qualify as an eligible location,            reported change affects the institution’s               of the change based upon SEC filings,
program, or branch of that institution               eligibility, and the effective date of that             that the change occurred.
under this part and 34 CFR part 668, the             change.                                                 *       *    *     *     *
institution is liable for all title IV, HEA             (d) Consequence of failure to notify.                   (b) * * *
program funds it disburses to students               An institution’s failure to inform the                     Ownership or ownership interest. (1)
enrolled at that location or branch or in            Secretary of a change described in                      Ownership or ownership interest means
that program.                                        paragraph (a) of this section within the                a legal or beneficial interest in an
(Authority: 20 U.S.C. 1001, 1002, 1088, and          time period stated in that paragraph                    institution or its corporate parent, or a
1099c)                                               may result in adverse action against the                right to share in the profits derived from
  5. Section 600.21 is revised to read as            institution.                                            the operation of an institution or its
follows:                                                (e) Definition. For purposes of this                 corporate parent.
                                                     section, the Secretary considers a                         (2) Ownership or ownership interest
§ 600.21   Updating application information.         member of a person’s family to be his                   does not include an ownership interest
   (a) Notice requirements. Except as                or her—                                                 held by—
provided in paragraph (b) of this section               (1) Parent, sibling, spouse or child;                   (i) A mutual fund that is regularly and
for the information described in                        (2) Spouse’s parent or sibling;                      publicly traded;
paragraph (a)(5) of this section, an                    (3) Child’s spouse; and                                 (ii) An institutional investor, such as
eligible institution must notify the                    (4) Sibling’s spouse.                                a pension fund or insurance company;
Secretary in a manner prescribed by the              (Authority: 20 U.S.C. 1001, 1002, 1088, and                (iii) A profit-sharing plan of the
Secretary, no later than 10 days after the           1099c)                                                  institution or its corporate parent,
change occurs, of any change in the                     6. Section 600.31 is amended by:                     provided that all full-time permanent
following:                                              A. Revising the section heading.                     employees of the institution or
   (1) Its name, the name of a branch, or               B. Revising the first sentence of                    corporate parent are included in the
the name of a previously reported                    paragraph (a)(1).                                       plan; or
location.                                               C. Redesignating paragraph (a)(2) as                    (iv) An Employee Stock Ownership
   (2) Its address, the address of a                 paragraph (a)(3) and adding a new                       Plan (ESOP).
branch, or the address of a previously               paragraph (a)(2).
reported location.                                                                                           *       *    *     *     *
                                                        D. Removing the definition of                           (c) * * *
   (3) The way it measures program                   ‘‘ownership’’ in paragraph (b) and
length (e.g., from clock hours to credit                                                                        (2) Publicly traded corporations
                                                     adding, in its place, the definition of                 required to be registered with the
hours, or from semester hours to quarter             ‘‘ownership or ownership interest’’.
hours).                                                                                                      Securities and Exchange Commission
                                                        E. Revising paragraphs (c)(2), (c)(6),               (SEC). A change in ownership and
   (4) A decrease in the level of program            and (c)(7).
offerings (e.g. the institution drops its                                                                    control occurs when—
                                                        F. Removing the word ‘‘or’’ at the end
graduate programs).                                                                                             (i) A person acquires such ownership
                                                     of paragraph (d)(6).
   (5) A person’s ability to affect                                                                          and control of the corporation so that
                                                        G. Revising paragraph (d)(7) and
substantially the actions of the                                                                             the corporation is required to file a
                                                     adding paragraph (d)(8).
institution if that person did not                                                                           Form 8K with the SEC notifying that
                                                        The additions and revisions read as
previously have this ability. The                                                                            agency of the change in control; or
Secretary considers a person to have                                                                            (ii)(A) A person who is a controlling
this ability if the person—                          § 600.31 Change in ownership resulting in               shareholder of the corporation ceases to
   (i) Holds alone or together with                  a change in control for private nonprofit               be a controlling shareholder. A
another member or members of his or                  and private for-profit institutions.                    controlling shareholder is a shareholder
her family, at least a 25 percent                       (a) * * *                                            who holds or controls through
‘‘ownership interest’’ in the institution               (1) Except as provided in paragraph                  agreement both 25 percent or more of
as defined in § 600.31(b);                           (a)(2) of this section, a private nonprofit             the total outstanding voting stock of the
   (ii) Represents or holds, either alone            or private for-profit institution that                  corporation and more shares than any
or together with other persons, under a              undergoes a change in ownership that                    other shareholder. A controlling
voting trust, power of attorney, proxy, or           results in a change in control ceases to                shareholder for this purpose does not
similar agreement at least a 25 percent              qualify as an eligible institution upon                 include a shareholder whose sole stock
‘‘ownership interest’’ in the institution,           the change in ownership and control.                    ownership is held as an institutional
as defined in § 600.31(b); or                        * * *                                                   investor, held in mutual funds, held
   (iii) Is a general partner, the chief                (2) If a private nonprofit or private for-           through a profit-sharing plan, or held in
executive officer, or chief financial                profit institution has undergone a                      an Employee Stock Ownership Plan
officer of the institution.                          change in ownership that results in a                   (ESOP).

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49152              Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

   (B) When a change of ownership                   § 668.2    General     definitions.                     requirements of paragraphs (c)(1)
occurs as a result of paragraph                     *       *     *      *    *                             through (c)(3) of this section.
(c)(2)(ii)(A) of this section, the                     (b) * * *                                               (c) Written arrangements between an
institution may submit its most recent                 Academic year: * * *                                 eligible institution and an ineligible
quarterly financial statement as filed                 (2) * * *                                            institution or organization. If an eligible
with the SEC, along with copies of all                 (ii) If an institution provides an                   institution enters into a written
other SEC filings made after the close of           educational program using a semester,                   arrangement with an institution or
the fiscal year for which a compliance              trimester, or quarter system, or in clock               organization that is not an eligible
audit has been submitted to the                     hours, the Secretary considers that the                 institution under which the ineligible
Department of Education, instead of the             institution provides one week of                        institution or organization provides part
‘‘same day’’ balance sheet.                         instructional time in that program                      of the educational program of students
   (C) If a publicly traded institution is          during any week the institution                         enrolled in the eligible institution, the
provisionally certified due to a change             provides for that program—                              Secretary considers that educational
in ownership under paragraph (c)(2)(ii)                (A) At least one day of regularly                    program to be an eligible program if—
of this section, and that institution               scheduled instruction or examinations;                     (1) The ineligible institution or
experiences another change of                       or                                                      organization has not had its eligibility to
ownership under paragraph (c)(2)(ii) of                                                                     participate in the title IV, HEA programs
                                                       (B) After the last scheduled day of
this section, an approval of the                                                                            terminated by the Secretary, or has not
                                                    classes for a term, at least one day of
subsequent change in ownership does                                                                         voluntarily withdrawn from
                                                    study for final examinations.
not extend the original expiration date                                                                     participation in those programs under a
                                                       (iii) If an institution provides an
for the provisional certification                                                                           termination, show-cause, suspension, or
                                                    educational program using credit hours
provided that any current controlling                                                                       similar type proceeding initiated by the
                                                    but not a semester, trimester, or quarter
shareholder was listed on the change of                                                                     institution’s State licensing agency,
                                                    system, the Secretary considers that the
ownership application for which the                                                                         accrediting agency, guarantor, or by the
                                                    institution provides one week of
original provisional approval was                                                                           Secretary;
                                                    instructional time in that program                         (2) The educational program
granted.                                            during any week the institution                         otherwise satisfies the requirements of
*       *    *     *     *                          provides for that program—                              § 668.8; and
   (6) Nonprofit institution. A nonprofit              (A) At least 12 hours of regularly                      (3)(i) The ineligible institution or
institution changes ownership and                   scheduled instruction or examinations;                  organization provides not more than 25
control when a change takes place that              or                                                      percent of the educational program; or
is described in paragraph (d) of this                  (B) After the last scheduled day of                     (ii)(A) The ineligible institution or
section.                                            classes for a payment period, at least 12               organization provides more than 25
   (7) Public institution. The Secretary            hours of study for final examinations.                  percent but not more than 50 percent of
does not consider that a public                        (iv) Instructional time does not                     the educational program;
institution undergoes a change in                   include any vacation periods,                              (B) The eligible institution and the
ownership that results in a change of               homework, or periods of orientation or                  ineligible institution or organization are
control if there is a change in                     counseling.                                             not owned or controlled by the same
governance and the institution after the            *       *     *      *    *                             individual, partnership, or corporation;
change remains a public institution,                   9. A new § 668.5 is added to read as                 and
provided:                                           follows:                                                   (C) The eligible institution’s
   (i) The new governing authority is in                                                                    accrediting agency, or if the institution
the same State as approved in the                   § 668.5 Written arrangements to provide                 is a public postsecondary vocational
institution’s program participation                 educational programs.                                   educational institution, the State agency
agreement; and                                         (a) Written arrangements between                     listed in the Federal Register in
   (ii) The new governing authority has             eligible institutions. If an eligible                   accordance with 34 CFR part 603, has
acknowledged the public institution’s               institution enters into a written                       specifically determined that the
continued responsibilities under its                arrangement with another eligible                       institution’s arrangement meets the
program participation agreement.                    institution, or with a consortium of                    agency’s standards for the contracting
   (d) * * *                                        eligible institutions, under which the                  out of educational services.
   (7) A change in status from a for-profit         other eligible institution or consortium                   (d) Administration of title IV, HEA
to a nonprofit institution; or                      provides all or part of the educational                 programs. (1) If an institution enters
   (8) A change in status from a                    program of students enrolled in the                     into a written arrangement as described
nonprofit to a for-profit institution.              former institution, the Secretary                       in paragraph (a), (b), or (c) of this
*       *    *     *     *                          considers that educational program to                   section, except as provided in paragraph
                                                    be an eligible program if it otherwise                  (d)(2) of this section, the institution at
PART 668—STUDENT ASSISTANCE                         satisfies the requirements of § 668.8.                  which the student is enrolled as a
GENERAL PROVISIONS                                     (b) Written arrangements for study                   regular student must determine the
                                                    abroad. Under a study abroad program,                   student’s eligibility for title IV, HEA
   7. The authority citation for part 668
                                                    if an eligible institution enters into a                program funds, and must calculate and
is revised to read as follows:
                                                    written arrangement with a foreign                      disburse those funds to that student.
  Authority: 20 U.S.C. 1001, 1002, 1003,            institution, or an organization acting on                  (2) In the case of a written
1085, 1091, 1091b, 1092, 1094, 1099c, and           behalf of a foreign institution, under                  arrangement between eligible
1099c–1, unless otherwise noted.                    which the foreign institution provides                  institutions, the institutions may agree
  8. Section 668.2(b) is amended by                 part of the educational program of                      in writing to have any eligible
revising paragraphs (2)(ii) and (iii) and           students enrolled in the eligible                       institution in the written arrangement
adding paragraph (2)(iv) to the                     institution, the Secretary considers that               make those calculations and
definition of the term ‘‘academic year’’            educational program to be an eligible                   disbursements, and the Secretary does
to read as follows:                                 program if it otherwise satisfies the                   not consider that institution to be a

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                     Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules                                                  49153

third party servicer for that                        private nonprofit institution or private                student’s scheduled Federal Pell Grant
arrangement.                                         for-profit institution’’.                               and the amount of Federal Pell Grant
   (3) The institution that calculates and              D. In newly redesignated paragraph                   funds disbursed to the student;
disburses a student’s title IV, HEA                  (i)(2)(iii) of § 600.20, removing ‘‘(f)(3)’’               (4) The outstanding principal balance
program assistance under paragraph                   and adding, in its place, ‘‘(h)(3)’’.                   of loans made to the student under each
(d)(1) or (d)(2) of this section must—                  E. Removing the remainder of                         of the title IV, HEA loan programs; and
   (i) Take into account all the courses             § 668.12.                                                  (5) For the academic year for which
in which the student enrolls at each                    12. Section 668.13 is amended by                     title IV, HEA aid is requested, the
institution that apply to the student’s              revising paragraph (a) to read as follows:              amount of, and period of enrollment for,
degree or certificate when determining               § 668.13    Certification procedures.                   loans made to the student under each of
the student’s enrollment status and cost                                                                     the title IV, HEA loan programs.
                                                        (a) Requirements for certification. (1)
of attendance; and                                                                                              (b)(1) If a student transfers from one
   (ii) Maintain all records regarding the           The Secretary certifies an institution to
                                                                                                             institution to another institution during
student’s eligibility for and receipt of             participate in the title IV, HEA programs
                                                                                                             the same award year, the institution to
title IV, HEA program funds.                         if the institution qualifies as an eligible
                                                                                                             which the student transfers must
                                                     institution under 34 CFR part 600,
(Authority: 20 U.S.C. 1094)                                                                                  request from the Secretary, through
                                                     meets the standards of this subpart and
  10. Section 668.8 is amended by                                                                            NSLDS, updated information about that
                                                     subpart L of 34 CFR part 668, and
revising paragraphs (b)(3) and (b)(4) to                                                                     student so it can make the
                                                     satisfies the requirements of paragraph
read as follows:                                                                                             determinations required under
                                                     (a)(2) of this section.
                                                        (2) Except as provided in paragraph                  paragraph (a) of this section; and
§ 668.8    Eligible program.                                                                                    (2) The institution may not make a
                                                     (a)(3) of this section, if an institution
*       *     *     *     *                          wishes to participate for the first time in             disbursement to that student for seven
   (b) * * *                                         the title IV, HEA programs or has                       days following its request unless it
   (3)(i) If an institution provides an                                                                      receives the information from NSLDS in
                                                     undergone a change in ownership that
educational program using a semester,                                                                        response to its request or obtains that
                                                     results in a change in control as
trimester, or quarter system, or in clock                                                                    information directly by accessing
                                                     described in 34 CFR 600.31, the
hours, the Secretary considers that the              institution must require the following                  NSLDS, and the information it receives
institution provides one week of                     individuals to complete title IV, HEA                   allows it to make that disbursement.
instructional time in that program                   program training provided or approved                   (Authority: 20 U.S.C. 1091 and 1094)
during any week the institution                      by the Secretary no later than 12 months                  14. Section 668.165(a)(3)(ii) is revised
provides—                                            after the institution executes its program              to read as follows:
   (A) At least one day of regularly
                                                     participation agreement under § 668.14:
scheduled instruction or examinations;                  (i) The individual the institution                   § 668.165    Notices and authorizations.
or                                                   designates under § 668.16(b)(1) as its                     (a) * * *
   (B) After the last scheduled day of               title IV, HEA program administrator.                       (3) * * *
classes for a term, at least one day of                 (ii) The institution’s chief                            (ii) Either in writing or electronically.
study for final examinations.                        administrator or a high level                           If the institution sends the notice
   (ii) If an institution provides an                institutional official the chief                        electronically, it must confirm receipt
educational program using credit hours               administrator designates. (3)(i) An                     by the student or parent of the
but not a semester, trimester, or quarter            institution may request the Secretary to                electronic notification and must
system, the Secretary considers that the             waive the training requirement for any                  maintain documentation of that
institution provides one week of                     individual described in paragraph (a)(2)                confirmation.
instructional time in that program                   of this section.                                        *       *    *     *     *
during any week the institution                         (ii) When the Secretary receives a
provides—                                            waiver request under paragraph (a)(3)(i)                PART 675—FEDERAL WORK-STUDY
   (A) At least 12 hours of regularly                of this section, the Secretary may grant                PROGRAMS
scheduled instruction or examinations;               or deny the waiver, require another
or                                                   institutional official to take the training,              15. The authority citation for part 675
   (B) After the last scheduled day of               or require alternative training.                        continues to read as follows:
classes for a payment period, at least 12                                                                      Authority: 42 U.S.C. 2751–2756b, unless
                                                     *       *    *     *     *
hours of study for final examinations.                  13. Section 668.19 is revised to read                otherwise noted.
   (4) Instructional time does not include           as follows:                                               16. Section 675.19 is amended by
any vacation periods, homework, or                                                                           revising paragraphs (b)(1) and (b)(2) to
periods of orientation or counseling.                § 668.19    Financial aid history.                      read as follows:
*       *     *     *     *                             (a) Before an institution may disburse
                                                                                                             § 675.19    Fiscal procedures and records.
                                                     title IV, HEA program funds to a student
§ 668.12    [Amended]                                who previously attended another                         *      *    *     *     *
   11. Section 668.12 is amended by:                 eligible institution, the institution must                (b) * * *
   A. Redesignating paragraphs (f) and               use information it obtains from the                       (1) An institution must follow the
(g) as paragraphs (h) and (i) of § 600.20.           Secretary, through the National Student                 record retention and examination
   B. In newly redesignated paragraph                Loan Data System (NSLDS) or its                         provisions in this part and in 34 CFR
(h)(1) of § 600.20, removing ‘‘an                    successor system, to determine—                         668.24.
institution’’ and adding, in its place, ‘‘a             (1) Whether the student is in default                  (2) The institution must also establish
private nonprofit institution or private             on any title IV, HEA program loan;                      and maintain program and fiscal records
for-profit institution’’ the first time                 (2) Whether the student owes an                      that—
‘‘institution’’ appears.                             overpayment on any title IV, HEA                          (i) Include a certification by the
   C. In newly redesignated paragraph                program grant or Federal Perkins Loan;                  student’s supervisor, an official of the
(h)(2) of § 600.20, removing ‘‘an                       (3) For the award year for which a                   institution or off-campus agency, that
institution’’ and adding, in its place, ‘‘a          Federal Pell Grant is requested, the                    each student has worked and earned the

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49154              Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / Proposed Rules

amount being paid. The certification                 school or any request made by the                       substantially equal in length if no term
must include or be supported by, for                 school modifying that schedule.                         in the loan period is more than two
students paid on an hourly basis, a time             *     *    *     *    *                                 weeks shorter than any other term in
record showing the hours each student                  (c) * * *                                             that loan period.
worked in clock time sequence, or the                  (3) Disbursement must be made on a                    *     *    *      *    *
total hours worked per day;                          payment period basis in accordance
  (ii) Include a payroll voucher                     with the disbursement schedule                          PART 685—FEDERAL WILLIAM D.
containing sufficient information to                 provided by the school or any request                   FORD FEDERAL DIRECT LOAN
support all payroll disbursements;                   made by the school modifying that                       PROGRAM
  (iii) Include a noncash contribution               schedule.
record to document any payment of the                *     *    *     *    *                                    22. The authority citation for part 685
institution’s share of the student’s                   20. Section 682.604 is amended by:                    is revised to read as follows:
earnings in the form of services and                   A. Revising paragraph (b)(2)(i).                        Authority: 20 U.S.C. 1087a through 1087j,
equipment (see § 675.27(a)); and                       B. Revising paragraph (c)(6).                         unless otherwise noted.
  (iv) Are reconciled at least monthly.                C. Revising paragraph (c)(7).                           23. Section 685.301 is amended by
                                                       The revisions read as follows:                        revising paragraph (b)(5) to read as
*      *     *    *     *
                                                     § 682.604 Processing the borrower’s loan                follows:
PART 682—FEDERAL FAMILY                              proceeds and counseling borrowers.
                                                                                                             § 685.301 Origination of a loan by a Direct
EDUCATION LOAN PROGRAM                               *      *      *     *      *                            Loan Program school.
                                                       (b) * * *                                             *      *     *     *    *
  17. The authority citation for part 682              (2)(i) Except in the case of a late
continues to read as follows:                        disbursement under paragraph (e) of                       (b) * * *
  Authority: 20 U.S.C. 1071 to 1087–2,               this section or as provided in paragraph                  (5)(i) If a school measures academic
unless otherwise noted.                              (b)(2)(iii) or (iv) of this section, a school           progress in an educational program in
  18. Section 682.201 is amended by                  may release the proceeds of any                         credit hours and either does not use
revising paragraph (b)(1)(vii)(F) to read            disbursement of a loan only to a student                terms or does not use terms that are
as follows:                                          whom the school determines                              substantially equal in length for a loan
                                                     continuously has maintained eligibility                 period, the school may not make a
§ 682.201   Eligible borrowers.                                                                              second disbursement until the later of—
                                                     in accordance with the provisions of
*      *       *      *     *                        § 682.201 for the loan period certified by                (A) The calendar midpoint between
   (b) * * *                                         the school on the student’s loan                        the first and last scheduled days of class
   (1) * * *                                         application.                                            of the loan period; or
   (vii) * * *                                       *      *      *     *      *                              (B) The date, as determined by the
   (F) The lender must retain a record of              (c) * * *                                             school, that the student has completed
its basis for determining that                         (6) Unless the provision of                           half of the academic coursework in the
extenuating circumstances existed. This              § 682.207(d) or the provisions of                       loan period.
record may include, but is not limited               paragraph (c)(7) of this section apply—                   (ii) For purposes of this paragraph,
to, an updated credit report, a statement              (i) If a loan period is more than one                 terms in a loan period are substantially
from the creditor that the borrower has              payment period, the school must deliver                 equal in length if no term in the loan
made satisfactory arrangements to repay              loan proceeds at least once in each                     period is more than two weeks longer
the debt, or a satisfactory statement from           payment period; and                                     than any other term in that loan period.
the borrower explaining any                            (ii) If a loan period is one payment
                                                                                                             *      *     *     *    *
delinquencies with outstanding                       period, the school must make at least
balances of less than $500.                          two deliveries of loan proceeds during                  PART 690—FEDERAL PELL GRANT
*      *       *      *     *                        that payment period. The school may                     PROGRAM
                                                     not make the second delivery until the
   19. Section 682.207 is amended by:
                                                     calendar midpoint between the first and                   24. The authority citation for part 690
   A. Revising paragraph (b)(1)(i)(B).               last scheduled days of class of the loan                continues to read as follows:
   B. Revising paragraph (c)(3).                     period.
   C. Removing ‘‘(1)’’ after the paragraph                                                                     Authority: 20 U.S.C. 1070a, unless
                                                       (7)(i) If a school measures academic                  otherwise noted.
designation ‘‘(f)’’; removing paragraph              progress in an educational program in
(f)(2); and redesignating paragraphs                 credit hours and either does not use                    § 690.9    [Removed]
(f)(1)(i), (f)(1)(ii), and (f)(1)(iii) as            terms or does not use terms that are                        25. Section 690.9 is removed.
paragraphs (f)(1), (f)(2), and (f)(3),               substantially equal in length for a loan
respectively.                                        period, the school may not deliver a                    § 690.75   [Amended]
   The revisions read as follows:                    second disbursement until the later of—                    26. Section 690.75 is amended by
                                                       (A) The calendar midpoint between                     removing the words ‘‘financial aid
§ 682.207   Due diligence in disbursing a
                                                     the first and last scheduled days of class              transcript’’ in paragraph (a); and by
                                                     of the loan period; or                                  removing the reference to ‘‘34 CFR
*     *     *   *     *                                (B) The date, as determined by the
  (b)(1) * * *                                                                                               668.7’’ in paragraph (a)(1) and adding,
                                                     school, that the student has completed                  in its place, ‘‘34 CFR part 668, subpart
  (i) * * *                                          half of the academic coursework in the                  C’’.
  (B) Must disburse a Stafford or PLUS               loan period.
loan in accordance with the                            (ii) For purposes of paragraph(c)(7) of               [FR Doc. 00–20207 Filed 8–9–00; 8:45 am]
disbursement schedule provided by the                this section, terms in a loan period are                BILLING CODE 4000–01–U

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